patrnership digests 5-7

8/10/2019 Patrnership Digests 5-7

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1. HEIRS OF TAN ENG KEE VS BENGUET LUMBER COMPANY, TANENG LAY G.R. No. 126881 October 3, 2000

Facts of t he Case: Following the death of Tan Eng Kee , Matilde Abubo, the common-law spouse

of the decedent, joined by their children collectively filed suit against thedecedent's brother TAN ENG LAY

The complaint was for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay.

The petitioners also impleaded private respondent herein BENGUET LUMBERCOMPANY, as represented by Tan Eng Lay.

The complaint alleged that: After the second World War, Tan Eng Kee and Tan Eng Lay , pooling their

resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies.

They named their enterprise "Benguet Lumber" which they jointly manageduntil Tan Eng Kee's death.

That the business prospered due to the hard work and thrift of the alleged partners.

However, they claimed that in 1981, Tan Eng Lay and his children caused theconversion of the partnership "Benguet Lumber" into a corporation called"Benguet Lumber Company."

o That the incorporation was purportedly a ruse to deprive Tan Eng Keeand his heirs of their rightful participation in the profits of thebusiness.

Petitioners prayed for accounting of the partnership assets, and the dissolution,winding up and liquidation thereof, and the equal division of the net assets ofBenguet Lumber.

Regional Trial Court:1. Declared that Benguet Lumber is a joint venture which is akin to a particular

partnership;2. That the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or

partners in a business venture and/or particular partnership called BenguetLumber and as such should share in the profits and/or losses of the businessventure or particular partnership;

3. That the assets of Benguet Lumber are the same assets turned over to BenguetLumber Co. Inc. and as such the heirs or legal representatives of the deceasedTan Eng Kee have a legal right to share in said assets ;

4. That all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular partnership have descended to the plaintiffs who are hislegal heirs.

5. Ordering the defendant Tan Eng Lay and/or the President and/or General

Manager of Benguet Lumber Company Inc. to render an accounting of all theassets so the plaintiffs know their proper share in the business;

Court of Appeals :Rendered the assailed decision reversing the judgment of the trialcourt.

MAIN ISSUE : WON Tan Eng Kee and Tan Eng Lay (the brothers) were partners inBenguet Lumber.HELD : No partnership; hence there is no dissolution, winding up or liquidation tospeak of.

RATION DECIDENDI :A CONTRACT OF PARTNERSHIP IS DEFINED BY LAW AS ONE WHERE TWO OR MOREPERSONS BIND THEMSELVES TO CONTRIBUTE MONEY , PROPERTY , OR INDUSTRY TO ACOMMON FUND , WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVESTWO OR MORE PERSONS MAY ALSO FORM A PARTNERSHIP FOR THE EXERCISE OF APROFESSION :

In order to constitute a partnership, it must be established that:1. Two or more persons bound themselves to contribute money,

property, or industry to a common fund, and2. They intend to divide the profits among themselves.

The agreement need not be formally reduced into writing, since statute

allows the oral constitution of a partnership, save in two instances:1. When immovable property or real rights are contributed, and (2. When the partnership has a capital of three thousand pesos or

more. In both cases, a public instrument is required.

An inventory to be signed by the parties and attached to the publicinstrument is also indispensable to the validity of the partnership wheneverimmovable property is contributed to the partnership.

THE TRIAL COURT DETERMINED THAT TAN E NG K EE AND TAN E NG LAY HADENTERED INTO A JOINT VENTURE , WHICH IT SAID IS AKIN TO A PARTICULARPARTNERSHIP :

A particular partnership is distinguished from a joint adventure:1. A joint adventure (an American concept similar to our joint accounts )is a sort of informal partnership, with no firm name and no legal

personality.2. In a joint account, the participating merchants can transact business

under their own name, and can be individually liable therefor.3. Usually, but not necessarily a joint adventure is limited to a SINGLE

TRANSACTION, although the business of pursuing to a successfultermination may continue for a number of years;

4. A partnership generally relates to a continuing business of varioustransactions of a certain kind.

A JOINT VENTURE "PRESUPPOSES GENERALLY A PARITY OF STANDING BETWEEN THEJOINT CO -VENTURES OR PARTNERS , IN WHICH EACH PARTY HAS AN EQUAL


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PROPRIETARY INTEREST IN THE CAPITAL OR PROPERTY CONTRIBUTED , AND WHEREEACH PARTY EXERCISES EQUAL RIGHTS IN THE CONDUCT OF THE BUSINESS : Joint venture may be likened 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 organizationformed for some temporary purpose.

It is hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a

mutual right of control. The main distinction cited by most opinions in common law jurisdiction is thatthe partnership contemplates a general business with some degree of continuity,while the joint venture is formed for the execution of a single transaction, and isthus of a temporary nature.

This observation is not entirely accurate in this jurisdiction, since under the CivilCode , a partnership may be particular or universal, and a particular

partnership may have for its object a specific undertaking. (Art. 1783, CivilCode).

It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus 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.

THE BEST EVIDENCE WOULD HAVE BEEN THE CONTRACT OF PARTNERSHIP ITSELF , ORTHE ARTICLES OF PARTNERSHIP BUT THERE IS NONE : The alleged partnership, though, was never formally organized. The evidence presented by petitioners falls short of the quantum of proof

required to establish a partnership. It should be noted that it is not with the number of witnesses wherein

preponderance lies; the quality of their testimonies is to be considered.

A CO -OWNERSHIP OR CO -POSSESSION (SPECIFICALLY HERE , OF THE G.I. SHEETS ) IS NOT AN INDICIUM OF THE EXISTENCE OF A PARTNERSHIP : None of petitioners' witnesses could suitably account for the beginnings of

Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceasedwife was related to M atilde Abubo (Widow).

He stated that when he met Tan En g Kee after the liberation, the latter asked theformer to accompany him to get 80 pieces of G.I. sheets supposedly owned by

both brothers. Tan Eng Lay, however, denied knowledge of this meeting or of the conversation

between Peralta and his brother. Tan Eng Lay consistently testified that he had hi s business and hi s broth er had

hi s , that it was onl y later on that hi s said br other, Tan E ng Kee, came to workfor him.

Be that as it may, co-ownership or co-possession (specifically here, of the G.I.sheets) is not an indicium of the existence of a partnership.

T HE ESSENCE OF A PARTNERSHIP IS THAT THE PARTNERS SHARE IN THE PROFITSAND LOSSES : Each has the right to demand an accounting as long as the partnership

exists.Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for anaccounting.

We have allowed a scenario wherein "i] excellent relations exist among the

partners at the start of the business and all the partners are more interested inseeing the firm grow rather than get immediate returns, a deferment of sharing inthe profits is perfectly plausible."

o But in the situation in the case at bar, the deferment, if any, had goneon too long to be plausible .

o A person is presumed to take ordinary care of his concerns.

W HERE CIRCUMSTANCES TAKEN SINGLY MAY BE INADEQUATE TO PROVE THEINTENT TO FORM A PARTNERSHIP , NEVERTHELESS , THE COLLECTIVE EFFECT OFTHESE CIRCUMSTANCES MAY BE SUCH AS TO SUPPORT A FINDING OF THEEXISTENCE OF THE PARTIES ' INTENT : Private respondent's arguments to be well-taken; even the aforesaid

circumstances when taken together are not persuasive indicia of a partnership. 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 that as a member of the family, he occupied aniche above the rank-and-file employees.

He would have enjoyed liberties otherwise unavailable were he not kin, such ashis residence in the Benguet Lumber Company compound.

He would have moral, if not actual, superiority over his fellow employees,thereby entitling him to exercise powers of supervision.

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 BenguetLumber Company.

2. SY VS HON. COURT OF APPEALS JAIME SAHOT G.R. No. 142293, February 27, 2003

Facts of the Case: 1958 : Private respondent Jaim e Sahot started working as a truck helper for

petitioners family -owned trucking business named Vicente Sy Trucking. 1965 : He became a truck driver of the same family business, 1994: Business Renamed 6Bs Trucking Corporation in, and thereafter known

as SBT Trucking Corporation since.o Throughout all these changes in names and for 36 years , private

respondent continuously served the trucking business of petitioners.


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April 1994 :Sahot was already 59 years old. He had been incurring absences as

he was suffering from various ailments. Particularly causing him pain was hisleft thigh, which greatly affected the performance of his task as a driver. Heinquired about his medical and retirement benefits with the Social SecuritySystem (SSS) on April 25, 1994, but discovered that his premium payments hadnot been remitted by his employer.

May 1994 : Sahot had filed a week-long leave. May 27 th : He was medically examined and treated for EOR, presleyopia,

hypertensive retinopathy HPM, UTI, Osteoarthritis On said grounds, Belen Paulino of the SBT Trucking Service management toldhim to file a formal request for extension of his leave.

At the end of his week-long absence, Sahot applied for extension of his leave forthe whole month of June, 1994 .

o It was at this time when petitioners allegedly threatened to terminate hisemployment should he refuse to go back to work.

Sahots dilemma .o Facing dismissal if he refused to work;o But he could not retire on pension because petitioners never paid his

correct SSS premiums. The fact remained he could no longer work as his left thigh

hurt abominably. Petitioners ended his dilemma;o They carried out their threat and dismissed him from work, effective

June 30, 1994. He ended up sick, jobless and penniless.

September 13, 1994 : Sahot filed with the NLRC NCR Arbitration Branch, acomplaint for illegal dismissal;

Petitionerss Defenses: Admitted they had a trucking business in the 1950s butdenied employing helpers and drivers. They contend that private respondent was notillegally dismissed as a driver because he was in fact petitioners industrial partner.

It was not until the year 1994 , when SBT Trucking Corporation was

established, and only then did respondent Sahot become an employee of thecompany, with a monthly salary that reached P4,160.00 at the time of hisseparation.

T HE NLRC NCR ARBITRATION BRANCH : No illegal dismissal in Sahots case: Petitioners and private respondent were industrial partners before January 1994 .

National Labor Relations Commission : Declared that private respondent was anemployee, not an industrial partner, since the start.Court of Appeals : Held that private respondent was indeed an employee of

petitioners since 1958.ISSUE : WON an employer-employee relationship existed between petitioners and

respondent SahotHELD : JAIME SAHOT was an employee, not an industrial partner

RATIO DECIDENDI:A COMPUTATION OF TH E AGE OF COMPLAINANT SHOWS THAT HE WAS ONLY TWENTY - THREE (23) YEARS WHEN HE STARTED WORKING WITH RESPONDENT AS TRUCKHELPER :

How can we (SC) entertain in our mind that a twenty-three (23) year oldman, working as a truck helper, be considered an industrial partner.

Hence we (SC) rule that complainant was only an employee, not a partnerof respondents from the time complainant started working for respondent.

o There was no written agreement, no proof that he received a sharein petitioners profits, nor was there anything to show he had any

participation with respect to the running of the business.T HE ELEMENTS TO DETERMINE THE EXISTENCE OF AN EMPLOYMENTRELATIONSHIP ARE : (a) The selection and engagement of the employee;(b) The payment of wages;(c) The power of dismissal; and(d) The employers power to control the employees conduct.

The most important element is the employers control of the employeesconduct, not only as to the result of the work to be done, but also as to themeans and methods to accomplish it.

R ECORDS OF THE CASE SHOW THAT PRIVATE RESPONDENT ACTUALLY ENGAGED INWORK AS AN EMPLOYEE : During the entire course of his employment he did not have the freedom to

determine where he would go, what he would do, and how he would do it. He merely followed instructions of petitioners and was content to do so, as

long as he was paid his wages.o Hence, Sahot had worked as a truck helper and driver of petitioners

not for his own pleasure but under the latters control. ARTICLE 1767 OF THE CIVIL CODE STATES THAT IN A CONTRACT OF PARTNERSHIPTWO OR MORE PERSONS BIND THEMSELVES TO CONTRIBUTE MONEY , PROPERTY ORINDUSTRY TO A COMMON FUND , WITH THE INTENTION OF DIVIDING THE PROFITSAMONG THEMSELVES :

Not one of these circumstances is present in this case. No written agreement exists to prove the partnership between the parties. Private respondent did not contribute money, property or industry for the

purpose of engaging in the supposed business. There is no proof that he was receiving a share in the profits as a matter of

course, during the period when the trucking business was under operation. Neither is there any proof that he had actively participated in the management,

administration and adoption of policies of the business.o Thus, Jaime Sahot was not an industrial partner but an employee of

petitioners from 1958 to 1994.3. TORRES VS CA and MANUEL TORRES G.R. No. 134559 December 9, 1999

Facts of the Case :


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Sisters Antonia Torres and Emeteria Baring (Petitioners) entered into a " jointventure agr eement" with Respondent Manuel Torres for the development of a

parcel of land into a subdivision.o 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 thedevelopment of the subdivision.

All three of them also agreed to share the proceeds from the sale of thesubdivided lots.

o The project did not push through, and the land was subsequentlyforeclosed by the bank.

Petitioners Contentio ns : The project failed because of "respondent's lack of funds or means and skills." That respondent used the loan not for the development of the subdivision, but in

furtherance of his own companyRespondents Allegation: That he used the loan to implement the Agreement for a total expense of

P85,000 Effected the survey and the subdivision of the lots.

Secured City Council's approval of the subdivision project Caused the construction of roads, curbs and gutters. Entered into a contract with an engineering firm for the building of sixty low-

cost housing units and actually even set up a model house on one of thesubdivision lots.

The subdivision project failed because petitioners and their relatives hadseparately caused the annotations of adverse claims on the title to the land,which eventually scared away prospective buyers.

o That petitioners refused to cause the clearing of the claims, therebyforcing him to give up on the project.

Petitioners filed the civil case which Civil case dismissed by the trial court.

Court of Appeals: Held that petitioners and respondent had formed a partnership forthe development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion

as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as well as profits in

a joint venture should be distributed equally, 7 the CA invoked Article 1797 ofthe Civil Code which provides:

Art. 1797 The losses and profits shall be distributed inconformity with the agreement. If only the share of each partner inthe profits has been agreed upon, the share of each in the lossesshall be in the same proportion.

ISSUE: WON partnership agreement exists between the parties

HELD: The Contract clearly manifested the intention of the parties to form a partnershipRATIO DECIDENDI:

Content of the Joint Venture Agreement: This AGREEMENT by and between MR. MANUEL R. TORRES, the FIRST

PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIABARING, . . . the SECOND PARTY:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY,this property 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 upon the execution of this contract for the

property entrusted by the SECOND PARTY, for sub-division projects anddevelopment purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate andagree as follows:

That the SECOND PARTY signed an absolute Deed of Sale in the amount ofP25,513.50 for 1,700 square meters at P1.50 in favor of the FIRST PARTY, butthe SECOND PARTY did not actually receive the payment.

That the SECOND PARTY, had received from the FIRST PARTY, thenecessary amount of P20,000.00 pesos for their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY forthe property mentioned to be sub-divided and to be deducted from the sales.

That the FIRST PARTY, will not collect from the SECOND PARTY, theinterest and the principal amount involving the amount of P20,000.00 Pesosuntil the sub-division project is terminated and ready for sale to any interested

parties, and the amount of P20,000.00 pesos will be deducted accordingly. That all general expenses and all costs 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.

That the sales of the sub-divided lots will be divided into 60% for the SECOND

PARTY and 40% for the FIRST PARTY , and additional profits or whateverincome deriving from the sales will be divided equally according to the

percentage agreed upon by both parties. 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.

That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of P20,000.00 borrowed by theSECOND PARTY, will be paid in full to the FIRST PARTY, including allnecessary improvements spent by the FIRST PARTY, and-the FIRST PARTYwill be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties whoexecuted same freely and voluntarily for the uses and purposes therein stated.


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A READING OF THE TERMS EMBODIED IN THE AGREEMENT INDUBITABLY SHOWSTHE EXISTENCE OF A PARTNERSHIP PURSUANT TO ARTICLE 1767 OF THE C IVILC ODE : Art. 1767. 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. 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 thestipulated percentage.

Clearly, the contract manifested the intention of the parties to form a partnership.

Respondent's actions clearly belie petitioners' contention that he made nocontribution to the partnership.

o Under Article 1767 of the Civil Code, a partner may contribute not onlymoney or property, but also industry.

PETITIONERS ARGUE THAT THE JOINT VENTURE AGREEMENT IS VOID UNDERARTICLE 1773 OF THE CIVIL CODE : Art. 1773. A contract of partnership is void,

whenever immovable property is contributed thereto, if an inventory of said propertyis not made, signed by the parties, and attached to the public instrument. Petitioner 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.

ARTICLE 1773 WAS INTENDED PRIMARILY TO PROTECT THIRD PERSONS : The execution of a public instrument would be useless if there is no

inventory of the property contributed, because without its designation anddescription, 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 ismade." The case at bar does not involve third parties who may be prejudiced.

4. AFISCO INSURANCE CORPORATION VS CA, CTA and CIR G.R. No. 112675 January 25, 1999

Facts of t he Case: Pursuant to "reinsurance treaties," a number of local insurance firms formed

themselves into a insurance pool" or "clearing house" in order to facilitate thehandling of business contracted with a non-resident foreign insurance company.

The petitioners are 41 non-life insurance corporations, organized and existingunder the laws of the Philippines.

Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosionand Contractors' All Risk insurance policies, the petitioners on August 1, 1965

entered into a Quota Share Reinsurance Treaty and a Surplus ReinsuranceTreaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter calledMunich), a non-resident foreign insurance corporation.

The reinsurance treaties required petitioners to form a pool. o Accordingly, a pool composed of the petitioners was formed.

On April 14, 1976, the pool of machinery insurers submitted a financialstatement and filed an "Information Return of Organization Exempt fromIncome Tax" for the year ending in 1975, on the basis of which it was assessed

by the Commissioner of Internal Revenue deficiency corporate taxes in theamount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39and P89,438.68 on dividends paid to Munich and to the petitioners, respectively.

Commissioner of Internal Revenue: Denied the protest and ordered the petitioners,assessed as "Pool of Machinery Insurers," to pay deficiency income tax, interest, andwithholding tax.Court of Appeals: Ruled that the pool of machinery insurers was a partnershiptaxable as a corporation, and that the latter's collection of premiums on behalf of itsmembers, the ceding companies, was taxable income.

On Appeal, PETITIONERS CONTENTION: The Court of Appeals erred in finding that the pool of clearing house was an

informal partnership, which was taxable as a corporation under the NIRC. That the reinsurance policies were written by them "individually andseparately," and that their liability was limited to the extent of their allocatedshare in the original risk thus reinsured; hence, the pool did not act or earnincome as a reinsurer.

Its role was limited to its principal function of "allocating and distributing therisks arising from the original insurance among the signatories to the treaty orthe members of the pool based on their ability to absorb the risks ceded; as wellas the performance of incidental functions, such as records, maintenance,collection and custody of funds, etc."

P ETITIONERS BELIE THE EXISTENCE OF A PARTNERSHIP : That they were reinsurers, and did not share the same risk or solidary liability,

There was no common fund; The executive board of the pool did not exercise control and management of itsfunds, unlike the board of directors of a corporation;

The pool or clearing house "was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself."

ISSUE : WON the Clearing House, acting as a mere agent and performing strictlyadministrative functions, and which did not insure or assume any risk in its ownname, was a partnership or association subject to tax as a corporation;

HELD: The petition is denied. The pool is taxable as a corporation, and that thegovernment's right to assess and collect the taxes had not prescribed.


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partnership, not its officers or agents, which should be impleaded in anylitigation involving property registered in its name. A violation of this rulewill result in the dismissal of the complaint.

6. THIRD DIVISIONG.R. NOS. 166299-300 Litonjua jr. vs. Litonjua sr

D E C I S I O N

GARCIA, J.:

Petitioner Aurelio and herein respondent Eduardo are brothers.

Aurelio filed a suit against his brother Eduardo and herein respondentRobert T. Yang (Yang) and several corporations for specific performanceand accounting.

Aurelio alleged that, since June 1973, he and Eduardo are into a jointventure/partnership arrangement in the Odeon Theater business, which hadexpanded thru investment in several corporations.

Aurelio showed as evidence a letter sent (ANNEX A-1 sa case) to him byEduardo that the latter is allowing Aurelio to manage their family business(if Eduardos away) and in exchange thereof he will be giving Aurelio P1million or 10% equity, whichever is higher. A memorandum (ANNEX A sacase) was subsequently made for the said partnership agreement. Thememorandum this time stated that in exchange of Aurelio, who just gotmarried, retaining his share in the family business (movie theatres, shippingand land development) and some other immovable properties, he will begiven P1 Million or 10% equity in all these businesses and those to besubsequently acquired by them whichever is greater.

In 1992 however, the relationship between the brothers went sour. And soAurelio demanded an accounting and the liquidation of his share in the

partnership. Eduardo did not heed and so Aurelio sued Eduardo.

On December 20, 2002, Eduardo and the corporate respondents filed a joint ANSWER With Compulsory Counterclaim denying under oath thematerial allegations of the complaint, more particularly that portion thereofdepicting petitioner and Eduardo as having entered into a contract of

partnership

ISSUE: Whether or not there exists a partnership.

HELD: No. The partnership is vo id and legally nonexistent. Thedocumentary evidence presented by Aurelio, i.e. the letter from Eduardoand the Memorandum, did not prove partnership.

RATIO:

Art. 1771. A partnership may be constituted in any form, except whereimmovable property or real rights are contributed thereto, in which case a publicinstrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of threethousand pesos or more, in money or property, shall appear in a publicinstrument, which must be recorded in the Office of the Securities and ExchangeCommission.

Failure to comply with the requirement of the preceding paragraph shallnot 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, isunsigned and undated. As an unsigned document, Annex A-1 does notmeet the public instrumentation requirements exacted under Article1771 of the Civil Code. Moreover, being unsigned and referring to a

partnership involving more than P3,000.00 in money or property,Annex A-1 cannot be presented for notarization, let alone registeredwith the Securities and Exchange Commission (SEC), as called forunder the Article 1772.

As regards the inventory requirement under Article 1773 petitioner'scontribution to the so-called "partnership/jointventure" was hissupposed share in the family business, consisting of movie theaters,shipping and landdevelopment, which are immovable properties andreal rights. Hence, an inventory of the contributed property dulysigned

by the parties should be attached to the public instrument, else thereis legally no partnership to speak of.

Insum, Annex A-1 cannot support the existence of the partnership suedupon and sought to be enforced.

The Memorandum (ANNEX A) is also not a proof of the partnershipfor the same is not a public instrument and again, no inventory wasmade of the immovable property and no inventory was attached to theMemorandum. Article 1773 of the Civil Code requires that ifimmovable property is contributed to the partnership an inventory shall

be had and attached to the contract.


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7. THIRD DIVISIONG.R. No. 136448 November 3, 1999LIM TONG LIM, petitioner,vs.PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:

Facts:

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua andPeter Yao entered into a Contract dated February 7, 1990, for the

purchase of fishing nets of various sizes from the Philippine FishingGear Industries, Inc. (herein respondent). They claimed that they wereengaged in a business venture with Petitioner Lim Tong Lim, whohowever was not a signatory to the agreement. The total price of thenets amounted to P532,045. Four hundred pieces of floats worthP68,000 were also sold to the Corporation.

The buyers, however, failed to pay for the fishing nets and the floats;hence, private respondents filed a collection suit against Chua, Yao andPetitioner Lim Tong Lim, as general partners, on the allegation that"Ocean Quest Fishing Corporation" was a nonexistent corporation asshown by a Certification from the Securities and ExchangeCommission. On September 20, 1990, the lower court issued a Writ ofPreliminary Attachment, which the sheriff enforced by attaching thefishing nets on board F/B Lourdes.

On November 18, 1992, the trial court rendered its Decision, ruling that

Philippine Fishing Gear Industries was entitled to the Writ ofAttachment and that Chua, Yao and Lim, as general partners, were

jointly liable to pay respondent. 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 ofMalabon, Branch 72, for (a) a declaration of nullity of commercialdocuments; (b) a reformation of contracts; (c) a declaration ofownership of fishing boats; (d) an injunction and (e) damages. 10 TheCompromise 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 P3,250,000.00in 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 dividedinto 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 HoldingCorporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.

ISSUE: Whether by their acts, Lim, Chua and Yao could be deemed to haveentered into a partnership.

HELD: Yes.

RATIO:

Art. 1767 By the contract of partnership, two or more persons bind

themselves to contribute money, property, or industry to a common fund, with theintention of dividing the profits among themselves.

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 petitioner's brother. In theirCompromise Agreement, they subsequently revealed their intention to paythe loan with the proceeds of the sale of the boats, and to divide equallyamong them the excess or loss. These boats, the purchase and the repair ofwhich were financed with borrowed money, fell under the term "commonfund" under Article 1767. The contribution to such fund need not becash or fixed assets; it could be an intangible like credit or industry.

That the parties agreed that any loss or profit from the sale andoperation of the boats would be divided equally among them also showsthat they had indeed formed a partnership.

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 essentialto fishing, were obviously acquired in furtherance of their business. Itwould 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.

They purchased the boats, which constituted the main assets of the partnership, andthey agreed that the proceeds from the sales and operations thereof would be dividedamong them.


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Petitioner: claims that the compromise agreement was entered into only to end thedispute among them, but not to adjudicate their preexisting rights and obligations.His arguments are baseless. The Agreement was but an embodiment of therelationship extant among the parties prior to its execution.

SC: Petitioner entered into a business agreement with Chua and Yao, in which debtswere undertaken in order to finance the acquisition and the upgrading of the vesselswhich 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 hisown 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 trust s, who inthis case is the petitioner himself. After all, he is the brother of the creditor, JesusLim.

8. Tacao vs CAFacts:

Nenita A. Anay met William T. Belo, then the vice-president for operationsof Ultra Clean Water Purifier, through her former employer in Bangkok.

Belo introduced Anay to Marjorie Tocao, who conveyed her desire to enter

into a joint venture with her for the importation and local distribution ofkitchen cookwares.

Belo volunteered to finance the joint venture and assigned to Anay the jobof marketing the product considering her experience and establishedrelationship with West Bend Company, a manufacturer of kitchen wares inWisconsin, U.S.A

Under the joint venture, Belo acted as capitalist, Tocao as president andgeneral manager, and Anay as head of the marketing department and later,vice-president for sales.

Anay organized the administrative staff and sales force while Tocao hiredand fired employees, determined commissions and/or salaries of theemployees, and assigned them to different branches.

The parties agreed that Belos name should not appear in any documentsrelating to their transactions with West Bend Company. Instead, they agreedto use Anays name in securing distributorship of cookware from thatcompany.

The parties agreed further that Anay would be entitled to: (1) ten percent(10%) of the annual net profits of the business; (2) overriding commissionof six percent (6%) of the overall weekly production; (3) thirty percent(30%) of the sales she would make; and (4) two percent (2%) for herdemonstration services.

The agreement was not reduced to writing on the strength of Belosassurances that he was sincere, dependable and honest when it came tofinancial commitments.

Anay having secured the distributorship of cookware products from theWest Bend Company, the business was successful.

They operated under the name of Geminesse Enterprise, a sole proprietor ship registered in Marjorie Tocaos name.

Thereafter, Roger Muencheberg of West Bend Company invited Anay tothe distributor meeting and to the south western regional convention in theU.S.A., from July 25-26, 1987. Anay accepted the invitation with theconsent of Marjorie Tocao who, as president and general manager of

Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S.Embassy in Manila. When Anay arrived from the U.S.A, she immediately undertook the task of

saving the business on account of the unsatisfactory sales record in theMakati and Cubao offices. She even she received a plaque of appreciationfrom the administrative and sales people through Marjorie Toca o [4] for herexcellent job performance.

On October 7, 1987, in the presence of Anay, Belo signed amem o[5] entitling her to a thirty-seven percent (37%) commission for her

personal sales "up Dec 31/87. Belo explained to her that said commissionwas apart from her ten percent (10%) share in the profits. On October 9,1987,

After that Anay learned that Tocao had signed a lette r

[6]

stating that she wasno longer the vice-president of Geminesse Enterprise. She also received anote from Lina T. Cruz, marketing manager, stating thatTocao had barredher from holding office in both Makati and Cubao offices . [7]

Anay attempted to contact Belo. She wrote him twice to demand heroverriding 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.When her letters were not answered, Anay consulted her lawyer, who, inturn, wrote Belo a letter. Still, that letter was not answered.

Anay still received her five percent (5%) overriding commission up toDecember 1987. The following year, 1988, she did not receive the samecommission although the company netted a gross sales of P13,300,360.00.

So Anay filed a complaint for sum of money with damage s[8]

againstMarjorie D. Tocao and William Belo. In their answer, [9] Tocao and Belo asserted that the alleged agreement

with Anay that was neither reduced in writing, nor ratified, was eitherunenforceable or void or inexistent. That there could not have been a

partnership because, because Geminesse Enterprise was the sole proprietorship of Marjorie Tocao and Anay merely acted as marketingdemonstrator of Geminesse Enterprise for an agreed remuneration, and hercomplaint should have been lodged with the Department of Labor and notwith the regular court.

Petitioners further alleged that Anay filed the complaint on account of ill -will and resentment because Tocao did not allow her to lord it over in the

Geminesse Enterprise. Hence, petitioners were the ones who sufferedactual damages including unreturned and unaccounted stocks of
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Geminesse Enterprise, and serious anxiety, besmirched reputation andvarious damages not less than P500,000.00 and also atty.s fees.

The trial court held that there was indeed an oral partnership agreement between the plaintiff and the defendants, based on the following: (a) therewas an intention to create a partnership; (b) a common fund was establishedthrough contributions consisting of money and industry, and (c) there was a

joint interest in the profits. The trial court further held that the payment of commissions did not

preclude the existence of the partnership in asmuch as such practice is oftenresorted to in business circles as an impetus to bigger sales volume. CA affirms.

Defense: Belo denied that Anay was supposed to receive a share in the profit of

the business. He admitted that the two had agreed that Anay wouldreceive a (3-4%) share in the gross sales of the cookware. He deniedcontributing capital to the business or receiving a share in its profits ashe merely served as a guarantor of Marjorie Tocao, who was new in the

business. Tocao denied having entered into an oral partnership agreement with

Anay. However, she admitted that Anay was an expert in the cookware

business and hence, they agreed to grant her the followingcommissions: (37%) on personal sales; (5%) on gross sales; (2%) on product demonstrations, and (2%) for recruitment of personnel.

Issue: WON ANAY was an employee or a partner.Ruling: A partnerRatio: The issue of whether or not a partnership exists is a factual matter which are

within the exclusive domain of both the trial and appellate courts. ThisCourt cannot set aside factual findings of such courts absent any showingthat there is no evidence to support the conclusion drawn by the court aquo .[14]

In this case, both TC and CA ruled that there established a business

partnership. This Court finds no reason to rule otherwise. It does not matter if the agreement was not in writing because Article 1771of the Civil Code provides that a partnership may be constituted in anyform.

The fact that Geminesse Enterprise was registered in Marjorie Tocaosname is not determinative of whether or not the business was operated by asole proprietor or a partnership. What was registered was merely the

business . To be considered a juridical personality, a partnership must fulfill these

requisites:o (1) two or more persons bind themselves to contribute money,

property or industry to a common fund; ando (2) intention on the part of the partners to divide the profits amongthemselves .[15]

o It may be constituted in any form; a public instrument is necessaryonly where immovable property or real rights are contributedthereto .[16]

This implies that since a contract of partnership is consensual, an oralcontract of partnership is as good as a written one. What matters is that the

parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange

Commission of a public instrument embodying the partnership agreement

pursuant to Article 1772 of the Civil Cod e[17]

did not cause the nullificationof the partnership.o Art. 1768. The partnership has a juridical personality separate and

distinct from that of each of the partners, even in case of failure tocomply 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 contributedsuch expertise to the partnership and hence, under the law, she was theindustrial 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 thatcompanys cookware products; it was through the same efforts that the

business was propelled to financial success. Belos claim that he was merely a guarantor is belied by his personal act of proprietorship in the business. Moreover, if he was indeed a guarantor offuture debts of petitioner Tocao under Article 2053 of the Civil Code ,[20] heshould have presented documentary evidence therefor.

Tocao was also a capitalist in the partnership. Her and Belos roles as bothcapitalists to the partnership with ANAY are buttressed by petitionerTocaos admissions that petitioner Belo was her boyfriend and that the

partnership was not their only business venture together. They also established a firm that they called Wiji, the combination of

petitioner Belos first name, William, and her nickname, Jiji .[23] The specialrelationship between them dovetails with petitioner Belos claim that he

was acting in behalf of petitioner Tocao. Significantly, in the early stage ofthe business operation, petitioners requested West Bend Company to allowthem to utilize their banking and trading facilities in Singapore in thematter of importation and payment of the cookware products .[24]

The inevitable conclusion, therefore, was that petitioners merged theirrespective capital and infused the amount into the partnership of distributingcookware with ANAY as the managing partner.

The business venture operated under Geminesse Enterprise did not result inan employer-employee relationship between petitioners and privaterespondent.

o In the first place, private respondent had a voice in themanagement of the affairs of the cookware

distributorship ,[26]

including selection of people who wouldconstitute the administrative staff and the sales force.
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o Secondly, Tocaos admissions militate against an employer -employee relationship because admitted that, like her, ANAYreceived only commissions and transportation and representationallowances and not a fixed salary.

If indeed petitioner Tocao was private respondents employer, it is difficultto believe that they shall receive the same income in the business. In a

partnership, each partner must share in the profits and losses of the venture,except that the industrial partner shall not be liable for the losses .[31]

As an industrial partner, private respondent had the right to demand for aformal accounting of the business and to receive her share in the net

profit .[32] . It is not surprising then that, even after private respondent had been

unceremoniously booted out of the partnership in October 1987, she stillreceived her overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondentfrom the partnership to reap for herself and/or for petitioner Belo financialgains resulting from private responden ts efforts to make the businessventure a success.

Her instruction to Lina Torda Cruz, marketing manager, not to allow privaterespondent to hold office in both the Makati and Cubao sales offices

concretely spoke of her perception that private respondent was no longernecessary in the business operation ,[39] and resulted in a falling out betweenthe two.

However, a mere falling out or misunderstanding between partners does notconvert the partnership into a sham organization .[40] The partnership existsuntil dissolved under the law. Since the partnership created by petitionersand private respondent has no fixed term and is therefore a partnership atwill predicated on their mutual desire and consent, it may be dissolved bythe will of a partner.

An unjustified dissolution by a partner can subject him to action fordamages because by the mutual agency that arises in a partnership, thedoctrine of delectus personae allows the partners to have

the power, although not necessarily the right to dissolve the partnership .[42]

As the Trial court held a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give himhis due upon the dissolution of the partnership as well as damages or sharein the profits realized from the appropriation of the partnership businessand goodwill.

9. SUNGA-CHAN vs.CHUA,Facts:

Lamberto T. Chua filed a complaint against Lilibeth Sunga Chan andCecilia Sunga, daughter and wife, respectively of the deceased Jacinto L.Sunga for "Winding Up of Partnership Affairs, Accounting, Appraisal and

Recovery of Shares and Damages.

CHUA alleged that he verbally entered into a partnership with Jacinto in thedistribution of Shellane (LPG) in Manila.

For business convenience, CHUA and Jacinto agreed to register the business name of their partnership, SHELLITE GAS APPLIANCECENTER under the name of Jacinto as a sole proprietorship.

CHUA and JACINTO both contributed P100,000.00, with the intention thatthe profits would be equally divided between them.

The partnership had Jacinto as manager, assisted by Josephine Sy, a sister

of the wife respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's fee or remuneration of10% of the gross profit and Josephine would receive 10% of the net profits,in addition to her wages and other remuneration from the business.

From the time that Shellite opened for business, its business operation wentquite and was profitable.

Upon Jacinto's death, his surviving wife, petitioner Cecilia and particularlyhis daughter took over the operations, control, custody, disposition andmanagement of Shellite without respondent's consent.

respondent demanded upon petitioners for accounting, inventory, appraisal,winding up and restitution of his net shares in the partnership but petitionersfailed to comply..

CHUA claimed that after Lilibeth ran out the alibis and reasons to evaderespondent's demands, she disbursed out of the partnership funds theamount of P200,000.00 and partially paid the same to respondent.

Petitioner Lilibeth allegedly informed respondent that the P200,000.00represented partial payment of the latter's share in the partnership, with a

promise that the she would make the complete inventory and winding up ofthe properties of the business establishment. Despite such commitment,

petitioners failed to comply with their duty to account, and continued to benefit from the assets and income of Shellite to the damage and prejudiceof respondent.

TC ruled in favour of CHUA. CA affirms.

Petitioners now question the correctness of the finding of the trial court andthe Court of Appeals that a partnership existed between respondent andJacinto in the absence of any written document to show such partnership

between CHUA and Jacinto.

Issue: WON there exists a partnershipRuling: yesRatio:

A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in which case a publicinstrument shall necessary .6

Hence, based on the intention of the parties, as gathered from the facts andascertained from their language and conduct, a verbal contract of

partnership may arise .7
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The essential profits that must be proven to that a partnership was agreedupon are

o mutual contribution to a common stock, ando a joint interest in the profits .8

in view of the absence of the written contract of partnership betweenrespondent and Jacinto, respondent resorted to the introduction ofdocumentary and testimonial evidence to prove said partnership.

***The crucial issue to settle then is to whether or not the "Dead Man's Statute"applies to this case so as to render inadmissible respondent's testimony and that ofhis witness, Josephine.

The "Dead Man's Statute" provides that if one party to the al legedtransaction is precluded from testifying by death, insanity, or other mentaldisabilities, the surviving party is not entitled to the undue advantage ofgiving his own uncontradicted and unexplained account of the transaction .9

REQUISITES:"1. The witness is a party or assignor of a party to case or persons in whose

behalf a case in prosecuted.2. The action is against an executor or administrator or other representativeof a deceased person or a person of unsound mind;3. The subject-matter of the action is a claim or demand against the estate ofsuch deceased person or against person of unsound mind;4. His testimony refers to any matter of fact of which occurred before thedeath of such deceased person or before such person became of unsoundmind. "10

Two reasons forestall the application of the "Dead Man's Statute" to thiscase.

o First, petitioners filed a compulsory counterclaim 11 againstrespondents in their answer before the trial court, and with thefiling of their counterclaim, petitioners themselves effectivelyremoved this case from the ambit of the "Dead Man'sStatute" .12 Well entrenched is the rule that when it is the executoror administrator or representatives of the estates that set s up thecounterclaim, the plaintiff, herein respondent, may testify tooccurrences before the death of the deceased to defeat thecounterclaim .13

o Second, the testimony of Josephine is not covered by the "DeadMan's Statute" for the simple reason that she is not "a party orassignor of a party to a case or persons in whose behalf a case is

prosecuted." Both TC & CA considered the evidence for r espondent as sufficient to

prove the formation of partnership, albeit an informal one. petitioners did not present any evidence in their favor during trial This Court can no longer be tasked to go over the proofs presented by the

parties and analyze, assess and weigh them to ascertain if the trial court and

the appellate court were correct in according superior credit to this or that piece of evidence of one party or the other .18

Petitioners also failed to attend the presentation of evidence of respondent.Petitioners cannot now turn to this Court to question the admissibility andauthenticity of the documentary evidence of respondent when petitionersfailed to object to the admissibility of the evidence at the t ime that suchevidence was offered .19

With regard to petitioners' insistence that laches and/or prescription shouldhave extinguished respondent's claim, we agree with the TC and CA that theaction for accounting filed three (3) years after Jacinto's death was wellwithin the prescribed period.

o The Civil Code provides that an action to enforce an oral contract prescribes in six (6) year s20 while the right to demand anaccounting for a partner's interest as against the person continuingthe business accrues at the date of dissolution, in the absence ofany contrary agreement .21

While Jacinto's death dissolved the partnership, the dissolution did notimmediately terminate the partnership. The Civil Cod e23 expresslyprovides that upon dissolution, the partnership continues and its legalpersonality is retained until the complete winding up of its business,culminating in its termination .24

In a desperate bid to cast doubt on the validity of the oral partnership

between respondent and Jacinto, petitioners maintain that said partnershipthat had initial capital of P200,000.00 should have been registered with theSecurities and Exchange Commission (SEC) since registration is mandated

by the Civil Code, True, 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 Cod e25 explicitly provides that the partnershipretains its juridical personality even if it fails to register.

The failure to register the contract of partnership does not invalidate thesame as among the partners, so long as the contract has the essentialrequisites, 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 lawwill not invalidate the partnership considering that the totality of theevidence proves that respondent and Jacinto indeed forged the partnershipin question. .

10. LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL andCARMELITO JOSE, petitioners,vs.DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. andCARMELITA C. RAMIREZ, respondents.A share in a partnership can be returned only after the completion of the latters

dissolution, liquidation and winding up of the business.Facts:
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Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnershipwith a capital of P750,000 for the operation of a restaurant and catering

business un der the name Aquarius Food House and Catering Services. Villareal was appointed general manager and Carmelito Jose, operations

manager. Then Donaldo Ramirez joined as a partner on September 5, 1984 with a

capital contribution of P250,000 which was paid by his parents,Respondents Cesar and Carmelita Ramirez.

After Jesus Jose withdrew from the partnership and his capital contributionof P250,000 was refunded to him in cash by agreement of the partners.

In the same month, without prior knowledge of respondents, petitionersclosed down the restaurant, allegedly because of increased rental.

The restaurant furniture and equipment were deposited in the respondentshouse for storage.

On March 1, 1987, respondent spouses wrote petitioners, saying that theywere no longer interested in continuing their partnership or in reopening therestaurant, and that they were accepting the latters offer to return theircapital contribution.

Respondent wrote another letter informing petitioners of the deterioration ofthe restaurant furniture and equipment stored in their house. She also

reiterated the request for the return of their one-third share in the equity ofthe partnership. The repeated oral and written requests were, however, leftunheeded.

Respondents filed before the RTC for the collection of a sum of moneyfrom petitioners.

Petitioners contended that respondents had expressed a desire to withdrawfrom the partnership and had called for its dissolution under Articles 1830and 1831; that respondents had been pa id, upon the turnover to them offurniture and equipment worth over P400,000; and that the latter had noright to demand a return of their equity because their share, together withthe rest of the capital of the partnership, had been spent as a result ofirreversible business losses.

In their Reply, respondents alleged that had not received any regular reportor accounting from the latter, who had solely managed the business.Respondents also alleged that they expected the equipment and the furniturestored in their house to be removed by petitioners as soon as the latter founda better location for the restaurant.

The trial court rendered a judgment in favor of respondents and ordering the petitioners to pay jointly and severally.

It ruled that the parties had voluntarily entered into a partnership, whichcould be dissolved at any time. Petitioners clearly intended to dissolve itwhen they stopped operating the restaurant.

The CA held that, although respondents had no right to demand the returnof their capital contribution, the partnership was nonetheless dissolved

when petitioners lost interest in continuing the restaurant business withthem. Because petitioners never gave a proper accounting of the partnership

accounts for liquidation purposes, and because no sufficient evidence was presented to show financial losses.

I ssue: WON petitioners are liable to respondents for the latters share in the partnershipHeld: NO Ratio:

Both the trial and the appellate courts found that a partnership had indeedexisted, and that it was dissolved on March 1, 1987.

They found that the dissolution took place when respondents informed petitioners of the intention to discontinue. Respondents consequentlydemanded from petitioners the return of their one-third equity in the

partnership. SC ruled that respondents have no right to demand from petitioners the

return of their equity share. Except as managers of the partnership, petitioners did not personally hold its equity or assets.

The partnership has a juridical personality separate and distinct from thatof each of the partners. Since the capital was contributed to the partnership,not to petitioners, it is the partnership that must refund the equity of theretiring partners.

The amount to be refunded is necessarily limited to its total resources. In

other words, it can only pay out what it has in its coffers, which consists ofall its assets. However, before the partners can be paid their shares, thecreditors of the partnership must first be compensated. After all thecreditors have been paid, whatever is left of the partnership assets becomesavailable for the payment of the partners shares.

Petitioners further argue that respondents acted negligently by permittingthe partnership assets in their custody to deteriorate to the point of beingalmost worthless. Supposedly, the latter should have liquidated these soletangible assets of the partnership and considered the proceeds as payment oftheir net capital. Hence, petitioners argue that the turnover of the remaining

partnership assets to respondents was precisely the manner of liquidatingthe partnership and fully settling the latter's share in the partnership.

We disagree. The delivery of the store furniture and equipment to privaterespondents was for the purpose of storage. They were unaware that therestaurant would no longer be reopened by petitioners. Hence, the formercannot be faulted for not disposing of the stored items to recover theircapital investment.

Evidently, in the present case, the exact amount of refund equivalent torespondents' one-third share in the partnership cannot be determined untilall the partnership assets will have been liquidated in other words, soldand converted to cash and all partnership creditors, if any, paid.

14. G.R. No. 167379 June 27, 2006


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PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION andRAFAELITO W. LOPEZ, Petitioners,vs.MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN,JAIME TEODORO T. LAZATIN and JOSE MARCOS T.LAZATIN, Respondents.

Joint Venture

Petitioner: Primelink Properties and Development Corporation (Primelinkfor brevity) is a domestic corporation engaged in real estate development.Rafaelito W. Lopez is its President and CEO.

Respondent: Ma. Clara T. Lazatin-Magat and her brothersare co-owners oftwo (2) adjoining parcels of land atTagaytay City.

On March 10, 1994, the Lazatins and Primelink, entered into a JointVenture Agreemen t5 (JVA) for the development of the aforementioned

property into a residential subdivision to be known as "Tagaytay GardenVillas."

Under the JVA, the Lazatin siblings obliged themselves to contribute thetwo 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, managerialexpertise and other needed resources to develop the property and constructtherein the units for sale to the public.

The parties agreed that any unsettled or unresolved misunderstanding shall be referred to Voluntary Arbitration.

Violation of the JVA

The Lazatins agreed to subject the title over the subject property to anescrow agreement. Conformably with the escrow agreement, the ownersduplicate of the title was deposited with the China Banking Corporation.

However, Primelink failed to immediately secure a DevelopmentPermit from Tagaytay City, and applied the permit only on August 30,1995. On October 12, 1995, the City issued a Development Permit toPrimelink.

In a Letter, the Lazatins, through counsel, demanded that Primelink complywith 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. However, theLazatins informed Primelink that they had decided to rescind the JVAeffective upon its receipt of the said letter. The Lazatins demanded that

Primelink cease and desist from further developing the property.

Subsequentlythe Lazatinsfileda complaint for rescission accounting anddamages, with prayer for temporary restraining order and/or preliminaryinjunction against Primelink and Lopez (which was granted by the RTC)

The Lazatins 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 They also alleged that Primelink completely disregarded previously agreedaccounting and auditing procedures, checks and balances system installedfor the mutual protection of both parties, and the scheduled regularmeetings were seldom held to the detriment and disadvantage of plaintiffs.

Plaintiffs also claimed that in a sales-income-costs projection prepared andsubmitted by defendants, they (plaintiffs) stood to receive the amountof P70,218,296.00 as their net share in the joint venture project ; to date,however, after almost four (4) years and despite the undertaking in the JVAthat plaintiffs shall initially get 20% of the agreed net revenue during thefirst two (2) years (on the basis of the 60%-40% sharing) and their full 40%share thereafter, defendants did not deliver these shares which would

amount to no less than P40,000,000.00. Primelink, in its defense, said the complaint was premature as they haventsubmitted to Arbitration, pursuant to the JVA stipulation

The RTC ruled for the Lazatins, rescinded the JVA and issued a TROagainstPrimelink

The RTC found that as of September 30, 1995, the joint venture projectearned a net income of aboutP2,603,810.64. This amount, however, wasdrastically reduced in a subsequent financial report submitted by thedefendants to P1,954,216.39. Shortly thereafter, and to the dismay of the

plaintiffs, the defendants submitted an income statement and a balance sheetindicating a net loss of P5,122,906.39 as of June 30, 1997.

CA affirmed upon appeal and awarded to Lazatins "all improvements" on

the project without requiring them to pay the value thereof or to reimbursePrimelink for all expenses Hence, this appeal PRIMELINKs argument: argued that the LAZATINs in their complaint did

not allege, did not prove and did not pray that they are and should beentitled to take over the development of the project, and that theimprovements and existing structures which were introduced byPRIMELINK after spending more or less Forty Million Pesos be awardedto them. They merely asked in the complaint that the joint ventureagreement be rescinded, and that the parcels of land they contributed to the

project be returned to them.

ISSUE: WON theLazatins are entitled to rescission with improvements
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HELD: YES.PRIMELINKs argument lacks meri t. The transfer of the possession ofthe parcels of land and the improvements thereon to respondents was only for aspecific purpose: the winding up of partnership affairs, and the partition anddistribution of the net partnership assets as provided by law.

The order of the court for PRIMELINK to return the property with all theimprovements thereon is just a necessary consequence to the order ofrescission.

As a general rule, the relation of the parties in joint ventures is governed bytheir agreement. When the agreement is silent on any particular issue, thegeneral principles of partnership may be resorted to. In Aurbach v. SanitaryWares Manufacturing Corporation, the Supreme Court discussed thefollowing points regarding joint ventures and partnership:

Joint venture is, in fact, hardly distinguishable from the partnership, since elements are similar community of interest inthe business, sharing of profits and losses, and a mutual right ofcontrol.

The main distinction is that the partnership contemplates a general business with some degree of continuity, while the joint venture isformed for the execution of a single transaction, and is thus of a

temporary nature. This observation is not entirely accurate in this jurisdiction, sinceunder the Civil Code, a partnership may be particular or universal,and a particular partnership may have for its object a specificundertaking. (Art. 1783, Civil Code).

It would seem therefore that, under Philippine law, a jointventure is a form of partnership and should thus be governedby the laws of partnership.

The Supreme Court has, however, recognized a distinction between these two business forms, and has held that although acorporation cannot enter into a partnership contract, it may,however, engage in a joint venture with others.

The LAZATINs were able to establish fraud on the part of PRIMELINK whichwas a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net incomes generated from sales of housing units by thedefendants.

Under Article 1838 of the Civil Code, where the partnership contract isrescinded on the ground of the fraud or misrepresentation of one of theparties thereto, the party entitled to rescind is, without prejudice to anyother right is entitled to a lien on, or right of retention of, the surplus ofthe 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 advance contributed by him. In the instantcase, the joint venture still has outstanding liabilities to third parties or the

buyers of the property.

When the RTC rescinded the JVA on complaint of respondents based on theevidence on record that petitioners willfully and persistently committed a

breach of the JVA, the court thereby dissolved/cancelled the partnership.Withthe rescission of the JVA on account of petitioners fraudulent acts, allauthority of any partner to act for the partnership is terminated except so far asmay be necessary to wind up the partnership affairs or to complete transactions

begun but not yet finished. On dissolution, the partnership is not terminated but continues until the

winding up of partnership affairs is completed .56 Winding up means theadministration 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 partnershipassets 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, respondentshave the right to wind up the partnership affairs:

Art. 1836. Unless otherwise agreed, the partners whohave not wrongfully dissolved the partnership or the legalrepresentative 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 hisassignee, upon cause shown, may obtain winding up bythe court.

It must be stressed, too, that although respondents acquired possession of thelands and the improvements thereon, the said lands and improvementsremained partnership property, subject to the rights and obligations of the

parties, inter se, of the creditors and of third parties under Articles 1837 and1838 of the New Civil Code, and subject to the outcome of the settlement ofthe accounts between the parties as provided in Article 1839 of the New CivilCode, absent any agreement of the parties in their JVA to the contrary .58 Untilthe partnership accounts are determined, it cannot be ascertained how muchany of the parties is entitled to, if at all.

It was thus premature for petitioner Primelink to be demanding that it beindemnified for the value of the improvements on the parcels of land owned bythe joint venture/partnership. Notably, the JVA of the parties does not containany 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 whendissolution is caused in contravention of the partnership agreement are asfollows:

(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and
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(b) The right, as against each partner who has caused thedissolution wrongfully, to damages for breach of the agreement.

(2) The partners who have not caused the dissolution wrongfully, if they alldesire to continue the business in the same name either by themselves or

jointly with others, may do so, during the agreed term for the partnershipand for that purpose may possess the partnership property, provided theysecure 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 thesecond paragraph, No. 1(b) of this article, and in like manner indemnify himagainst 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 thesecond 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 claimingthrough them in respect of their interests in the partnership, to havethe value of his interest in the partnership, less any damage causedto his co-partners by the dissolution, ascertained and paid to him incash, or the payment secured by a bond approved by the court, andto be released from all existing liabilities of the partnership; but inascertaining the value of the partners interest the value of thegood-will of the business shall not be considered.

And under Article 1838 of the New Civil Code, the party entitled to rescindis, 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 anysum of money paid by him for the purchase of an interest in the partnershipand 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 inrespect 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 followingrules shall be observed, subject to any agreement to the contrary:

(1) The assets of the partnership are:

(a) The partnership property,(b) The contributions of the partners necessary for the payment ofall the liabilities specified in No. 2.

(2) The liabilities of the partners

patrnership digests 5-7

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