PARTNERSHIP

CASE DIGEST
1. TOCAO vs. CA
342 SCRA 20 Facts:
(2000)
Nenita Anay, Marjorie Tocao, and William Belo entered a joint
venture whereby Belo volunteered to finance the venture as the
capitalist, Tocao as the President and the general manager, and
Anay as the head of marketing department and vice-president
for sales considering her expertise in cookware business. 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. Further, the joint venture
operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocao’s name.

In the course of their business, Anay earned commissions as

stated on their agreement. However, subsequently, their relation
soured and Anay found out that she was no longer the vice-
president of Geminesse Enterprise and she was barred from
holding her office. Some of her commissions were also not
subsequently given despite repeated demands which led her to
file a complaint.

The Trial Court and Court of Appeals held that the parties
formed an oral partnership and held them liable.

Tocao and Belo asserts that the alleged agreement with Anay
that was "neither reduced in writing, nor ratified," was "either
unenforceable or void or inexistent. 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 commissions.

Issues:

1. Whether or not partnership exists between the parties?

2. Whether or not the partnership was dissolved?

Ruling:

1. YES, petitioners and private respondents

established a business partnership.

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 Code 17 did not
cause the nullification of the partnership.

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

2. YES. Under the law, a partnership exists until dissolved.

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.

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."

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.

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 vice-president for sales of
Geminesse Enterprise. 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 terminated thereby; it continues until the winding up of the
business.

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 respondents
in the pursuit of the partnership business.

Doctrines:

Requisites for a Partnership to Have Juridical Personality; 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.

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

2. JM TUAZON
vs. BOLANOS 95 FACTS:
PHIL 106
J. M. TUASON & CO., INC. represented by its managing
partner, GREGORIA ARANETA, INC. filed an action for the
recovery of possession of a registered parcel of land against the
defendant. Defendant, in his answer, sets up prescription and
title in himself and further alleges that registration of the land in
dispute was obtained by plaintiff or its predecessors in interest
through fraud or error.

The lower court rendered judgment for the plaintiff. On appeal,

the defendant alleges among others that the trial court erred in
 not dismissing the case on the ground that the complaint was
not brought by the real property in interest and that Gregorio
Araneta, Inc. cannot act as managing partner for the plaintiff on
the theory that it is illegal for two corporations to enter into a
partnership.

ISSUE:

Whether or not Gregorio Araneta Inc can validly act as the

managing partner of J M. Tuason and Co., Inc. and represent
the same?

RULING :

Yes, the contention that Gregorio Araneta, Inc. cannot act as

managing partner for the plaintiff is without merit.

The true rule is that "though a corporation has no power to enter

into a partnership, it may nevertheless enter into a joint venture
with another where the nature of that venture is in line with the
business authorized by its charter." There is nothing in the
record to indicate that the venture in which plaintiff is
represented by Gregorio Araneta, Inc. as "its managing partner"
is not in line with the corporate business of either of them.

DOCTRINE:

Although a corporation has no power to enter into a partnership,

it may nevertheless enter into a joint venture with another where
the nature of that venture is in line with the business authorized
by its charter.

3. AGUILA vs. CA Facts:

316 SCRA 246
Petitioner is the manager of A.C. Aguila & Sons, Co., a
(1999)
partnership engaged in lending activities. Private respondent
and her late husband, Ruben M. Abrogar, were the registered
owners of a house and lot. On April 18, 1991, private
respondent, with the consent of her late husband and AC Aguila
& Sons Co., as represented by petitioner, entered into a
Memorandum of Agreement (MOA) selling her property in the
amount of P200,000.00. In a special power of attorney, private
respondent authorized petitioner to cause the cancellation of the
TCT in the event that she failed to redeem the subject property
as provided in the memorandum of agreement.
Private respondent failed to redeem the property on time,
causing the petitioner to cancel TCT and applied for the
issuance of a new title in the name of AC Aguila & Sons Co.
Thereafter, petitioner demanded for the surrender of the
property, but private respondent refused to vacate thus petitioner
to file an ejectment suit. Petitioner won the case.
Private respondent then filed a petition for declaration of
nullity of a deed of sale with the RTC of Marikina against
petitioner alleging that the signature of her husband on the deed
of sale was a forgery because he was already dead when it was
supposed to be executed on June 11, 1991.
Petitioner filed the instant petition for review contending
that he is not the real party in interest but AC Aguila & Co.
against which this case should have been brought.
Issue:
Whether or not the case should have been brought against A.C.
Aguila & Co.,
Ruling: YES
Petitioner is not the real party in interest against whom
this action should be prosecuted.
Under Art. 1768 of the Civil Code, a partnership "has a
juridical personality separate and distinct from that of each
of the partners." The partners cannot be held liable for the
obligations of the partnership unless it is shown that the legal
fiction of a different juridical personality is being used for
fraudulent, unfair, or illegal purposes. 
In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being used
for fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject property is in the name
of A.C. Aguila & Sons, Co. and the MOA was executed between
private respondent, with the consent of her late husband, and
A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is
the partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its
name.
Doctrine:
A partnership "has a juridical personality separate and
distinct from that of each of the partners." The partners
cannot be held liable for the obligations of the partnership unless
it is shown that the legal fiction of a different juridical personality
 is being used for fraudulent, unfair, or illegal purposes.

4. HEIRS OF TAN
ENG KEE vs. CA Facts:
341 SCRA 740
HEIRS OF TAN ENG KEE filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990. The complaint
was for accounting, liquidation and winding up of the
alleged partnership formed after World War II between Tan
Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners
filed an amended complaint impleading private respondent
herein BENGUET LUMBER COMPANY, as represented by Tan
Eng Lay.

The amended complaint principally alleged that after the second

World War, Tan Eng Kee and Tan 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 Tan Eng Kee's death.
Petitioners herein averred that the business prospered due to
the hard work and thrift of the alleged partners.

However, they claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the 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. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net assets
of Benguet Lumber.

RTC ruled that Benguet Lumber is a joint venture which is

akin to a particular partnership and that the deceased Tan
Eng Kee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership
called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership.

Private respondent sought relief before the Court of Appeals

which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court. Petitioners' motion
for reconsideration was denied by the Court of Appeals in a
Resolution dated October 11, 1996. Hence, the present petition.
ISSUE:

Whether or not a partnership existed between the late Tan Eng

Kee and his brother Tan Eng Lay.

RULING:

There was no partnership. Tan Eng Kee was only an employee,

not a partner.

There was no certificate of partnership between the brothers.

The heirs were not able to show what was the agreement
between the brothers as to the sharing of profits. All they
presented were circumstantial evidence which in no way proved
partnership.

It is obvious that there was no partnership whatsoever. 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.

In fact, Tan Eng Lay was able to show evidence that Benguet
Lumber is a sole proprietorship. He registered the same as such
in 1954; that Kee was just an employee based on the latter’s
payroll and SSS coverage, and other records indicating Tan Eng
Lay as the proprietor.

Also, the business definitely amounted to more than P3,000.00

hence if there was a partnership, it should have been made a
public instrument.

But the business was started after the war (1945) prior to the
publication of the New Civil Code in 1950?

Even so, nothing prevented the parties from complying with this
requirement.

DOCTRINES:

A contract of partnership is defined by law as one where: 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.

Thus, 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. An inventory to be signed by the parties and attached
to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to
the partnership.

Undoubtedly, the best evidence would have been the contract of

partnership itself, or the articles of partnership but there is none.
The alleged partnership, though, was never formally organized.
Besides, it is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan Eng Kee
never asked for an accounting.

The essence of a partnership is that the partners share in the

profits and losses. Each has the right to demand an accounting
as long as the partnership exists. A demand for periodic
accounting is evidence of a partnership. During his lifetime, Tan
Eng Kee appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay.

In connection therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall

apply:

(1) Except as provided by Article 1825, persons who are not

partners as to each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a

partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a

partnership, whether or not the persons sharing them have a
joint or common right or interest in any property which the
 returns are derived;

(4) The receipt by a person of a share of the profits of a business

is prima facie evidence that he is a partner in the business, but
no such inference shall be drawn if such profits were received in
payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(b) As an annuity to a widow or representative of a

deceased partner;

(d) As interest on a loan, though the amount of payment

vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a

business or other property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that

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.

Petitioners failed to show how much their father, Tan Eng Kee,
received, if any, as his share in the profits of Benguet Lumber
Company for any particular period. Hence, they failed to prove
that Tan Eng Kee and Tan Eng Lay intended to divide the profits
of the business between themselves, which is one of the
essential features of a partnership.

5. PASCUAL vs.
CIR 166 SCRA FACTS:
560
Petitioners bought two (2) parcels of land and a year after, they
bought another three (3) parcels of land. Petitioners
subsequently sold the said lots in 1968 and 1970, and realized
net profits. 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, the Acting BIR
Commissioner assessed and required Petitioners to pay a total
amount of P107,101.70 as alleged deficiency corporate income
taxes for the years 1968 and 1970. Petitioners protested the said
assessment asserting that they had availed of tax amnesties
way back in 1974. In a reply, respondent Commissioner
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 that the unregistered partnership was subject to
corporate income tax as distinguished from profits derived from
the partnership by them which is subject to individual income
tax; and that the availment of tax amnesty under P.D. No. 23, as
amended, by petitioners relieved petitioners of their individual
income tax liabilities but did not relieve them from the tax liability
of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.

ISSUE:

Whether the Petitioners should be treated as an unregistered

partnership or a co-ownership for the purposes of income tax.

RULING:

The Petitioners are simply under the regime of co-

ownership and not under unregistered partnership.

By the contract of partnership two or more persons bind

themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves (Art. 1767, Civil Code of the Philippines). 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. 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.
Hence, 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.

DOCTRINE:
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.
6. ONA vs. CIR
GR L-19342 Facts:
(1972)
After his wife died, petitioners Lorenzo and his 5 children were
left with several extensive properties. Lorenzo, the administrator
of his wife’s estate , submitted a project of partition which was
approved by the Court. Despite the approval, no attempt was
made to divide the properties therein listed. Instead, the
properties remained under the
management of Lorenzo T. 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.

From said investments and properties petitioners derived such

incomes as profits from installment sales of subdivided lots,
profits from sales of stocks, dividends, rentals and interests. The
said incomes are recorded in the books of account kept by
Lorenzo T. Oña. However, petitioners did not actually receive
their shares in the yearly income. The income was always left in
the hands of Lorenzo T. Oña who invested them in real
properties and securities. They allowed him to continue using
said shares as part of the common fund for their ventures, even
as they paid the corresponding income taxes on the basis of
their respective shares of the profits of their common business
as reported by the said Lorenzo T. Oña.
Respondent CIR decided that the petitioners formed an
unregistered partnership and therefore, subject of the corporate
income tax.

Issue:
Whether or not the petitioners formed an unregistered
partnership.
Held:

Yes, the Supreme Court ruled that the petitioners formed an

unregistered partnership within the purview of Sections 24 and
84(b) of the National Internal Revenue Code.

In ruling in the affirmative, the Court stated that 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.

From the moment of such partition, the heirs are entitled already
to their respective definite shares of the estate and the incomes
thereof. 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, even if no document or instrument were executed for the
purpose, for tax purposes, at least, an unregistered partnership
is formed.

The Court differentiated the concept of partnership under the

Civil Code from that of unregistered partnership which
are considered corporations under the provisions of NIRC. As
defined in Section 84(b) of the NIRC, the term corporation
includes partnership, no matter how created or organized. This
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 partnership in order that one could be
deemed constituted for purposes of the tax on corporation. For
purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships - with the exception
only of duly registered general co-partnerships within the
purview of the term "corporation”

DOCTRINE (UNREGISTERED PARTNERSHIP)

If, after such partition, an heir allows his shares 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, the co-ownership of inherited
properties is automatically converted into an unregistered
partnership.

7. GATCHALIAN
vs. CIR 67 PHIL FACTS:
666
Jose Gatchalian, Gregoria Cristobal and others, totaling 15
persons contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would divide
the prize, said ticket was registered in the name of Jose
Gatchalian and Company. The ticket won the third prize of
P50,000. The 15 persons were held liable for income tax as an
unregistered partnership.

ISSUE:

Whether the plaintiffs formed a partnership, or merely a

community of property without a personality of its own.

HELD:

Plaintiffs organized a partnership of a civil nature because each

of them put up money to buy a sweepstakes ticket for the sole
purpose of dividing equally the prize which they may win, as they
did in fact in the amount of P50,000 (article 1665, Civil Code).
The partnership was not only formed, but upon the organization
thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippine Charity Sweepstakes, in
his capacity as co-partner, as such collected the prize, the office
issued the check for P50,000 in favor of Jose Gatchalian and
company, and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea that the
plaintiffs organized and formed a community of property only.

Having organized and constituted a partnership of a civil nature,

the 'said entity is the one bound to pay the income tax.

DOCTRINE:

There must be an unmistakable intention to form a partnership.

— Article 1769(3) provides that “the sharing of gross returns
does not of itself establish a partnership whether or not the
persons sharing them have a joint or common right or interest in
any property from which the returns are derived.” There must be
 an unmistakable intention to form a partnership or joint venture.
[A partnership is formed where 2 or more persons put up money
to buy a lottery ticket for the purpose of dividing the prize, which
they may win, among themselves.]

8. OBILLOS vs.
CIR 139 SCRA FACTS:
436 (1985)
This case is about the income tax liability of four brothers and
sisters who sold two parcels of land which they had acquired
from their father. After having held the two lots for more than a
year, the petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canda. They treated the profit as a
capital gain and paid an income tax on one-half thereof. In April,
1980, or one day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue
required the four petitioners to pay corporate income tax in
addition to individual income tax on their shares thereof. He
required them to pay deficiency income taxes including fraud
surcharge and the accumulated interest. The Commissioner
acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of
sections 24(a) and 84(b) of the Tax Code.

ISSUE:
Whether an unregistered partnership was formed.

HELD:
No. To regard the petitioners as having formed a taxable
unregistered partnership would result in oppressive taxation and
confirm the dictum that the power to tax involves the power to
destroy. Their original purpose was to divide the lots for
residential purposes. If later on they found it not feasible to build
their residences on the lots because of the high cost of
construction, then they had no choice but to resell the same to
dissolve the co-ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. It had to be terminated
sooner or later.

DOCTRINE:
Article 1769(3) of the Civil Code provides that "the sharing of
gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived".
There must be an unmistakable intention to form a partnership
 or joint venture.

9. EVANGELISTA Facts:
vs. CIR GR L-
9996 (1957) 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 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.

In 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 or not petitioners herein constitute a partnership and
are subject to the income tax for corporations (Yes)

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) 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 who have agreed to, and did,
contribute money and property to a common fund. As to the
second element, the Court fully satisfied that their purpose was
to engage in real estate transactions for monetary gain and then
divide the same among themselves as indicated by the following
circumstances:
 1. The common fund was not something they found
already in existence nor a property inherited by them pro
indiviso. It was created purposely, jointly borrowing a substantial
portion thereof in order to establish said common fund;
2. They invested the same not merely in one
transaction, but in a series of transactions. The number of
lots acquired and transactions undertake is strongly
indicative of a pattern or common design that was not
limited to the conservation and preservation of the
aforementioned common fund or even of the property
acquired. In other words, one cannot but perceive a
character of habitually peculiar to business transactions
engaged in the purpose of gain;
3. Said properties were not devoted to residential
purposes, or to other personal uses, of petitioners but
were leased separately to several persons;
4. They were under the management of one person
where the affairs relative to said properties have been
handled as if the same belonged to a corporation or
business and enterprise operated for profit;
5. Existed for more than ten years, or, to be exact,
over fifteen years, since the first property was acquired,
and over twelve years, since Simeon Evangelista became
the manager;
6. Petitioners have not testified or introduced any
evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued
existence.

The collective effect of these circumstances is such as to leave

no room for doubt on the existence of said intent in petitioners
herein.

Also, petitioners’ argument that their being mere co-owners did

not create a separate legal entity was rejected because,
according to the Court, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different
from "partnerships". When the NIRC includes "partnerships"
among the entities subject to the tax on "corporations", said
Code must allude, therefore, to organizations which are not
 necessarily "partnerships", in the technical sense of the term.
The qualifying expression found in Section 24 and 84(b) 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.

Accordingly, the lawmaker could not have regarded that

personality as a condition essential to the existence of the
partnerships therein referred to. For purposes of the tax on
corporations, NIRC includes these partnerships - with the
exception only of duly registered general co partnerships - within
the purview of the term "corporation." It is, therefore, clear that
petitioners herein constitute a partnership, insofar as said
Code is concerned and are subject to the income tax for
corporations.

As regards the residence of tax for corporations (Section 2 of CA

No. 465), it is analogous to that of section 24 and 84 (b) of the
NIRC. It is apparent that the terms "corporation" and
"partnership" are used in both statutes with substantially the
same meaning. Consequently, petitioners are subject, also, to
the residence tax for corporations.

Doctrine:

Business partnerships taxable as corporation - Under Sections

20 and 24 (now Secs. 22 and 27) of the National Internal
Revenue Code (NIRC), (business) partnerships are included in
the term “corporation’’ and taxable as such. In this case, it was
held that Section 24 covered these unregistered partnerships
and even associations or joint accounts, which had no legal
personalities apart from their individual members.

PRINCIPLE OF DELECTUS PERSONAE (ART. 1804)

10. ORTEGA vs. FACTS:

CA 245 SCRA 529
The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO was duly registered in the Mercantile Registry
and reconstituted with the Securities and Exchange
Commission. The SEC records show that there were several
subsequent amendments to the articles of partnership to change
the firm name (to ROSS, SELPH and CARRASCOSO; to ROSS,
SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA and so on.

Respondent Misa associated himself together, as senior partner

with petitioners Ortega, del Castillo, Jr., and Bacorro, as junior
partners.

On Feb. 17, 1988, respondent Misa wrote a letter stating that he

is withdrawing and retiring from the firm and asking for a meeting
with the petitioners to discuss the mechanics of the liquidation.

On June 1988, petitioner filed with this Commission's Securities

Investigation and Clearing Department (SICD) a petition for
dissolution and liquidation of partnership. Respondents-
appellees filed their opposition to the petition. The hearing officer
rendered a decision ruling that "[P]etitioner's withdrawal from the
law firm Bito, Misa & Lozada did not dissolve the said law
partnership and both parties were enjoined to abide by the
provisions of their Agreement. The SEC en banc, Upon appeal,
held that Joaquin Misa’s (respondent in this case) withdrawal
had dissolved the partnership. That being a partnership at will,
the law firm could be dissolved by any partner at any time
regardless of good faith or bad faith, since no partner can be
forced to continue in the partnership against his will. Upon
appeal to the CA by the parties, pending the instant case, both
Bito and Lozada died. The death of the two partners, as well as
the admission of new partners, in the law firm prompted Attorney
Misa to renew his application for receivership (in CA G.R. SP
No. 24648) expressing concern over the need to preserve and
care for the partnership assets. The CA, finding no reversible
error on the part of respondent Commission, AFFIRMED in toto
the SEC decision. Hence, the instant petition.

ISSUE:
Whether or not the withdrawal of private respondent dissolved
the partnership regardless of his good or bad faith?

RULING:

Yes. Any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will (e.g. by way of withdrawal of
a partner). 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.

The birth and life of a partnership at will is predicated on the

mutual desire and consent of the partners. 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 a 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.

In other words, since mutual agency arises among partners, the

doctrine of delectus personae allows them to have the power,
although not necessarily the right, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a
possible action for damages. Upon its dissolution, the
partnership continues and its legal personality is retained until
the complete winding up of its business culminating in its
termination. For it would not be right to let any of the partners
remain in the partnership under an atmosphere of animosity or
interpersonal conflict; certainly, not against their will.

DOCTRINE:
Among partners, mutual agency arises and the DOCTRINE
OF DELECTUS PERSONAE allows them to have the power,
although not necessarily the right, to dissolve the partnership. In
essence, the principle of delectus personae (choice of persons)
gives a person the right to select persons with whom he
wants to be associated with. 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.

11. TOCAO vs.

CA 342 SCRA 20 Facts:
 William T. Belo, the vice-president for operations of Ultra
Clean Water Purifier introduced Nenita Anay to petitioner
Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of
kitchen cook wares.

Belo volunteered to finance the joint venture and assigned to

Anay the job of marketing the product considering her
experience. Under the joint venture, Belo acted as capitalist,
Tocao as president and general manager, and Anay as head of
the marketing department and later, vice-president for sales.
They operated under the name Geminesse -Enterprise, this
name was however registered as a sole proprietorship with the
Bureau of Domestic Trade under Tocao.

The joint venture agreement was not reduced to writing because

Anay trusted Belo’s assurances. The venture succeeded under
Anay’s marketing prowess. But then the relationship between
Anay and Tocao soured. One day, Tocao advised one of the
branch managers that Anay was no longer a part of the
company. Anay attempted to contact Belo. She wrote him twice
to demand her overriding commission and the audit of the
company to determine her share in the net profits. Anay then
demanded that the company be audited and her shares be given
to her.

Tocao and Belo asserted that the 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.

Issues:
1. WoN there exist a partnership.
2. Assuming that there is a partnership between the parties,
WoN the act of excluding private respondent is one of the rights
that the partners in a partnership may exercise.

Held:
1. Yes, there exist a partnership between the parties. The SC
finds no reason to rule otherwise. To be considered a juridical
personality, a partnership must fulfill these requisites as provided
by Art. 1767: (1) two or more persons bind themselves to
contribute money, property or industry to a common fund; and
(2) intention on the part of the partners to divide the profits
among themselves. It may be constituted in any form; a 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.

2. Yes, the petitioner’s act of excluding or ousting private

respondent from the partnership is a power that may be
exercised by a partner, this is based on the doctrine of delectus
personae. 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 vice-
president for sales of Geminesse Enterprise. 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 terminated
thereby; it continues until the winding up of the business.

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.

Doctrine (delectus personae):

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.
12. JG SUMMIT FACTS:
vs. CA GR
124293 A joint venture (JVA) was entered by a government corporation,
National Investment and Development Corporation (NIDC) with
a Japanese corporation, Kawasaki Heavy Industries, Ltd. for a
shipyard business, Philippine Shipyard and Engineering
Corporation (PHILSECO), with an agreement of a shareholding
proportion of 60%-40 respectively and a right of first refusal to
Kawasaki. Thereafter, NIDC transferred all its rights, title and
interest to the Philippine National Bank (PNB). After several
months, by virtue of Administrative Order 14, PNB's interest in
PHILSECO was transferred to the National Government. Then
President Aquino’s Proclamation No. 50 was issued establishing
the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to and possession of,
conserve, manage and dispose of non-performing assets of the
National Government. A trust agreement was entered into
between the National Government and the APT by virtue of
which the latter was named the trustee of the National
Government's share in PHILSECO. As a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to
PNB, the National Government's shareholdings in PHILSECO
increased to 97.41% thereby reducing Kawasaki's shareholdings
to 2.59%. After negotiations, it was agreed that Kawasaki’s right
of first refusal under the JVA be “exchanged” for the right to top
by 5% the highest bid for said shares. Kawasaki informed that
Philyards Holdings, Inc. (PHI), in which it was a stockholder,
would exercise this right in its stead. Petitioner JG Summit
Holdings was declared highest bidder. Even so, because of the
right to top by 5% percent the highest bid, Kawasaki/PHI’s was
able to top the winning bid. JG Summit protested, contending
that PHILSECO, as a shipyard is a public utility and, hence,
must observe the 60%-40% Filipino-foreign capitalization. By
buying 87.67% of PHILSECO’s capital stock at bidding,
Kawasaki/PHI in effect now owns more than 40% of the stock,
thus violating the laws.

ISSUE:
1. WON Shipyard is a public utility.
2. WON private respondent as foreign corporation is limited only
to exercise their right of first refusal only to the extent of 40% as
per the Constitution.

HELD:
1. No, a shipyard such as PHILSECO is not considered a public
utility. Shipyard is a place or enclosure where ships are built or
 repaired is in its nature serves a limited clientele and not legally
obliged to render its services indiscriminately to the public. While
the business may be regulated for public good, it does not justify
the qualifications for public utility which implies public use and
service to the public hence it must be engaged in regularly
supplying the public with some commodity or service of public
consequence. Second, it is not declared as public utility by law.

Based on its legislative history, since the enactment of Act No.

2307 which created the Public Utility Commision (PUC) until
repealed by Commonwealth Act No. 146 establishing Public
Service Commission, a shipyard was a public utility and should
abide by the Filipino citizenship requirement of 60-40 capital of a
corporation. Thereafter, Pres. Marcos issued PD No. 666 which
removed the shipbuilding and ship repair industry from the list of
public utilities thereby freeing it from the 60-40 citizenship
requirement. Batas Pambansa Blg. 391 repealed the PD No.
666 and reverted shipyards as public utilities. Then Pres.
Aquino’s Executive Order No. 226 repealed the previous laws
with no revival of the principle that shipyards are public utilities.
Thus absent of such legislation declaring the same, a shipyard
reverts back to its status as a non-public utility.

2. With this, there was nothing preventing Kawasaki from

acquiring more than 40% of PHILSECO’s total capitalization.
The JVA should also be interpreted as the phrase “maintaining a
proportion of 60%-40%” refers to their respective share of the
burden each time the Board of Directors decides to increase the
subscription to reach the target paid-up capital of P312 million. It
does not bind the parties to maintain the sharing scheme all
throughout the existence of their partnership.

The prohibition in the Constitution applies to the ownership of

land; the fact that PHILSECO owns land cannot deprive
Kawasaki of its right of first refusal reiterating the basic corporate
law principle that the corporation and its stockholders are
separate juridical entities. In this vein, the right of first refusal
over shares pertains to the shareholders whereas the capacity to
own land pertains to the corporation. Hence, no law disqualifies
a person from purchasing shares in a landholding corporation
even if the latter will exceed the allowed foreign equity, what the
law disqualifies is the corporation owning land.

DUTY TO WIND UP/LIQUIDATE PARTNERSHIP AFFAIRS (ART. 1836)

13. ALDECOA vs. Facts:

WARNER,
BARNES 16 PHIL Aldecoa and Co. was a regular collective mercantile
423 association. It formed a joint-account partnership with Warner,
Barnes and Co., which was conducting a business in Albay, of
which the principal object was to purchase hemp for exportation.
They agreed that Aldecoa was to share equally in the gains and
losses of the business in Albay.

Warner, Barnes and Co., Ltd. was the successor to all the rights
and obligations of Warner, Barnes and Co., and was the
manager of the said joint-account partnership. As manager, it
was obliged to render accounts supported by proofs, and to
liquidate the business in case of liquidation.

Later, they closed their operations. However, Warner, Barnes

and Co., Ltd. failed to liquidate the business despite demands. It
even denied the right of Aldecoa to examine the vouchers, for
which books contain entries of errors and omissions. This
prompted Aldecoa to file an action for a writ of mandamus
against Warner.

Warner countered that during the period that the said joint-
account partnership existed, it rendered to the Aldeoco just and
true accounts of transaction as manager of the said partnership.
The accounts were approved by Aldecoa.

The trial court ruled in favor of Warner, finding that there was
indeed an accounting and liquidation of the business.

Issue:
WON the managing firm did render accounts, duly verified
by vouchers, of its management from the date of the
organization of the partnership.

Ruling:
Yes, the Court agrees with the lower court and find that
Warner, Barnes and Co., Ltd., did render accounts from June
30, 1899, to December 31, 1902, inasmuch as the very evidence
introduced by Aldecoa showed that the said accounts had been
rendered and were approved by it, according to the context of its
own letters of the dates of July 27, 1907, and February 19, 1903.

Under the law, the one who takes charge of the management of
another's property is bound immediately thereafter to render
accounts covering his transactions; and that it is always to be
understood that all accounts rendered must be duly
 substantiated by vouchers.

It is admitted by both parties that Warner, Barnes and Co., Ltd.,

was the manager of the business of the joint-account partnership
formed between it and Aldecoa. It is unquestionable that it was
Warner's duty to render accounts of the management of the
business, as it partially has done. Although Warner has not
proved that it complied with its duty of rendering accounts of its
management, the letters exhibited and duly authenticated by
Aldecoa prove that Warner did render accounts from June 30,
1899 to December 31, 1902. Hence, the finding of the lower
court must be sustained.

Thus, the Court denies the petition.

Doctrine:
The other partner’s acceptance and approval of accounts
rendered by the managing partner is deemed compliance with its
duty of rendering accounts covering the specified period.

14. PO YENG
CHEO vs. LIM KA Facts:
YAN 44 PHIL 172
The plaintiff, Po Yeng Cheo, being the sole heir, inherited the
interest left by the deceased Po Gui Yao in a business under the
style of Kwong Cheong Tay, a mercantile partnership, engaged
in the import and export trade. The manager of Kwong Cheong
Tay, for many years prior to its complete cessation from
business in 1910, was Lim Ka Yam, the original defendant
herein.

When Kwong Cheong Tay ceased to do business, Lim Ka Yam

appears at no time to have submitted to the partners any formal
liquidation of the business, though repeated demands to that
effect have been made upon him by the plaintiff. Po Yeng Cheo
filed a complaint which sought to obtain an accounting from Lim
Ka Yam, as managing partner in said business and to recover
from him its properties and assets. The defendant having died
during the pendency of the cause in the court below and the
death suggested on record, his administrator, one Lim Yock
Tock, was required to present a liquidation of said business.

However, the order bore no substantial fruit since Lim Yock Tock
personally knew nothing about the said business (which had
ceased operation more than 10 yrs ago) and was apparently
unable to find any books or documents that could shed any real
light on its transactions. He instead submitted to the court a
paper written by Lim Ka Yam in life purporting to give, with
vague and uncertain details, a history of the business. To this
narrative was appended a statement of assets and liabilities,
purporting to show that after the business liquidated, it was
actually debtor to Lim Ka Yam to the extent of several thousand
pesos.

Appreciating the worthlessness of this so-called statement, the

trial judge rendered judgment in favor of the plaintiff, Po Yeng
Cheo, to recover of the defendant Lim Yock Tock, as
administrator of Lim Ka Yam, the interest of the plaintiff in the
capital of Kwong Cheong Tay, plus the plaintiff's proportional
interest in shares of other companies, together with the costs.
From this judgment the defendant appealed.

Issue:
WON the duty of liquidating the affairs of a partnership
rests on Lim Yock Tock, the administrator of the deceased
manager.

Ruling:

NO. It is well settled that when a member of a mercantile

partnership dies, the duty of liquidating its affairs devolves upon
the surviving member, or members, of the firm, not upon the
legal representative of the deceased partner. (Wahl vs.
Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green,
6 Phil., 744.) And the same rule must be equally applicable to a
civil partnership clothed with the form of a commercial
association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33
Phil., 350).

In the case at bar, upon the death of Lim Ka Yam it therefore

became the duty of his surviving associates to take the proper
steps to settle the affairs of the firm, and any claim against him,
or his estate, for a sum of money due to the partnership by
reason of any misappropriation of its funds by him, or for
damages resulting from his wrongful acts as manager, should be
prosecuted against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the Code of Civil
Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the shares in the
Yut Siong Chyip Konski and the Manila Electric Railroad and
Light Company, are in the possession of the deceased partner,
the proper step for the surviving associates to take would be to
make application to the court having charge of the administration
 to require the administrator to surrender such property.

Thus, the proceedings in this case, considered in the character

of an action for an accounting, were futile; the action was not
maintainable in this aspect after the death of the defendant; and
the motion to discontinue the action as against the administrator
should have been granted. The judgment must be reversed, and
the defendant will be absolved from the complaint.

Doctrine:

When a member of a mercantile partnership dies, the duty of

liquidating its affairs devolves upon the surviving member, or
members, of the firm, not upon the legal representative of the
deceased partner.

15. GUIDOTE vs. Facts:

BORJA 53 PHIL
900 Guidote and Narciso Santos entered into a partnership called
“Taller Sinukuan” wherein Santos is the capitalist partner while
Guidote is the industrial partner. Upon the death of Santos,
Guidote, as the surviving partner, failed to liquidate the
partnership and render an account thereof to Borja, the
administratrix of Santos' estate. After a trial court ordered
Guidote to render a full and complete accounting, verified by
vouchers, of the partnership business from June 15, 1918, until
September 1, 1922, he presented the accounting rendered by a
public accountant. However, Borja raised numerous objections
to the aforementioned accounting. Thus, the court, upon
hearing, disapproved the account and ordered that the
defendant submit to the court an accounting of the partnership
business from the date of the commencement of the partnership,
June 15, 1918, up to the time the business was closed.

The defendant presented an account and liquidation prepared by

a public accountant, Santiago A. Lindaya, showing a balance of
P29,088.95 in favor of the defendant. The accounting rendered
was approved by the trial court with modification, in lieu with the
adjustment made by a public accountant who appeared at the
hearing as a witness. The trial court now ordered the plaintiff to
pay P26,020.89 with interest to the defendant.

Plaintiff argues that as the deceased up to the time of his death

generally took care of the payments and collections of the
partnership, his legal representatives were under the obligation
to render accounts of the operations of the partnership,
 notwithstanding the fact that the plaintiff was in charge of the
business subsequent to the death of Santos.

Issue: W/N the contention of Guidote is tenable.

Ratio:

No. In the case of Wahl vs. Donaldson Sim & Co. (5 Phil., 11,
14), it was held that the death of one of the partners dissolves
the partnership, but that the liquidation of its affairs is by law
intrusted, not to the executors of the deceased partner, but to
the surviving partners or to liquidators appointed by them.

In equity, surviving partners are treated as trustees of the

representatives of the deceased partner, in regard to the interest
of the deceased partner in the firm. As a consequence of this
trusteeship, surviving partners are held in their dealings with the
firm assets and the representatives of the deceased to that
nicety of dealing and that strictness of accountability required of
and incident to the position of one occupying a confidential
relation. It is the duty of surviving partners to render an account
of the performance of their trust to the personal representatives
of the deceased partner, and to pay over to them the share of
such deceased member in the surplus of firm property, whether
it consists of real or personal assets.

In the present case, plaintiff failed to show an honest account of

the business and to effect a fair liquidation of the partnership,
instead, he sought to collect the sum of P9,534.14 which was
alleged to be the net profits due the plaintiff in the partnership
business by presenting very questionable, and apparently false
evidence. The plaintiff failed to observe his role as the trustee of
his deceased partner with regard to the interest of the latter in
the firm.

Doctrine:
The death of one of the partners dissolves the partnership, but
the liquidation of its affairs is by law entrusted to the surviving
partners, or to liquidators appointed by them, and not to the
executors of the deceased partner.

AGENCY: LEASE OF WORK OR SERVICE (ART. 1644)

16. NIELSON & FACTS:
CO VS. LEPANTO
26 SCRA 540 A contract was entered by Lepanto and Nielson & Co., whereby
the former operated and managed the mining properties owned
by the latter. The contract in question was made by the parties
for a period of five (5) years and parties agreed to renew the
contract for another period of five (5) years. However a war
broke out, thus suspending the operations. Plaintiff brought
action against the defendant before the Court of First Instance of
Manila to recover certain sums of money representing damages
allegedly suffered by the former in view of the refusal of the latter
to comply with the terms of a management contract entered into
between them.

The Court ruled in favor of Nieldon that the contract was

suspended. Thus, Lepanto seeks the reconsideration of the
decision rendered, alleging that the management contract in
question is a contract of agency such that it has the right to
revoke and terminate the said contract, as it did terminate the
same, under the law of agency

ISSUE: Whether or not the agreement is a contract of agency?

RATIO:
No, the contract is for lease of service.

In both agency and lease of services, one of the parties binds

himself to render some service to the other party. Agency,
however, is distinguished from the lease of work or services in
that the basis of agency is representation, while in the lease of
work or services the basis is employment. The lessor of services
does not represent his employer while the agent represents his
principal. Agency is a preparatory contract as agency "does not
stop with the agency because the purpose is to enter into other
contracts." The most characteristic feature of an agency
relationship is the agent's power to bring about business
relations between his principal and third persons. "The agent is
destined to execute juridical acts (creation, modification or
extinction of relations with third parties). Lease services
contemplate only material (non-juridical) acts."

In this case, it appears that the principal and paramount

undertaking of the Nielson under the management contract was
the operation and development of the mine and the operation of
the mill. All the other undertakings mentioned in the contract are
necessary or incidental to the principal undertaking — these
other undertakings being dependent upon the work on the
development of the mine and the operation of the mill. In the
performance of this principal undertaking Nielson was not in any
way executing juridical acts for Lepanto, destined to create,
 modify or extinguish business relations between Lepanto and
third persons.

In other words, in performing its principal undertaking Nielson

was not acting as an agent of defendant Lepanto, in the sense
that the term agent is interpreted under the law of agency, but as
one who was performing material acts for an employer, for a
compensation.

DOCTRINE:

In both agency and lease of services, one of the parties binds

himself to render some service to the other party. Agency,
however, is distinguished from the lease of work or services in
that the basis of agency is representation, while in the lease of
work or services the basis is employment. The lessor of services
does not represent his employer while the agent represents his
principal. Agency is a preparatory contract as agency "does not
stop with the agency because the purpose is to enter into other
contracts." The most characteristic feature of an agency
relationship is the agent's power to bring about business
relations between his principal and third persons. "The agent is
destined to execute juridical acts (creation, modification or
extinction of relations with third parties). Lease services
contemplate only material (non-juridical) acts."
17. DE LA CRUZ Facts:
vs. NORTHERN
THEATRICAL 95 The respondent Northern Theatrical Enterprises Inc., a domestic
PHIL 739 corporation operated a moviehouse and among the persons
employed by it was, petitioner Domingo De La Cruz, hired as a
special guard whose duties were to guard the main entrance of
the cine, to maintain peace and order and to report the
commission of disorders within the premises. As such guard he
carried a revolver. In one afternoon, Benjamin Martin wanted to
crash the gate or entrance of the movie house. Infuriated by the
refusal of petitioner De la Cruz to let him in without first providing
himself with a ticket, Martin attacked him with a bolo. Petitioner
De la Cruz then defended himself as best he could until he was
cornered, at which moment to save himself, he shot Martin,
resulting in the latter's death.

Petitioner was charged of homicide in the CFI and that later on

the petition filed against him was dismissed. Consequently,
petitioner was again being charged with homicide but after trial
he was acquitted. In both criminal cases, petitioner employed a
 lawyer to defend him and that he demanded from the
respondent employer reimbursement of his expenses but was
refused, in which this prompt petitioner to file in the CFI an
action against the respondent corporation to recover not only the
amounts he had paid his lawyers but also moral damages that
he had suffered. Afterwards, CFI rendered a decision dismissing
the complaint of the petitioner because petitioner had no cause
of action since he is not an agent to the respondent corporation.

Issue:

Whether or not the relationship between the respondent

corporation and petitioner is of principal and agent.

Ruling:

No, the relationship between the respondent corporation and

petitioner is not of principal and agent because the principle of
representation was in no way involved.

Under the law, where one is hired by an employer to render

some service in the business, renders him only as an employee
of such employer’s business, and that he is not considered an
agent authorizing him to represent the employer in its dealings
with third persons.

In this case, petitioner was not employed to represent the

respondent corporation in its dealings with third parties. He was
a mere employee hired to perform a certain specific duty or task,
that of acting as special guard and staying at the main entrance
of the movie house to stop gate crashers and to maintain peace
and order within the premises.

Doctrine:

In a case where one is hired by a corporation to perform a

specific task, that of acting as a special guard and staying at the
main entrance of a moviehouse to stop gatecrashers and to
maintain peace and order within the premises, is a mere
employee and not an agent as he is not employed to represent
the corporation in its dealings with third persons.

INDEPENDENT CONTRACTOR
18. FRESSEL vs.
UY CHACO & CO. FACTS:
34 PHIL 122
Mariano Uy Chaco Sons & Co., entered into a contract with one
E. Merritt, whereby Merritt undertook and agreed to build for the
defendant a costly edifice in the city of Manila.

In the contract, it was agreed that the Mariano Uy Chaco Sons &
Co., at any time, upon certain contingencies, before the
completion of said edifice, could take possession of the same in
the course of construction and of all the materials in and about
said premises acquired by Merritt for its construction.

Consequently, the plaintiffs delivered to Merritt at the said

edifice in the course of construction certain materials. Now, by
virtue of the said contract with Merritt, Mariano Uy Chaco Sons
& Co. took possession of the incomplete edifice in the course of
construction together with all the materials on said premises
including the materials delivered by plaintiffs.

That neither Merritt nor the defendant has paid for the said
materials, although payment has been demanded, and that the
plaintiffs demanded of the defendant the return or permission to
enter upon said premises and retake said materials, which was
refused by defendant.

Appellant contends that Merritt acted as the agent of Mariano Uy

Chaco Sons & Co. in purchasing the materials in question and
that the latter, by taking over and using such materials, accepted
and ratified the purchase, thereby obligating itself to pay for the
same.

On the other hand, Mariano Uy Chaco Sons & Co contends that

Merritt, being "by the very terms of the contract" is an
independent contractor, thus, he is the only person liable for the
amount claimed.

ISSUE: WON the contract entered into between Meritt and

the defendant Mariano is that of a contract of agency.

HELD:

No, it cannot be said that the relation existing between Merritt

and the Mariano Uy Chaco Sons & Co., was that of principal and
agent, but, on the contrary, they demonstrate that Merritt was an
independent contractor and that the materials were purchased
by him as contractor without the intervention of the defendant.
 In this case, the company entered into a contract with Merritt,
whereby Merritt undertook and agreed with the defendant to
build for the latter a costly edifice, this shows that Merritt was
authorized to do the work according to his own method and
without being subject to the defendant's control, except as to the
result of the work. He could purchase his materials and supplies
from whom he pleased and at such prices as he desired to pay.

Also, the mere fact that Merritt and the company., had stipulated
in their contract that the latter could, "upon certain
contingencies," take possession of the incomplete building and
all materials on the ground, did not change Merritt from an
independent contractor to an agent.

Therefore, the contract is one for a piece of work and not

agency.

Doctrine:

Where one party to a contract undertakes to accomplish a

certain result according to his own method and without being
subject to the other party’s control except as to the result of the
work, the contract is one for a piece of work and not agency.

19. SHELL
COMPANY vs. Facts:
FIREMEN’S
INSURANCE 100 On September 3, 1947, a Plymouth car owned by
PHIL 757 Salvador R. Sison was brought to the Shell Gasoline and
Service Station for washing, greasing and spraying. The car was
placed on the hydraulic lifter under the direction of the personnel
of the station for greasing. As some parts could not be reached
by the grease men, the lifter was lowered and unfortunately the
car fell from the platform. The incident was reported to the
insurer, Firemen’s Insurance Company and Commercial
Casualty Insurance Company. The car was restored to running
condition after repairs thereon which amounted to P1,651.38

The insurer and the owner of the car brought an action

against Shell Company and Porfirio de la Fuente for the
recovery of the expenses made. The trial court dismissed the
complaint but the CA reversed the decision and found the
defendants jointly and severally liable to the plaintiffs. The Court
of Appeals also found that de la Fuente, the operator of the
gasoline station, was an agent of the Shell Company and not
 just an independent contractor.

Issue:

Whether or not Shell Co. is liable for the damages to the

car.

Ruling:

Yes, Porfirio de la Fuente, the operator of the gasoline

and service station is an agent of Shell and not an independent
contractor. Where the operator of a gasoline and service station
owed his position to the company and the latter could remove
him or terminate his services at will; that the service station
belonged to the company and bore its tradename and the
operator sold only the products of the company; that the
equipment used by the operator belonged to the company and
were just loaned to the operator and the company took charge
of their repair and maintenance; that an employee of the
company supervised the operator and conducted periodic
inspection of the company’s gasoline and service station; that
the price of the products sold by the operator was fixed by the
company and not by the operator; and that the receipts signed
by the operator indicated that he was a mere agent. That the
operator is an agent of the company and not an
independent contractor.

As found by the CA, the Company’s mechanic failed to

make a thorough check up of the hydraulic lifter and the check
up made by its mechanic was “merely routine” by raising “the
lifter once or twice and after observing that the operation was
satisfactory, he (the mechanic) left the place.” The latter was
negligent and the company must answer for the negligent
act of its mechanic which was the cause of the fall of the
car from the hydraulic lifter

Doctrine:

As the act of the agent or his employee within the

scope of his authority is the act of the principal, the breach
of the undertaking by the agent is one for which the
principal is answerable.

20. AFRICA vs.

CALTEX 16 SCRA FACTS:
448
In the afternoon of March 18, 1948, a fire broke out at the Caltex
service station. It started while gasoline was being hosed from a
tank truck into the underground storage, right at the opening of
the receiving tank where the nozzle of the hose was inserted.
The fire spread to and burned several neighboring houses,
including the personal properties and effects inside them owned
by herein petitioners Spouses Africa, et al. Consequently,
petitioners sued respondents Caltex and Mateo Boquiren, the
former as the alleged owner of the station and the latter as its
agent in charge of operation. Negligence on the part of both of
them was attributed as the cause of the fire.

The trial court and the Court of Appeals found that petitioners
failed to prove negligence and that respondents had exercised
due care in the premises and with respect to the supervision of
their employees.

ISSUE:
Whether or not Caltex should be held liable for the damages
caused to petitioners-appellants Spouses Africa, et al?

RULING:
This issue depends on whether respondent Boquiren was an
independent contractor, as held by the Court of Appeals, or an
agent of Caltex.

The following facts are not refuted: 1.) Boquiren made an

admission that he was an agent of Caltex; 2.) at the time of the
fire, Caltex owned the gasoline station and all the equipment
therein; 3.) Caltex exercised control over Boquiren in the
management of the state; 4.) the delivery truck used in
delivering gasoline to the station had the name of CALTEX
painted on it; and 5.) the license to store gasoline at the station
was in the name of Caltex, which paid the license fees.
On the other hand, Caltex admits that it owned the gasoline
station as well as the equipment therein, but claims that the
business conducted at the service station in question was
owned and operated by Boquiren. But Caltex did not present
any contract with Boquiren that would reveal the nature of their
relationship at the time of the fire. Instead, what was presented
was a license agreement. But even if the license agreement
were to govern, Boquirenan hardly be considered an
independent contractor. Under that agreement Boquiren would
pay Caltex the purely nominal sum of P1.00 for the use of the
premises and all the equipment therein. He could sell only
Caltex products. Maintenance of the station and its equipment
was subject to the approval, in other words control of Caltex.
 Boquiren could not assign or transfer his rights as licensee
without the consent of Caltex. Caltex could at any time cancel
and terminate the agreement in case Boquiren ceased to sell
Caltex products, or did not conduct the business with due
diligence, in the judgment of Caltex. Termination of the contract
was therefore a right granted only to Caltex but not to Boquiren.
These provisions of the contract show the extent of the control
of Caltex over Boquiren. The control was such that the latter
was virtually an employee of the former.

DOCTRINE (Independent Contractor):

As a general rule, the employer is not liable for the torts or injury
inflicted by the independent contractor upon third persons or by
the employees of such contractor. The principal or employer is
generally liable for the acts of the agent within the scope of his
authority or employment.

NEGOTIORUM GESTIO (ART. 2144-2145)

21. DE LA PENA FACTS:

vs. HIDALGO 16
PHIL 448 The administration of the properties belonging to the principal,
Jose de la Pena y Gomiz was divided into three periods. The
first period was when the property was administered by his
agent, Federico Hidalgo by virtue of a power of attorney. The
second period was by Antonio Hidalgo when Federico, for
reasons of health, was obliged to embark for Spain and lastly,
the third period was when Francisco Hidalgo was its
administrator.

The defendant, Federico, before his forthcoming departure for

Spain, wrote a letter to his principal requisitioning his designation
as agent, rendering the accounts of his administration and
asking for an appointment of his substitute. The principal neither
answered Federico’s letter, to approve or object to the former’s
accounts nor did he appoint or designate another person who
might substitute the defendant.

In a letter, the defendant also informed the principal of his having

provisionally turned over the administration of the property to his
cousin, Antonio Hidalgo, upon whom the writer had conferred a
general power of Attorney, but asking, in case that it was not
sufficient, that the latter to send to Antonio a new power of
attorney. This letter was sent to and received by the principal,
during his lifetime, having found the same among the papers of
the principal after he died.

ISSUES:
1. W/N Antonio became a legitimate agent of Jose del la Pena
2. W/N The defendant is liable for damages beyond his
aforementioned period of administration

HELD:
1. YES, as between Antonio and Jose is an implied agency.

The person who took charge of the administration of property

without express authorization and without a power of attorney
executed by the owner thereof, and performed the duties of his
office without opposition or absolute prohibition on the owner's
part, expressly communicated to the said person, is concluded
to have administered the said property by virtue of an implied
agency

In this case, since the said owner of the property, knowing

perfectly well that the said person took charge of the
administration of the same, through designation by such owner's
former agent who had to absent himself from the place for well-
founded reasons, remained silent for nearly nine years. Although
he did not send a new power of attorney to the said person who
took charge of his property, the fact remains that, during the
period stated, he neither opposed nor prohibited the new agent
with respect to the administration, nor did he appoint another
person in his confidence; wherefore it must be concluded that
this new agent acted by virtue of an implied agency, equivalent
to a legitimate agency, tacitly conferred by the owner of the
property administered.

As compared to an officious manager wherein the management

of another’s business was without knowledge of the owner
thereof, an administration by virtue of an implied agency derives
its origin from a contract.

2. NO, the plaintiff in this case has no right to claim for damages
against its former agent.

The agent-administrator who was obliged to leave his charge for

a legitimate cause and who duly informed his principal, is
thenceforward released and freed from the results and
consequences of the management of the person who substituted
him with the consent, even tacit though it be, of his principal for
the care of the property and interests of another can not require
 that the agent make the sacrifice of his health, of his life, and of
his own interests, it having been shown that it was impossible for
the latter to continue in the discharge of his duties.

Furthermore, the administrator is only responsible for the result

and consequences of his administration during the period when
he had charged of his principal's property. His responsibility can
not have held to extend beyond the period of his administration,
especially as the representative of the estate succession of the
deceased owner of the property administered, after an
examination of the accounts already rendered, issued in his
favor an instrument whereby he acknowledges that the said
administration was satisfactorily terminated.

DOCTRINE:

Negotiorum Gestio is a spontaneous voluntary agency without

the principal’s prior consent thereby it is based on a quasi-
contract; whereas, in implied agency, the authority to administer
was derived from a contract, the principal having perfect
knowledge that his interests and property were so being
managed and he did not object for many years hence, a tacit yet
a definite consent was in place.

SALE

22. QUIROGA vs.

PERSONS Facts:
HARDWARE 38
PHIL 501 Plaintiff filed three causes of action in his complaint, arising from
the contract executed by plaintiff as party of the first part, and J.
parsons as the second party, for the exclusive sale of “Quiroga”
beds. Of the three causes of action alleged by the plaintiff the
two constitute the subject matter of this appeal against the
second party, who is alleged to have violated the following:

a. not to sell the beds at higher prices that those of

the invoices;

b. to have an open establishment in iloilo

c. Itself to conduct the agency

d. To keep on public exhibition, and to pay for the

advertisement expenses of the same;
 e. To order the beds by the dozen in any other
manner

However, It appears from the allegation that none of the

obligations imputed to the defendant in the two cause of action
was expressly mentioned in the contract. But the plaintiff alleged
that defendant is liable as an agent for the sale of his beds.

Issue: Whether or Not the defendant, by reason of the contract,

was a purchaser or an agent of the plaintiff for the sale of his
beds.

Ratio:

No, a contract of agency does not exist in this case. Instead, the
contract executed by the parties is a contract to purchase and
sale.

The obligation of plaintiff was to furnish the defendant with the

beds which plaintiff might order with a stipulated price, the
defendant was to pay the price. The price is determined by the
plaintiff for sale of beds in Manila, with several deductible
discounts afforded to each product according to the class.

The manner by which payment is made in cash or in any

manner at the plaintiff’s request, every end of sixty days. With
respect to the commission, The court opined that they merely
constituted a discount on the invoice price, and the reason for
applying this benefit to the beds sold directly by the plaintiff to
persons in Iloilo was because, as the defendant obligated itself
in the contract to incur the expenses of advertisement of the
plaintiff's beds, such sales were to be considered as a result of
that advertisement.

In respect to the defendant's obligation to order by the dozen,

the only one expressly imposed by the contract, the effect of its
breach would only entitle the plaintiff to disregard the orders
which the defendant might place under other conditions; but if
the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by

and between the plaintiff and the defendant was one of
purchase and sale, and that the obligations the breach of which
is alleged as a cause of action are not imposed upon the
defendant, either by agreement or by law.
 Doctrine:

There was the obligation on the part of the plaintiff to supply the
beds, and, on the part of the defendant, to pay their price. But
this stipulation is not a legal conception of an agency or order to
sell whereby the mandatory or agent received the thing to sell it,
and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he
does not succeed in selling it, he returns it.

23. GONZALO FACTS:

PUYAT vs. ARCO
72 PHIL 402 Teatro Acro is a corporation engaged in the business of
operating cinematographs. The name was later changed to Arco
Amusement Company. Gonzalo Puyat & Sons, Inc. was acting
as exclusive agents for the Starr Piano Company, a company
dealing with cinematographer equipment and machinery.

Arco, in its desire to equip its cinematograph with sound

reproducing devices, approached Gonzalo Puyat & Sons
through their president, Gil Puyat. After some negotiations, it
was agreed that Puyat, on behalf of Arco, would order sound
reproducing equipment from Starr Piano Company and that Arco
would pay Puyat, in addition to the price of the equipment, a
10% commission, plus all expenses. Puyat inquired from Starr
Piano about the equipment and asked for a quotation without
discount.

After the quotation was provided, Puyat informed Arco of

the price. Being agreeable to the price, the latter formalized the
order. The equipment arrived and Puyat was duly paid by Arco.
The following year, Arco made another order for sound
reproducing equipment. The equipment arrived in due time and
Arco duly paid the price plus the 10% commission and $160, for
all expenses and charges.

Three years later, a civil suit was filed against Puyat

alleging that the price quoted by Puyat with regards to the two
orders was not the net price but rather the list price, and that
Puyat obtained a discount from Starr Piano. The officials of Arco
were convinced that the prices charged by Puyat were much too
high. They sought reimbursement.

ISSUE:
Whether or not there was a contract of agency.
RATIO:
No, the contract was one of purchase and sale and not
one of agency.

The contract is the law between the parties and should

include all the things they are supposed to have agreed upon.
What does not appear on the face of the contract should be
regarded merely as “dealer’s talk”, which can not bind either
party. The acceptance of Arco of the prices of sound
reproducing equipment are clear in their terms that Arco agreed
to purchase from Puyat the equipment at the prices indicated
which are fixed and determinate. The agreement also states that
Puyat was to secure from the United States, and sell and deliver
to Arco certain sound reproducing equipment and machinery, for
which Puyat, under and by virtue of said agreement, was to
receive the actual cost price plus 10% commission and was also
to be reimbursed for all out of pocket expenses.

The fact that Puyat was to receive 10% commission does

not necessarily make Puyat an agent of Arco, as this provision is
only an additional price which Arco bound itself to pay, and
which stipulation is not incompatible with the contract of
purchase and sale.

To hold Puyat an agent of Arco in the purchase of

equipment and machinery from the Starr Piano Company of
Richmond, Indiana, is incompatible with the admitted fact that
Puyat is the exclusive agent of the same company in the
Philippines. It is out of the ordinary for one to be the agent of
both the vendor and the purchaser. The facts and circumstances
indicated do not point to anything but plain ordinary transaction
where Arco enters into a contract of purchase and sale with
Puyat, the latter as exclusive agent of the Starr Piano Company
in the United States.

It follows that Puyat as vendor is not bound to reimburse

Arco as vendee for any difference between the cost price and
the sales price which represents the profit realized by the vendor
out of the transaction. This is the very essence of commerce
without which merchants or middleman would not exist.

DOCTRINE:

The fact that one receives a commission does not

necessarily make him an agent of the other as that provision
may be understood only as an additional price which the other
 bound himself to pay.
It is out of the ordinary for one to be the agent of both the
vendor and the purchaser.

24. VELASCO vs.

UNIVERSAL FACTS:
TRADING vs. LIM
TECK SUAN 97 In November of 1948, Ignacio Delizalde, an agent of the Far
PHIL 171 Eastern Export & Import Company, went to the store of Lim
Teck Suan in Manila and offered to sell textile.

Having arrived at an agreement with Bernardo Lim,the General

Manager of Lim Teck Suan, Delizalde returned with a buyer’s
order.

Suan established a letter of credit in favor of Frenkel

International Corporation through the Hongkong and Shanghai
Banking Corporation.

In 1949, the textile arrived and was received by Suan, but

complained to Far Eastern of the inferior quality of the textile.

Upon the instruction of Far Eastern, Suan deposited the goods

with the United Warehouse Corporation and as per their advice,
withdrew the fifteen cases of Ashtone Acetate and Rayon
Suiting for the purpose of offering them for sale.

Plaintiff suffered a net direct loss of P11,476.66 from textile and

warehouse expenses which it is claiming against Far Eastern
Export and Import Company.

Far Eastern Export and Import Company sets up the defense

that it only acted as a broker in this transaction; that they took no
further action and the cargo was taken directly by the buyer; that
upon receipt of Lim Teck Suan's complaint the defendants
passed it to its principal, Frenkel International Corporation, for
comment, and the latter maintained that the merchandise was
up to standard called for.

The lower court acquitted the defendants from the complaint and
dismissed the counterclaim. The Court of Appeals reversed the
judgment entered by the CFI, basing its decision of reversal on
the case of Jose Velasco, vs. Universal Trading Co., Inc., 45
Off. Gaz. 4504 where the transaction therein involved was found
by the court to be one of purchase and sale and not of
brokerage or agency.
ISSUE:

1. Was there a constituted contract of agency or a mere

purchase of sale?

2. Whether or Not the Far Eastern Company is not only an

agent of the Frenkel Corporation but also the agent of or
broker of Suan?

HELD:

1. No commission or monetary consideration was paid or

agreed to be paid by the buyers to the Export company
and the Universal Trading Co., proof that there was no
agency or brokerage, and that the profit of the latter was
undoubtedly the difference between the price listed to the
buyers and the net or special price quoted to the sellers,
by the suppliers. As already stated, it was held in the
Velasco case that the transaction therein entered into
was one of purchase and sale, and for the same reasons
given there, we agree with the Court of Appeals that the
transaction entered into here is one of purchase and
sale.

2. No, as an agent of a foreign company, it may not act as

an agent of local buyers.

Jurisprudence provides that “where a foreign company

has an agent here selling its goods and merchandise, that same
agent could not very well act as agent for local buyers, because
the interests of his foreign principal and those of the buyer would
be in direct conflict. He could not serve two masters at the same
time."

In the present case, the Export company being an agent

of Frenkel International Corporation could not, as it claims, have
acted as an agent or broker for Suan.

DOCTRINE:

Where a foreign company has an agent here selling its goods

and merchandise, that same agent could not very act as agent
for local buyers, because the interests of his foreign principal
and those of the buyers would be in direct conflict. He could not
 serve two masters at the same time.

25. PEARL Facts:

ISLAND vs. LIM
TIANG TONG Plaintiff, Pearl Island, was engaged in the manufacture of floor
wax. It entered into a contract with defendant Tong wherein the
latter, designated as the sole distributor of the same item in
several provinces of Visayas and all the provinces of Mindanao,
was going to buy the said floor wax for resale in the territory
mentioned. Aside from being a sole distributor, it was also
stipulated under the contract that defendant Tong was to furnish
surety bond to cover all shipments of the floor wax that are
damaged or unmerchantable, at its expense. The said surety
bond was provided for by the Manila Surety, with Tong as
principal, in the amount of 5,000.00. Plaintiff was able to send
shipment of bee wax duly received by Tong but the latter still
owed a balance to plaintiff claiming that the plaintiff owed him a
larger amount. This prompted the plaintiff to file an action
against Tong for the remaining balance and the surety company
for the amount of the bond. Surety Company, however,
contends that it cannot be held liable on its bond for the reason
that the latter was filed on the theory that the contract between
plaintiff and Tong was one of agency as a result of which said
surety Company guaranteed the faithful performance of Tong as
agent, but that it turned out that said contract was one of
purchase and sale, as shown by the very title of said contract
namely "contract of purchase and sale".

Issue: WON the contract between the plaintiff and the

defendant Tong was that of an agency

Held:

The Court ruled that the contract was partly a contract of agency
and partly a contract of purchase and sale.

The contract was not entirely clear. While providing for sale of
bee wax from the plaintiff to Tong and purchase of the same by
Tong from plaintiff, it also designated Tong as the sole
distributor of the article within a certain territory with the
undertaking not to appoint any other agent or distributor within
the same area. The surety company must have understood the
contract to be at least partly that of an agency because the bond
itself provided that Tong was appointed as exclusive agent for
 plaintiff for the Visayas-Mindanao provinces.

Further, the surety company cannot deny its liability. It was

stipulated under the contract that Tong was to furnish a surety
bond to cover all the shipments made by the plaintiff to him. It
seems to have been the sole concern and interest of the plaintiff
to be sure that it was paid the value of all shipments of Bee Wax
to Tong and the Surety Company by its bond, in the final
analysis said payment by Tong, either as purchaser or as agent.

Doctrine:

Whether the contract of the parties is denominated as “contract

of purchase and sale” but at the same time designates a party to
it as an agent, is immaterial. The surety company can no longer
deny its liability when the contract has already provided that the
agent is to furnish surety bond to cover all shipments
undertaken, either as purchaser or agent.

26. GREEN FACTS:

VALLEY vs. IAC
133 SCRA 697 On November 3, 1969, Squibb and Green Valley entered into a
letter agreement the text of which reads as follows:

“E.R. Squibb & Sons Philippine Corporation is pleased to

appoint Green Valley Poultry & Allied Products, Inc. as a non-
exclusive distributor for Squibb Veterinary Products, as
recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz,
Animal Health Division Sales Supervisor.”

For goods delivered to Green Valley but unpaid, Squibb filed suit
to collect. The trial court as aforesaid gave judgment in favor of
Squibb which was affirmed by the Court of Appeals.

In both the trial court and the Court of Appeals, the parties
advanced their respective theories.

Green Valley claimed that the contract with Squibb was a mere
agency to sell; that it never purchased goods from Squibb; that
the goods received were on consignment only with the
obligation to turn over the proceeds, less its commission, or to
return the goods ff not sold, and since it had sold the goods but
had not been able to collect from the purchasers thereof, the
 action was premature.

Upon the other hand, Squibb claimed that the contract was one
of sale so that Green Valley was obligated to pay for the goods
received upon the expiration of the 60-day credit period.

Both courts below upheld the claim of Squibb that the

agreement between the parties was a sales contract.

ISSUE:
Whether or not the agreement signed by the parties was a sales
contract and thus Greeen Valley is liable for its unpaid
obligations against Squibb Veterinary Products.

RULING:
The Supreme Court upheld the decision of the defunct Court of
Appeals. . By adopting Green Valley’s theory that the contract is
an agency to sell, it is liable because it sold on credit without
authority from its principal. It further gives emphasis to the
decision based on Article 1905 of the Civil Code which reads:

“The commission agent cannot, without the express or implied

consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit,
which may result from such sale.”

DOCTRINE:

If it is a contract of sale, then GV is liable by just merely

enforcing the clear words of the contract. But if it is an agency to
sell, GV is liable because it sold on credit without authority from
its principal.

27. BERT FACTS:

OSMENA vs. CA
120 SCRA 395 On June 3, 1971, a "Contract of Sale" over Lots 1 and 2, Block I,
Phase II of the Clarita Subdivision, Cebu City, for the total price
of P15,200.00, was executed in favor of the Quimbo spouses.
The sellers were petitioner company, developer of the
subdivision, and Carmen and Helena Siguenza, owners of the
property, represented by petitioner.

Antonio V. Osmeña signed the contract on behalf of the

company. Signing as witness was one C. Siguenza.
The spouses had intended to construct a house thereon. Plans
for the house were drawn. The spouses were ready to pay the
purchase price in full even before the due date of the first
installment and advised Helena Siguenza accordingly so that
title in their names could be delivered to them. On the pretext
that a road would traverse the lots purchased, Helena proposed
to exchange another lot (Lot 409) with the same area for the lots
purchased by the spouses to which the latter hesitating agreed.
Until 1973, however, no title could be given to the Quimbo
spouses.

It turned out that on December 15, 1969, or approximately a

year and a half prior to the sale in the spouses' favor, Lots Nos.
1 and 2 had already been sold to Dr. Francisco Maningo.
Annotated on said titles were mortgages in favor of the
petitioner. Discovering this fact only in 1973, respondent
spouses instituted this suit for Damages against petitioner
company and the Siguenzas.

Petitioner's plea for exception from liability for damages on the

ground that it was a mere agent of the Siguenzas.

ISSUE:

Whether or not BERT OSMEÑA & ASSOCIATES is an agent of

Siguenzas in the sale of the said lots.

Ruling:

Petitioner's plea for exception from liability for damages on the

ground that it was a mere agent of the Siguenzas is untenable.

The contract of sale describes the petitioner as a seller together

with the Siguenzas. In fact, petitioner was the lone signatory for
the sellers in said contract.

The contract is clear that the appellant is one of the Seller-of the
lots in question. Further, appellant never asserted in its answer
that it is a mere agent of its co-defendant Helena. Indeed, the
tenor of its Answer is one which shows its admission that it is a
co-seller of all lots in the subdivision which it is developing. The
Supreme Court takes particular attention to appellant's
admission in its answer to the allegations in par. 4, 8 and 9 of
appellees' complaint, which show that appellant was not an
agent but a co-seller of the lots.

DOCTRINE:
Party described as seller in contract of sale and lone signatory
for the sellers cannot be exempted from liability thereof.