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I. Partnership- General Provisions
Yu vs NLRC 224 SCRA 75 (1993)
FACTS: Jade Mountain Products Company Limited" (Jade Mountain for brevity) is the registered firm name of a partnership which was engaged in marble quarrying and export business. The partnership was organized sometime on June 28, 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang as limited partners. Sometime on March 14, 1985, petitioner Benjamin Yu was hired by the Firm as its Assistant General Manager. He received a monthly salary of P4,000.00. However, what he actually received is only half of his stipulated monthly salary.
In 198, the General Partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to Willy Co. 82% of the total partnership interest were transferred and sold to Mr. Willy Co and Emmanuel Zapanta. Despite changes in its membership, private respondents continued to use the old firm name, Jade Mountain. However, as a result of this change in the membership of the partnership, petitioner was no longer allowed to work in the Jade Mountain. Furthermore, his unpaid salaries remain unpaid. Thus, he filed an illegal dismissal and recovery of unpaid salaries.
ISSUES: (1) Whether or not the partnership which hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and
(2) If indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership.
1. YES, the legal effect of the changes in the membership of the partnership was the dissolution of the old partnership and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new partnership.
However, the occurrence such event do not automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that:
On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.
The legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business enterprise owned by the preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise.
2. YES, citing Art. 1840 of the NCC the SC ruled that creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority.
Not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership.
However, the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause.
SANTOS VS REYES 368 SCRA 261
- Petitioner Fernando Santos, Respondent Nieves Reyes and Meliton Zabat started a lending Business venture together proposed by Nieves. It was agreed on the Articles of Agreement that petitioner will get 70% of the profits and Nieves and Zabat would earn 15% each. - Nievas introduced Gragera (chairman of Monte Maria Development Corporation) to petitioner, and sought short term loans for its members and with an agreement that Monte Maria will be entitled to P1.31 commission per thousand paid daily. Nieves acted as bookkeeper while her husband Arsenio acted as credit investigator. - Gragera complained that his commissions were inadequately remitted. This prompt petitioner to file a complaint against respondent allegedly in their capacities as employees of petitioner, with having misappropriated funds.
Whether or not the business relationship between petitioner and respondent was one of partnership
YES - Nieves herself provided the initiative in the lending activities with Monte Maria. - The fact that in their “Articles of Agreement”, the parties agreed to divide the profits of a lending business “in a 70-15-15, manner, with petitioner getting the lions share proved the establishment of a partnership,” even when the other parties to the agreement were given separate compensation as bookkeeper and creditor investigator. - By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. (Art. 1767 NCC)
Tocao vs CA 365 SCRA 463
Petitioner Tocao and private respondent Anay entered into a Joint Venture for the importation and local distribution of kitchen cookwares. Petitioner Belo is the one who financed the Joint Venture. Belo acted as Capitalist, Tocao as President and General Manager while Anay as Head of the Marketing Department and later became the Vice-President for sales. The job of marketing the products was assigned to respondent Anay considering her experienced and established relationship with West Bend Company, a manufacturer of kitchen wares in USA.
The parties agreed that Respondent Anay would be entitled to receive TEN (10%) PERCENT of the Annual Net Profits of the business, 6% Commission and other benefits. However, the said agreement was not reduced into writing.
The cookware business of the parties becomes successful and it operated under the Name “GEMINESSE ENTERPRISE”, a sole proprietorship registered in Tocao’s Name. However, respondent Anay learned later on that petitioner Tocao removed her as the Vice-President of GEMINESE ENTERPRISE. She was already barred from holding her office. Thus she filed a complaint for sum of money w/ damages before RTC of Makati against Petitioner Tocao and Belo.
Whether or not partnership exists between the parties.
NOTE: Petitioners argue that respondent was their employee and no partnership existed between them. There is partnership when: (1) Two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) Intention on the part of the partners to divide the profits among themselves. It may be constituted in any form. A contract of partnership is consensual, hence, an oral contract of partnership is as good as a written one.
It was admitted by the petitioners that respondent Anay had the expertise to engage in the business of distributorship of cookware. Private respondent contributed such expertise to the partnership, hence, under the law, she was the industrial or managing partner. It was through her efforts that the business was propelled to financial success. The business venture operated under GEMINESSE ENTERPRISE did not result in an employer-employee relationship between petitioners and private respondents.
REASONS: 1. Private respondent had a voice in the management of the affairs of the cookware distributorship which includes the selection of the people who would constitute the administrative staff and the sales force; 2. Petitioners and private respondent received the same income in the business; 3. Private respondent is receiving share in the profits of the business;
On the other hand, the contention of petitioner Belo that he is a mere guarantor and not a partner is bereft of merit. In fact he is the one who financed the partnership. He had a proprietary interest in the business. His claim that he was merely a guarantor is belied by that personal act of proprietorship in the business. NOTE: Petitioners filed a Motion for Reconsideration of the above decision. The SC PARTIALLY GRANTED the MR and ruled as follows:
1. That petitioner Belo acted merely as guarantor of Geminesse Enterprise. 2. No evidence was presented to show that petitioner Belo participated in the profits of the business enterprise. Respondent herself professed lack of knowledge that petitioner Belo received any share in the net income of the partnership. On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise. 3. With no participation in the profits, petitioner Belo cannot be deemed a partner since the essence of a partnership is that the partners share in the profits and losses. Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of action against him and her complaint against him should accordingly be dismissed.
MORAN VS CA 133 SCRA 88
- Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters which features the delegates of the Constitutional Convention. Pecson gave Moran P10,000 pesos for which the latter issued a receipt. - Out of the 95,000 copies agreed upon only 2,000 copies were printed. It can be said that the venture failed. - Pecson filed with the CFI an action for recovery of a sum of a sum of money and demanded for the return of his contribution of P10,000 and share in the profits that the partnership would have earned, and payment of unpaid commission, among others.
Whether or not Pecson can demand for his share of the profits and payment of unpaid commission of the business
Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. - Even with an assurance made by one of 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. It is a rare business venture guaranteed to give 1005 profits. - Article 1797 NCC, the losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.
NAVARRO VS CA 222 SCRA 675
Private respondent Olivia V. Yanson and Petitioner Lourdes Navarro were engaged in the business of Air Freight Service Agency. Pursuant to the Agreement which they entered, they agreed to operate the said Agency;
It is the Private Respondent Olivia Yanson who supplies the necessary equipment and money used in the operation of the agency. Her brother in the person of Atty. Rodolfo Villaflores was the manager thereof while petitioner Lourdes Navarro was the Cashier; In compliance to her obligation as stated in their agreement, private respondent brought into their business certain chattels or movables or personal properties. However, those personal properties remain to be registered in her name;
Among the provisions stipulated in their agreement is the equal sharing of whatever proceeds realized from their business; However, sometime on July 23, 1976, private respondent Olivia V. Yanson, in order for her to recovery the above mentioned personal properties which she brought into their business, filed a complaint against petitioner Lourdes Navarro for "Delivery of Personal Properties With Damages and with an application for a writ of replevin” Private respondents' application for a writ of replevin was later approved/granted by the trial court. For her defense, petitioner Navarro argue that she and private respondent Yanson actually formed a verbal partnership which was engaged in the business of Air Freight Service Agency. She contended that the decision sustaining the writ of replevin is void since the properties belonging to the partnership do not actually belong to any of the parties until the final disposition and winding up of the partnership.
ISSUE: 1. Whether or not there was a partnership that existed between the parties. 2. Whether the properties that were commonly used in the operation of Allied Air Freight belonged to the alleged partnership business.
RULING: Article 1767 of the New Civil Code defines the contract of partnership:
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proceeds among themselves.
“A cursory examination of the evidences presented no proof that a partnership, whether oral or written had been constituted.” In fact, those movables brought by the plaintiff for the use in the operation of the business remain registered in her name.
While there may have been co-ownership or co-possession of some items and/or any sharing of proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and supportive of the existence of any partnership between them.
Art. 1769 par. 2 provides: “Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property” Besides, the alleged profit was a difference found after valuating the assets and not arising from the real operation of the business. In accounting procedures, strictly, this could not be profit but a net worth.
OBILLOS VS CIR 139 SCRA 675
FACTS - Jose Obillos, Sr. completed payment of two parcels of land. The next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The Torrens titles issued to them would show that they were co-owners of the two lots. - The four brothers and sisters acquired lots with the original purpose to divide it among themselves for residential purposes; when later they found it not feasible to build their residences thereon because of the high cost of construction; they decided to resell the properties to dissolve the co-ownership. - Petitioners sold the lots they inherited from their father and derived a total profit of P33,584 for each of them. They treated the profit as capital gain and paid an income tax thereof. The CIR required petitioners to pay corporate income tax on their shares, 20% tax fraud surcharge and 42% accumulated interest. Deficiency tax was assessed on the theory that they had formed an unregistered partnership or joint venture.
Whether or not the sharing of gross returns constitute partnership HELD - NO. - Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". - The original intention was merely to collectively purchase the lots and eventually to partition them among themselves to build their residences; and that in fact they had no choice but to resell the same to dissolve the co-ownership.
Obillos found that the division of the profits was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state; and that there could not have been any partnership, but merely a co-ownership, since there was lack of intent to form a partnership or joint venture.
All co-ownerships are not deemed unregistered pratnership. - Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation.
REYES VS CIR 24 SCRA 198
Petitioners (father and son to each other) purchased a lot and building (Gibs Building). The payment thereof was shared equally by petitioners. At the time of the purchase, the building was leased to various tenants. Petitioners divided equally the income from rentals of the building as well as the expenses in the operation and maintenance thereof. The administration of the building was entrusted to an administrator who collected the rents.
Believing that petitioners were partners, respondent Commissioner of Internal Revenue assessed them the sum of P46,647.00 as income tax due for the years 1951 to 1954 and a sum of P25,973.75, covering the years 1955 and 1956. The basis of the assessment of said income tax due is the provision of the National Internal Revenue Code which imposes an income tax on corporations and corporations includes partnerships.
Whether or not petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code. RULING: Petitioners, in acquiring the Gibbs Building, established a partnership subject to income tax as a corporation under the National Internal Revenue Code. There are two essential elements of a partnership: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.
In the case at bar, all elements are undoubtedly present. Admittedly, petitioners have agreed to and did, contribute money and property to a common fund. Their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves. REASONS: 1. the common fund being created purposely not something already found in existence; 2. the lots thus acquired not being devoted to residential purposes or to other personal uses of petitioners; 3. such properties having been under the management of one person with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts and to endorse notes and checks; 4. petitioners dividing "equally the income of the building after deducting the expenses of operation and maintenance thereof; "For purposes of the tax on corporations, our National Internal Revenue Code, include these partnerships — with the exception only of duly registered general co-partnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations."
EVANGELISTA VS CIR 102 PHIL 140
- Petitioners borrowed sum of money from their father and together with their own personal funds they used said money to buy several real properties. They then appointed their brother (Simeon) as manager of the said real properties with powers and authority to sell, lease or rent out said properties to third persons. On 1946, they realized a gross rental income of in the sum of P24, 786.30, while in 1948, they realized a gross rental income of P17 , 453.00. - On September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax.
Whether or not there was a partnership formed HELD - YES. - The essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; (b) (b) intent to divide the profits among the contracting parties.
Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, because:
- 1. Said common fund was not something they found already in existence. What is more they jointly borrowed a substantial portion thereof in order to establish said common fund. - 2. They invested the same, not merely in one transaction, but in a series of transactions. - 3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. - 4. The properties have been under the management of one person, namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit.
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