PARTNERSHIP, AGENCY & TRUST

WEEK 1 CASES

1. SUNGA-CHAN VS. CHUA, GR 143340, AUG. 15, 2001

Rule/Principle: Definition and Elements

Facts:

This is a case filed by CHUA against Lilibeth and Cecilia SUNGA Chan (daughter and wife respectively of
deceased Jacinto L. Sunga) for Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attachment with the Regional Trial Court, Branch 11,
Sindangan, Zamboanga del Norte. Informatively, in 1977, CHUA and Jacinto SUNGA verbally entered into
a partnership in the distribution of Shellane LPG. Now, for purposes of convenience, their partnership in
the name of SHELLITE GAS APPLIANCE CENTER, was named under the name of SUNGA as Sole
Proprietorship. Chua further delivered a capital contribution of Php100k to Jacinto and the latter in turn
produced P100,000.00 as his counterpart contribution, with the intention that the profits would be
equally divided between them. The arrangement of the business was that Jacinto was the manager and
a certain Josephine (sister of CHUA) was the assisting personnel. Subsequent to its opening, the business
was profitable and operating under favorable economic conditions.

However, upon the death of Jacinto in 1989, Lilibeth and Cecilia took over the operations, control,
custody, disposition and management of SHELLITE. Despite respondents repeated demands upon
petitioners for accounting, inventory, appraisal, winding up and restitution of his net shares in the
partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of
Shellite, converting to her own use and advantage its properties. For this reason, CHUA filed the instant
case before the RTC with Josephine being his witness. SUNGA in turn filed an Answer with Compulsory
Counterclaims, contending that they are not liable for partnership shares, unreceived income/profits,
interests, damages and attorneys fees, that respondent does not have a cause of action against them,
and that the trial court has no jurisdiction over the nature of the action, the SEC being the agency that
has original and exclusive jurisdiction over the case.

RTC: Ruled in favor of CHUA

CA: AFFIRMED

SUNGHA incessantly attempted to secure the dismissal of the case by asserting in her motion the ff: a)
There is no partnership to speak since it was entered verbally b) Granting it is a partnership, the same
was not registered to SEC contrary to the provisions of Art. 1772 c) the SEC rather than trial court has
jurisdiction d) Dead Man Statute concerning Josephine (evidentiary rule; not related to partnership per
se but related in establishing the subsistence of SHELLITE in this case) e) no cause of action f)
prescription

Issue/s: W/N there is a partnership established between SUNGA and CHUA ?

Ruling: YES. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary . Hence, based on
the intention of the parties, as gathered from the facts and ascertained from their language and
conduct, a verbal contract of partnership may arise. The essential points that must be proven to show
that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. Understandably so, in view of the absence of a written contract of partnership
between respondent and Jacinto, respondent resorted to the introduction of documentary and
testimonial evidence to prove said partnership.

Petitioners maintain that said partnership that had an initial capital of P200,000.00 should have been
registered with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil
Code. True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or more
must register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the
Civil Code 25 explicitly provides that the partnership retains its juridical personality even if it fails to
register. The failure to register the contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the main purpose of registration is
to give notice to third parties, and it can be assumed that the members themselves knew of the
contents of their contract. Action did not prescribe. It was filed 3 years after death of Jacinto. Under C.C
actions arising from oral contract prescribed in 6 years.
 2. MENDIOLA VS. CA, PACIFIC FOREST RESOURCES PHILS. INC. GR. 159333, July 31, 2006

Rule: Corporation cannot become a member of a partnership

Facts:

PACIFIC is a corporation existing under laws of California USA and a subsidiary of CELLULOSE
MARKETING INTL, a Swedish corporation. IPACIFIC entered into a “Side Agreement on Representative
Office known as Pacific Forest Resources (Phils.), Inc." with petitioner MENDIOLA, effective May 1, 1995.
Informatively, the 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 MENDIOLA 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/MENDIOLA, since Pacfor Phils. is equally owned on a 50-50 equity by MENDIOLA
and Pacfor-usa. Later, SEC granted the application of PACIFIC for a license to transact business in the
Phil. under the name of PAFCOR PHILS.

Thereafter, the Side Agreement was amended through a "Revised Operating and Profit-Sharing
Agreement for the Representative Office Known as Pacific Forest Resources (Philippines)," where the
salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational
expenses will be borne by the representative office and funded by all parties " as equal partners," while
the profits and commissions will be shared among them. In July 2000, MENDIOLA, in a Letter, later
sought confirmation of his 50% equity of PACFOR PHILS BUT PACIFIC-USA, thru its President, replied
that MENDIOLA 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." MENDIOLA 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. (MENDIOLA was
a mere resident agent)

On the other hand, MENDIOLA alleged that, he known that no joint venture existed, he would not have
allowed PACFOR to take the profitable business of his own company, ATM Marketing Corp. MENDIOLA
raised other issues, such as the rentals of office furniture, salary of the employees, company car, as well
as commissions allegedly due him and further demanded to PACFOR-USA payment of unpaid
commissions and office furniture and equipment rentals, amounting to more than one million dollars .
Meanwhile, PACFOR ordered MENDIOLA to turn over all its documents and properties including
Christmas giveaway fund which are under his possession and advised its clients in the PHILS to not
anymore deal with PACFOR PHILS.

MENDIOLA construed these actuations as severance of the “unregistered partnership” and he asserted
that on the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor
Phils. and thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture
and equipment and the service car. He also reiterated his demand for unpaid commissions, and
proposed to offset these with the remaining Christmas giveaway fund in his possession. MENDIOLA did
not renew the contract of lease with Pulp and Paper, Inc., the lessor of the office premises of Pacfor
Phils., wherein he was the signatory to the lease agreement.

Thus, PACFOR placed petitioner on preventive suspension and ordered him to show cause why no
disciplinary action should be taken against him for willful disobedience and serious misconduct for his
refusal to turn over the service car and the Christmas giveaway fund which he applied to his alleged
unpaid commissions. Private respondent also alleged loss of confidence and gross neglect of duty on the
part of petitioner for allegedly allowing another corporation owned by petitioner's relatives, High End
Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal and
divert the sales and business of private respondent for HEPI's principal, International Forest Products, a
competitor of private respondent. PACFOR later charged MENDIOLA for with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the release of an additional peso salary
for himself, besides the dollar salary agreed upon by the parties. Private respondent also accused
petitioner of disloyalty and representation of conflicting interests for having continued using the Pacfor
Phils.' office for operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from a
competitor company of private respondent Pacfor.
LABOR ARBITER: RULED IN FAVOR OF MENDIOLA finding that there was constructive dismissal; By
directing petitioner to turn over all office records and materials, regardless of whether he may have
retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual
diminution of his authority as resident manager.

NLRC: REVERSED LA’S ruling; NO E-E relationship between the parties; Based on the two agreements
between the parties, it concluded that petitioner is NOT an employee of private respondent Pacfor, but
a full co-owner (50/50 equity).

CA: AFFIRMED NLRC

ISSUE/S: W/N NLRC is correct in ruling that there is no E-E relationship between the parties and that
MENDIOLA is but a full co-owner?

Ruling: NO. Although MENDIOLA argues that he is an industrial partner of the partnership he formed
with private respondent Pacfor, and also an employee of the partnership, the SC correctly found that
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.
 3. HEIRS OF TAN ENG KEE vs. CA, G.R. NO. 126881, OCT. 3, 2000

Rule: Co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership.

Facts:

Following the death of TAN ENG KEE on Sept. 13, 1984, the HEIRS OF TAN ENG KEE (common law wife
and children) filed a suit against TAN ENG KEE’s brother TAN ENG LAY before RTC of Baguio City, for
accounting liquidation and winding up of the alleged partnership formed after World War II between
Tan Eng Kee and Tan Eng Lay. The complaint was later amended impleading private respondent
BENGUET LUMBER COMPANY. It was alleged that after the 2 nd World War, ENG KEE and ENG LAY pooling
their resources and industry together, entered into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber" which
they jointly managed until ENG KEE's death and that the business prospered due to the thrift of the
alleged partners. However, HEIRS OF ENG KEE claimed that in 1981, ENG LAY and his children caused the
conversion of partnership “Benguet Lumber” into a corporation called “BENGUET LUMBER COMPANY”.
The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful
participation in the profits of the business.

RTC: RULED IN FAVOR OF PETITIONER HEIRS OF ENG KEE; Finding that Benguet Lumber is a joint
venture which is akin to a particular partnership;

CA: REVERSED TRIAL COURT’S DECISION; No partnership, Except for a firm name, there was no firm
account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to
profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kee's death in 1984. It had no
business book, no written account nor any memorandum for that matter and no license mentioning the
existence of a partnership; the evidence rather shows the establishment of only of a proprietorship; ENG
KEE was a mere employee on the basis of SSS coverage and payroll; PETITIONERS mentioned only the
existence of partnership NOT a clear inditia that ENG KEE was indeed a partner.

Issue/s: W/N there exists a partnership between ENG KEE and ENG LAY and that there must be
accounting liquidation and winding up thereof?

Ruling: NONE. Partnership presupposes the following elements [citation omitted]: 1) a contract, either
oral or written. However, if it involves real property or where the capital is P3,000.00 or more, the
execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money
property or industry contribution; 4) community of funds and interest, mentioning equality of the
partners or one having a proportionate share in the benefits; and 5) intention to divide the profits, being
the true test of the partnership. Under the Art. 1767 of the CC, in order to constitute a partnership, it
must be established that (1) two or more persons bound themselves to contribute money, property, or
industry to a common fund, and (2) they intend to divide the profits among themselves. The agreement
need not be formally reduced into writing, since statute allows the oral constitution of a partnership,
save in two instances: (1) when immovable property or real rights are contributed, and (2) when the
partnership has a capital of three thousand pesos or more. In both cases, a public instrument is
required. Here, ENG LAY stated that when he met ENG KEE after the liberation, the latter asked the
former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. Tan Eng
Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother.
Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later
on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-
possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership
The SC pointed out the provisions of Art. 1769 which pertain to rules applicable in determining the
existence of partnership. Tan Eng Kee was only an employee, not a partner. Even if the payrolls as
evidence were discarded, petitioners would still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly
representing his share in the profits of the enterprise. Even to consider the evidence of PETITIONERS,
they only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what
capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a
niche above the rank-and-file employees. . Again, the circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties
of a manager.
 4. Tocao vs. Court of Appeals, Nenita Anay, G.R. No. 127405, October 4, 2000

Rule: Oral Partnership; partnership may be established in any form

Facts:
Fresh from her stint as marketing adviser of Technolux in Thailand, ANAY met BELO, then VP of
Ultra Clean Water Purifier. Later, BELO introduced ANAY to TOCAO who conveyed her desire to enter
into a joint venture with her for the importation and local distribution of kitchen cookwares. Eventually,
the 3 formed a joint venture with BELO acting as capitalist, TOCAO as president and general manager,
and ANAY as head of the marketing department and later, vice-president for sales. The parties agreed
that Belo’s name should not appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay’s name in securing distributorship of cookware from that
WEST BEND COMPANY. The parties agreed further that Anay would be entitled to: (1) ten percent (10%)
of the annual net profits of the business; (2) overriding commission of six percent (6%) of the overall
weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two percent (2%) for
her demonstration services. The agreement was not reduced to writing on the strength of Belo’s
assurances that he was sincere, dependable and honest when it came to financial commitments. The
business was initially successful and they operated under the name of “Geminesse Enterprise”, a Sole
Proprietorship registered under TOCAO’s name. However, on October 9, 1987, ANAY later learned that
TOCAO had signed a letter addressed to the Cubao sales office to the effect that she was no longer the
vice-president of Geminesse Enterprise. The following day, October 10, she received a note from Lina T.
Cruz, marketing manager, that Marjorie TOCAO had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices. Thus, ANAY attempted to contact Belo. She wrote
him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988
and the audit of the company to determine her share in the net profits. All these were futile.
Meanwhile, Anay still received her five percent (5%) overriding commission up to December 1987. But,
the following year, 1988, she did not receive the same commission although the company netted a
gross sales of P 13,300,360.00. As such, ANAY filed a Complaint for Sum of Money with Damages against
TOCAO and BELO before RTC Makati.
TOCAO and BELO interposed as a defense that 1) the “alleged agreement” with ANAY neither
reduced in writing, nor ratified," was "either unenforceable or void or inexistent 2) Geminesse
Enterprise was the sole proprietorship of Marjorie Tocao 3) 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.
TRIAL COURT: RULED IN FAVOR OF ANAY; 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; 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’s name is not determinative of whether or not the business
was managed and operated by a sole proprietor or a partnership
CA: AFFIRMED
Issue/s: W/N there exists a partnership between ANAY, TOCAO and BELO?

Ruling: YES. Partnership may be constituted in any form; a public instrument is necessary only where
immovable property or real rights are contributed thereto. 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 Code 17 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” 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. Also, 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 particularly to WEST BEND COMPANY. The functions of ANAY negates the E-E
relationship between her and TOCAO. 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.
 5. Pascual vs. CIR, L-78133, October 18, 1988

Facts:

In 1965, petitioners in this case bought a 2 parcels of land from Santiago Bernardino et al and later in
1966 another 3 parcels of land from Juan Roque. The 1st 2 parcels of land were sold by petitioners in
1968 to Marenir Development Corporation (MARENIR), while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson (SAMSON) Petitioners realized a net profit in the sale
made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale
made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount of P107,101.07 as alleged deficiency corporate
income taxes for the years 1968 and 1970. Petitioners then protested asserting that they had availed of
tax amenities. In Reply, Respondent Comm. informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint
venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed
under Section 24, both of the National Internal Revenue Code. Hence, the petitioners were required to
pay the deficiency income tax assessed. Consequently, Petitioners filed a petition for review with the
respondent Court of Tax Appeals
CTA: AFFIRMED THE ACTION TAKEN BY COMM.; An unregistered partnership was in fact formed by
petitioners which like a corporation was subject to corporate income tax distinct from that imposed on
the partners. As held in Evangelista Case.

Issue/s: W/N petitioners, as co-owners, formed an unregistered partnership and in effect, subject to
corporate income tax?

Ruling: NO. Article 1767 of the Civil Code of the Philippines provides: “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.” Pursuant to this article, the essential
elements of a partnership are two, namely: (a) an agreement to contribute money; property or industry
to a common fund; and (b) intent to divide the profits among the contracting parties. In the present
case, there is no evidence that petitioners entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide the profits among themselves. Respondent
commissioner and/or his representative just assumed these conditions to be present on the basis of the
fact that petitioners purchased certain parcels of land and became co-owners thereof.

In Evangelista, there was a series of transactions where petitioners purchased twenty-four (24) lots
showing that the purpose was not limited to the conservation or preservation of the common fund or
even the properties acquired by them. The character of habituality peculiar to business transactions
engaged in for the purpose of gain was present. In the instant case, petitioners bought two (2) parcels
of land in 1965. They did not sell the same nor make any improvements thereon. In 1966, they bought
another three (3) parcels of land from one seller. It was only in 1968 when they sold the two (2) parcels
of land after which they did not make any additional or new purchase. The remaining three (3) parcels
were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to
business transactions for the purpose of gain was not present. In Evangelista, the properties were
leased out to tenants for several years. The business was under the management of one of the partners.
Such condition existed for over fifteen (15) years. None of these circumstances are present in the case at
bar. The co-ownership started only in 1965 and ended in 1970.The common ownership of property
does not itself create a partnership. The sharing of returns does not in itself establish a partnership
whether or not the persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical personality different from
the individual partners, and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no
adequate basis to support the proposition that they thereby formed an unregistered partnership. The
two isolated transactions whereby they purchased properties and sold the same a few years thereafter
did not thereby make them partners. They shared in the gross profits as co-owners and paid their capital
gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they
cannot be considered to have formed an unregistered partnership which is thereby liable for corporate
income tax, as the respondent commissioner proposes.
 6. WolfangAurbach vs. Sanitary Wares, G.R. No. 75875, December 19, 1989

Facts:
In 1962, SANIWARES, a domestic corporation manufacturing and marketing sanitary wares, and ASI, a
foreign corp., entered into an Agreement to participate in the ownership of an enterprise which would
engage primarily in the business of manufacturing in the Phil.and selling here and aboard vitreous china
and sanitary wares under the name of “Sanitary Wares Mfg. Corp.” The Agreement has the ff: provisions
a) The AOI of the Corp. xxx shall specifically provide for Cumulative voting b) the management of the
Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long as ASI
shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be
designated by ASI, and the other six shall be designated by the other stockholders (Philippine Investors)
of the Corporation [Section 5 A] . While the relation between the 2 groups was initially harmonious, this
eventually turned out to be chaotic which started in 1983 when they held at annual stockholder’s
meeting the election of members of BoD. Informatively, the ASI group nominated 3 persons
(petitioners) while the Phil. Investors nominated 6 (respondents Lagdameo group). However, 2 extra
people were nominated by Phil.Investors namely: Salazar and Chamsay. The Chairman Young, ruled that
Salazar and Chamsay’s nominations were out of order on the basis of Section 5 (A) of the Agreement.
Chairman Young ordered the voting excluding the extra 2 nominees which resulted to a protest. In the
end, ASI Group had 4 nominees adopting Chamsay , whom were all certified as elected directors; Salazar
being the 5th; while the 6 nominees from Lagdameo Group was tied for the 4 remaining spots and the
body decided not to break the tie. Because of these incidents, Saniwares and its nominees (Lagdameo
group) filed for preliminary injunction with SEC, while ASI filed for quo warranto and application for
receivership against Saniwares and its nominees. Both groups claimed to be the legitimate directors of
the corporation. SEC upheld the election of the Lagdameo Group (original 6 nominees excluding the 2
extra ), dismissed the quo warranto.

2 appeals were filed to IAC by ASI nominees and by Salazar, which were consolidated and
remanded to SEC with the directive that a new stockholder’s meeting of Saniwares be ordered under
SEC’s supervision. Lagdameo Groupd filed an MR to which IAC amended its decision upholding the
election of Lagdameo Group. The ASI Group and petitioner Salazar both questioned the amended
decision.

ASI GROUP AND SALAZAR’s argument: parties’ intention was to form a corporation and not a Joint
venture under the Miscellaneous provisions of the Agreement which provide “nothing contained herein
shall be construed to constitute any parties hereto as partners or joint ventures”

LAGDAMEO GROUP’s argument: Agreement failed to express true intent of the parties and it presented
evidence showing that parties’ agreement was to establish joint venture. (under the arrangement of
Saniwares, under the Agreement there are two groups of stockholders who established a corporation
with provisions for a special contractual relationship between the parties, i.e., ASI and the other
stockholders. Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"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.

Issue/s: 1) Who were the duly elected directors of Saniwares, which may be determined by the
character of their business (whether joint venture or corp.) and interpreting the application of
agreement 2) whether to allow cumulative voting under Section 24 of Corp. Code

Ruling: It is a Joint Venture. The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation and
construction of contracts.

According to the testimony of Chairman Young, he negotiated the Agreement with ASI in behalf of the
Phil.nationals and ASI agreed to accept the role of minority vis-à-vis the Phil.national group of investors ,
on the condition that the Agreement should contain provisions to protect ASI as the minority. As SEC
held, “we believe that under the Agreement there are two groups of stockholders who established a
corporation with provisions for a special contractual relationship between the parties. Moreover, ASI in
its communications referred to the enterprise as joint venture. Also, Chairman Young, testified that the
provisions in the Miscellaneous Clause were merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to third persons.
2) The application of the provision of Corp. Code was held immaterial bec.of the agreement.

The parties established a JV instead of a corp. and under Phil.law, a JV is a form of partnership and
should be governed by the laws on partnership. The SC however recognized distinction between them
and held that although a corp. cannot enter into partnership contract , it may however engage in JV.
Bearing these principles in mind, the correct view would be that the resolution of the question
whether or not ASI GROUP may vote their additional equity lies in the agreement of parties. Attention
must be given to Sec. 5(A) of the agreement which are intended to preserve the majority status of the
Filipino investors. The cumulative voting applies only to the election. Just because Lagdameo group had
2 extra nominees does not mean ASI Group can interfere the way they did when they adopted Chamsay
and Salazar. Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"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.

7. Benjamin Yu vs. NLRC, G.R. No. 97212, June 30, 1993

Facts:

Petitioner YU was formerly the Assistant General Manager of the marble quarrying and export business
operated by a registered partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal
and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of
the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan
Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The
partnership had its main office in Makati, Metropolitan Manila.

Informatively, YU was hired by a virtue of a Partnership Resolution in 1985 with a monthly salary of
P4,000.00. Initially he received only half of his stipulated monthly salary and was promised by the
partners that the balance would be paid upon securing additional operating funds from abroad.
However, in 1988 without his knowledge the general partners as well as one of the limited partners sold
and transferred their interest to Willy Co and Emmanuel Zapanta. Thus the new major partners decided
to transfer the firm’s main office but opted to continue the operation of the old partnership under its
old firm name and with all its employees and workers except for the petitioner. Upon knowing of the
changes in the partnership, petitioner went to the new main office to meet the new partners and
demand the payment of his unpaid salaries, but the latter refused to pay him and instead informed him
that since he bought the business from the original partners, it was for him to decide whether or not he
was responsible for the obligations of the old partnership including petitioners unpaid salaries. Hence,
petitioner was dismissed from said partnership.

YU filed a case for illegally dismissed. LA ruled in favor of YU. NLRC reversed the same.

Issue/s:
1. Whether the partnership which had hired the petitioner as Asst. General Manager had been
extinguished and replaced by a new partnership composed of Willy Co and Emmanuel Zapanta.
2. Whether petitioner could assert his rights under his employment contract as against the new
partnership

Ruling: 1) . Yes. The legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired the petitioner in 1984 and the emergence of the new
firm composed of Willy Co and Emmanuel Zapanta in 1988. This is based on the following provisions:
Art. 1828. The dissolution of partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as a distinguished from the winding up of the
business.
Art. 1830. Dissolution is caused:
1. without violation of the agreement between the partners;
b. by the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified.
 2. in contravention of the agreement between the partners, where the circumstances do not
permit a dissolution under any other provision of this article, by the express will of any partner at
any time;

However, the legal consequence of dissolution of a partnership do not automatically result in the
termination of the legal personality of the old partnership as according to Art. 1829, “ on dissolution of
the partnership is not terminated, but continues until the winding up of the partnership affairs is
completed. The new partnership simply continued the operations of the old partnership under its old
firm name without winding up the business affairs of the old partnership.

2) Yes. Under Art. 1840, creditors of the old partnership are also creditors of the new partnership which
continued the business of former without liquidation of the partnership affairs. Thus, creditor of the old
Jade Mountain, such as the petitioner is entitled to enforce his claim for unpaid salaries, as well as other
claims relating to his employment with the old partnership against the new Jade Mountain.

8. Rojas vs. Maglana, G.R. No. 30616, December 10, 1990

Facts:
• Jan. 14, 1955 - Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast
Development Enterprises with only 2 of them as partners with an indefinite term of existence and was
duly registered with the SEC.
• Under the said Articles, Maglana shall manage the business affairs of the partnership while Rojas
shall be the logging superintendent and shall manage the logging operations of the partnership.
• It is also provided in the artices that all profits and losses of the partnership shall be divided and
shared between them.
• There was no operation for a year and because of this difficulty, Rojas and Maglana decided to
avail of the services of Pahamotang as industrial partner.
• March 4, 1956 - Maglana, Rojas and Pahamotang executed their Articles of Co-Partnership
under the firm name Eastcoast Development Enterprises.
• The only difference is the purpose of the 2nd partnership is to hold and secure renewal of
timber license instead of to secure the license as in the 1st partnership and the term of the 2nd
partnership is fixed to 30 years.
• The partnership started and was able to ship logs and realize profits.
• Oct. 1956 - the 3 executed a document entitled "Conditional Sale of Interest in the Partnership,
Eastcoast Development Enterprise" agreeing among themselves that Maglana and Rojas shall purchase
the interest, share and participation in the Partnership of Pahamotang. It was also agreed that the 2
shall become owners of al equipment contributed by Pahamotang and EDE, name given to the 2nd
partnership be dissolved.
• After withdrawal of Pahamotang, the partnership continued by Maglana and Rojas without the
benefit of any written agreement or reconstitution of their written Articles of Partnership.
• Rojas entered into a management contract with another logging enterprise, CMS Estate, Inc. He
left and abandoned the partnership. He withdrew his equipment from the partnership for use in the
newly acquired area. The Equipment were his supposed contributions to the 1st partnership and was
transferred to CMS Estate by way of Chattel Mortgage.
• Maglana wrote Rojas reminding him of his obligation to contribute to the capital investments of
the partnership and also to perform his obligation as logging superintendent.
• 2 weeks after, Rojas told Maglana that he will not contribute and work as logging
superintendent. So, Maglana told him that his share will just be 20% of the net profits. Such was the
sharing from 1957-1959 without complaint.
• Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter,
Maglana notified Rojas that he dissolved the partnership.

ISSUE: W/N the nature of the partnership and legal relationship of Maglana and Rojas after Pahamotang
retired from the 2nd partnership

RULING:
According to the trial court, the partnership was a de facto partnership and at will (no period fixed).
Rojas: EDE evidenced by the 1st articles of co-partnership has not been novated, superseded or
dissolved by the unregistered 2nd articles of co-partnership, so the 1st articles should govern the
relations between him and Maglana. That the letter of Maglana did not legally dissolve the registered
partnership between them. So, Rojas is entitled to sharing profits stipulated in the registered Articles.
• It was not the intention of the partners to dissolve the 1st partnership, upon the constitution of
the 2nd one, which they unmistakably called an "Additional Agreement". Except for the fact that they
took in one industrial partner; gave him equal share in profits and fixed the term of the 2nd partnership,
everything else was the same. Thus, they adopted the same name, same purposes and capital
contributions of Rojas and Maglana call for the same amount. The timber license renewals were secured
in favor the 1st partnership.
• The 1st Articles, therefore, were only amended, in the form of Supplementary Articles of Co-
Partnership which was never registered. No rights and obligations accrued in the name of the 2nd
partnership except in favor of Pahamotang which was fully paid by the duly registered partnership.
• On the other hand, there is no dispute that the second partnership was dissolved by
common consent. Said dissolution did not affect the first partnership which continued to exist.
• By their acts (Maglana reminding Rojas of his contribution and Rojas replying that he will not be
able to comply), both considered themselves governed by the articles of the duly registered partnership.
• Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will, for as
stressed, there is an existing partnership, duly registered.
• As to the question of WON Maglana can unilaterally dissolve the partnership, the answer is YES.
• As there are only two parties when Maglana notified Rojas that he dissolved the partnership, it
is in effect a notice of withdrawal.
• Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can
cause its dissolution by expressly withdrawing even before the expiration of the period, with or without
justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is
liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the
number of members is decreased, hence, the dissolution. And in whatever way he may view the
situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co¬-Partnership; that is, all profits and
losses of the partnership shall be divided "share and share alike" between the partners.