#1 MENDIOLA vs.

COURT OF
APPEALS

497 SCRA 346. JULY 31, 2006

FACTS: Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a

corporation organized and existing under the laws of California, USA. Pacfor
entered into a ‘Side Agreement on Representative Office known as Pacific Forest
Resources (Phils.), Inc.’ with petitioner Arsenio T. Mendiola (ATM), effective May
1, 1995, “assuming that Pacfor-Phils. is already approved by the Securities and
Exchange Commission [SEC] on. the said date.” The Side Agreement outlines
the business relationship of the parties with regard to the Philippine operations
of Pacfor. Private respondent will establish a Pacfor representative office in the
Philippines, to be known as Pacfor Phils, and petitioner ATM will be its
President. Petitioner’s base salary and the overhead expenditures of the
company shall be borne by the representative office and funded by
Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM
and Pacfor- USA. The Side Agreement was later amended through a Revised
Operating and Profit- Sharing Agreement where petitioner’s salary was
increased to $ 78,000. Both agreements show that the operational expenses
will be borne by the representative office and funded by all parties “as equal
partners,” while the profits and commissions will be shared among them. In
July 2000, petitioner wrote Pacfor’s VP for Asia seeking confirmation of his
50% equity of Pacfor Phils to which Pacfor’s President replied that petitioner is
not a part owner, his office being just a representative office a “theoretical
company with the purpose of dividing the income 50-50.” He even stressed that
the petitioner knew of this arrangement from the start, having been the one to
propose to them the setting up of a representative office, instead of a branch
office, to save on taxes.

ISSUE: WON a partnership or co-ownership exists between the parties.

HELD: NO. In a partnership, the members become co-owners of what is

contributed to the firm capital and of all property that may be acquired thereby
and through the efforts of the members. The property or stock of the
partnership forms a community of goods, a common fund, in which each party
has a proprietary interest. In fact, the New Civil Code regards a partner as a co-
owner of specific partnership property. Each partner possesses a joint interest
in the whole of partnership property. If the relation does not have this feature,
it is not one of partnership. This essential element, the community of interest,
or co-ownership of, or joint interest in partnership property is absent in the
relations between petitioner and private respondent Pacfor. Petitioner is not a
part-owner of Pacfor Phils. William Gleason, private respondent Pacfor’s
President established this fact when he said that Pacfor Phils. is simply a
“theoretical company” for the purpose of dividing the income 50-50. He
stressed that petitioner knew of this arrangement from the very start, having
been the one to propose to private respondent Pacfor the setting up of a
representative office, and “not a branch office” in the Philippines to save on
taxes. Thus, the parties in this case, merely shared profits. This alone does not
make a partnership.