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usiness Organization Partnership, Agency, Trust Shares in Liquidation Net Profit vs Gross Income In June 1986, Fernando Santos

tos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally instituted a partnership with them as partners. Their venture is to set up a lending business where it was agreed that Santos shall be financier and that Nieves and Zabat shall contribute their industry. **The percentages after their names denote their share in the profit. Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a corporation. It was agreed that the partnership shall provide loans to the employees of Grageras corporation and Gragera shall earn commission from loan payments. In August 1986, the three partners put into writing their verbal agreement to form the partnership. As earlier agreed, Santos shall finance and Nieves shall do the daily cash flow more particularly from their dealings with Gragera, Zabat on the other hand shall be a loan investigator. But then later, Nieves and Santos found out that Zabat was engaged in another lending business which competes with their partnership hence Zabat was expelled. The two continued with the partnership and they took with them Nieves husband, Arsenio, who became their loan investigator. Later, Santos accused the spouses of not remitting Grageras commissions to the latter. He sued them for collection of sum ofmoney. The spouses countered that Santos merely filed the complaint because he did not want the spouses to get their shares in the profits. Santos argued that the spouses, insofar as the dealing with Gragera is concerned, are merely his employees. Santos alleged that there is a distinct partnership between him and Gragera which is separate from the partnership formed between him, Zabat and Nieves. The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to pay the shares of the spouses. ISSUE: Whether or not the spouses are partners. HELD: Yes. Though it is true that the original partnership between Zabat, Santos and Nieves was terminated when Zabat was expelled, the said partnership was however considered continued when Nieves and Santos continued engaging as usual in the lending business even getting Nieves husband, who resigned from the Asian Development Bank, to be their loan investigator who, in effect, substituted Zabat. There is no separate partnership between Santos and Gragera. The latter being merely a commission agent of the partnership. This is even though the partnership was formalized shortly after Gragera met with Santos (Note that Nieves was even the one who introduced Gragera to Santos exactly for the purpose of setting up a lending agreement between the corporation and the partnership). HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their shares in the profit is premature. The accounting made by the trial court is based on the total income of the partnership. Such total income calculated by the trial court did not consider the expenses sustained by the partnership. All expenses incurred by the money-lending enterprise of the

parties must first be deducted from the total income in order to arrive at the net profit of the partnership. The share of each one of them should be based on this net profit and not from the gross income or total income. ESTANISLAO, JR. VS. COURT OF APPEALSFacts: The petitioner and private respondents arebrothers and sisters who are co-owners of certainlots at the in Quezon City which were then being leased to SHELL. They agreed to open and operate agas station thereat to be known as Estanislao ShellS e r v i c e S t a t i o n w i t h a n i n i t i a l i n v e s t m e n t o f PhP15,000.00 to be taken from the advance rentalsdue to them from SHELL for the occupancy of the said lots owned in common by them. A joint affidavitw a s e x e c u t e d b y t h e m o n A p r i l 1 1 , 1 9 6 6 . T h e respondents agreed to help their brother, petitionertherein, by allowing him to operate and manage thegasoline service station of the family. In order not torun counter to the companys policy of appointingonly one dealer, it was agreed that petitioner wouldapply for the dealership. Respondent Remedioshelped in co-managing the business with petitionerfrom May 1966 up to February 1967.On May 1966, the parties entered into an AdditionalCash Pledge Agreement with SHELL wherein it was reiterated that the P15,000.00 advance rental shallbe deposited with SHELL to cover advances of fuel top e t i t i o n e r a s d e a l e r w i t h a p r o v i s o t h a t s a i d a g r e e m e n t c a n c e l s a n d s u p e r s e d e s t h e J o i n t Affidavit. For sometime, the petitioner submitted financialstatement regarding the operation of the business tothe private respondents, but thereafter petitionerfailed to render subsequent accounting. Hence , theprivate respondents filed a complaint against thepetitioner praying among others that the latter beordered:( 1 ) T o e x e c u t e a public document e m b o d yi n g a l l t h e p r o v i s i o n s o f t h e p a r t n e r s h i p agreement they entered into;( 2 ) T o r e n d e r a f o r m a l a c c o u n t i n g o f t h e business operation veering the period fromMay 6, 1966 up to December 21, 1968, andf r o m J a n u a r y 1 , 1 9 6 9 u p t o t h e t i m e t h e order is issued and that the same be subjectto proper audit;(3)To pay the plaintiffs their lawful shares andp a r t i c i p a t i o n i n t h e n e t p r o f i t s o f t h e business; and( 4 ) T o p a y t h e p l a i n t i f f s a t t o r n e y s f e e s a n d costs of the suit. Issue: Can a partnership exist between members of the same family arising from their joint ownership of certain properties? Trial Court: The complaint (of the respondents) wasdismissed. But upon a motion for reconsideration of the decision, another decision was rendered in favorof the respondents. CA: Affirmed in toto Petitioner: The CA erred in interpreting the legalimport of the Joint Affidavit vis --vis the AdditionalCash Pledge Agreement. Because of the stipulationc a n c e l l i n g a n d s u p e r s e d i n g t h e J o i n t A f f i d a v i t , whatever partnership agreement there was in saidprevious agreement had thereby been abrogated.Also, the CA erred in declaring that a partnership wasestablished by and among

the petitioner and theprivate respondents as regards the ownership and /oroperation of the gasoline service station business. Held: There is no merit in the petitioners contentiont h a t b e c a u s e o f t h e s t i p u l a t i o n c a n c e l l i n g a n d superseding the p revious joint affidavit, whateverpartnership agreement there was in said previousa g r e e m e n t h a d t h e r e b y b e e n abrogated. Saidcancelling provision was necessary for the JointAffidavit s p e a k s o f P 1 5 , 0 0 0 . 0 0 a d v a n c e r e n t a l starting May 25, 1966 while the latter agreementalso refers to advance rentals of the same amount s t a r t i n g M a y 2 4 , 1 9 6 6 . T h e r e i s t h e r e f o r e a duplication of reference to the P15,000.00 hence theneed to provide in the subsequent document that it c a n c e l s a n d s u p e r c e d e s t h e p r e v i o u s n o n e . Indeed, it is true that the latter document is silent asto the statement in the Join Affidavit that the value represents the capital investment of the parties inthe business and it speaks of the petitioner as the sole dealer, but this is as it should be for in the latterdocument, SHELL was a signatory and it would beagainst their policy if in the agreement it should bestated that the business is a partnership with privater e s p o n d e n t s a n d n o t a s o l e p r o p r i e t o r s h i p o f t h e petitioner.Furthermore, there are other evidences in the recordwhich show that there was in fact such partnershipa g r e e m e n t b e t w e e n p a r t i e s . T h e p e t i t i o n e r s u b m i t t e d t o t h e p r i v a t e r e s p o n d e n t s p e r i o d i c accounting of the business and g a v e a w r i t t e n a u t h o r i t y t o t h e p r i v a t e r e s p o n d e n t R e m e d i o s Estanislao to examine and audit the books of their c o m m o n b u s i n e s s ( a m i n g n e g o s y o ) . T h e respondent Remedios, on the other hand, assisted inthe running of the business. Indeed, the partiesh e r e t o f o r m e d a p a r t n e r s h i p w h e n t h e y b o u n d themselves to contribute money in a common fundw i t h t h e i n t e n t i o n o f d i v i d i n g t h e p r o f i t s a m o n g themselves. 1.) DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents. G.R. No. 70926 January 31, 1989GUTIERREZ, JR., J.: FACTS: The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 whichaffirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring privaterespondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering thepetitioner to pay to the private respondent his share in the annual profits of the said restaurant.This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, BranchII to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation of Sun WahPanciteria since October, 1955 from petitioner Dan Fue Leung.The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime inOctober, 1955. It was registered as a single

proprietorship and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case toshow that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00to its initial establishment.The private respondents evidence is summarized as follows:About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as hiscontribution to the partnership. This is evidenced by a receipt wherein the petitioner acknowledged his acceptance of theP4,000.00 by affixing his signature thereto. Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check from the profits of the operation of the restaurantfor the year 1974The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugnedthe genuineness of the receipt. His evidence is summarized as follows:The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from hissalaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a littlemore than P2,000.00 as capital in establishing Sun Wah Panciteria. Petitioner presented various government licenses andpermits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself alone.Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit G) and the Equitable BankingCorporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B). ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah Panciteria?HELD: The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a or industry to a common fund; and 2) intention on thepart of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.110)-have been established. As stated by the respondent, a partner shares not only in profits but also in the losses of thefirm. If excellent relations exist among the partners at the start of business and all the partners are more interested in seeingthe firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It would beincorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such rightsare irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give him theagreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of hisinterests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842 states:The right to an account of his interest shall accrue to any partner, or his legal representative as againstthe winding up partners or the surviving partners or the person or partnership continuing the business, atthe date of dissolution, in the absence or any agreement to the contrary.Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807, and1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription begins to run onlyupon the

dissolution of the partnership when the final accounting is done.Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Codewhich, in part, provides:Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:xxx xxx xxx(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of thebusiness;(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise soconducts himself in matters relating to the partnership business that it is not reasonably practicable tocarry on the business in partnership with him;xxx xxx xxx(6) Other circumstances render a dissolution equitable.There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution becausethe continuation of the partnership has become inequitable. Bastida vs Menzi Facts: Bastida offered to assign to Menzi & Co. his contract with Phil Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain other orders for 50 % of the net profit that Menzi & Co., Inc., might derive therefrom. J. M. Menzi (gen. manager of Menzi & Co.) accepted the offer. The agreement between the parties was verbal and was confirmed by the letter of Menzi to the plaintiff on January 10, 1922. Pursuant to the verbal agreement, the defendant corporation on April 27, 1922 entered into a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action. Still, the fertilizer business as carried on in the same manner as it was prior to the written contract, but the net profit that the plaintiff herein shall get would only be 35%. The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in the bodegas of Menzi. Prior to the expiration of the contract (April 27, 1927), the manager of Menzi notified the plaintiff that the contract for his services would not be renewed. Subsequently, when the contract expired, Menzi proceeded to liquidate the fertilizer business in question. The plaintiff refused to agree to this. It argued, among others, that the written contract entered into by the parties is a contract of general regular commercial partnership, wherein Menzi was the capitalist and the plaintiff the industrial partner. Issue: Is the relationship between the petitioner and Menzi that of partners? Held: The relationship established between the parties was not that of partners, but that of employer and employee, whereby the plaintiff was to receive 35% of the net profits of the fertilizer business of Menzi in compensation for his services for supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it was a contract of copartnership. The written contract was, in fact, a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one- half of the net profits derived by the corporation form certain fertilizer contracts.

According to Art. 116 of the Code of Commerce, articles of association by which two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be commercial, no matter what it class may be, provided it has been established in accordance with the provisions of the Code. However in this case, there was no common fund. The business belonged to Menzi & Co. The plaintiff was working for Menzi, and instead of receiving a fixed salary, he was to receive 35% of the net profits as compensation for his services. The phrase in the written contract en sociedad con, which is used as a basis of the plaintiff to prove partnership in this case, merely means en reunion con or in association with. It is also important to note that although Menzi agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary credit.