Professional Documents
Culture Documents
Facts:
Herein petitioners seek a review of CTA’s decision holding them liable for income tax,
real estate dealer’s tax and residence tax. As stipulated, petitioners borrowed from their father a
certain sum for the purpose of buying real properties. Within February 1943 to April 1994, they
have bought parcels of land from different persons, the management of said properties was
charged to their brother Simeon evidenced by a document. These properties were then leased
or rented to various tenants.
On September 1954, CIR demanded the payment of income tax on corporations, real
estate dealer’s fixed tax, and corporation residence tax to which the petitioners seek to be
absolved from such payment.
Issue: Whether petitioners are subject to the tax on corporations.
Ruling:
The Court ruled that with respect to the tax on corporations, the issue hinges on the
meaning of the terms “corporation” and “partnership” as used in Section 24 (provides that a tax
shall be levied on every corporation no matter how created or organized except general co-
partnerships) This qualifying expression clearly indicates that a joint venture
need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted
for purposes of the tax on corporations.
and 84 (provides that the term corporation includes among others, partnership) of the NIRC.
Pursuant to Article 1767, NCC (provides for the concept of partnership), its essential elements
are: (a) an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties.
It is of the opinion of the Court that the first element is undoubtedly present for petitioners have
agreed to, and did, contribute money and property to a common fund.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the
following: (1P32,000.00 as unpaid overriding commission from January 8, 1988 to February 5,
1988; (2) P100,000.00 as moral damages; and (3) P100,000.00 as exemplary damages. The
plaintiff also prayed for an audit of the finances of 0Geminesse Enterprise from the inception of
its business operation until she was “illegally dismissed” to determine her ten percent (10%)
share in the net profits. She further prayed that she be paid the five percent (5%) “overriding
commission” on the remaining 150 West Bend cookware sets before her “dismissal.”
In their answer,9 Marjorie Tocao and Belo asserted thatthe “alleged agreement” with Anay that
was “neither reduced in writing, nor ratified,” was “either unenforceable or void or
inexistent.” As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her
complaint referred to either her compensation or dismissal, such complaint should have
been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of “ill-
will and resentment” because Marjorie Tocao did not allow her to lord it over in the Geminesse
Enterprise.” Anay had acted like she owned the enterprise because of her experience and
expertise. Hence, petitioners were the ones who suffered actual damages “including unreturned
and unaccounted stocks of Geminesse Enterprise,” and “serious
anxiety, besmirched reputation in the business world, and various damages not less than
P500,000.00.” They also alleged that, to “vindicate their names,” they had to hire
counsel for a fee of P23,000.00. At the pre-trial conference, the issues were limited to:
(a) whether or not the plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b)
whether or not the parties are entitled to damages.10 In their defense, Belo denied that Anay was
supposed to receive a share in the profit of the business. He, however, admitted that the two had
agreed that Anay would receive a three to four percent (3-4%) share in the gross sales of the
cookware. He denied contributing capital to the business or receiving a share in its profits as he
merely served as a guarantor of Marjorie Tocao, who was new in the business.
He attended and/or presided over business meetings of the venture in his capacity as a guarantor
but he never participated in decision-making. He claimed that he wrote
the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from
the business venture at the request of Tocao, because Anay had no other income.
For her part, Marjorie 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 following commissions: thirty-seven percent (37%) on personal sales;
five percent (5%) on gross sales; two percent (2%) on product demonstrations, and two percent
(2%) for recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%)
commission on the net profits.
Marjorie claimed that she got the capital for the business out of the sale of the sewing machines
used in her garments business and from Peter Lo, a Singaporean friend-financier who loaned her
the funds with interest. Because she treated Anay as her “co-equal,” Marjorie
received the same amounts of commissions as her. However, Anay failed to account for stocks
valued at P200,000.00. On April 22, 1993, the trial court rendered a decision the
dispositive part of which is as follows:
“WHEREFORE, in view of the foregoing, judgment is hereby rendered: Ordering defendants to submit
to the Court a formal account as to the partnership affairs for the years 1987 and 1988 pursuant to Art.
1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net profits of
the cookware business; Ordering defendants to pay five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition when plaintiff was wrongfully excluded
from the partnership by defendants; Ordering defendants to pay plaintiff overriding commission on the
total production which for the period covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00; Ordering defendants to pay P100,000.00 as moral damages and P 100,000.00 as exemplary
damages; and Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit.
SO ORDERED.”
The trial court held that there was indeed an “oral
partnership agreement between the plaintiff and the
defendants,” based on the following: (a) there was an
intention to create a partnership; (b) a common fund was established through contributions
consisting of money and industry; and (c) there was a joint interest in the profits
The letter of Roger Muencheberg of West Bend Company stating that he awarded the
distributorship to Anay and Marjorie Tocao because he was convinced that with Marjorie’s
financial contribution and Anay’s experience, the combination of the two would be invaluable to
the partnership, also supported that conclusion. Belo’s claim that he was merely a “guarantor”
has no basis since there was no written evidence thereof as required by Article 2055 of the Civil
Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the
contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to
bigger sales volume. It did not matter that the agreement was not in writing because Article 1771
of the Civil Code provides that a partnership may be “constituted in any form.” The fact that
Geminesse Enterprise was registered in Marjorie Tocao’sname is not determinative of whether or
not the business was managed and operated by a sole proprietor or a partnership. What was
registered with the Bureau of Domestic Trade was merely the business name or style of
Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the
partnership as well as damages or share in the profits “realized from the appropriation of
the partnership business and goodwill.” An innocent partner thus possesses “pecuniary interest in
every existing contract that was incomplete and in the trade name of the co-partnership and
assets at the time he was wrongfully expelled.”
Petitioners’ appeal to the Court of Appeals11 was dismissed, but the amount of damages awarded
by the trial court were reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration was denied by the Court of Appends
for lack of merit.12
Petitioners Belo and Marjorie Tocao are now before thisCourt on a petition for review on
certiorari, asserting that there was no business partnership between them and herein private
respondent Nenita A. Anay who is,therefore, not entitled to the damages awarded to her by
the Court of Appeals. Petitioners Tocao and Belo contend that the Court of Appeals erroneously
held that a partnership existed between them and private respondent Anay because Geminesse
Enterprise “came into being” exactly a year before the “alleged partnership” was formed, and
that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with
petitioner Tocao contributing nothing, without any “memorandum whatsoever regarding
the alleged partnership.”13 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. This Court cannot
set aside factual findings of such courts absent any showing that there is no evidence to support
the conclusion drawn by the court a quo,14 In this case, both the trial court and
the Court of Appeals are one in ruling that petitioners and private respondent established a
business partnership. This Court finds no reason to rule otherwise. To be considered a juridical
personality, a partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and (2) intention on the
part of the partners to divide the profits among themselves.15 It may be constituted in any form; a
public instrument is necessary only where immovable property or real rights are contributed
thereto.16 This implies that since a contract of partnership is consensual, an oral contract of
partnership is as good as a written one. Where no immovable property or real rights are involved,
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 Code17 did not cause the nullification of the partnership. The
pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a juridical
personality separate and distinct from that of each of the partners, even in case of
failure to comply 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 contributed such expertise to the partnership and
hence, under the law, she was the industrial 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 that company’s cookware products; it was through the same efforts that the
business was propelled to financial success. Petitioner Tocao herself admitted private
respondent’s indispensable role in putting up the business when, upon being asked if private
respondent held the positions of marketing manager and vice-president for
sales, she testified thus “A: No, sir at the start she was the marketing manager because there were
no one to sell yet, it’s only me there then her and then two (2) people, so about four (4).
Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz these two (2)
people were given the designation of marketing managers of which
definitely Nita as superior to them would be the Vice
President.”18 By the set-up of the business, third persons were made to
believe that a partnership had indeed been forged between petitioners and private respondents.
Thus, the communication dated June 4, 1986 of Missy Jagler of West
Bend Company to Roger Muencheberg of the same company states:
“Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does
not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory
Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier.
They will continue to gather other key people and build up the organization. All they need is the finance
and the products tosell.”19
On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in the
face of the established fact that he presided over meetings regarding matters
affecting the operation of the business. Moreover, his having authorized in writing on October 7,
1987, on a stationery of his own business firm, Wilcon Builders Supply, that private respondent
should receive thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted
otherwise than that 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. Moreover, if he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,20 he
should have presented documentary evidence therefor. While Article 2055 of the Civil Code
simply provides that guaranty must be “express,” Article 1403, the Statute of Frauds, requires
that “a special promise to answer for the debt, default or miscarriage of another” be in writing.21
Petitioner Tocao, a former ramp model,22 was also a
capitalist in the partnership. She claimed that she herself financed the business. Her and
petitioner Belo’s roles as both capitalists to the partnership with private respondent
are buttressed by petitioner Tocao’s 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 Belo’s first name, William, and her nickname,
Jiji.23 The special relationship between them dovetails with petitioner Belo’s claim that he was
acting in behalf of petitioner Tocao. Significantly, in the early stage of the
business operation, petitioners requested West Bend Company to allow them to “utilize their
banking and trading facilities in Singapore” in the matter of importation and payment of the
cookware products.24 The inevitable conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the partnership of distributing cookware with
private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employer-
employee relationship between petitioners and private respondent. While it is true that the receipt
of a percentage of net profits constitutes only prima facie evidence that the
recipient is a partner in the business,25 the evidence in the case at bar controverts an employer-
employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship,26 in-against the
guarantor until the debt is liquidated. A conditional obligation may also be secured.
Including selection of people who would constitute the
administrative staff and the sales force. Secondly,
petitioner Tocao’s admissions militate against an employeremployee
relationship. She admitted that, like her who
owned Geminesse Enterprise,27 private respondent received
only commissions and transportation and representation
allowances28 and not a fixed salary.29 Petitioner Tocao
testified:
“Q: Of course. Now, I am showing to you certain
documents already marked as Exhs. ‘X’ and ‘Y.’ Please
go over this. Exh. ‘Y’ is denominated ‘Cubao overrides’
8-21-87 with ending August 21, 1987, will you please
go over this and tell the Honorable Court whether you
ever came across this document and know of your own
knowledge the amount—
A: Yes, sir this is what I am talking about earlier. That’s
the one I am telling you earlier a certain percentage
for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive,
there is a figure here and words which I quote:
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‘Overrides Marjorie Ann Tocao P21,410.50’ this means
that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are
saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I
quote ‘Nita D. Anay P21,410.50’, what is this?
A: That’s her overriding commission.
Q: Overriding commission, I see. Of course, you are
telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because
the way I look at her kasi, you know in a sense because
of her expertise in the business she is vital to my
business. So, as part of the incentive I offer her the
same thing.
______________
27 TSN, November 12, 1991, p. 54.
28 Ibid., pp. 52-53.
29 Ibid., p. 50.
35
VOL. 342, OCTOBER 4, 2000 35
Tocao vs. Court of Appeals
Q: So, in short you are saying that this you have shared
together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were
treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: Iam calling again your attention to Exh. ‘Y’ ‘Overrides
Makati the other one is—
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides
Marjorie Ann Tocao P15,314.25’ the amount there you
will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation,
promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay
P15,314.25 that is also an indication that she received
the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by
coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your
equal?
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A: Yes, sir.” (Italics supplied.)30
If indeed petitioner Tocao was private respondent’s
employer, it is difficult to 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
a formal accounting of the business and to receive her share in the net profit. 32
36
36 SUPREME COURT REPORTS ANNOTATED
Tocao vs. Court of Appeals
The fact that the cookware distributorship was operated
under the name of Geminesse Enterprise, a sole
proprietorship, is of no moment. What was registered with
the Bureau of Domestic Trade on August 19, 1987 was
merely the name of that enterprise.33 While it is true that
in her undated application for renewal of registration of
that firm name, petitioner Tocao indicated that it would be
engaged in retail of “kitchenwares, cookwares, utensils,
skillet,”34 she also admitted that the enterprise was only
“60% to 70% for the cookware business,” while 20% to 30%
of its business activity was devoted to the sale of water
sterilizer or purifier.35 Indubitably then, the business name
Geminesse Enterprise was used only for practical reasons
—it was utilized as the common name for petitioner Tocao’s
various business activities, which included the
distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals
did not return the “unaccounted and unremitted stocks of
Geminesse Enterprise amounting to P208,250.00.”36
Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves
the existence of a partnership between them. In Idos v.
Court of Appeals, this Court said:
“The best evidence of the existence of the partnership, which was
not yet terminated (though in the winding up stage), were the
unsold goods and uncollected receivables, which were presented to
the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners, x x
x.”37
It is not surprising then that, even after private respondent
had been unceremoniously booted out of the partnership in
October 1987, she still received her overriding commission
until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded
private respondent from the partnership to reap for herself
and/or for petitioner Belo financial gains resulting from private
respondent’s efforts to make the business venture a
success. Thus, as petitioner Tocao became adept in the
business operation, she started to assert herself to the
extent that she would even shout at private respondent in
front of other people.38 Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to
hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent
was no longer necessary in the business operation,39 and
resulted in a falling out between the two. However, a mere
falling out or misunderstanding between partners does not
convert the partnership into a sham organization.40 The
partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent
has no fixed term and is therefore a partnership at will
predicated on their mutual desire and consent, it may be
dissolved by the will of a partner. Thus:
“x x x. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner’s capability to give it, and
the absence of cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in
good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability
for damages.”41
An unjustified dissolution by a partner can subject him to
action for damages because by the mutual agency that
arises in a partnership, the doctrine of delectus personae
allows the partners to have the power, although not
necessarily the right to dissolve the partnership.42
_____________
38 TSN, June 14, 1989, pp. 5-6.
39 TSN, November 12, 1991, p. 35.
40 Muñasque v. Court of Appeals, 139 SCRA 533, 540 (1985).
41 Ortega v. Court of Appeals, 315 Phil. 573, 580-581; 245 SCRA 529,
535-536 (1995).
42 Ibid., at p. 581.
38
38 SUPREME COURT REPORTS ANNOTATED
Tocao vs. Court of Appeals
In this case, petitioner Tocao’s unilateral exclusion of
private respondent from the partnership is shown by her
memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vicepresident
for sales of Geminesse Enterprise.43 By that
memo, petitioner Tocao effected her own withdrawal from
the partnership and considered herself as having ceased to
be associated with the partnership in the carrying on of the
business. Nevertheless, the partnership was not
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1.
2.
terminated thereby; it continues until the winding up of
the business.44
The winding up of partnership affairs has not yet been
undertaken by the partnership. This is manifest in
petitioners’ claim for stocks that had been entrusted to
private respondent in the pursuit of the partnership
business.
The determination of the amount of damages
commensurate with the factual findings upon which it is
based is primarily the task of the trial court.45 The Court of
Appeals may modify that amount only when its factual
findings are diametrically opposed to that of the lower
court,46 or the award is palpably or scandalously and
unreasonably excessive.47 However, exemplary damages
that are awarded “by way of example or correction for the
public good,”48 should be reduced to P50,000.00, the amount
correctly awarded by the Court of Appeals. Concomitantly,
the award of moral damages of P100,000.00 was excessive
and should be likewise reduced to P50,000.00. Similarly,
attorney’s fees that should be granted on account of the
award of exemplary damages and petitioners’ evident bad
faith in refusing to satisfy private respondent’s plainly
valid, just and demandable claims,49 appear to have been
excessively granted by the trial court and should therefore
be reduced to P25,000.00.
____________
43 Exh. 7.
44 Singsong v. Isabela Sawmill, 88 SCRA 623 (1979).
45 Air France v. Carrascoso, 124 Phil. 722, 742; 18 SCRA 155 (1966).
46 Prudencio v. Alliance Transport System, Inc., 148 SCRA 440, 447
(1987).
47 Ibid., Philippine Airlines, Inc. v. Court of Appeals, 226 SCRA 423,
425 (1993).
48 Civil Code, Art. 2229.
49 Civil Code, Art. 2208 (1) & (5).
39
VOL. 342, OCTOBER 4, 2000 39
Tocao vs. Court of Appeals
WHEREFORE, the instant petition for review on certiorari
is DENIED. The partnership among petitioners and
private respondent is ordered dissolved, and the parties are
ordered to effect the winding up and liquidation of the
partnership pursuant to the pertinent provisions of the
Civil Code. This case is remanded to the Regional Trial
Court for proper proceedings relative to said dissolution.
The appealed decisions of the Regional Trial Court and the
Court of Appeals are AFFIRMED with MODIFICATIONS,
as follows—
Petitioners are ordered to submit to the Regional
Trial Court a formal account of the partnership
affairs for the years 1987 and 1988, pursuant to
Article 1809 of the Civil Code, in order to determine
private respondent’s ten percent (10%) share in the
net profits of the partnership;
Petitioners are ordered, jointly and severally, to pay
private respondent five percent (5%) overriding
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3.
4.
commission for the one hundred and fifty (150)
cookware sets available for disposition since the
time private respondent was wrongfully excluded
from the partnership by petitioners;
Petitioners are ordered, jointly and severally, to pay
private respondent overriding commission on the
total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to
P32,000.00;
Petitioners are ordered, jointly and severally, to pay
private respondent moral damages in the amount of
P50,000.00, exemplary damages in the amount of
P50,000.00 and attorney’s fees in the amount of
P25,000.00.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and
Pardo, JJ., concur.
1. Petition denied, judgments of the trial court and the
e
5 Scra 645 5. Afisco Insurance Corp. v CA 302 Scra 13
B
Although the project of partition was approved by the Court, no attempt was made to divide the
properties and they remained under the management of Oña who used said properties in business by
leasing or selling them and investing the income derived therefrom and the proceeds from the sales
thereof in real properties and securities. As a result, petitioners’ properties and investments
gradually increased. Petitioners returned for income tax purposes their shares in the net income but
they did not actually receive their shares because this left with Oña who invested them.
Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore,
subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners asked for
reconsideration, which was denied hence this petition for review from CTA’s decision.
Issue:
W/N there was a co-ownership or an unregistered partnership
W/N the petitioners are liable for the deficiency corporate income tax
Held:
Unregistered partnership. The Tax Court found that instead of actually distributing the estate of
the deceased among themselves pursuant to the project of partition, the heirs allowed their
properties to remain under the management of Oña and let him use their shares as part of the
common fund for their ventures, even as they paid corresponding income taxes on their respective
shares.
Yes. For tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs in proportion to
their respective shares in the inheritance as determined in a project partition either duly executed in
an extrajudicial settlement or approved by the court in the corresponding testate or intestate
proceeding. The reason is simple. From the moment of such partition, the heirs are entitled already
to their respective definite shares of the estate and the incomes thereof, for each of them to manage
and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection therewith. If after such partition, he allows his
share to be held in common with his co-heirs under a single management to be used with the intent
of making profit thereby in proportion to his share, there can be no doubt that, even if no document
or instrument were executed, for the purpose, for tax purposes, at least, an unregistered partnership
is formed.
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships —
7. Lim Tong Lim v Phil Fishing Gear Industries, Inc. 317 scra 728
FACTS: Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him.
The three agreed to purchase two fishing boats but since they do not have the money they borrowed from
one Jesus Lim the brother of Lim Tong Lim. Subsequently, they again borrowed money for the purchase
of fishing nets and other fishing equipments. Yao and Chua represented themselves as acting in behalf of
“Ocean Quest Fishing Corporation” (OQFC) and they contracted with Philippine Fishing Gear Industries
(PFGI) for the purchase of fishing nets amounting to more than P500k. However, they were unable to pay
PFGI and hence were sued in their own names as Ocean Quest Fishing Corporation is a non-existent
corporation. Chua admitted his liability while Lim Tong Lim refused such liability alleging that Chua and
Yao acted without his knowledge and consent in representing themselves as a corporation.
ISSUE: Whether Lim Tong Lim is liable as a partner
HELD: Yes. It is apparent from the factual milieu that the three decided to engage in a fishing business.
Moreover, their Compromise Agreement had revealed their intention to pay the loan with the proceeds of
the sale and to divide equally among them the excess or loss. The boats and equipment used for their
business entails their common fund. The contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally among them also shows that they had indeed formed
a partnership. The principle of corporation by estoppel cannot apply in the case as Lim Tong Lim also
benefited from the use of the nets in the boat, which was an asset of the partnership. Under the law on
estoppel, those acting in behalf of a corporation and those benefited by it, knowing it to be without valid
existence are held liable as general partners. Hence, the question as to whether su ch was legally formed
for unknown reasons is immaterial to the case.
FACTS:
Tan Eng Kee and Tan Eng Lay was alleged by the heirs of Tan Eng Kee to have formed a
partnership under the name Benguet Lumber. Thus, when the said company was
turned into a corporation, Benguet Lumber Company, the heirs filed a complaint for
the proper accounting of the assets of the partnership transferred to the corporation
and their shares of the decedent partner Tan Eng Kee as heirs.
However, Tan Eng Lay contested that Tan Eng Kee was merely an employee and that
Benguet Lumber was his sole proprietorship. Thus, the heirs averred that there was an
oral formation of a partnership on the basis that:
1. Tan Eng Kee commanded and supervised the employees along with Tan Eng Lay;
2. Tan Eng Kee also determined the price at which the stocks were sold;
3. Tan Eng Kee also placed orders to the suppliers; and
4. Both partners’ families lived together in the same compound.
HELD:
No. The Court held that a partnership was not formed considering the circumstances.
While the Court acknowledged that an oral and unwritten partnership may indeed be
formed, the Court held that the circumstances in the case at bar falls short of proving
the existence of a partnership.
Art. 1769 was applied which enumerated the rules in determining a partnership. In this
case, the best evidence of a partnership – a contract of partnership or articles of
partnership – was non-existent.
Furthermore, the NCC provides that in case of real property or where the capital is
more than P3,000.00, the execution of a contract is necessary and that a public
instrument must be executed.
While it can be said that the NCC was still not in effect when the supposed partnership
was formed, the other circumstances still fall short of proving a partnership.
Aside from respondents’ arguments, the Court made notice of the fact that Tan Eng
Kee never asked for accounting to assess his share in the profits and losses. Moreover,
the alleged contribution of Tan Eng Kee of 80 pieces of G.I. sheets is insufficient to
prove the existence of a partnership since co-ownership or co-possession is not an
indicium of the existence of a partnership.
The plaintiff-appellant claimed that he, the defendant, and one Castro were partners in the
management of a cockpit. The defendant denied this. The court found that no such partnership
existed and ordered judgment for the defendant. The plaintiff moved for a new trial, which was
denied.
It is not contradicted that the plaintiff demanded by letter of the defendant a settlement of their
accounts. These demands where answered by Rallos with the following letter promising that he is
working on the accounts and will have them ready tomorrow morning. However, it did not push
through so the defendant wrote another letter to the plaintiff that he is supposed to be indebted to
him due to the one thousand pesos from a previous contract and should not be accused as an
embezzler.
In the preceding year, the defendant sent to the plaintiff statements of the business for the months of
June, July, and August. They are in legal effect the same. The one for July is as follows:
That the plaintiff rendered services in the management of the cockpit, and that the defendant paid
him money on account of the cockpit, is undisputed.
The defendant, after denying that the plaintiff was his partner, testified, among other things, as
follows:
The profits were divided. A portion was given to two friends, Señores Duterte and Castro, but
not as partners. A portion was given to Señor Duterte solely because he was a friend who
aided and encouraged the cockpit. As a private individual, he had no duty to perform, except
when he had to preside at the cockpit. I am not aware that they, or either of them, rendered
other services. I did not tell them the reason why I gave them a share. I paid them for my
pleasure, as friends, Duterte had no legal interest.
Castro, another other supposed partner, and a witness for the defendant, denied that he was such a
partner, but his testimony is in part as follows:
We have, then, the testimony of the plaintiff that he made a verbal contract of partnership with the
defendant for this business.
The reason which the defendant gives for paying the plaintiff money is not credible.
That there was an agreement to share the profits is clearly proved by the accounts submitted. The
plaintiff testified that the profits and losses were to be shared equally. But even omitting this
testimony, the case is covered by article 1689 of the Civil Code, which provides that, in the absence
of agreement as to the losses, they shall be shared as the gains are.
Article 1668 of the Civil Code is not applicable to the case. No real estate was contributed by any
member. The partnership did not become the owner of the cockpit. It is undisputed that this was
owned by the defendant and that the partnership paid him ten dollars a day for the use of it.
The finding of fact by the court below, that there was no partnership, at least to September 1, 1901,
was plainly and manifestly against the evidence, and for that reason a new trial of this case must be
had. In this new trial, if the evidence is the same as upon the first trial, the plaintiff will be entitled to
an accounting, at least to September 1, 1901, and for such further term as the proof upon the new
trial shows, in the opinion of the court below, that the partnership existed; that accounting can be
had in this suit and a final judgment rendered for the plaintiff if any balance appears in his favor. No
second or other suit will be necessary.
The judgment of the court below is reversed and the case remanded for a new trial.
10. Estanislao, Jr. v CA 160 scra 830
11. Borja v. Addison 44 Phil 885
The lease was for a term of 2 years but was only occupied for 13 months and the rent was paid. The
Lawton Post then abandoned and an action was commenced to recover the rent for the unexpired term
Judgment was rendered in the court below in favor of the defendant McCabe, acquitting him of
the complaint. Judgment was rendered also against the Veteran Army of the Philippines for the
costs. From this judgment, the last-named defendant has appealed. The plaintiff did not appeal
from the judgment acquitting defendant McCabe of the complaint. It is claimed by the appellant
that the action can not be maintained by the plaintiff, The Great Council of the
United States of the Improved Order of Red Men, as this organization did not make the contract
of lease.
It is also claimed that the action can not be maintained against the Veteran Army of the
Philippines because it never contracted, either with the plaintiff or with Apache
Tribe, No. 1, and never authorized anyone to so contract in its name.
It is difficult to determine the exact nature of the defendant organization. It is of course not a
mercantile partnership. There is some doubt as to whether it is a civil partnership.
It seems to be the opinion of the commentators that where the society is not constituted for the
purpose of gain, it does not fall within this article of the Civil Code. Such an
organization is fully covered by the Law of Associations of 1887, but that law was never
extended to the Philippine Islands. According to some commentators it would be governed by
the provisions relating to the community of property. However, the questions thus presented we
do not find necessary to, and do not resolve. it is necessary for the appellee to prove that the
contract in question was executed by some one authorized to do so by the Veteran Army of the
Philippines. One partner, therefore, is empowered to contract in the name of the partnership only
when the articles of partnership make no provision for the management of the
partnership business.
the plaintiff Paulino Acosta and the defendant Pablo Arellano, by means of
public instrument formed a partnership for the purpose of engaging in the purchase and sale of
lumber of various kinds in the Province of Ilocos Norte, Philippine Islands, with a capital of
P3,000, contributed by the plaintiff as capitalist partner, the defendant Pablo Arellano being an
industrial partner and the other defendant as surety for the latter, as evidenced by said instrument
hereto attached, and which is acknowledged by the parties as the instrument executed by them.
That the term for which said partnership was to exist has not been fixed. That upon the
organization of the partnership, the partners agreed: (a) That the defendant Pablo Arellano, as
industrial partner with the necessary bond, would be the manager thereof, in then understanding
that he should invest the capital in
the acquisition and sale of Philippine lumber,
without any intervention on the part of the plaintiff as to the price thereof, which was entirely left
to
Pablo Arellano's discretion; (b) that the defendant
Pablo Arellano should submit a liquidation of
accounts at the end of every month in order to show
the number of cubic meters of lumber sold during
the preceding month; (c) that the plaintiff would be
entitled to the sum of P5 as his profit on every cubic
meter of lumber sold, irrespective of the price at
which it was disposed of. That the said capital of P3,000 has been invested by
the def endant Pablo Arellano, as manager of the
partnership, in the acquisition for said partnership
of one hundred, cubic meters of different kinds of
lumber and in the transportation thereof from the
municipality of Bangui to that of Laoag, Ilocos
Norte, which transportation was done by means of
trucks and carts prior to April 15, 1927, on which
date all the aforesaid one hundred cubic meters of
lumber had already been transported, in accordance
with the agreement between the plaintiff and the
defendant Pablo Arellano contained in the public
instrument under which the partnership had been
organized.
That the one hundred cubic meters of lumberin
question consisted mostly of lumber which the
defendant Pablo Arellano had purchased at public
auction in the municipality of Bangui, Ilocos Norte, and that which was cut under License No.
744-D,
for cutting timber, issued to Pablo Arellano, as
agreed upon at the organization of the partnership
in question and evidenced by the public instrument
under which it was organized. That prior to and after the filing of the complaint in
the above entitled case, that is, on May 25, 1927,
the defendant Pablo Arellano, as manager of the
partnership, has been selling lumber from the one
hundred cubic meters in question but to date the
plaintiff has not yet received his profit of P5 on
every cubic meter of lumber sold prior to the filing
of the defendant's answer to the complaint of June
18, 1927, due to the said plaintiff's refusal to
receive the same when it was offered him by the
defendant PabloArellano. The latter claims that he has rendered to
the plaintiff an accounting of the sales in question
before the filing of the answer, while the former,
that is the plaintiff, claims that the defendant has
not done so. The trial court based its appealed judgment mainly on the
contract entered into by the parties on March 6, 1927
(Exhibit A, the Spanish translation of which is Exhibit A-
1), the most important clauses of which read as follows:
That I, Paulino Acosta, party of the first part,
deliver to Pablo Arellano, party of the second part,
the sum of three thousand pesos, Philippine
currency, to be used as capital in the cutting of
timber purchased by him at public auction in the
town of Bangui, Province of Ilocos Norte, and in' the
cutting of timber under License No. 744-D, all of
which timber amount to 100 cubic meters of
different kinds; and that said Pablo Arellano shall
bring all of such timber to Laoag, Ilocos Norte, until
April 15, 1927.
That I shall not charge any interest on the three
thousand pesos which I have delivered to said Pablo
Arellano but we have agreed that f or every cubic
meter of said lumber that he may sell, he shall
deliver to me the sum of five pesos as my share ofthe profits thereon. I must not intervene as to
the
price at which he desires to sell the lumber. That at
the end of every month, the number of cubic meters
of lumber sold shall be examined and said Pablo
Arellano shall deliver to me my share of the profits
at .the rate of five pesos
for every cubic meter, as above stated. That upon
refunding to me the capital, I shall be bound to
issue a receipt therefor to Pablo Arellano, for his
safekeeping, and so on until he shall have refunded
to me the total amount of three thousand pesos,
which I had delivered to him as capital.
That I, Pablo Arellano, of the second part, agree to
and accept all the conditions above stipulated. And
for the receipt of the three thousand pesos from
Paulino Acosta, I present as my guarantor Nicolas
Llacuna, of age and resident of Laoag, Ilocos Norte,
who shall be held responsible for the said three
thousand pesos in case of my failure to refund the
same. We have further agreed that the timber
which I shall cut shall not be liable for the capital of
three thousand pesos but said amount shall be
refunded in cash to Paulino Acosta.
"We, Paulino Acosta and Pablo Arellano, have furthermore agreed
that in case I, Pablo Arellano, shall fail to comply with the
stipulations of this contract, and in consequence thereof court
proceedings shall be instituted, I will be held responsible and will
pay all the expenses occasioned thereby together with attorney's
fees.
"I, Nicolas Llacuna, likewise aver that I agree and am willing
to file a bond in favor of Paulino Acosta for the three thousand
pesos which Pablo Arellano has received from him, and bind
myself that all my property described herein below shall be liable
upon said Pablo Arellano's failure to comply with the stipulations
of this contract."
The appellants assign the f ollowing alleged errors, to wit:
"FIRST ERROR
"for every cubic meter, as above stated. That upon
refunding to me the capital, I shall be bound to
issue a receipt therefor to Pablo Arellano, for his
safekeeping, and so on until he shall have refunded
to me the total amount of three thousand pesos,
which I had delivered to him as capital.
That I, Pablo Arellano, of the second part, agree to
and accept all the conditions above stipulated. And
for the receipt of the three thousand pesos from
Paulino Acosta, I present as my guarantor Nicolas
Llacuna, of age and resident of Laoag, Ilocos Norte,
who shall be held responsible for the said three
thousand pesos in case of my failure to refund the
same. We have further agreed that the timber
which I shall cut shall not be liable for the capital of
three thousand pesos but said amount shall be
refunded in cash to Paulino Acosta.
"We, Paulino Acosta and Pablo Arellano, have furthermore agreed
that in case I, Pablo Arellano, shall fail to comply with the
stipulations of this contract, and in consequence thereof court
proceedings shall be instituted, I will be held responsible and will
pay all the expenses occasioned thereby together with attorney's
fees.
"I, Nicolas Llacuna, likewise aver that I agree and am willing
to file a bond in favor of Paulino Acosta for the three thousand
pesos which Pablo Arellano has received from him, and bind
myself that all my property described herein below shall be liable
upon said Pablo Arellano's failure to comply with the stipulations
of this contract."
The appellants assign the f ollowing alleged errors, to wit:
"FIRST ERROR
"The lower court erred in holding in its judgment that the concept
of partnership, as expressed by the provisions of articles 1665 of
the Civil Code and 116 of the Code of Commerce, is entirely in
conflict with the terms of the contract in question; in holding that
the sum of P3,000 was contributed not as a common fund of a
partnership but as a loan to Pablo Arellano (pp. 20 and 21 of the
Bill of Excep-tions); and in holding as interest the share or profit of P5 on every
cubic meter of lumber which may be sold.
9/7/2020 PHILIPPINE REPORTS ANNOTATED VOLUME 059
central.com.ph/sfsreader/session/00000174687fda4507304a9c003600fb002c009e/t/?o=False 5/6
"SECOND ERROR
"The lower court erred in not having given weight to the
documentary and oral evidence of the defense as well as the
evidence presented on the counterclaim.
"THIRD ERROR
"The lower court erred in deciding this case without adjusting
its judgment to the legal provisions of the Code of Commerce
applicable thereto, in conformity with the stipulation of facts, the
amended complaint and the evidence presented; and in not having
ordered a previous liquidation of the partnership with the
appointment of a commissioner to examine the accounts thereof in
order to determine the lawful obligations arising therefrom. "FOURTH ERROR
"The lower court erred in not giving weight to the evidence on
the counterclaim.
"FIFTH ERROR
"The lower court erred in condemning the def endant Pablo
Arellano to refund the sum of P3,000 and the defendant Nicolas
Llacuna to subsidiarily pay the sum in question, and in ordering
both to pay the costs of the proceedings."
In the opinion of this court, the only points raised in this
appeal are: (1) The nature of the contract entered into by
the parties and the effects thereof upon each of them; (2)
the responsibility of the co-defendant Nicolas Llacuna, and
(3) the tenableness of the defendants' counterclaim.
The court interpreted the nature of the contract entered
into by the parties by considering only the terms thereof
and absolutely disregarding the stipulation of facts. This
court is of the opinion that the best way of interpreting thecontract in question is to abide by the
stipulation of factsentered into by the parties because it reflects their true
intention. According to the said stipulation, there is no
question that the contract executed was one of civil
partnership wherein the plaintiff alone contributed the
capital of P3,000 and the defendant contributed his
industry and was made the manager of the lumber
business in which they were engaged. With respect to
Llacuna, his intervention was that of a mere surety who
answered for the refund to the plaintiff by Arellano of the
capital contributed by the former. However, his liability
should be determined after the liquidation of the business
operations of the partnership. If the partnership failed and
the capital was lost in consequence of legitimate business
operations, there is not the least doubt but that the surety
should not be held liable, even subsidiarily, for the refund
of the capital in question. In order to arrive at this state of
affairs, it is necessary to make a liquidation of the
business, which is one of the remedies prayed for by the
plaintiff in his amended complaint
The trial court dismissed the defendants' counterclaim
on the ground that the same has not been established by
the evidence. This court is convinced that such conclusion
is correct and should not be modified.
Wherefore, the judgment appealed from is hereby partly
reversed and the defendant Pablo Arellano is hereby
ordered to submit within thirty days a liquidation of the
business of the partnership in question and the court shall
proceed to approve the same after hearing the parties
concerned. If it should appear from the result thereof that
the surety, Llacuna, is answerable for any amount of
money, the court shall likewise render judgment in
conformity with such findings. The appealed judgment is
hereby affirmed with respect to the defendants'
counterclaim, without special pronouncement as to the
costs of this instance. So ordered.
Held: That
the contract executed was one of civil partnership, the
purpose of which was to engage in the purchase and sale
of lumber, with the plaintiff as capitalist partner, the
defendant P. A. as industrial partner and the co-defendant
N. Ll. as surety of the latter.
14. Bestida v. Menzi 58 Phil 188
FACTS:
J.M Menzi, together with his family, owns 99% of the capital stock of Menzi & Co, Inc.
together with two others constituting the board of directors. Among various
businesses, Menzi & Co, Inc. is also engaged in the fertilizer business, which they sell
along with the other products they offer under the company.
Bastida was not re-employed upon the expiration of his contract with Menzi & Co.
However, Bastida averred that the contract existing between him and the corporation
was that of a partnership for having contributed his industry in exchange of 35% in th e
share of profits.
Thus, he filed a complaint to have Menzi & Co give a proper accounting of his share and
that the books should be revealed to him. Furthermore, for being a partner, he further
prays to have his share in the goodwill and trademark of the partnership.
ISSUE:
Was a partnership formed between Bastida and Menzi & Co?
HELD:
No. The Court held that no partnership was formed and that Bastida was merely an
employee of Menzi & Co. The Court maintained that although Bastida had a share of
35% in the net profits of the fertilizer business in compensation for his services of
supervising the mixture of the fertilizers, neither the provisions of the contract nor the
conduct of the parties justified the finding that it was a contract of partnership.
Bastida never made any objection as to the defendant’s manner of keeping the
accounts or to the charges. On the contrary, he approved and signed every year the
balance sheet and the profit and loss statement. It was only when plaintiff’s contract
was about to expire and his contract was not to be renewed that he made objections.
To this, the court applied Art. 116 of the Code of Commerce – which required a
common fund to form a partnership. In the case at bar, there was no common fund
belonging to the parties as joint owners or partners.
NATURE: Two consolidated petitions seeking review of the amended CA decision. *NOT SURE if I
understood the case correctly. SC kept quoting the SEC/CA decisions without really explaining
anything. • • Aug. 1962 - Delaware corp. American Standard Inc. (ASI), Saniwares, and Filipino
investors entered into an Agreement: ASI and investors agreed to participate in the ownership of
an enterprise engaged in manufacturing vitreous china and sanitary wares in PH, selling in PH
and abroad. o Operations in PH shall be carried on by an incorporated enterprise and the name
of the corporation shall initially be "Sanitary Wares Manufacturing Corporation". Relevant
provisions of the Agreement (re: nomination and election of directors): 3. Articles of
Incorporation. (a) The Articles of Incorporation of the Corporation shall be substantially in the
form annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for: (1) Cumulative voting for directors; 5. Management. (a) The management
of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals.
As long as American-Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by American-Standard, and the
other six shall be designated by the other stockholders of the Corporation. • • • • • • • • At ASI's
request, Agreement contained provisions protecting it as a minority group, including grant of
veto powers over a number of corporate acts and right to designate certain officers. ASI's 30%
capital stock was increased to 40%. The corporation was registered with the BOI for availment of
incentives with condition: at least 60% of capital stock shall be owned by PH nationals. Business
prospered but the relations between parties deteriorated. Filipino group wanted to expand the
export operations; ASI objected as it had other subsidiaries/ JV groups in the proposed
countries. Mar. 1983 - Annual stockholders' meeting; elections were held, chaired by Baldwin
Young. Nominees: o ASI (3): Wolfgang Aurbach, John Griffin, and David Whittingham. o Fil.
investors (6): Ernesto Lagdameo Sr. & Jr., Enrique Lagdameo, Raul Boncan, George Lee, and
Young. o Eduardo Ceniza then nominated Luciano Salazar, who in turn nominated Charles
Chamsay. o Chairman Young ruled the last 2 nominations out of order based on §5(a) of the
Agreement + consistent practice of nominating only 9 persons for the 9-member BOD, + legal
counsel's advice. o Heated arguments ensued. Votes were cast for the different nominees
including Salazar and Chamsay. Chairman nevertheless instructed the Secretary to cast all votes
equally in favor of the first 9. Meeting was adjourned. Chairman threatened to have protesters
bodily thrown out. o ASI Group, Salazar, and other stockholders allegedly representing 53-54%
of the shares of Saniwares decided to continue the meeting at the elevator lobby. § ASI
nominated Aurbach, Griffin, Whittingham, and Chamsay. Salazar voted for himself. These 5 were
certified as elected directors by the Acting Secretary Andres Gatmaitan. These incidents
triggered separate petitions filed at SEC (both sets claiming to be legitimate directors). 1.
Preliminary injunction by Saniwares, Lagdameo, et al. vs. Salazar and Chamsay 2. Quo warranto
and application for receivership by the Aurbach group vs. the Lagdameo group SEC upheld the
election of the Lagdameo group; dismissed the quo warranto petition. Affirmed by SEC en banc.
(Note: cases were consolidated and jointly heard.) IAC remanded to SEC with directive that a
new stockholders' meeting be ordered convoked ASAP. On MR, CA upheld the SEC and
directed: In all subsequent elections, ASI cannot nominate more than 3 directors; Filipino
stockholders shall not interfere in ASI's choice; Filipino stockholders can nominate only 6 (if they
cannot agree on the 5, they shall vote among themselves, with cumulative voting to be allowed
but without interference from ASI). VILLARAMA, BIANCA DANICA S. PAGE 1 OF 3 CASE # 14
AURBACH GROUP ARGUES: The Agreement should be construed strictly. Agreement clearly
shows intent to form a corporation, not a JV. Admission of evidence showing the intention to
form a JV violates the parol evidence rule (Rule 130, §7). CA prohibited stockholders from
exercising their full voting rights represented by number of shares, amounting to a deprivation
of property rights without due process of law (basically, they should be allowed to use their
cumulative voting rights in the corporation as a whole, not just within their group as foreign
stockholders). LAGDAMEO GROUP ARGUES: Agreement failed to state parties' true intent.
Parties intended to enter into a joint venture (JV) enterprise. CA did not categorically rule that
they (Lagdameo et al.) were the duly elected directors. Also, cumulative voting should be struck
down; the Agreement uses "designate", hence the 6 directors allotted to the Fil. stockholders
should be selected by consensus. MAIN ISSUE: Who were the duly elected directors of Saniwares
for 1983? To answer, we must determine: 1. Nature of the business: JV or corporation? (Note: I
think this is important in order to determine what rules on voting will apply.) 2. W/N the ASI
group may vote their additional 10% equity during elections of Saniwares' BOD (1) What is the
nature of the business? ⇒ JOINT VENTURE • Rule: Type of contract depends on their actual
intention, which is determined in accordance with the rules governing the interpretation and
construction of contracts. • Re: parol evidence rule, SC cited US cases ruling that where there is
evidence tending to prove that the parties joined their efforts in furtherance of an enterprise for
their joint profit, the question whether they intended to create a joint adventure/ some other
relation is a question of fact for the jury. • Examination of important provisions of the
Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a JV and not a corporation. History of organization of
Saniwares and the unusual arrangements governing its policymaking body are all consistent
with a JV and not an ordinary corporation. • SEC noted: Participants in a JV deviate from the
traditional pattern of corporation management. A noted authority has pointed out that just as in
close corporations, shareholders' agreements in JV often contain provisions which do one or
more of the following: (1) require greater than majority vote for shareholder and director action;
(2) give certain shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of employees; and
(4) set up a procedure for the settlement of disputes by arbitration o SEC found that (1) under
the Agreement, there are two distinct groups in Saniwares: ASI (owns 40% of capital stock), and
the PH National stockholders (own 60%); and (2) ASI is given certain protections as the minority
stockholder. o §5 (a) of the uses the word "designated" and not "nominated"/"elected" in the
selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of
directors in the board. • ASI in its communications referred to the enterprise as a JV. • Young
testified that §16(c) of the Agreement saying "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and liabilities to third
parties. • Filipino entrepreneurs often need the assistance of multinational corporations.
Arrangement: foreign group becomes minority owner. Danger: foreign group merely uses JV to
gain foothold/ test PH waters. When business becomes profitable, the foreign group
undermines the local majority ownership and tries to take over the company. Courts should
extend protection especially in industries where constitutional and legal requirements reserve
controlling ownership to Filipinos. Not in the case but helpful for the next parts: CUMULATIVE
VOTING – in corporations, a system of voting for directors in which the shareholder can multiply
his voting shares by the number of candidates and vote them all for one person for director.
This is intended to give minority shareholders a chance to elect at least one director whom they
favor. For example, if there are five directors to be elected, and 10,000 shares issued, a
shareholder with 1,000 shares could vote 5,000 for his candidate rather than being limited to
1,000 for each of the five candidates, always outvoted by shareholders with 1,001 or more
shares (Hill & Hill, 2005). VILLARAMA, BIANCA DANICA S. PAGE 2 OF 3 CASE # 14 (2) W/N the
ASI group may vote their additional equity during elections⇒ NO. • CA correctly stated: Minority
position of ASI and the contractual allocation of board seats cannot be disregarded. Rights of
the stockholders to cumulative voting should also be protected. Proper and just solution to give
due consideration to both factors: Court should recognize and uphold the division of the
stockholders into 2 groups, and also uphold the right of the stockholders within each group to
cumulative voting to determine who the group's nominees would be. o e.g. If Filipino
stockholders cannot agree on their 6 nominees, a vote will be taken among the Filipino
stockholders only. Here, each Filipino stockholder can cumulate his votes. ASI should not be
allowed to interfere in this voting, otherwise ASI would be able to designate more than 3
directors and may even get a majority of the board seats. o This ruling will also give due
consideration to the issue raised on the possible violation of the AntiDummy Law (Comm. Act.
No. 108) and the nationalization requirements of the Consti and laws. • ASI and Salazar claim
they have a right to vote their additional equity under §24 of the Corporation Code. The
question is W/N this provision applies to a JV with clearly defined agreements: o Joint venture -
common law origin. No precise legal definition but generally understood to mean an
organization formed for some temporary purpose. It is in fact hardly distinguishable from a
partnership, since their elements are similar: community of interest in the business, sharing of
profits and losses, and a mutual right of control. o Main distinction in common law: Partnership
contemplates a general business with some degree of continuity, while JV is formed for the
execution of a single transaction, thus temporary. This distinction is not entirely accurate here
because under CC Art. 1783, a partnership may be particular/universal, and a particular
partnership may have for its object a specific undertaking. o It would seem that under PH law, a
JV is a form of partnership and should thus be governed by the law of partnerships. SC has
however recognized a distinction: although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others (Tuazon v. Bolaños, Campos and
Lopez commentary on the Corporation Code). • To allow ASI to vote additional equity would
obliterate their minority status. Equally important consideration: Possible violation of the
nationalization requirements in Consti, Anti-Dummy Act. • We affirm the decisions of the SEC,
impliedly affirmed by the CA: the duly elected directors of Saniwares are the first 9 nominees.
Cumulative Voting • Lagdameo group objects to cumulative voting and submits that the 6
directors allotted to the Filipino stockholders should be selected by consensus because §5(a)
uses "designate". They also stress the possibility that ASI would take control of their enterprise if
Filipino stockholders are allowed to select their nominees separately and not as a common slot
determined by the majority of their group. o Use of "designate" should not be interpreted in
isolation. CA correctly upheld the SEC: §5(a) relates to manner of nominating; §3(a)(1) relates to
manner of voting. o Insinuation that ASI might take control cannot be ignored. Validity of
cumulative voting depends on directors being genuine members of the Filipino group (not
voters whose interest is to increase the ASI share in Saniwares). JV character of the enterprise
must always be taken into account. o Cumulative voting may not be used as a device to enable
ASI to achieve indirectly what they cannot accomplish openly. There are substantial safeguards
in the Agreement intended to preserve the majority status of Filipino investors as well as to
maintain the minority status of the foreign investors. These should be maintained. ⇒ CA
decision modified in that Aurbach, Griffin, Whittingham, Ernesto Lagdameo Sr. and Jr., Enrique
Lagdameo, Boncan, Lee, and Young are declared the duly elected officers. VILLARAMA, BIANCA
DANICA S. PAGE 3 OF 3 CASE # 14
16. Hong Kong Bank v Jurado & Co., 2 Phil 671