CASE NO. 15: G.R. No.
159333 July 31, 2006 agreements show that the operational expenses will be borne by
ARSENIO T. MENDIOLA --- vs. --- COURT OF APPEALS,
NATIONAL LABOR RELATIONS COMMISSION, PACIFIC
FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB
Facts:
Private respondent Pacific Forest Resources, Phils., Inc.
(Pacfor) is a corporation organized and existing under the laws
of California, USA. It is a subsidiary of Cellulose Marketing
International, a corporation duly organized under the laws of
Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on
Representative Office known as Pacific Forest Resources
(Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM),
effective May 1, 1995, "assuming that Pacfor-Phils. is already
approved by the Securities and Exchange Commission [SEC]
on the said date." The Side Agreement outlines the business
relationship of the parties with regard to the Philippine
operations of Pacfor. Private respondent will establish a Pacfor
representative office in the Philippines, to be known as Pacfor
Phils, and petitioner ATM will be its President. Petitioner's base
salary and the overhead expenditures of the company shall be
borne by the representative office and funded by Pacfor/ATM,
since Pacfor Phils. is equally owned on a 50-50 equity by ATM
and Pacfor-usa.
Pacfor’s license to transact business was granted by the SEC to
do business in the Philippines under the name “PACFOR
PHILS” with the purpose of monitoring and coordinating the
market activities for paper products. It also designated petitioner
as its resident agent in the Philippines, authorized to accept
summons and processes in all legal proceedings, and all notices
affecting the corporation.
In March 1997, the side agreement was amended and salary of
petitioner was increased to 78,000 dollars per annum. Both
the representative office and funded by all parties "as equal
partners," while the profits and commissions will be shared
among them.
In July 2000, Petitioner wrote to Kevin Daley, the vice-president
for Asia Pacfor seeking confirmation of his 50% equity of Pacfor
Phils. Pacfor, through William Gleason, its President, replied
that petitioner is not a part-owner of Pacfor Phils. because the
latter is merely Pacfor-USA's representative office and not an
entity separate and distinct from Pacfor-USA. "It's simply a
'theoretical company' with the purpose of dividing the income
50-50." Petitioner presumably knew of this arrangement from
the start, having been the one to propose to private respondent
Pacfor the setting up of a representative office, and "not a
branch office" in the Philippines to save on taxes.
Petitioner claimed that all along he thought he was in a joint
venture with them. On Nov. 2000, Pacfor ordered petitioner to
turn over all its papers, document, files and other materials in
his or ATM Marketing’s possession. He was also required to
remit the 300,000 pesos Christmas giveaway funds for Pacfor
Phils client that the petitioner had already used and Pacfor
withdrew all its offers of settlement and ordered petitioner to
transfer title and turn over the possession of the service car.
This, plus the fact that Pacfor sent letters to certain clients like
Intercontinental Paper Industries and Davao Corrugated Carton
Corp., advising them not to deal with Pacfor Phils but instead
send their concerns directly to the US office made Mendiola
think that he was being illegally dismissed thus, he filed an
illegal dismissal case before the NLRC as well as demands for
separation pay and payment of attorney’s fees.
The Labor Arbiter ruled in his favor. The NLRC reversed the
decision and ruled in favor of Pacfor and that no employer-
employee relationship existed between petitioner and private
respondent because based on the Side Agreement, it concluded
that petitioner is not an employee of private respondent Pacfor,
but a full co-owner (50/50 equity).
Hence the appeal.
Issue: WON Petitioner Mendiola was an employee or a partner?
Petitioner’s contention: Petitioner argues that he is an industrial
partner of the partnership he formed with private respondent
Pacfor, and also an employee of the partnership. Petitioner
insists that an industrial partner may at the same time be an
employee of the partnership, provided there is such an
agreement, which, in this case, is the "Side Agreement" and the
"Revised Operating and Profit Sharing Agreement."
Held:
Petitioner is an employee of private respondent Pacfor and that
no partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is
contributed to the firm capital and of all property that may be
acquired thereby and through the efforts of the members. The
property or stock of the partnership forms a community of
goods, a common fund, in which each party has a proprietary
interest.
In fact, the New Civil Code regards a partner as a co-owner of
specific partnership property. Each partner possesses a joint
interest in the whole of partnership property. If the relation does
not have this feature, it is not one of partnership. This essential
element, the community of interest, or co-ownership of, or joint
interest in partnership property is absent in the relations
between petitioner and private respondent Pacfor. Petitioner is
not a part-owner of Pacfor Phils. William Gleason, private
respondent Pacfor's President established this fact when he
said that Pacfor Phils. is simply a "theoretical company" for the
purpose of dividing the income 50-50. He stressed that
petitioner knew of this arrangement from the very start, having
been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in
the Philippines to save on taxes. Thus, the parties in this case,
merely shared profits. This alone does not make a partnership.
Besides, a corporation cannot become a member of a
partnership in the absence of express authorization by statute or
charter. This doctrine is based on the following considerations:
(1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not
its duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall
manage its own affairs separately and exclusively; and, (2) that
such an arrangement would improperly allow corporate property
to become subject to risks not contemplated by the stockholders
when they originally invested in the corporation. No such
authorization has been proved in the case at bar.
*Re: Labor related ruling*
Be that as it may, we hold that on the basis of the evidence, an employer-
employee relationship is present in the case at bar. The elements to
determine the existence of an employment relationship are: (a) the selection
and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the employee's conduct.
The most important element is the employer's control of the employee's
conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish it. In the instant case, all the foregoing
elements are present. First, it was private respondent Pacfor which selected
and engaged the services of petitioner as its resident agent in the
Philippines. Second, as stipulated in their Side Agreement, private
respondent Pacfor pays petitioner his salary amounting to $65,000 per
annum which was later increased to $78,000. Third, private respondent
Pacfor holds the power of dismissal, as may be gleaned through the various
memoranda it issued against petitioner, placing the latter on preventive
suspension while charging him with various offenses, including willful
disobedience, serious misconduct, and gross neglect of duty, and ordering
him to show cause why no disciplinary action should be taken against him.
Lastly and most important, private respondent Pacfor has the power of
control over the means and method of petitioner in accomplishing his work.
CASE NO. 16: G.R. No. L-25532 February 28, 1969
COMMISSIONER OF INTERNAL REVENUE – VS -
WILLIAM J. SUTER and THE COURT OF TAX APPEALS
Facts:
A limited partnership, named "William J. Suter 'Morcoin' Co.,
Ltd.," was formed by herein respondent William J. Suter as the
general partner, and Julia Spirig and Gustav Carlson, as the
limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. The
firm engaged, among other activities, in the importation,
marketing, distribution and operation of automatic phonographs,
radios, television sets and amusement machines, their parts and
accessories. It had an office and held itself out as a limited
partnership, handling and carrying merchandise, using invoices,
bills and letterheads bearing its trade-name, maintaining its own
books of accounts and bank accounts, and had a quota
allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner
Spirig got married and, thereafter, limited partner Carlson sold
his share in the partnership to Suter and his wife.
The limited partnership had been filing its income tax returns as
a corporation, without objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959 when the latter,
in an assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax against
respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
Issue: Whether or not the partnership was dissolved after the
marriage of the partners, respondent William J. Suter and Julia
Spirig Suter and the subsequent sale to them by the remaining
partner, Gustav Carlson, of his participation of P2,000.00 in the
partnership for a nominal amount of P1.00.
CIR’s contention: the marriage of Suter and Spirig and their
subsequent acquisition of the interests of remaining partner
Carlson in the partnership dissolved the limited partnership, and
if they did not, the fiction of juridical personality of the
partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of
the business; consequently the income tax return of respondent
Suter for the years in question should have included his and his
wife's individual incomes and that of the limited partnership, in
accordance with Section 45 (d) of the National Internal Revenue
Code, which provides as follows:
(d) Husband and wife. — In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable year
shall be filed by either spouse to cover the income of both spouses; ....
He further anchors his argument on the opinion of now Senator
Tolentino in Commentaries and Jurisprudence on Commercial
Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as
follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express
provision in the Code of Commerce, persons prohibited from making
donations to each other are prohibited from entering into universal
partnerships. (2 Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership. (1 Guy
de Montella 58)
Held:
The petitioner-appellant has evidently failed to observe the fact
that William J. Suter "Morcoin" Co., Ltd. was not a universal
partnership, but a particular one. As appears from Articles 1674
and 1675 of the Spanish Civil Code, of 1889 (which was the law
in force when the subject firm was organized in 1947), a
universal partnership requires either that the object of the
association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the
partners may acquire by their industry or work during the
existence of the partnership". William J. Suter "Morcoin" Co.,
Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and
neither one of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter by Article 1677 of the Civil
Code of 1889.
Nor could the subsequent marriage of the partners operate to
dissolve it, such marriage not being one of the causes provided
for that purpose either by the Spanish Civil Code or the Code of
Commerce.
The capital contributions of partners William J. Suter and Julia
Spirig were separately owned and contributed by them before
their marriage; and after they were joined in wedlock, such
contributions remained their respective separate property under
the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter
"Morcoin" Co., Ltd. did not become common property of both
after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and
separate from that of its partners (unlike American and English
law that does not recognize such separate juridical personality),
the bypassing of the existence of the limited partnership as a
taxpayer can only be done by ignoring or disregarding clear
statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to
equate its income with that of the component members. True,
section 24 of the Internal Revenue Code merges registered
general co-partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes.
But this rule is exceptional in its disregard of a cardinal tenet of
our partnership laws, and can not be extended by mere
implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue
vs. University of the Visayas, L-13554, Resolution of 30 October
1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as
authority for disregarding the fiction of legal personality of the
corporations involved therein are not applicable to the present
case. In the cited cases, the corporations were already subject
to tax when the fiction of their corporate personality was pierced;
in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden
upon the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as business
conduits or alter egos of the stockholders, a factor that justified
a disregard of their corporate personalities for tax purposes.
This is not true in the present case. Here, the limited partnership
is not a mere business conduit of the partner-spouses; it was
organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had
been filing its own income tax returns as such independent
entity. The change in its membership, brought about by the
marriage of the partners and their subsequent acquisition of all
interest therein, is no ground for withdrawing the partnership
from the coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the partners did not
enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to
use the partnership as a business conduit to dodge the tax laws.
As the limited partnership under consideration is taxable on its
income, to require that income to be included in the individual
tax return of respondent Suter is to overstretch the letter and
intent of the law. In fact, it would even conflict with what it
specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a
general copartnership (compañia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus,
the code taxes the latter on its income, but not the former,
because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual
capacities for any dividend or share of the profit derived from the
duly registered general partnership (Section 26, N.I.R.C.;
Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp.
88-89).

But it is argued that the income of the limited partnership is

actually or constructively the income of the spouses and forms
part of the conjugal partnership of gains. This is not wholly
correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and
People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the
fruits of the wife's parapherna become conjugal only when no
longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again,
the appellant's argument erroneously confines itself to the
question of the legal personality of the limited partnership, which
is not essential to the income taxability of the partnership since
the law taxes the income of even joint accounts that have no
personality of their own. Appellant is, likewise, mistaken in that
it assumes that the conjugal partnership of gains is a taxable
unit, which it is not. What is taxable is the "income of both
spouses" (Section 45 [d] in their individual capacities. Though
the amount of income (income of the conjugal partnership vis-a-
vis the joint income of husband and wife) may be the same for a
given taxable year, their consequences would be different, as
their contributions in the business partnership are not the same.

The difference in tax rates between the income of the limited

partnership being consolidated with, and when split from the
income of the spouses, is not a justification for requiring
consolidation; the revenue code, as it presently stands, does not
authorize it, and even bars it by requiring the limited partnership
to pay tax on its own income.
CASE NO. 17: G.R. No. 126334 November 23, 2001
EMILIO EMNACE --- vs. ---- COURT OF APPEALS, ESTATE
OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE
WILLIAM TABANAO, JANETTE TABANAO DEPOSOY,
VICENTA MAY TABANAO VARELA, ROSELA TABANAO
and VINCENT TABANAO
Facts:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business concern known as Ma.
Nelma Fishing Industry. Sometime in January of 1986, they
decided to dissolve their partnership and executed an
agreement of partition and distribution of the partnership
properties among them, consequent to Jacinto Divinagracia's
withdrawal from the partnership. Among the assets to be
distributed were five (5) fishing boats, six (6) vehicles, two (2)
parcels of land located at Sto. Niño and Talisay, Negros
Occidental, and cash deposits in the local branches of the Bank
of the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after
Vicente Tabanao's untimely demise in 1994, petitioner failed to
submit to Tabanao's heirs any statement of assets and liabilities
of the partnership, and to render an accounting of the
partnership's finances. Petitioner also reneged on his promise to
turn over to Tabanao's heirs the deceased's 1/3 share in the
total assets of the partnership, amounting to P30,000,000.00, or
the sum of P10,000,000.00, despite formal demand for payment
thereof.
Consequently, Tabanao' s heirs, respondents herein, filed
against petitioner an action for accounting, payment of shares,
division of assets and damages. Petitioner raised the defense
that prescription has set in warranting the immediate dismissal
of the case (among other grounds such as non-payment of
docket fees, improper venue, lack of jurisdiction and lack of
capacity of the estate to sue – all of which are no longer related
to the main topic so i-omit na lang nako. Hehe)
Issue:
WON the action for accounting, payment of shares, division of
assets is barred by prescription?
Held:
The three (3) final stages of a partnership are:
(1) dissolution;
(2) winding-up; and
(3) termination.
The partnership, although dissolved, continues to exist and its
legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners. For as
long as the partnership exists, any of the partners may demand
an accounting of the partnership's business. Prescription of the
said right starts to run only upon the dissolution of the
partnership when the final accounting is done.38
Contrary to petitioner's protestations that respondents' right to
inquire into the business affairs of the partnership accrued in
1986, prescribing four (4) years thereafter, prescription had not
even begun to run in the absence of a final accounting. Article
1842 of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal
with the duty to account, the above-cited provision states that
the right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the contrary.
When a final accounting is made, it is only then that prescription
begins to run. In the case at bar, no final accounting has been
made, and that is precisely what respondents are seeking in
their action before the trial court, since petitioner has failed or
refused to render an accounting of the partnership's business
and assets. Hence, the said action is not barred by prescription.
CASE NO. 18: G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR. --- vs. --- HONORABLE COURT
OF APPEALS and FELICIDAD S. VDA. DE ABROGAR
Facts:
Petitioner is the manager of A.C. Aguila & Sons, Co., a
partnership engaged in lending activities. Private respondent
and her late husband, Ruben M. Abrogar, were the registered
owners of a house and lot, covered by Transfer Certificate of
Title No. 195101, in Marikina, Metro Manila.
On April 18, 1991, private respondent, with the consent of her
late husband, and A.C. Aguila & Sons, Co., represented by
petitioner, entered into a Memorandum of Agreement, which
provided that A.C. Aguila will buy the property from the spouses
and the spouses shall be given 90 days to repurchase the same
for the consideration of 200,000 pesos.
Because the spouses failed to pay, the title over the property
was transferred to A.C. Aguila. After an action for ejectment was
brought by A.C. Aguila to eject spouses from the property, the
spouses now question the validity of the sale.
On appeal the widow, Felicidad now contends that Alfredo
Aguila who is a manager, is not the real party in interest in the
case but A.C. Aguila & Co., against which this case should have
been brought.
Issue: WON the widow’s contention is correct?
Held:
Yes. “Rule 3, 2 of the Rules of Court of 1964, under which the
complaint in this case was filed, provided that "every action
must be prosecuted and defended in the name of the real party
in interest." A real party in interest is one who would be
benefited or injured by the judgment, or who is entitled to the
avails of the suit. This ruling is now embodied in Rule 3, 2 of the
1997 Revised Rules of Civil Procedure. Any decision rendered
against a person who is not a real party in interest in the case
cannot be executed. Hence, a complaint filed against such a
person should be dismissed for failure to state a cause of action.
Under Art. 1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the
partners." The partners cannot be held liable for the obligations
of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair,
or illegal purposes.
In this case, private respondent has not shown that A.C. Aguila
& Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. and
the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A.C.
Aguila & Sons, Co., represented by petitioner.
Hence, it is the partnership, not its officers or agents, which
should be impleaded in any litigation involving property
registered in its name. A violation of this rule will result in the
dismissal of the complaint.
We cannot understand why both the Regional Trial Court and
the Court of Appeals sidestepped this issue when it was
squarely raised before them by petitioner”
CASE NO. 19: G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO
TORRES; and EMETERIA BARING --- vs. ---- COURT OF
APPEALS and MANUEL TORRES
Facts:
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent
Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of respondent, who
then had it registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for
the development of the subdivision. All three of them also
agreed to share the proceeds from the sale of the subdivided
lots.
The project did not push through, and the land was
subsequently foreclosed by the bank.
The sisters now want to recover their shares in their so called
“joint-venture”.
Issues:
1. WON a partnership existed.
2. WON the partnership became null and void when there
was failure to conform to Art. 1771 of the CC.
Held:
1. A reading of the terms embodied in the Agreement
indubitably shows the existence of a partnership pursuant to
Article 1767 of the Civil Code, which provides:
Art. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would
contribute property to the partnership in the form of land which
was to be developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the
said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the
parties to form a partnership.
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate its
use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the
proceeds of which were used for the survey and the subdivision
of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he
made no contribution to the partnership. Under Article 1767 of
the Civil Code, a partner may contribute not only money or
property, but also industry.
2. Article 1773 was intended primarily to protect third persons.
Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771, "The
execution of a public instrument would be useless if there is no
inventory of the property contributed, because without its
designation and description, they cannot be subject to
inscription in the Registry of Property, and their contribution
cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy of
the guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory is
made." The case at bar does not involve third parties who may
be prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay
them 60 percent of the value of the property. They cannot in one
breath deny the contract and in another recognize it, depending
on what momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and courts will not
tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent

courts from considering the Joint Venture Agreement an
ordinary contract from which the parties' rights and obligations
to each other may be inferred and enforced.
CASE NO. 20: G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR. --- vs. --- THE HON. COURT OF
APPEALS and MARIANO E. PECSON
Facts:
Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing
95,000 posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually supervising the
work; that Pecson would receive a commission of P l,000 a
month starting on April 15, 1971 up to December 15, 1971; that
on December 15, 1971, a liquidation of the accounts in the
distribution and printing of the 95,000 posters would be made
Pecson gave Moran P10,000. Moran executed in favor of
Pecson a promissory note in the amount of P20,000 payable in
two equal installments (P10,000 payable on or before June 15,
1971 and P10,000 payable on or before June 30, 1971), the
whole sum becoming due upon default in the payment of the
first installment on the date due, complete with the costs of
collection.
Because of the failure of the venture, Pecson now filed an action
for the recovery of a sum of money made on the alleged
partnership agreement, the return of his contribution of
P10,000.00, payment of his share in the profits that the
partnership would have earned, and, payment of unpaid
commission
Both the RTC and the CA rendered a decision against the
petitioner.
Issue:
1. WON the court a quo’s award of P47,500.00 as the
private respondent's share in the unrealized profits of the
partnership valid?
2. WON the court a quo’s award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.
Held:
1. The award of speculative damages has no basis in fact and
law. The rule is, when a partner who has undertaken to
contribute a sum of money fails to do so, he becomes a debtor
of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages
from the time he should have complied with his obligation (Art.
1788, Civil Code).
As compared to the case of Uy vs. Pinzon, compensatory
damages was awarded there because the appellant therein was
remiss in his obligations as a partner and as prime contractor of
the construction projects in question. This case was decided on
a particular set of facts. We awarded compensatory damages in
the Uy case because there was a finding that the constructing
business is a profitable one and that the UP construction
company derived some profits from its contractors in the
construction of roads and bridges despite its deficient capital.
IN this case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent
would have been a profitable venture. In fact, it was a failure
doomed from the start. There is therefore no basis for the award
of speculative damages in favor of the private respondent.
Article 1797 of the Civil Code provides:
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.
Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by 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 100% profits.
2. YES. It is not justified. The partnership agreement stipulated
that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15,
1971 for a total of eight (8) monthly commissions. The
agreement does not state the basis of the commission. The
payment of the commission could only have been predicated on
relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of
the venture. Since the venture was a failure, the private
respondent is not entitled to the P8,000.00 commission.
CASE NO 21: G.R. No. 31057 September 7, 1929
ADRIANO ARBES, ET AL. --- vs. --- VICENTE POLISTICO, ET
AL.,
Facts: This is an action for liquidation of the funds and property
of an association.
The plaintiffs were members or shareholders, and the
defendants were designated as president-treasurer, directors
and secretary of said association called "Turnuhan Polistico &
Co.”
The trial court, after examinations held that “"Turnuhan Polistico
& Co.” was an unlawful partnership. and sentencing the
defendants jointly and severally to return the amount of
P24,607.80, as well as the documents showing the uncollected
credits of the association, to the plaintiffs in this case, and to the
rest of the members of the said association represented by said
plaintiffs, with costs against the defendants.
The defendants assigned the error that (1) That not all persons
having an interest in this association are included as plaintiffs or
defendants; (2) that the objection to the commissioner's report
should have been admitted by the court below.
Issue: WON the contentions of the defendant is tenable.
WON “charitable institutions” contemplated under Article
1666 of the CC should be included as party defendant.
Held:
1. No. This court held then that in an action against the
officers of a voluntary association to wind up its affairs
and enforce an accounting for money and property in
their possessions, it is not necessary that all members of
the association be made parties to the action. (Borlasa
vs. Polistico, 47 Phil., 345.)
2. The appellants refer to article 1666 of the Civil Code,
which provides:
A partnership must have a lawful object, and must be
established for the common benefit of the partners.
When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in
default of such, to those of the province.
Appellant's contention on this point is untenable.
According to said article, no charitable institution is a
necessary party in the present case of determination of
the rights of the parties. The action which may arise from
said article, in the case of unlawful partnership, is that for
the recovery of the amounts paid by the member from
those in charge of the administration of said partnership,
and it is not necessary for the said parties to base their
action to the existence of the partnership, but on the fact
that of having contributed some money to the partnership
capital. And hence, the charitable institution of the
domicile of the partnership, and in the default thereof,
those of the province are not necessary parties in this
case. The article cited above permits no action for the
purpose of obtaining the earnings made by the unlawful
partnership, during its existence as result of the business
in which it was engaged, because for the purpose, as
Manresa remarks, the partner will have to base his action
upon the partnership contract, which is to annul and
without legal existence by reason of its unlawful object;
and it is self evident that what does not exist cannot be a
cause of action. Hence, paragraph 2 of the same article
provides that when the dissolution of the unlawful
partnership is decreed, the profits cannot inure to the
benefit of the partners, but must be given to some
charitable institution.
(N.B. I will add here the commentary of Manresa as to the effects thereof. Wherefore considering this contract as non-existent,
raison d’ etre for Article 1666) by reason of its illicit object, it cannot give rise to the necessary
action, which must be the basis of the judicial complaint. Furthermore,
it would be immoral and unjust for the law to permit a profit from an
industry prohibited by it.
Commenting on said article Manresa, among other things says:
Hence the distinction made in the second paragraph of this article of
When the subscriptions of the members have been paid to the
this Code, providing that the profits obtained by unlawful means shall
management of the partnership, and employed by the latter in
not enrich the partners, but shall upon the dissolution of the
transactions consistent with the purposes of the partnership may the
partnership, be given to the charitable institutions of the domicile of
former demand the return of the reimbursement thereof from the
the partnership, or, in default of such, to those of the province.
manager or administrator withholding them?
This is a new rule, unprecedented by our law, introduced to supply an
Apropos of this, it is asserted: If the partnership has no valid
obvious deficiency of the former law, which did not describe the
existence, if it is considered juridically non-existent, the contract
purpose to which those profits denied the partners were to be applied,
entered into can have no legal effect; and in that case, how can it give
nor state what to be done with them.
rise to an action in favor of the partners to judicially demand from the
manager or the administrator of the partnership capital, each one's
The profits are so applied, and not the contributions, because this
contribution?
would be an excessive and unjust sanction for, as we have seen,
there is no reason, in such a case, for depriving the partner of the
The authors discuss this point at great length, but Ricci decides the
portion of the capital that he contributed, the circumstances of the two
matter quite clearly, dispelling all doubts thereon. He holds that the
cases being entirely different.
partner who limits himself to demanding only the amount contributed
by him need not resort to the partnership contract on which to base
Our Code does not state whether, upon the dissolution of the unlawful
his action. And he adds in explanation that the partner makes his
partnership, the amounts contributed are to be returned by the
contribution, which passes to the managing partner for the purpose of
partners, because it only deals with the disposition of the profits; but
carrying on the business or industry which is the object of the
the fact that said contributions are not included in the disposal
partnership; or in other words, to breathe the breath of life into a
prescribed profits, shows that in consequences of said exclusion, the
partnership contract with an objection forbidden by law. And as said
general law must be followed, and hence the partners should
contrast does not exist in the eyes of the law, the purpose from which
reimburse the amount of their respective contributions. Any other
the contribution was made has not come into existence, and the
solution is immoral, and the law will not consent to the latter remaining
administrator of the partnership holding said contribution retains what
in the possession of the manager or administrator who has refused to
belongs to others, without any consideration; for which reason he is
return them, by denying to the partners the action to demand them.
not bound to return it and he who has paid in his share is entitled to
(Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-
recover it.
264)
But this is not the case with regard to profits earned in the course of
the partnership, because they do not constitute or represent the -nothing follows-
partner's contribution but are the result of the industry, business or
speculation which is the object of the partnership, and therefor, in
order to demand the proportional part of the said profits, the partner
would have to base his action on the contract which is null and void,
since this partition or distribution of the profits is one of the juridical