On April 5, 1988, Nenita A. Anay filed Civil Case No.
88-509, a complaint for
TOCAO v. CA
G.R. No. 127405; October 4, 2000
FACTS: Private respondent Nenita A. Anay met petitioner William T. Belo,
then the vice-president for operations of Ultra Clean Water Purifier, through
her former employer in Bangkok. Belo introduced 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 cookwares. 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
The parties agreed that Belo's name should not appear in any documents
relating to their transactions with West Bend Company. Anay having
secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's
name.
The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly
production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was
not reduced to writing on the strength of Belo's assurances that he was
sincere, dependable and honest when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter
addressed to the Cubao sales office to the effect that she was no longer the
vice-president of Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8, 1988 to February 5, 1988
and the audit of the company to determine her share in the net profits.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P 13,300,360.00.
sum of money with damages against Marjorie D. Tocao and William Belo
before the Regional Trial Court of Makati, Branch 140
The trial court held that there was indeed an "oral partnership agreement
between the plaintiff and the defendants. The Court of Appeals affirmed the
lower court’s decision.
ISSUE: Whether the parties formed a partnership
HELD: Yes, the parties involved in this case formed a partnership
The Supreme Court held that 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. 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.
In the case at hand, Belo acted as capitalist while Tocao as president and
general manager, and Anay as head of the marketing department and
later, vice-president for sales. Furthermore, Anay was entitled to a
percentage of the net profits of the business.
Therefore, the parties formed a partnership.
JM TUAZON and CO v. BOLANOS
95 PHIL 106
Facts: This is an action to recover possession of registered land situated in
Barrio Tatalon, Quezon City. The complaint of plaintiff JM Tuason & Co Inc
was amended 3 times with respect to the extent and description of the land
sough to be recovered. Originally, the land sought to be recovered was said
to be more or less 13 hectares, but it was later amended to 6 hectares,
after the defendant had indicated the plaintiff's surveyors the portion of
land claimed and occupied by him. The second amendment is that the
portion of the said land was covered in another TCT and the 3rd
amendment was made after the defendant' surveyor and a witness, Quirino
Feria testified that the land occupied by the defendant was about 13
hectares.
Defendant raised the defense of prescription and title thru "open,
continuous, exclusive and public and notorious possession of land in
dispute. He also alleged that the registration of the land was obtained by
plaintiff's predecessor through fraud or error.
The lower court rendered judgment in favor of the plaintiff and ordered the
defendant to restore possession of the land to the plaintiff, as well as to pay
corresponding rent from January 1940 until he vacates the land. On appeal
defendant raised a number of assignments or errors in the decision, one of
which is that the trial court erred in not dismissing the case on the ground
that the case was not brought by the real party in interest.
Issue: Whether or not the lower court erred in not dismissing the case on
the ground that it was not brought by the real party in interest? – NO
Held: What the Rules of Court require is that an action be broughtin the
name of, but not necessarily by, the real party in interest. In fact the
practice is for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff. That practice appears to have been
followed in this case, since the complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its undersigned counsel." It is true
that the complaint also states that the plaintiff is "represented herein by its
Managing Partner Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta,
Inc. cannot act as managing partner for plaintiff on the theory that it is
illegal for two corporations to enter into a partnership is without merit, for
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."
AGUILA, JR. v. CA
FACTS: In April 1991, the spouses Ruben and Felicidad Abrogar entered
into a loan agreement with a lending firm called A.C. Aguila & Sons, Co., a
partnership. The loan was for P200k. To secure the loan, the spouses
mortgaged their house and lot located in a subdivision. The terms of the
loan further stipulates that in case of non-payment, the property shall be
automatically appropriated to the partnership and a deed of sale be readily
executed in favor of the partnership. She does have a 90 day redemption
period.
Ruben died, and Felicidad failed to make payment. She refused to turn over
the property and so the firm filed an ejectment case against her (wherein
she lost). She also failed to redeem the property within the period
stipulated. She then filed a civil case against Alfredo Aguila, manager of the
firm, seeking for the declaration of nullity of the deed of sale. The RTC
retained the validity of the deed of sale. The Court of Appeals reversed the
RTC. The CA ruled that the sale is void for it is a pactum commissorium
sale which is prohibited under Art. 2088 of the Civil Code (note the disparity
of the purchase price, which is the loan amount, with the actual value of
the property which is after all located in a subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party
in interest. As pointed out by Aguila, he is not the real party in interest but
rather it was the partnership A.C. Aguila & Sons, Co. The Rules of Court
provide that “every action must be prosecuted and defended in the name
of the real party in interest.” A real party in interest is one who would be
benefited or injured by the judgment, or who is entitled to the avails of the
suit. Any decision rendered against a person who is not a real party in
interest in the case cannot be executed. Hence, a complaint filed against
such a person should be dismissed for failure to state a cause of action, as
in the case at bar.
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, Felicidad 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. It is the
partnership, not its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A violation of this rule
will result in the dismissal of the complaint.
PASCUAL v. COMMISSIONER OF INTERNAL REVENUE
166 SCRA 560 (1988)
Facts: On June 22, 1965, petitioners Mariano Pascual and Renato Dragon
bought two (2) parcels of land from Santiago Bernardino, et al. and on May
28, 1966, they bought another three (3) parcels of land from Juan Roque.
The first two parcels of land were sold by petitioners in 1968 to Marenir
Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19, 1970.
Petitioners realized a net profit in the sale made in 1968 in the amount of
P165,224.70, while they realized a net profit of P60,000.00 in the sale made
in 1970. The corresponding capital gains taxes were paid by petitioners in
1973 and 1974 by availing of the tax amnesties granted in the said years.
However, in a letter of then Acting BIR Commissioner Efren I. Plana,
petitioners were assessed and required 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.
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 the
National Internal Revenue Code.
Issue: Whether or not respondent is correct in its presumptive
determination that petitioners formed an unregistered partnership thus
subject to corporate income tax. – NO
Ruling: There is no evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and that they
intended to divide the profits among themselves. Respondent
commissioner and/ or his representative just assumed these conditions to
be present on the basis of the fact that petitioners purchased certain
parcels of land and became co-owners thereof. In Evangelista, there was a
series of transactions where petitioners purchased twenty-four (24) lots
showing that the purpose was not limited to the conservation or
preservation of the common fund or even the properties acquired by them.
The character of habituality peculiar to business transactions engaged in
for the purpose of gain was present. Reliance of the lower court to the case
of Evangelista v. Collector is untenable. In order to constitute a partnership
inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of
interest, as far as third persons are concerned as enables each party to
make contract, manage the business, and dispose of the whole
property.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.
OÑA v. THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342 May 25, 1972
Facts: Julia Bunales died on March 23, 1944, leaving as heirs her surviving
spouse. Lorenzo T. Oña and her five children. Lorenzo T. Oña, the surviving
spouse was appointed administrator of the estate of said deceased. A
partition was thereafter approved by the Court. The Court also appointed
Lorenzo, upon petition to the CFI of Manila, to be appointed guardian of the
persons and property of Luz, Virginia and Lorenzo, Jr., who were minors at
the time.
“Although the project of partition was approved by the Court on May 16,
1949. 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 P105,450.00 in 1949 to P480.005.20
in 1956. 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, as heretofore pointed out, invested them in real properties and
securities.
On the basis of the foregoing facts, respondent (Commissioner of Internal
Revenue) decided that petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, pursuant to Section 24, in
relation to Section 84(b), of the Tax Code. Accordingly, he assessed against
the petitioners the amounts of P8,092.00 and P13,899.00 as corporate
income taxes for 1955 and 1956, respectively. The defense of petitioners
revolved mainly in the contention that they are co-owners of the properties
inherited from Julia Buñales and the profits derived therefrom rather than
having formed a partnership.
Issue: Whether or not it was proper to consider petitioners as an
unregistered partnership.– YES
Ruling: The first thing that has struck the Court is that whereas petitioners’
predecessor in interest died way back on March 23, 1944 and the project of
partition of her estate was judicially approved as early as May 16, 1949,
and presumably petitioners have been holding their respective shares in
their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T.
Oña, the assessment in question refers to the later years 1955 and 1956.
We believe this point to be important because, apparently, at the start, or
in the years 1944 to 1954, the respondent Commissioner of Internal
Revenue did treat petitioners as co-owners, not liable to corporate tax, and
it was only from 1955 that he considered them as having formed an
unregistered partnership.
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 of which said properties and investments steadily
increased yearly from P87,860.00 in “land account” and P17,590.00 in
“building account’ ‘in 1949 to P175,028.68 in “investment account,”
P135,714.68 in “land account” and P169,262.52 in “building account” in
1956. And all these became possible because, admittedly, petitioners never
actually received any share of the income or profits from Lorenzo T. Oña,
and instead, 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.
It is thus incontrovertible that petitioners did not, contrary to their
contention, merely limit themselves to holding the properties inherited by
them. Indeed, it is admitted that during the material years herein involved,
some of the said properties were sold at considerable profit, and that with
said profit, petitioners engaged, thru Lorenzo T. Oña, in the purchase and
sale of corporate securities. It is likewise admitted that all the profits from
these ventures were divided among petitioners proportionately in
accordance with their respective shares in the inheritance. In these
circumstances, it is Our considered view that from the moment petitioners
allowed not only the incomes from their respective shares of the
inheritance but even the inherited properties themselves to be used by
Lorenzo T. Oña as a common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamount to actually contributing such
incomes to a common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the abovementioned
provisions of the Tax Code.
GATCHALIAN v. COLLECTOR OF INTERNAL REVENUE
67 Phil. 666 (1939)
Facts: Plaintiffs (15 persons), in order to enable them to purchase one
sweepstakes ticket valued at two pesos (P2), subscribed and paid each
varied amounts aggregating 2 pesos. The said ticket was registered in the
name of Jose Gatchalian and Company . The above-mentioned ticket
bearing No. 178637 won one of the third prizes in the amount of 50, 000.
Jose Gatchalian was required by income tax examiner Alfredo David to file
the corresponding income tax return covering the prize won by Jose
Gatchalian & Company. The Collector of Internal Revenue collected the tax
under section 10 of Act No. 2833, as last amended by section 2 of Act No.
3761, reading as follows:
"SEC. 10. (a) There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding calendar year from all
sources by every corporation, joint-stock company, partnership, joint
account (cuenta en participación), association or insurance company,
organized in the Philippine Islands, no matter how created or organized, but
not including duly registered general copartnerships (compañias
colectivas), a tax of three per centum upon such income;
Issue: Whether or not the plaintiffs formed a partnership, or merely a
community of property without a personality of its own; in the first case it is
admitted that the partnership thus formed is liable for the payment of
income tax, whereas if there was merely a community of property, they are
exempt from such payment.
Held: There is no doubt that if the plaintiffs merely formed a community of
property the latter is exempt from the payment of income tax under the
law. But according to the stipulated facts the 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 which the defendant
collected.
OBILLOS, JR. v. COMMISSIONER OF INTERNAL REVENUE
139 SCRA 436 (1985)
Facts: On 2 March 1973, Jose Obillos, Sr. completed payment to Ortigas &
Co Ltd. on two lots located at Greenhills, San Juan, Rizal. The next day, he
transferred his rights to his four children (petitioners) to enable them to
build their residences. The company sold the two lots to petitioners, and
the torrens title issued to them show that they were co-owners of the two
lots. In 1974, petitioners resold the lots to Walled City Securities
Corporation and Olga Cruz and divided among themselves the profit. They
treated the profit as capital gain and paid an income tax on one-half
thereof. In 1980, or a day before the expiration of the five-year prescriptive
period, the CIR required the petitioners to pay corporate income tax on the
total profit, in addition to individual income tax on their shares thereof. A
total of Php 127,781.76 was ordered to be paid by the petitioners, including
the corporate income tax, 50% fraud surcharge, accumulated interest,
income taxes and distributive dividend. Such was ordered by the
Commissioner, acting on the theory that the four petitioners had formed an
unregistered partnership or joint venture.
Issue: Whether or not the petitioners formed an unregistered partnership
by the act of selling the two lots, of which they were co-owners. – NO
Ruling: It is wrong to consider petitioners as having formed a partnership
under Article 1767 of the Civil Code simply because they allegedly
contributed money to buy the two lots, resold the same and divided the
profit among themselves. They were co-owners, pure and simple. The
petitioners were not engaged in any joint venture by reason of that isolated
transaction.
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.
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.
EVANGELISTA v. CIR
G.R. No. L-9996, October 15, 1957
Facts: Petitioners borrowed sum of money from their father and together
with their own personal funds they used said money to buy several real
properties. They then appointed their brother (Simeon) as manager of the
said real properties with powers and authority to sell, lease or rent out said
properties to third persons. They realized rental income from the said
properties for the period 1945-1949.
On September 24, 1954 respondent Collector of Internal Revenue
demanded the payment of income tax on corporations, real estate dealer's
fixed tax and corporation residence tax for the years 1945-1949. The letter
of demand and corresponding assessments were delivered to petitioners on
December 3, 1954, whereupon they instituted the present case in the Court
of Tax Appeals, with a prayer that "the decision of the respondent contained
in his letter of demand dated September 24, 1954" be reversed, and that
they be absolved from the payment of the taxes in question. CTA denied
their petition and subsequent MR and New Trials were denied. Hence this
petition.
Issue: Whether or not petitioners have formed a partnership and
consequently, are subject to the tax on corporations provided for in section
24 of Commonwealth Act. No. 466, otherwise known as the National
Internal Revenue Code, as well as to the residence tax for corporations and
the real estate dealers fixed tax.
Held: YES. The essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common
fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, because of the following
observations, among others: (1) Said common fund was not something they
found already in existence; (2) They invested the same, not merely in one
transaction, but in a series of transactions; (3) The aforesaid lots were not
devoted to residential purposes, or to other personal uses, of petitioners
herein.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein.
For purposes of the tax on corporations, our National Internal Revenue
Code, includes these partnerships — with the exception only of duly
registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are subject
to the income tax for corporations.
AFISCO INSURANCE CORP. et al. vs. COURT OF APPEALS
G.R. No. 112675. January 25, 1999
DOCTRINE:
Unregistered Partnerships and associations are considered as corporations
for tax purposes – Under the old internal revenue code, “A tax is hereby
imposed upon the taxable net income received during each taxable year
from all sources by every corporation organized in, or existing under
the laws of the Philippines, no matter how created or organized,
xxx.” Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as unregistered
partnerships and associations.
Insurance pool in the case at bar is deemed a partnership or association
taxable as a corporation – In the case at bar, petitioners-insurance
companies formed a Pool Agreement, or an association that would handle
all the insurance businesses covered under their quota-share reinsurance
treaty and surplus reinsurance treaty with Munich is considered a
partnership or association which may be taxed as a corporation.
Double Taxation is not Present in the Case at Bar – Double taxation means
“taxing the same person twice by the same jurisdiction for the same thing.”
In the instant case, the insurance pool is a taxable entity distince from the
individual corporate entities of the ceding companies. The tax on its income
is obviously different from the tax on the dividends received by the
companies. There is no double taxation.
FACTS:
The petitioners are 41 non-life domestic insurance corporations. They
issued risk insurance policies for machines. The petitioners in 1965 entered
into a Quota Share Reinsurance Treaty and a Surplus Reinsurance
Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter
called Munich), a non-resident foreign insurance corporation. The
reinsurance treaties required petitioners to form a pool, which they
complied with.
In 1976, the pool of machinery insurers submitted a financial statement
and filed an “Information Return of Organization Exempt from Income Tax”
for 1975. On the basis of this, the CIR assessed a deficiency
of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39
and P89,438.68 on dividends paid to Munich and to the petitioners,
respectively.
The Court of Tax Appeal sustained the petitioner's liability. The Court of
Appeals dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a partnership
taxable as a corporation, and that the latter’s collection of premiums on
behalf of its members, the ceding companies, was taxable income.
ISSUE/S:
1. Whether or not the pool is taxable as a corporation.
2. Whether or not there is double taxation.
HELD:
1) Yes: Pool taxable as a corporation
Argument of Petitioner: The reinsurance policies were written by them
“individually and separately,” and that their liability was limited to the
extent of their allocated share in the original risks thus reinsured. Hence,
the pool did not act or earn income as a reinsurer. Its role was limited to its
principal function of “allocating and distributing the risk(s) arising from the
original insurance among the signatories to the treaty or the members of
the pool based on their ability to absorb the risk(s) ceded[;] as well as the
performance of incidental functions, such as records, maintenance,
collection and custody of funds, etc.”
Argument of SC: According to Section 24 of the NIRC of 1975:
“SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic
corporations. -- A tax is hereby imposed upon the taxable net income
received during each taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered general co-
partnership (compañias colectivas), general professional partnerships,
private educational institutions, and building and loan associations xxx.”
Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as unregistered
partnerships and associations. Interestingly, the NIRC’s inclusion of such
entities in the tax on corporations was made even clearer by the Tax
Reform Act of 1997 Sec. 27 read together with Sec. 22 reads:
“SEC. 27. Rates of Income Tax on Domestic Corporations. --
(A) In General. -- Except as otherwise provided in this Code, an income
tax of thirty-five percent (35%) is hereby imposed upon the taxable income
derived during each taxable year from all sources within and without the
Philippines by every corporation, as defined in Section 22 (B) of this Code,
and taxable under this Title as a corporation xxx.”
“SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term ‘corporation’ shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include
general professional partnerships [or] a joint venture or consortium formed
for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract without the
Government. ‘General professional partnerships’ are partnerships
formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any
trade or business.
Thus, the Court in Evangelista v. Collector of Internal Revenue held that
Section 24 covered these unregistered partnerships and even associations
or joint accounts, which had no legal personalities apart from their
individual members.
Furthermore, Pool Agreement or an association that would handle all the
insurance businesses covered under their quota-share reinsurance treaty
and surplus reinsurance treaty with Munich may be considered a
partnership because it contains the following elements: (1) The pool has a
common fund, consisting of money and other valuables that are deposited
in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool. (2) The pool functions
through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding
companies. (3) While, the pool itself is not a reinsurer and does not issue
any policies; its work is indispensable, beneficial and economically useful to
the business of the ceding companies and Munich, because without it they
would not have received their premiums pursuant to the agreement with
Munich. Profit motive or business is, therefore, the primordial reason for the
pool’s formation.
TORRES v. CA
FACTS: In 1969, sisters Antonia Torres and Emeteria Baring entered into a
joint venture agreement with Manuel Torres. Under the agreement, the
sisters agreed to execute a deed of sale in favor Manuel over a parcel of
land, the sisters received no cash payment from Manuel but the promise of
profits (60% for the sisters and 40% for Manuel) – said parcel of land is to
be developed as a subdivision.
Manuel then had the title of the land transferred in his name and he
subsequently mortgaged the property. He used the proceeds from the
mortgage to start building roads, curbs and gutters. Manuel also contracted
an engineering firm for the building of housing units. But due to adverse
claims in the land, prospective buyers were scared off and the
subdivision project eventually failed.
The sisters then filed a civil case against Manuel for damages equivalent to
60% of the value of the property, which according to the sisters, is what’s
due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed
the lower court.
The sisters then appealed before the Supreme Court where they argued
that there is no partnership between them and Manuel because the joint
venture agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters entered into with
Manuel is a partnership agreement whereby they agreed to contribute
property (their land) which was to be developed as a subdivision. While on
the other hand, though Manuel did not contribute capital, he is an industrial
partner for his contribution for general expenses and other costs.
Furthermore, the income from the said project would be divided according
to the stipulated percentage (60-40). Clearly, the contract manifested the
intention of the parties to form a partnership. Further still, the sisters
cannot invoke their right to the 60% value of the property and at the same
time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters,
nor can it be blamed to Manuel (the sisters on their appeal did not show
evidence as to Manuel’s fault in the failure of the partnership). The sisters
must then bear their loss (which is 60%). Manuel does not bear the loss of
the other 40% because as an industrial partner he is exempt from losses.
LIM TONG LIM v. PHIL. FISHING GEAR INDUSTRIES
FACTS: It was established that Lim Tong Lim requested Peter Yao to engage
in commercial fishing with him and one Antonio Chua. The three agreed to
purchase two fishing boats but since they do not have the money they
borrowed from one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing nets and other fishing
equipments. Now, Yao and Chua represented themselves as acting in behalf
of “Ocean Quest Fishing Corporation” (OQFC) they contracted with
Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets
amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own
names because apparently OQFC is a non-existent corporation. Chua
admitted liability and asked for some time to pay. Yao waived his rights. Lim
Tong Lim however argued that he’s not liable because he was not aware
that Chua and Yao represented themselves as a corporation; that the two
acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured
from Jesus Lim. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the
boats, and to divide equally among them the excess or loss. These boats,
the purchase and the repair of which were financed with borrowed money,
fell under the term “common fund” under Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from the
sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels
can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim
benefited from the use of the nets found in his boats, the boat which has
earlier been proven to be an asset of the partnership. Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the
three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited by
it, knowing it to be without valid existence, are held liable as general
partners.
AGAD v. MABOLO and AGAD CO.
23 SCRA 1223 (1968)
Facts: Petitioner Mauricio Agad claims that he and defendant Severino
Mabato are partners in a fishpond business to which they contributed
P1000 each. As managing partner, Mabato yearly rendered the accounts of
the operations of the partnership. However, for the years 1957-1963,
defendant failed to render the accounts despite repeated demands.
Petitioner filed a complaint against Mabato to which a copy of the public
instrument evidencing their partnership is attached. Aside from the share of
profits (P14,000) and attorney’s fees (P1000), petitioner prayed for the
dissolution of the partnership and winding up of its affairs.
Mabato denied the existence of the partnership alleging that Agad failed to
pay his P1000 contribution. He then filed a motion to dismiss on the ground
of lack of cause of action. The lower court dismissed the complaint finding a
failure to state a cause of action predicated upon the theory that the
contract of partnership is null and void, pursuant to Art. 1773 of our Civil
Code, because an inventory of the fishpond referred in said instrument had
not been attached thereto.
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if inventory of said property is not made, signed by
the parties; and attached to the public instrument.
Issue: Whether or not immovable property or real rights have been
contributed to the partnership. – NO
Ratio: Based on the copy of the public instrument attached in the
complaint, the partnership was established to operate a fishpond", and not
to "engage in a fishpond business.” Thus, Mabato’s contention that “it is
really inconceivable how a partnership engaged in the fishpond business
could exist without said fishpond property (being) contributed to the
partnership” is without merit. Their contributions were limited to P1000
each and neither a fishpond nor a real right thereto was contributed to the
partnership.
Therefore, Article 1773 of the Civil Code finds no application in the case at
bar. Case remanded to the lower court for further proceedings.
YU v. NLRC
G.R. No. 97212; June 30, 1993
FACTS: Petitioner Benjamin Yu was formerly the Assistant General Manager
of the marble quarrying and export business operated by a registered
partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized on 28
June 1984 with Lea Bendal and Rhodora Bendal as general partners and
Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of
China (Taiwan), as limited partners.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their
interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and
transferred his interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired the
great bulk of the partnership interest. The partnership now constituted
solely by Willy Co and Emmanuel Zapanta continued to use the old firm
name of Jade Mountain, though they moved the firm's main office from
Makati to Mandaluyong, Metropolitan Manila
Petitioner was informed by Willy Co that the latter had bought the business
from the original partners and that it was for him to decide whether or not
he was responsible for the obligations of the old partnership, including
petitioner's unpaid salaries. Petitioner was in fact not allowed to work
anymore in the Jade Mountain business enterprise. His unpaid salaries
remained unpaid.
On 21 December 1988, Benjamin Yu filed a complaint for illegal dismissal
and recovery of unpaid salaries accruing from November 1984 to October
1988
ISSUE: Whether the partnership which had hired petitioner Yu as Assistant
General Manager had been extinguished and replaced by a new partnership
composed of Willy Co and Emmanuel Zapanta
HELD: Yes, the partnership which hired Yu was extinguished and replaced
by a new partnership.
In the case at bar, just about all of the partners had sold their partnership
interests (amounting to 82% of the total partnership interest) to Mr. Willy
Co and Emmanuel Zapanta. The record does not show what happened to
the remaining 18% of the original partnership interest. The acquisition of
82% of the partnership interest by new partners, coupled with the
retirement or withdrawal of the partners who had originally owned such
82% interest, was enough to constitute a new partnership
In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing of the
affairs of the partnership.
In other words, the new partnership simply took over the business
enterprise owned by the preceding partnership, and continued using the
old name of Jade Mountain Products Company Limited, without winding up
the business affairs of the old partnership, paying off its debts, liquidating
and distributing its net assets, and then re-assembling the said assets or
most of them and opening a new business enterprise.
The new partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding partnership.
ROJAS v. MAGLANA
Facts: Maglana and Rojas executed their Articles of Co-Partnership called
Eastcoast Development Enterprises (EDE). It was a partnership with an
indefinite term of existence. Maglana shall manage the business affairs
while Rojas shall be the logging superintendant and shall manage the
logging operation. They shall share in all profits and loss equally. Due to
difficulties encountered they decided to avail of the sources of Pahamatong
as industrial partners. They again executed their Articles of Co-Partnership
under EDE. The term is 30 years. After sometime Pamahatong sold his
interest to Maglana and Rojas including equipment contributed. After
withdrawal of Pamahatong, Maglana and Rojas continued the partnership.
After 3 months, Rojas entered into a management contract with another
logging enterprise. He left and abandoned the partnership. He even
withdrew his equipment from the partnership and was transferred to CMS.
He never told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then
told Rojas that the latter share will just be 20% of the net profits. Rojas took
funds from the partnership more than his contribution. Thus, Maglana
notified Rojas that he dissolved the partnership.
Issue: What is the nature of the partnership and legal relationship of
Maglana and Rojas after Pahamatong retired from the second partnership
Ruling: It was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one, which they
unmistakably called “additional agreement.” Otherwise stated even during
the existence of the second partnership, all business transactions were
carried out under the duly registered articles. No rights and obligations
accrued in the name of the second partnership except in favor of
Pahamatong which was fully paid by the duly registered partnership.  
SANTOS v. REYES
G.R. No. 135813. October 25, 2001
Facts: In June 1986, Fernando Santos, Nieves Reyes and Melton Zabat
orally agreed to form a partnership – a lending business. Santos contributed
70% (as financier) while Reyes and Zabat shared 30% (as industrial
partners). Later, Reyes introduced Cesar Gragera whom they would provide
loans to Gragera’s corporation particularly its employees. In return Gragera
shall have a commission based on the loan payments. The partners
decided on August 1986 to have a written agreement but they found out
that Zabat engaged in a competitor venture thus expelled him. The two had
Arsenio Reyes (husband of Nieves) replaced Zabat.
However, Santos accused the Spouses of not remitting the loans payments.
He argued that the couple were only his employees and there was a
special arrangement between him and Gragera. The trial court and the
Court of Appeals ruled against Santos.
Issue: Whether or not there was a partnership formed between Santos and
the Spouses Reyes
Held: YES. The original partnership with Zabat continued even after the
expulsion of the latter from the partnership because there was no intent to
dissolve the (partnership) relationship.
” [Respondents] were industrial partners of [petitioner]. . . . Nieves herself
provided the initiative in the lending activities with Monte Maria. In
consonance with the agreement between appellant, Nieves and Zabat
(later replaced by Arsenio), [respondents] contributed industry to the
common fund with the intention of sharing in the profits of the partnership.
[Respondents] provided services without which the partnership would not
have [had] the wherewithal to carry on the purpose for which it was
organized and as such [were] considered industrial partners (Evangelista v.
Abad Santos, 51 SCRA 416 [1973]).
“While concededly, the partnership between [petitioner,] Nieves and
Zabat was technically dissolved by the expulsion of Zabat
therefrom, the remaining partners simply continued the business
of the partnership without undergoing the procedure relative to
dissolution. Instead, they invited Arsenio to participate as a
partner in their operations. There was therefore, no intent to
dissolve the earlier partnership. The partnership between [petitioner,]
Nieves and Arsenio simply took over and continued the business of the
former partnership with Zabat, one of the incidents of which was the
lending operations with Monte Maria.”
MORAN JR. v. COURT OF APPEALS
133 SCRA 88 (1984)
Facts: Moran and Pecson agreed to contribute P15 000 each for the
purpose of printing 95,000 posters of the delegates to the then 1971
Constitutional Commission. It was further agreed that Pecson will receive a
commission of P 1000 a month and that the partnership is to be liquidated
on December 15, 1971.
Pecson partially fulfilled his obligation when he issued P10k in favor of the
partnership. He gave the P10k to Moran as the managing partner. Moran
however did not add anything and, instead, he only used P4k out of the
P10k in printing 2,000 posters. He only printed 2,000 posters. All the
posters were sold for a total of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages.
The Court of Appeals affirmed the decision but modified the same as it
ordered Moran to pay P47.5k for unrealized profit; P8k for Pecson’s monthly
commissions; P7k as return of investment because the venture never took
off; plus interest.
Issue: Whether or not the Court of Appeals erred in holding Moran liable to
respondent Pecson in the sum of P47,500 as the supposed expected profits
due him.
Ruling: The first question raised in this petition refers to the award of
P47,500.00 as the private respondent's share in the unrealized profits of
the partnership. The award of speculative damages has no basis in fact and
law.
The rule is, when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever
he may have promised to contribute (Art. 1786, Civil Code) and for interests
and damages from the time he should have complied with his obligation
(Art. 1788, Civil Code. In this case, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of
P15,000.00. He contributed only P10,000.00. The petitioner likewise failed
to give any of the amount expected of him. He further failed to comply with
the agreement to print 95,000 copies of the posters. Instead, he printed
only 2,000 copies.
There is no evidence whatsoever that the partnership between the
petitioner and the private respondent would have been a profitable
venture. In fact, it was a failure doomed from the start. There is therefore
no basis for the award of speculative damages in favor of the private
respondent
Being a contract of partnership, each partner must share in the profits and
losses of the venture. That is the essence of a partnership. And even with
an assurance made by one of the partners that they would earn a huge
amount of profits, in the absence of fraud, the other partner cannot claim a
right to recover the highly speculative profits
Bastida vs Menzi & Co.
Facts: Bastida offered to assign to Menzi & Co. his contract with Phil Sugar
Centrals Agency and to supervise the mixing of the fertilizer and to obtain
other orders for 50 % of the net profit that Menzi & Co., Inc., might derive
therefrom. J. M. Menzi (gen. manager of Menzi & Co.) accepted the offer.
The agreement between the parties was verbal and was confirmed by the
letter of Menzi to the plaintiff on January 10, 1922. Pursuant to the verbal
agreement, the defendant corporation on April 27, 1922 entered into a
written contract with the plaintiff, marked Exhibit A, which is the basis of
the present action. Still, the fertilizer business as carried on in the same
manner as it was prior to the written contract, but the net profit that the
plaintiff herein shall get would only be 35%. The intervention of the plaintiff
was limited to supervising the mixing of the fertilizers in the bodegas of
Menzi. Prior to the expiration of the contract (April 27, 1927), the manager
of Menzi notified the plaintiff that the contract for his services would not be
renewed. Subsequently, when the contract expired, Menzi proceeded to
liquidate the fertilizer business in question. The plaintiff refused to agree to
this. It argued, among others, that the written contract entered into by the
parties is a contract of general regular commercial partnership, wherein
Menzi was the capitalist and the plaintiff the industrial partner.
Issue: Whether the relationship between the petitioner and Menzi is that of
partners?
Held: The relationship established between the parties was not that of
partners, but that of employer and employee, whereby the plaintiff was to
receive 35% of the net profits of the fertilizer business of Menzi in
compensation for his services for supervising the mixing of the fertilizers.
Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of
copartnership.
The written contract was, in fact, a continuation of the verbal agreement
between the parties, whereby the plaintiff worked for the defendant
corporation for one-half of the net profits derived by the corporation form
certain fertilizer contracts.
According to Art. 116 of the Code of Commerce, articles of association by
which two or more persons obligate themselves to place in a common fund
any property, industry, or any of these things, in order to obtain profit, shall
be commercial, no matter what it class may be, provided it has been
established in accordance with the provisions of the Code.
However in this case, there was no common fund. The business belonged to
Menzi & Co.
The plaintiff was working for Menzi, and instead of receiving a fixed salary,
he was to receive 35% of the net profits as compensation for his services.
The phrase in the written contract “en sociedad con”, which is used as a
basis of the plaintiff to prove partnership in this case, merely means “en
reunion con” or in association with.
It is also important to note that although Menzi agreed to furnish the
necessary financial aid for the fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray at its own expense the cost
of securing the necessary credit.
HEIRS OF TAN ENG KEE v. COURT OF APPEALS
341 SCRA 740 (2000)
Facts: The heirs of Tan Eng Kee filed a suit against the decedent’s brother
Tan Eng Lay. The complaint alleged that after the Second World War, the
brothers, pooling their resources and industry together, entered into a
partnership engaged in the selling of lumber and hardware and
construction supplies. They named their enterprise “Benguet Lumber”
which they jointly managed until Tan Kee’s death. Petitioners 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, and winding up of the
alleged partnership formed after the World War II between Tan Eng Kee and
Tan Eng Lay. The Regional Trial court found that Benguet Lumber is a joint
venture which is akin to a particular partnership, and declared that the
assets of Benguet Lumber are the same assets turned over to Benguet
lumber Co. and as such the heirs or legal representatives of the deceased
Tan Eng Kee have a legal right to share in the said assets. The Court of
Appeals reversed the judgment of the Trial Court.
Issue: Whether or not a partnership existed between Tan Eng Kee and Tan
Eng Lay – NO
Ruling: 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 best evidence of the partnership’s existence 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. In addition, petitioners point out that the New Civil Code was not
yet in effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the
parties from complying with the provisions of the New Civil Code when it
took effect on August 30, 1950. A review of the record persuades us that
the Court of Appeals correctly reversed the decision of the trial court. The
evidence presented by petitioners falls short of the quantum of proof
required to establish a partnership.
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.
This brings us to the matter of Exhibits “4” to “4-U” for private
respondents, consisting of payrolls purporting to show that Tan Eng Kee was
an ordinary employee of Benguet Lumber, as it was then called. Exhibits
“4” to “4-U” in fact shows that Tan Eng Kee received sums as wages of an
employee.In connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
XXX
(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.
Nevertheless, petitioners would still want us to infer or believe the alleged
existence of a partnership from this set of circumstances: that Tan Eng Lay
and Tan Eng Kee were commanding the employees; that both were
supervising the employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both placed orders to
the suppliers of the Benguet Lumber Company. They also point out that the
families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet
Lumber Company compound, a privilege not extended to its ordinary
employees.
Even the aforesaid circumstances, when taken together are not persuasive
indicia of a partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what capacity is
unclear. We cannot discount the likelihood that as a member of the family,
he occupied a niche above the rank-and-file employees. He would have
enjoyed liberties otherwise unavailable were he not kin, such as his
residence in the Benguet Lumber Company compound. He would have
moral, if not actual, superiority over his fellow employees, thereby entitling
him to exercise powers of supervision. It may even be that among his
duties is to place orders with suppliers. Again, the circumstances proffered
by petitioners do not provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties of a manager, even
in a business organized and run as informally as Benguet Lumber Company.
ESTANISLAO, JR. v. COURT OF APPEALS
Facts: The petitioner and private respondents are brothers and sisters who
are co-owners of certain lots at the in Quezon City which were then being
leased to SHELL. They agreed to open and operate a gas station thereat to
be known as Estanislao Shell Service Station with an initial investment of
PhP15,000.00 to be taken from the advance rentals due to them from
SHELL for the occupancy of the said lots owned in common by them. A
joint affidavit was executed by them on April 11, 1966. The respondents
agreed to help their brother, petitioner therein, by allowing him to operate
and manage the gasoline service station of the family. In order not to run
counter to the company’s policy of appointing only one dealer, it was
agreed that petitioner would apply for the dealership. Respondent
Remedios helped in co-managing the business with petitioner from May
1966 up to February 1967.
On May 1966, the parties entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P15,000.00
advance rental shall be deposited with SHELL to cover advances of fuel to
petitioner as dealer with a proviso that said agreement “cancels and
supersedes the Joint Affidavit.”
For some time, the petitioner submitted financial statement regarding the
operation of the business to the private respondents, but thereafter
petitioner failed to render subsequent accounting. Hence , the private
respondents filed a complaint against the petitioner praying among others
that the latter be ordered:
(1) To execute a public document embodying all the provisions of the
partnership agreement they entered into;
(2) To render a formal accounting of the business operation veering
the period from May 6, 1966 up to December 21, 1968, and from January 1,
1969 up to the time the order is issued and that the same be subject to
proper audit;
(3) To pay the plaintiffs their lawful shares and participation in the net
profits of the business; and
(4) To pay the plaintiffs attorney’s fees and costs of the suit.
Issue: Can a partnership exist between members of the same family
arising from their joint ownership of certain properties?
Held: There is no merit in the petitioner’s contention that because of the
stipulation cancelling and superseding the previous joint affidavit, whatever
partnership agreement there was in said previous agreement had thereby
been abrogated. Said cancelling provision was necessary for the Joint
Affidavit speaks of P15,000.00 advance rental starting May 25, 1966 while
the latter agreement also refers to advance rentals of the same amount
starting May 24, 1966. There is therefore a duplication of reference to the
P15,000.00 hence the need to provide in the subsequent document that it
“cancels and supercedes” the previous none. Indeed, it is true that the
latter document is silent as to the statement in the Join Affidavit that the
value represents the “capital investment” of the parties in the business and
it speaks of the petitioner as the sole dealer, but this is as it should be for in
the latter document, SHELL was a signatory and it would be against their
policy if in the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship of the
petitioner.
Furthermore, there are other evidences in the record which show that there
was in fact such partnership agreement between parties. The petitioner
submitted to the private respondents periodic accounting of the business
and gave a written authority to the private respondent Remedios Estanislao
to examine and audit the books of their “common business” (aming
negosyo). The respondent Remedios, on the other hand, assisted in the
running of the business. Indeed, the parties hereto formed a partnership
when they bound themselves to contribute money in a common fund with
the intention of dividing the profits among themselves.
SY v. CA
FACTS: Sometime in 1958, private respondent Jaime Sahot[5] started
working as a truck helper for petitioners’ family-owned trucking business
named Vicente Sy Trucking. In 1965, he became a truck driver of the same
family business, renamed T. Paulino Trucking Service, later 6B’s Trucking
Corporation in 1985, and thereafter known as SBT Trucking Corporation
since 1994. Throughout all these changes in names and for 36 years,
private respondent continuously served the trucking business of
petitioners. When Sahot was 59 years old, he incurred several absences
due to various ailments. Particularly causing him pain was his left thigh,
which greatly affected the performance of his task as a driver. He inquired
about his medical and retirement benefits with the Social Security System
(SSS) on April 25, 1994, but discovered that his premium payments had not
been remitted by his employer.Sahot filed a week-long leave to get medical
attention. He was treated for EOR, presleyopia, hypertensive retinopathy G
II and heart enlargement. Because of such, Belen Paulino of the SBT
Trucking Service management told him to file a formal request for
extension of his leave. When Sahot applied for an extended leave, he was
threatened of termination of employment should he refuse to go back to
work. Eventually, Sahot was dismissed from employment which prompted
the latter to file an illegal dismissal case with the NLRC. For their part,
petitioners admitted they had a trucking business in the 1950s but denied
employing helpers and drivers. They contend that private respondent was
not illegally dismissed as a driver because he was in fact petitioner’s
industrial partner. They add that it was not until the year 1994, when SBT
Trucking Corporation was established, and only then did respondent Sahot
become an employee of the company, with a monthly salary that reached
P4,160.00 at the time of his separation. The NLRC and the CA ruled that
Sahot was an employee of the petitioner.
ISSUE: Whether Sahot is an industrial partner
RULING: No. Article 1767 of the Civil Code states that in a 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. Not one of these circumstances is present in this
case. No written agreement exists to prove the partnership between the
parties. Private respondent did not contribute money, property or industry
for the purpose of engaging in the supposed business. There is no proof
that he was receiving a share in the profits as a matter of course, during
the period when the trucking business was under operation. Neither is
there any proof that he had actively participated in the management,
administration and adoption of policies of the business. Thus, the NLRC and
the CA did not err in reversing the finding of the Labor Arbiter that private
respondent was an industrial partner from 1958 to 1994. On this point, the
Court affirmed the findings of the appellate court and the NLRC. Private
respondent Jaime Sahot was not an industrial partner but an employee of
petitioners from 1958 to 1994. The existence of an employer-employee
relationship is ultimately a question of fact and the findings thereon by the
NLRC, as affirmed by the Court of Appeals, deserve not only respect but
finality when supported by substantial evidence. Substantial evidence is
such amount of relevant evidence which a reasonable mind might accept
as adequate to justify a conclusion.
HEIRS OF JOSE LIM v. LIM
FACTS: In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a
partnership agreement with Jimmy Yu and Norberto Uy. The
three contributed P50,000.00 each and used the funds to purchase a truck
to start their trucking business. A year later however, Jose Lim died. The
eldest son of Jose Lim, Elfledo Lim, took over the trucking business and
under his management, the trucking business prospered. Elfledo was able
to but real properties in his name. From one truck, he increased it to 9
trucks, all trucks were in his name however. He also acquired other motor
vehicles in his name.
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack.
Elfledo’s wife, Juliet Lim, took over the properties but she intimated to
Jimmy and the heirs of Norberto that she could not go on with the business.
So the properties in the partnership were divided among them.
Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet
to do an accounting of all income, profits, and properties from the estate of
Elfledo Lim as they claimed that they are co-owners thereof. Juliet refused
hence they sued her.
The heirs of Jose Lim argued that Elfledo Lim acquired his properties from
the partnership that Jose Lim formed with Norberto and Jimmy. In court,
Jimmy Yu testified that Jose Lim was the partner and not Elfledo Lim.
The heirs testified that Elfledo was merely the driver of Jose Lim.
ISSUE: Who is the “partner” between Jose Lim and Elfledo Lim?
HELD: It is Elfledo Lim based on the evidence presented regardless of
Jimmy Yu’s testimony in court that Jose Lim was the partner. If Jose Lim was
the partner, then the partnership would have been dissolved upon his
death (in fact, though the SC did not say so, I believe it should have been
dissolved upon Norberto’s death in 1993). A partnership is dissolved upon
the death of the partner. Further, no evidence was presented as to the
articles of partnership or contract of partnership between Jose, Norberto
and Jimmy. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized.
But at any rate, the Supreme Court noted that based on the functions
performed by Elfledo, he is the actual partner.
The following circumstances tend to prove that Elfledo was himself the
partner of Jimmy and Norberto:
1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of the initial capital
in the partnership;
2.) Elfledo ran the affairs of the partnership, wielding absolute control,
power and authority, without any intervention or opposition whatsoever
from any of petitioners herein;
3.) all of the properties, particularly the nine trucks of the partnership, were
registered in the name of Elfledo;
4.) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the
profits of the business; and
5.) none of the heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in the
case of Heirs of Tan Eng Kee, a demand for periodic accounting is evidence
of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the
real and personal properties acquired and registered in the names of
Elfledo and Juliet formed part of the estate of Jose, having been derived
from Jose’s alleged partnership with Jimmy and Norberto.
Elfledo was not just a hired help but one of the partners in the trucking
business, active and visible in the running of its affairs from day one until
this ceased operations upon his demise. The extent of his control,
administration and management of the partnership and its business, the
fact that its properties were placed in his name, and that he was not paid
salary or other compensation by the partners, are indicative of the fact that
Elfledo was a partner and a controlling one at that. It is apparent that the
other partners only contributed in the initial capital but had no say
thereafter on how the business was ran. Evidently it was through Elfredo’s
efforts and hard work that the partnership was able to acquire more trucks
and otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
ARBES v. POLISTICO
G.R. No. 31057 September 7, 1929
FACTS:
This is an action to bring about liquidation of the funds and property of the
association called "Turnuhan Polistico & Co." The plaintiffs were members or
shareholders, and the defendants were designated as president-treasurer,
directors and secretary of said association.
This case is brought for 2nd time. In the 1st one, the court held then that in
an action against the officers of a voluntary association to wind up its
affairs and enforce an accounting for money and property in their
possessions, it is not necessary that all members of the association be
made parties to the action. The court appointed commissioner of Insular
Auditor's Office, to examine all the books, documents, and accounts of
"Turnuhan Polistico & Co.," and to receive whatever evidence.
Commissioner's report show a balance of P24, 607.80 cash on hand.
Despite defendant’s objection to the report, the trial court rendered
judgment holding said association is unlawful. And sentenced defendants
jointly and severally to return the amount and documents to the plaintiffs
and members of the association. The Appellant alleged that the association
being unlawful, some charitable institution to whom the partnership funds
may be ordered to be turned over, should be included, as a party
defendant. Referring to Article 1666 of the Civil Code which provides that
“A partnership must have a lawful object, and must be established for the
common benefit of the partners. When the dissolution of an unlawful
partnership is decreed, the profits shall be given to charitable institutions
of the domicile of the partnership, or, in default of such, to those of the
province.”
ISSUE: Whether or not charitable institution is a necessary party to this
case.
HELD: No. No charitable institution is a necessary party in the present case
of determination of the rights of the parties. The action which may arise
from said article, in the case of unlawful partnership, is that for the
recovery of the amounts paid by the member from those in charge of the
administration of said partnership, and it is not necessary for the said
parties to base their action to the existence of the partnership, but on the
fact that of having contributed some money to the partnership capital. And
hence, the charitable institution of the domicile of the partnership, and in
the default thereof, those of the province are not necessary parties in this
case.
The article cited above permits no action for the purpose of obtaining the
earnings made by the unlawful partnership, during its existence as result of
the business in which it was engaged, because for the purpose, as Manresa
remarks, the partner will have to base his action upon the partnership
contract, which is to annul and without legal existence by reason of its
unlawful object; and it is self-evident that what does not exist cannot be a
cause of action. Hence, paragraph 2 of the same article provides that when
the dissolution of the unlawful partnership is decreed, the profits cannot
inure to the benefit of the partners, but must be given to some charitable
institution. The profits are so applied, and not the contributions, because
this would be an excessive and unjust sanction for, as we have seen, there
is no reason, in such a case, for depriving the partner of the portion of the
capital that he contributed, the circumstances of the two cases being
entirely different.
Art. 1807. Every partner must account to the partnership for any benefit,
and hold as trustee for it any profits derived by him without the consent of
the other partners from any transaction connected with the formation,
conduct, or liquidation of the partnership or from any use by him of its
property.
WOODHOUSE v. HALILI
Facts: Defendant Halili informed Woodhouse, plaintiff, of his desire to
invest half a million dollars in the bottling and distribution of Mission Soft
Drinks. Woodhouse then relayed this message to Mission Dry Corporation of
Los Angeles, USA. Mission Dry Corporation then gave plaintiff a thirty day
option on exclusive bottling and distribution rights in the Philippines
(Exhibit J).
Thereafter, plaintiff and defendant entered into a written agreement with
the ff. pertinent provisions: 1) they shall organize a partnership for the
bottling and distributing of Mission soft drinks, with plaintiff, Woodhouse, as
industrial partner or manager, and defendant, Halili, as capitalist;
2)defendant was to decide matters of general policy regarding the
business, while plaintiff was to attend the operation and development of
the bottling plant; 3) plaintiff was to secure Mission soft drinks franchise for
and in behalf of the proposed partnership; and 4) plaintiff was to receive
30 percent of the net profits of the business. This contract was signed and
the parties to this case then went to the United States to finalize the
franchising agreement. Mission Dry Corporation then granted the defendant
the exclusive right, license, and authority to produce, bottle, distribute and
sell Mission beverages in the Philippines.
When both parties went back to the Philippines, the bottling plant began its
operation. At first, plaintiff was given advances, on account of the profits,
and allowances which however ceased after two months. Moreover, when
plaintiff demanded that the partnership papers be executed, defendant
refused to do so and instead suggest that they just enter into a settlement.
As no settlement was reached, the plaintiff filed a complaint in the CFI.
In the CFI, plaintiff asks for execution of the contract of partnership,
accounting of the profits and a share thereof of 30 percent. Defendant on
his defense claims that plaintiff misrepresented himself that he was about
to become the owner of an exclusive bottling franchise when in fact
franchise was exclusively given to defendant, and that the plaintiff failed to
contribute to the exclusive franchise of the partnership. CFI ordered
defendant to render an accounting of the profits of the business and to pay
plaintiff 15 percent thereof. But it held that the execution of the contract
could not be enforced and the defense of fraud was not proved. Unsatisfied
with this ruling, both parties appealed to the SC.
Issues: a) W/N plaintiff falsely represented that he had an exclusive
franchise to bottle Mission beverages. Yes.
b) W/N this false representation amounts to fraud and may annul the
agreement to form a partnership
Held: a) As found by the SC, Exhibit J was used by plaintiff as an instrument
with which to bargain with the defendant and to close a deal with him,
because if plaintiff claimed that all he had was an option to exclusively
bottle and distribute Mission soft drinks in the Philippines, he would have
probably lost the deal itself. This is further supported by the fact that when
defendant learned that plaintiff did not have an exclusive franchise, he
reduced plaintiff’s participation in the profit to 15 percent, to which the
plaintiff agreed.
b) Article 1270 of the Spanish Civil Code distinguished two kinds of fraud,
causal fraud, which may be a ground for the annulment of a contract, and
the incidental fraud, which only renders the party who employs it liable for
damages.
As founded by the SC the misrepresentation of plaintiff does not amount to
causal fraud because it was not the principal inducement that led the
plaintiff to enter into the partnership agreement. As it was already noted,
both parties expressly agreed that they shall form a partnership.
Lastly, the SC upheld the ruling of the trial court that the defendant may
not be compelled against his will to carry out the partnership. The law
recognizes the individual’s freedom or liberty to do an act he has promised
to do or not to do it as he pleases.
LITONJUA, JR. v. LITONJUA, SR.
FACTS: Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that
Eduardo entered into a contract of partnership with him. Aurelio showed as
evidence a letter sent to him by Eduardo that the latter is
allowing Aurelio to manage their family business (if Eduardo’s away) and in
exchange thereof he will be giving Aurelio P1 million or 10% equity,
whichever is higher. A memorandum was subsequently made for the said
partnership agreement. The memorandum this time stated that in
exchange ofAurelio, who just got married, retaining his share in the family
business (movie theatres, shipping and land development) and some other
immovable properties, he will be given P1 Million or 10% equity in all these
businesses and those to be subsequently acquired by them whichever is
greater.
In 1992 however, the relationship between the brothers went sour. And
so Aureliodemanded an accounting and the liquidation of his share in the
partnership. Eduardo did not heed and so Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: No. The partnership is void and legally nonexistent. The
documentary evidence presented by Aurelio, i.e. the letter from Eduardo
and the Memorandum, did not prove partnership.
The 1973 letter from Eduardo on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an unsigned document,
there can be no quibbling that said letter does not meet the public
instrumentation requirements exacted under Article 1771 (how partnership
is constituted) of the Civil Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or
property, said letter cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as called
for under the Article 1772 (capitalization of a partnership) of the Code. And
inasmuch as the inventory requirement under the succeeding Article 1773
goes into the matter of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns on the nature of
Aurelio’s contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not
a public instrument and again, no inventory was made of the immovable
property and no inventory was attached to the Memorandum. Article 1773
of the Civil Code requires that if immovable property is contributed to the
partnership an inventory shall be had and attached to the contract.
EVANGELISTA & CO. v. ABAD SANTOS
G.R. No. L-31684; June 28, 1973
FACTS: On October 9, 1954 a co-partnership was formed under the name
of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership were
amended so as to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonarda Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of
P17,500 each
On December 17, 1963 herein respondent filed suit against the three other
partners, alleging that the partnership, which was also made a party-
defendant, had been paying dividends to the partners except to her; and
that notwithstanding her demands the defendants had refused and
continued to refuse to let her examine the partnership books or to give her
information regarding the partnership affairs or to pay her any share in the
dividends declared by the partnership
The defendants, in their answer, denied ever having declared dividends or
distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and by
way of affirmative defense alleged that the amended Articles of Co-
partnership did not express the true agreement of the parties, which was
that the plaintiff was not an industrial partner; that she did not in fact
contribute industry to the partnership.
ISSUE: Whether Abad Santos is entitled to see the partnership books
because she is an industrial partner in the partnership
HELD: Yes, Abad Santos is entitled to see the partnership books.
The Supreme Court ruled that according to
ART. 1299. Any partner shall have the right to a formal account as to
partnership affairs:
(1)If he is wrongfully excluded from the partnership business or possession
of its property by his co-partners;
(2)If the right exists under the terms of any agreement;
(3)As provided by article 1807;
(4)Whenever other circumstances render it just and reasonable."
In the case at hand, the company is estopped from denying Abad Santos as
an industrial partner because it has been 8 years and the company never
corrected their agreement in order to show their true intentions. The
company never bothered to correct those up until Abad Santos filed a
complaint.
FUE LEUNG v. INTERMEDIATE APPELLATE COURT
G.R. No. 70926 January 31, 1989
Facts: The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the
decision of the then Court of First Instance of Manila, Branch II in Civil Case
No. 116725 declaring private respondent Leung Yiu a partner of petitioner
Dan Fue Leung in the business of Sun Wah Panciteria and ordering the
petitioner to pay to the private respondent his share in the annual profits of
the said restaurant. This case originated from a complaint filed by
respondent Leung Yiu with the then Court of First Instance of Manila, Branch
II to recover the sum equivalent to twenty-two percent (22%) of the annual
profits derived from the operation of Sun Wah Panciteria since October,
1955 from petitioner Dan Fue Leung. The Sun Wah Panciteria, a restaurant,
located at Florentino Torres Street, Sta. Cruz, Manila, was established
sometime in October, 1955. It was registered as a single proprietorship and
its licenses and permits were issued to and in favor of petitioner Dan Fue
Leung as the sole proprietor. Respondent Leung Yiu adduced evidence
during the trial of the case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners having contributed
P4,000.00 to its initial establishment. Furthermore, the private respondent
received from the petitioner the amount of P12,000.00 covered by the
latter's Equitable Banking Corporation Check No. 13389470-B from the
profits of the operation of the restaurant for the year 1974. The petitioner
denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt. To
bolster his contention that he was the sole owner of the restaurant, the
petitioner presented various government licenses and permits showing the
Sun Wah Panciteria was and still is a single proprietorship solely owned and
operated by himself alone. Both the trial court and the appellate court
found that the private respondent is a partner of the petitioner in the
setting up and operations of the panciteria. While the dispositive portions
merely ordered the payment of the respondents share, there is no question
from the factual findings that the respondent invested in the business as a
partner. Hence, the two courts declared that the private petitioner is
entitled to a share of the annual profits of the restaurant. The petitioner,
however, claims that this factual finding is erroneous. The petitioner also
claims that it was an error for the Hon. Intermediate Appellate Court to
interpret or construe 'financial assistance' to mean the contribution of
capital by a partner to a partnership;"
Issue: Whether or not the private respondent is a partner of the petitioner
in the establishment of Sun Wah Panciteria – YES
Ruling: In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to twenty-two percent (22%) of the
annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because
Article 1767 of the Civil Code provides that "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".Therefore, the lower courts did not err in construing the
complaint as one wherein the private respondent asserted his rights as
partner of the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein.
LIM TANHU v. RAMOLETE
G.R. No. L-40098; August 29, 1975
FACTS: Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who
was a partner in the commercial partnership, Glory Commercial Company
with Antonio Lim Tanhu and Alfonso Ng Sua".
Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan,
and Eng Chong Leonardo, through fraud and machination, took actual and
active management of the partnership and although Tee Hoon Lim Po
Chuan was the manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to purchase lands and
buildings in the cities of Cebu, Lapulapu, Mandaue, and the municipalities
of Talisay and Minglanilla.
She alleged in her complaint that after the death of Tee Hoon Lim Po Chuan,
the defendants, without liquidation, continued the business of Glory
Commercial Company, by purportedly organizing a corporation known as
the Glory Commercial Company, Incorporated and sometime in the month
of November, 1967, defendants, particularly Antonio Lim Tanhu, by means
of fraud deceit, and misrepresentations did then and there, induce and
convince her to execute a quitclaim of all her rights and interests, in the
assets of the partnership of Glory Commercial Company.
Thereafter, in the year 1968-69, the defendants who had earlier promised
to liquidate the aforesaid properties and assets in favor, among others of
plaintiff and until the middle of the year 1970 when the plaintiff formally
demanded from the defendants the accounting of real and personal
properties of the Glory Commercial Company, defendants refused and
stated that they would not give the share of the plaintiff.
ISSUE: Whether Tan has a right over the liquidated properties of the
partnership
HELD: No, Tan has no right over the liquidated properties of the
partnership
The Supreme Court held that there is no alternative but to hold that
plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan
has not been satisfactorily established and that, on the contrary, the
evidence on record convincingly shows that her relation with said deceased
was that of a common-law wife.
Moreover, the Supreme Court said that the lower courts committed an
error by awarding 1/3 of the partnership properties to Tan because there
has been no liquidation proceedings yet. And if there has not yet been any
liquidation of the partnership, the only right plaintiff could have would be to
what might result after much liquidation to belong to the deceased partner
(her alleged husband) and before this is finished, it is impossible to
determine, what rights or interest, if any the deceased had.
In other words, no specific amounts or properties may be adjudicated to the
heir or legal representative of the deceased partner without the liquidation
being first terminated.
RAMNANI v. CA
196 SCRA 731; May 7, 1991
FACTS: Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani,
are brothers of the full blood. Ishwar and his spouse Sonya had their main
business based in New York. Realizing the difficulty of managing their
investments in the Philippines they executed a general power of attorney
on January 24, 1966 appointing Navalrai and Choithram as attorneys-in-
fact, empowering them to manage and conduct their business concern in
the Philippines
On February 1, 1966 and on May 16, 1966, Choithram entered into two
agreements for the purchase of two parcels of land located in Barrio Ugong,
Pasig, Rizal, from Ortigas & Company, Ltd. Partnership. A building was
constructed thereon by Choithram in 1966. Three other buildings were built
thereon by Choithram through a loan of P100,000.00 obtained from the
Merchants Bank as well as the income derived from the first building.
Sometime in 1970 Ishwar asked Choithram to account for the income and
expenses relative to these properties during the period 1967 to 1970.
Choithram failed and refused to render such accounting. Thereafter, Ishwar
revoked the general power of attorney. Choithram and Ortigas were duly
notified of such revocation on April 1, 1971 and May 24, 1971, respectively.
Said notice was also registered with the Securities and Exchange
Commission on March 29, 1971 and was published in the April 2, 1971
issue of The Manila Times for the information of the general public.
Nevertheless, Choithram, transferred all rights and interests of Ishwar and
Sonya in favor of his daughter-in-law, Nirmla Ramnani, on February 19,
1973.
On October 6, 1982, Ishwar and Sonya filed a complaint against Choitram
and/or spouses Nirmla and Moti and Ortigas for reconveyance of said
properties or payment of its value and damages.
ISSUE: Whether Ishram can recover the entire properties subject in the
ligitation
HELD: No, Ishram cannot recover the entire properties subject.
The Supreme Court held that despite the fact that Choithram, et al., have
committed acts which demonstrate their bad faith and scheme to defraud
spouses Ishwar and Sonya of their rightful share in the properties in
litigation, the Court cannot ignore the fact that Choithram must have been
motivated by a strong conviction that as the industrial partner in the
acquisition of said assets he has as much claim to said properties as
Ishwar, the capitalist partner in the joint venture.
Choithram in turn decided to invest in the real estate business. He bought
the two (2) parcels of land in question from Ortigas as attorney-in-fact of
Ishwar. Instead of paying for the lots in cash, he paid in installments and
used the balance of the capital entrusted to him, plus a loan, to build two
buildings. Although the buildings were burned later, Choithram was able to
build two other buildings on the property. He rented them out and collected
the rentals. Through the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is now.
Justice and equity dictate that the two share equally the fruit of their joint
investment and efforts. Perhaps this Solomonic solution may pave the way
towards their reconciliation. Both would stand to gain. No one would end up
the loser. After all, blood is thicker than water.
ORIENT-AIR SERVICES & HOTEL REPRESENTATIVES v. COURT OF
APPEALS
G.R. No. 76933 May 29, 1991
Facts: American Airlines, Inc. (American Air), an air carrier offering
passenger and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (Orient Air), entered into a General
Sales Agency Agreement (Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent within the Philippines for
the sale of air passenger transportation. In the agreement, Orient Air shall
remit in United States dollars to American the ticket stock or exchange
orders, less commissions to which Orient Air Services is entitled, not less
frequently than semi-monthly. On the other hand, American will pay Orient
Air Services commission on transportation sold by Orient Air Services or its
sub-agents. Thereafter, American alleged that Orient Air had reneged on its
obligations under the Agreement by failing to promptly remit the net
proceeds of sales for the months of January to March 1981 in the amount of
US $254,400.40, American Air by itself undertook the collection of the
proceeds of tickets sold originally by Orient Air and terminated forthwith
the Agreement in accordance with paragraph 13 which authorize the
termination of the thereof in case Orient Air is unable to transfer to the
United States the funds payable by Orient Air Services to American.
American Air instituted suit against Orient Air with the Court of First
Instance of Manila “for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order” averring the
aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding
refunds of which there were available funds in the possession of the
defendant, . . . to the damage and prejudice of plaintiff."
Orient Air denied the material allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted amounts, contending that after
application thereof to the commissions due it under the Agreement, plaintiff
in fact still owed Orient Air a balance in unpaid overriding commissions.
Further, the defendant contended that the actions taken by American Air in
the course of terminating the Agreement as well as the termination itself
were untenable. The trial court ruled in its favor which decision was
affirmed with modification by Court of Appeals. It held the termination
made by the latter as affecting the GSA agreement illegal and improper
and ordered the plaintiff to reinstate defendant as its general sales agent
for passenger transportation in the Philippines in accordance with said GSA
agreement.
Issue: Whether or not the Court of Appeals erred in ordering the
reinstatement of the defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA Agreement –
YES
Ruling: By affirming this ruling of the trial court, respondent appellate
court, in effect, compels American Air to extend its personality to Orient Air.
Such would be violative of the principles and essence of agency, defined by
law as a contract whereby "a person binds himself to render some service
or to do something in representation or on behalf of another, WITH THE
CONSENT OR AUTHORITY OF THE LATTER . In an agent-principal
relationship, the personality of the principal is extended through the facility
of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which
must not, in any way, be compelled by law or by any court. The Agreement
itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter,
telegram or cable." (emphasis supplied) We, therefore, set aside the portion
of the ruling of the respondent appellate court reinstating Orient Air as
general sales agent of American Air.
NARIC v. COURT OF APPEALS
G.R. No. L-32320 July 16, 1979
FACTS: The National Rice and Corn Corporation (Naric) had on stock 8000
metric tons of corn which it could not dispose of due to its poor quality.
Naric called for bids for the purchase of the corn and rice. But precisely
because of the poor quality of the corn, a direct purchase of said corn even
with the privilege of importing commodities did not attract good offers.
Davao Merchandising Corporation (Damerco) came in with its offer to act
as agent in the exportation of the corn, with the agent answering for the
price thereof and shouldering all expenses incidental thereto, provided it
can import commodities, paying the NARIC therefor from the price it offered
for the corn. Damerco was to open a domestic letter of credit, which shall
be available to the NARIC drawing therefrom through sight draft without
recourse. The availability of said letter or letters of credit to the NARIC was
dependent upon the issuance of the export permit. The payment therefor
depended on the importation of the collateral goods, that is after its arrival.
The first half of the collateral goods were successfully imported. Due to the
inferior quality of the corn, it had to be replaced with more acceptable
stock. This caused such delay that the letters of credit expired without the
NARIC being able to draw the full amount therefrom. Checks and PN were
issued by DAMERCO for the purpose of securing the unpaid part of the price
of the corn and as guaranty that DAMERCO will purchase the corresponding
collateral goods.
But because of the change of administration in the government, barter
transactions were suspended. Hence, DAMERCO was not able to import the
remaining collateral goods.
NARIC instituted in the CFI of Manila against DAMERCO and Fieldmen’s
Insurance Co. Inc. an action for recovery of a sum of money representing
the balance of the value of corn and rice exported by DAMERCO.
The trial court rendered in favor of NARIC ordering DAMERCO and
Fieldmen’s Insurance Co. Inc., to pay, jointly and severally. CA reversed the
trial court’s decision and rendered a new judgement dismissing the
complaint as premature and for lack of cause of action. Hence this petition
for certiorari.
ISSUE: Whether DAMERCO only acted as an agent of NARIC or is a buyer
HELD: the petition for review is denied and the resolution of the CA
appealed from is hereby affirmed
AGENT Clearly from the contract between NARIC and DAMERCO: bids were
previously called for by the NARIC for the purchase of corn and rice to be
exported as well as of the imported commodities that will be brought in, but
said biddings did not succeed in attracting good offers. Subsequently,
Damerco made an offer. Now, to be sure, the contract designates the Naric
as the seller and the Damerco as the buyer. These designations, however,
are merely nominal, since the contract thereafter sets forth the role of the
“buyer” (Damerco)’ “as agent of the seller” in exporting the quantity and
kind of corn and rice as well as in importing the collateral goods thru barter
and “to pay the aforementioned collateral goods.”
The contract between the NARIC and the DAMERCO is bilateral and gives
rise to a reciprocal obligation. The said contract consists of two parts: (1)
the exportation by the DAMERCO as agent for the NARIC of the rice and
corn; and (2) the importation of collateral goods by barter on a back to
back letter of credit or no-dollar remittance basis. It is evident that the
DAMERCO would not have entered into the agreement were it not for the
stipulation as to the importation of the collateral goods which it could
purchase.
It appears that we were also misled to believe that the Damerco was
buying the corn. A closer look at the pertinent provisions of the contract,
however, reveals that the price as stated in the contract was given
tentatively for the purpose of fixing the price in barter. It should likewise be
stressed that the aforesaid exportation and importation was on a “no-dollar
remittance basis”. In other words, the agent, herein defendant Damerco,
was not to be paid by its foreign buyer in dollars but in commodities.
Damerco could not get paid unless the commodities were imported, and
Damerco was not exporting and importing on its own but as agent of the
plaintiff, because it is the latter alone which could export and
import on barter basis according to its charter.Thus, unless Damerco
was made an agent of the plaintiff, the former could not export the corn
and rice nor import at the same time the collateral goods. This was
precisely the intention of the parties.
He is not to be considered a buyer, who should be liable for the sum sought
by NARIC because the contract itself clearly provides the Damerco was to
export the rice and corn, AND TO BUY THE collateral goods. There is
nothing in the contract providing unconditionally that Damerco was buying
the rice and corn. To be more specific, if the agreement was just a sale of
corn to Damerco, the contract need not specify that Damerco was to buy
the collateral goods.
MEDRANO and IBAAN RURAL BANK vs. COURT OF APPEALS
G.R. No. 150678 February 18, 2005
Facts: Bienvenido Medrano was the Vice-Chairman of Ibaan Rural Bank. He
asked Flor (a cousin), to look for a buyer of a foreclosed asset of the bank
(17-hectare mango plantation with 720 trees priced at P2.2M). Dominador
Lee, a Makati businessman was a client of respondent Pacita Borbon, a
licensed real estate broker. Borbon relayed to her business associates and
friends that she had a ready buyer for a mango orchard. Flor then advised
her that her cousin-in-law owned a mango plantation which was up for sale.
She told Flor to confer with Medrano and to give them a written authority to
negotiate the sale of the property. Medrano issued the Letter of Authority to
Borbon and Antonio to negotiate with any prospective buyer for the sale of
the mango plantation. He promised Borbon to pay a commission of 5% of
the total purchase price to be agreed upon by the buyer and seller.
An ocular inspection was held by Lee. Lee informed Antonio that he already
purchased the property and had made a down payment ofP1M. The
remaining balance of P1.2M was to be paid upon the approval of the
incorporation papers of the corporation he was organizing by the SEC.
According to Antonio, Lee asked her if they had already received their
commission. She answered “no,” and Lee expressed surprise over this.
Since the sale of the property was consummated, the respondents asked
from the petitioners their commission, or 5% of the purchase price. The
petitioners refused to pay and offered a measly sum of P5,000.00 each.
Hence, the present action.
Medrano’s defense: Borbon and Antonio did not perform any act to
consummate the sale. The petitioners pointed out that the respondents (1)
did not verify the real owner of the property; (2) never saw the property in
question; (3) never got in touch with the registered owner of the property;
and (4) neither did they perform any act of assisting their buyer in having
the property inspected and verified.
Issue: WON the plaintiffs are entitled to any commission for the sale of the
subject property? YES
Held: The respondents are indeed the procuring cause of the sale. If not for
the respondents, Lee would not have known about the mango plantation
being sold by the petitioners. The sale was consummated. The bank had
profited from such transaction. It would certainly be iniquitous if the
respondents would not be rewarded their commission pursuant to the letter
of authority.
“Procuring cause” = the proximate cause. The term “procuring cause,” in
describing a broker’s activity, refers to a cause originating a series of
events which, without break in their continuity, result in accomplishment of
prime objective of the employment of the broker – producing a purchaser
ready, willing and able to buy real estate on the owner’s terms.
The evidence on record shows that the respondents were instrumental in
the sale of the property to Lee. Without their intervention, no sale could
have been consummated. They were the ones who set the sale of the
subject land in motion. While the letter-authority issued in favor of the
respondents was non-exclusive, no evidence was adduced to show that
there were other persons, aside from the respondents, who informed Lee
about the property for sale. When there is a close, proximate and causal
connection between the broker’s efforts and the principal’s sale of his
property, the broker is entitled to a commission.
In the absence of fraud, irregularity or illegality in its execution, such letter-
authority serves as a contract, and is considered as the law between the
parties. The clear intention is to reward the respondents for procuring a
buyer for the property.
Bicol Savings and Loan Association vs. CA
Facts:Juan de Jesus was the owner of a parcel of land in Naga City. He
executed a Special Power of Attorney in favor of Jose de Jesus, his son,
wherein the latter could negotiate and mortgage the former’s property in
any bank preferably in the Bicol Savings and Loan Association. By virtue of
such document, Jose was able to obtain P20,000 from Bicol Savings. To
secure payment, he executed a deed of mortgage wherein it was stipulated
that upon the mortgagor’s failure or refusal to pay the obligation, the
mortgagee may immediately foreclose the property. Juan de Jesus died and
the loan obligation was not paid. As a result, Bicol Savings extrajudicially
foreclosed the mortgaged property. The bank won as the highest bidder
during the auction sale. Jose and the other heirs failed to redeem the
property. Thereafter, they tried to negotiate with Bicol Savings but the
parties did not come up to an agreement. Bicol Savings sold the property to
another person. Hence, Jose filed for annulment of the foreclosure sale. The
lower court dismissed the case. On appeal, the CA reversed RTC’s decision.
Hence, this appeal.
Issue:Whether or not the extrajudicial foreclosure sale of the property was
valid.
Ruling: Yes. Art 1879 of the CC which states that special power to sell
excludes the power to mortgage and vice versa is inapplicable in the case.
What it proscribes is a voluntary and independent contract of sale and not
an auction sale resulting from extrajudicial foreclosure caused by the
default of the mortgagor. The power to foreclose is not an ordinary agency
but is primarily conferred upon the mortgagee for its protection. The right
of the bank to foreclose is independent of the mortgage contract as it is
recognized by the Rules of Court.
PAHUD v. CA
FACTS: Spouses Pedro San Agustin and Agatona Genil were able to acquire
a 246-square meter parcel of land situated in Barangay Anos. Both died
intestate, survived by their eight (8) children: respondents Eufemia, Raul,
Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio. In 1992,
Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of
Undivided Shares conveying in favor of petitioners (the Pahuds, for brevity)
their respective shares from the lot they inherited from their deceased
parents for P525,000.00- Eufemia also signed the deed on behalf of her
four (4) other co-heirs, namely: Isabelita on the basis of a special power of
attorney executed on September 28, 1991 and also for Milagros, Minerva,
and Zenaida but without their apparent written authority. The deed of sale
was also not notarized. When Eufemia and her co-heirs drafted an extra-
judicial settlement of estate to facilitate the transfer of the title to the
Pahuds, Virgilio refused to sign it. Virgilio’s co-heirs filed a complaint for
judicial partition of the subject property before the RTC. In the course of the
proceedings for judicial partition, a Compromise Agreement 17 was signed
with seven (7) of the co-heirs agreeing to sell their undivided shares to
Virgilio for P700,000.00.
The trial court did however, not approve compromise agreement. Eufemia
and her six (6) co-heirs, refused to sign the agreement because he knew of
the previous sale made to the Pahuds. On December 1, 1994, Eufemia
acknowledged having received P700,000.00 from Virgilio. Virgilio then sold
the entire property to spouses Isagani Belarmino and Leticia Ocampo
(Belarminos). Belarminos immediately constructed a building on the subject
property. Pahuds confronted Eufemia who confirmed to them that Virgilio
had sold the property to the Belarminos. Pahuds filed a complaint in
intervention in the pending case for judicial partition.
After trial, the RTC upheld the validity of the sale to petitioners
-sale of the 7/8 portion of the property cover
-declaring the defendant Virgilio San Agustin and the Third-Party
defendants spouses Isagani and Leticia Belarmino as in bad faith in buying
the portion of the property already sold by the plaintiffs
Respondents appealed the decision to the CA arguing, in the main, that the
sale made by Eufemia for and on behalf of her other co-heirs to the Pahuds
should have been declared void and inexistent for want of a written
authority. The CA REVERSED and SET ASIDE the trial court decision, and a
new one entered, as follows:
Declaring the sale of appellant Virgilio San Agustin to appellants
spouses, Isagani and Leticia Belarmino, as valid and binding
Issue: The status of the sale of the subject property by Eufemia and her co-
heirs to the Pahuds
Ruling: Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Also, under Article 1878, a special power of attorney is necessary for an
agent to enter into a contract by which the ownership of an immovable
property is transmitted or acquired, either gratuitously or for a valuable
consideration.
A special power of attorney is necessary to enter into any contract by which
the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration
For the principal to confer the right upon an agent to sell real estate, a
power of attorney must so express the powers of the agent in clear and
unmistakable language
Based on the foregoing, it is not difficult to conclude, in principle, that the
sale made by Eufemia, Isabelita and her two brothers to the Pahuds
sometime in 1992 should be valid only with respect to the 4/8 portion of the
subject property. The sale with respect to the 3/8 portion, representing the
shares of Zenaida, Milagros, and Minerva, is void because Eufemia could
not dispose of the interest of her co-heirs in the said lot absent any written
authority from the latter, as explicitly required by law. This was, in fact, the
ruling of the CA.
While the sale with respect to the 3/8 portion is void by express provision of
law and not susceptible to ratification, 31 we nevertheless uphold its validity
on the basis of the common law principle of estoppel.
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the
requisite special power of attorney to dispose of the 3/8 portion of the
property.
However, they admitted that they had indeed sold 7/8 of the property to
the Pahuds sometime in 1992. Thus, the previous denial was superseded, if
not accordingly amended, by their subsequent admission. They opted to
remain silent and left the task of raising the validity of the sale as an issue
to their co-heir, Virgilio, who is not privy to the said transaction
By their continued silence, Zenaida, Milagros and Minerva have caused the
Pahuds to believe that they have indeed clothed Eufemia with the authority
to transact on their behalf. Clearly, the three co-heirs are now estopped
from impugning the validity of the sale from assailing the authority of
Eufemia to enter into such transaction.
Belaraminos cannot argue that they purchased the property in good faith.
The sale made by respondent Virgilio San Agustin to respondent spouses
Isagani Belarmino and Leticia Ocampo is valid only with respect to the 1/8
portion of the subject property.
INLAND REALTY v. COURT OF APPEALS
GR No. 76969. June 9, 1997
Facts: Plaintiff Inland Realty Investment Service, Inc. is a corporation
engaged among others in the real estate business and brokerages which
sent proposal letters to prospective buyers for their sales campaign. One
such prospective buyer to whom a proposal letter was sent to was Stanford
Microsystems, Inc. which counter-proposed. Upon plaintiffs' receipt of the
said counter-proposal, it immediately wrote defendant a letter to register
Stanford Microsystems, Inc. as one of its prospective buyers. Defendant
Araneta, Inc., thru its Assistant General Manager Eduque, replied that the
price offered by Stanford was too low and suggested that plaintiffs see if
the price and terms of payment can be improved upon by Stanford. The
authority to sell given to plaintiffs by defendants was extended several
times until it expired. Plaintiffs finally sold the 9,800 shares of stock in
Architects Bldg., Inc. to Stanford Microsystems, Inc. for P13, 500,000.00.
Plaintiffs demanded formally from defendants, through a letter of demand,
for payment of their 5% broker's commission which was declined by
defendants on the ground that the claim has no factual or legal basis.
Private respondent argues that after their authority to sell expired,
petitioners abandoned the sales transaction and were no longer privy to the
consummation and documentation thereof, Trial court dismissed
petitioners' complaint for collection. Respondent appellate court likewise
dismissed petitioners' appeal.
Issues: (1) Whether or not the agency contract and authority to sell were
extended. – NO
(2) Whether or not the broker is automatic entitlement to the stipulated
commission merely upon securing for, and introducing to, the seller, the
particular buyer who ultimately purchases from the former the object of the
sale, regardless of the expiration of the broker's contract of agency and
authority to sell. – NO
Ruling: (1) Petitioners have conspicuously failed to attach a certified copy
of the letter renewing petitioner Inland Realty's authority to act as agent to
sell. Such naivety, this court will not tolerate.
(2)It is understandable why petitioners have resorted to a campaign for an
automatic and blanket entitlement to brokerage commission upon doing
nothing but submitting to private respondent Araneta, Inc., the name of
Stanford as prospective buyer of the latter's shares in Architects'. Of
course petitioners would advocate as such because precisely petitioners did
nothing but submit Stanford's name as prospective buyer. Petitioners did
not succeed in outrightly selling said shares under the predetermined terms
and conditions set out by Araneta, Inc., e.g., that the price per share is
P1,500.00. when petitioners' authority to sell was subsisting, if at all,
petitioners had nothing to show that they actively served their principal's
interests, pursued to sell the shares in accordance with their principal's
terms and conditions, and performed substantial acts that proximately and
causatively led to the consummation of the sale to Stanford of Araneta,
Inc.'s 9,800 shares in Architects'.The Court of Appeals cannot be faulted for
emphasizing the lapse of more than one (1) year and five (5) months
between the expiration of petitioners' authority to sell and the
consummation of the sale to Stanford, to be a significant index of
petitioners' non-participation in the really critical events leading to the
consummation of said sale.
MANOTOK BROTHERS, INC. v. COURT OF APPEALS
G.R. No. 94753 DATE: April 7, 1993
Campos Jr., J.
FACTS: The petitioner in this case is the owner of a parcel of land and
building which was leased to the City of Manila and was used by Claro M.
Recto High school. Respondent here, Salvador Saligumba, was the agent of
the petitioner who negotiated with the city for the sale of the said property.
Accordingly as such, he was given letters of authority that allowed him to
negotiate the property at a price not less than 425k. He was to get a 5%
commission from the said sale
His authority was extended several times, the last one lasting for 180 days
from November 16, 1987, also it was at this time that petitioner allowed the
sale to be consummated for the amount of 410k.
However, it was only on April 26, 1968, passed Ordinance No. 6603,
appropriating the sum of P410,816.00 for the purchase of the property
which private respondent was authorized to sell. Said ordinance however,
was signed by the City Mayor only on May 17, 1968, one hundred eighty
three (183) days after the last letter of authorization. On January 14, 1969,
the parties signed the deed of sale of the subject property. The initial
payment of P200,000.00 having been made, the purchase price was fully
satisfied with a second payment on April 8, 1969 by a check in the amount
of P210,816.00.
Respondent now asks that the 5% commission be paid to him in the
amount of P20,554.50. But petitioners refused to pay up, arguing that: (1)
Private respondent would be entitled to a commission only if the sale was
consummated and the price paid within the period given in the respective
letters of authority; (2) Private respondent was not the person responsible
for the negotiation and consummation of the sale; instead it was Filomeno
E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto High
School. Petitioner presented as its witnesses Filomeno Huelgas and the
petitioner's President, Rufino Manotok.  Huelgas testified to the effect
that after being inducted as PTA president in August, 1967 he followed up
the sale from the start with Councilor Magsalin until after it was approved
by the Mayor on May 17, 1968. He also said that he came to know Rufino
Manotok only in August, 1968, at which meeting the latter told him that he
would be given a "gratification" in the amount of P20,000.00 if the sale was
expedited.
Petitioner’s contention that as a broker, private respondent's job is to bring
together the parties to a transaction. Accordingly, if the broker does not
succeed in bringing the minds of the purchaser and the vendor to an
agreement with respect to the sale, he is not entitled to a commission.
The Court ruled in favor of the respondent, with the CA affirming the RTC
decision. Hence, the appeal.
ISSUE: Whether or not private respondent is entitled to the 5% commission
HELD: It is to be noted that the ordinance was approved on April 26, 1968
when private respondent's authorization was still in force.  Moreover, the
approval by the City Mayor came only three days after the expiration of
private respondent's authority. It is also worth emphasizing that from the
records, the only party given a written authority by petitioner to negotiate
the sale from July 5, 1966 to May 14, 1968 was private respondent. When
there is a close, proximate and causal connection between the agent's
efforts and labor and the principal's sale of his property, the agent is
entitled to a commission.  Private respondent is the efficient procuring
cause for without his efforts, the municipality would not have anything to
pass and the Mayor would not have anything to approve.  The SC agrees
with respondent Court that the City of Manila ultimately became the
purchaser of petitioner's property mainly through the efforts of private
respondent. Decision of the RTC is affirmed.
LIM v. COURT OF APPEALS
G.R. No. 102784, 28 February, 1996
Facts: An Information for Estafa was filed against petitioner Rosa Lim for
allegedly defrauding Victoria Suarez. Lim received from Suarez a 3.35-carat
diamond ring and a bracelet to be sold on commission basis; such
agreement was reflected in a receipt. Later, Lim returned to Suarez only the
bracelet without the diamond ring nor the proceeds thereof if sold. Suarez
made verbal and written demands on Lim for the return of the diamond ring
but the latter responded that she had already returned both ring and
bracelet to the former, thus she had no longer any liability.
However, petitioner Lim averred that a certain Aurelia Nadera introduced
her to Suarez, that she received the two pieces of jewelry for her to
consider buying them for her own use and not to sell them on commission
basis, and that she would inform Suarez of such decision before she goes
back to Cebu. She also said that since she was not yet ready to buy, she
asked Suarez to prepare a paper for her to sign and that she signed said
document on its upper portion and not at the bottom where a space was
provided for the signature of the person receiving the jewelry. Before
departing, Lim informed Suarez that she was no longer interested in buying
the jewelry and the latter instructed her to give them to Nadera which the
former allegedly did. Petitioner asserts that she never received the jewelry
in trust or on commission basis since the real agreement between them
was a sale on credit.
Issue: Whether or not the real transaction between Lim and Suarez was a
contract of agency to sell on commission basis – YES
Ruling: The real transaction was a contract of agency to sell as evidenced
by the receipt which stated that Suarez’ compensation or commission
would be the over-price on the value of each jewelry and that she was
prohibited from selling them on credit or by installment, from giving for
safekeeping, lending, pledging, or giving as security or guaranty. The fact
that Lim’s signature appeared on the upper portion of the receipt did not
have the effect of altering the terms of the transaction from a contract of
agency to sell on commission basis to a contract of sale. Neither does it
indicate absence or vitiation of consent thereto in Lim’s part which would
otherwise render the contract void or voidable. The moment Lim affixed her
signature thereon, she became bound by all the terms stipulated in the
receipt. Article 1356 of the Civil Code pronounces, “Contracts shall be
obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present.” The exceptions to this
rule are: 1) when form is required for the validity of the contract; 2) when
form is required to make the contract effective as against third parties; and,
3) when form is required for the purpose of proving the existence of the
contract. A contract of agency to sell on commission basis does not belong
to any of these three categories; therefore, it is valid and enforceable in
whatever form it may be entered into. Furthermore, the only type of legal
instrument where the law strictly prescribes the location of the signature of
the parties thereto is the notarial will.
DOMINGO v. DOMINGO
GR No. L-30573 Oct. 29, 1971
Makasiar, J.
FACTS: Vicente Domingo granted to Gregorio Domingo, a real estate
broker, the exclusive agency to sell his Lot No. 883, Piedad Estate in a
document. Said lot has an area of 88,477 sq. m.
According to the document, said lot must be sold for P2 per sq. m. Gregorio
is entitled to 5% commission on the total price if the property is sold (1) by
Vicente or by anyone else during the 30-day duration of the agency or (2)
by Vicente within 3 months from the termination of the agency to a
purchaser to whom it was submitted by Gregorio during the effectivity of
the agency with notice to Vicente. Gregorio Domingo received P1,000 from
Oscar de Leon as gift or propina. Oscar gave him said amount after
Gregorio succeeded in persuading Vicente to accept his offer to buy the lot
for P1.20 instead of P2.
ISSUE: WON Gregorio’s act of accepting the gift or propina from Oscar
constitutes a fraud which would cause the forfeiture of his 5% commission
[YES]
HELD: Gregorio Domingo as the broker, received a gift or propina from the
prospective buyer Oscar de Leon, without the knowledge and consent of his
principal, Vicente Domingo. His acceptance of said substantial monetary
gift corrupted his duty to serve the interests only of his principal and
undermined his loyalty to his principal, who gave him partial advance of
P3000 on his commission. As a consequence, instead of exerting his best to
persuade his prospective buyer to purchase the property on the most
advantageous terms desired by his principal, Gregorio Domingo, succeeded
in persuading his principal to accept the counter-offer of the prospective
buyer to purchase the property at P1.20 per sq. m.
The duties and liabilities of a broker to his employer are essentially those
which an agent owes to his principal.
An agent who takes a secret profit in the nature of a bonus, gratuity or
personal benefit from the vendee, without revealing the same to his
principal, the vendor, is guilty of a breach of his loyalty to the principal and
forfeits his right to collect the commission from his principal, even if the
principal does not suffer any injury by reason of such breach of fidelity, or
that he obtained better results or that the agency is a gratuitous one, or
that usage or custom allows it.
Philippine Health-Care Providers, Inc. v. Estrada
G.R. No. 171052 January 28, 2008
FACTS:
 Philippine Health-Care Providers, Inc. (Maxicare) formally
appointed Estrada as its General Agent evidenced by a letter-
agreement dated February 16, 1991 granting him a commission
equivalent to:
 15 to 18% from individual, family, group accounts
 2.5 to 10% on tailored fit plans
 10% on standard plans of commissionable amount on
corporate accounts
 Maxicare had a "franchising system" in dealing with its agents
whereby an agent had to first secure permission from to list a
prospective company as client
 MERALCO account was included as corporate accounts applied by
Estrada
 Estrada submitted proposals and made representations to the
officers of MERALCO regarding the MAXICARE Plan but MERALCO
directly negotiated with MAXICARE from December 1, 1991 to
November 30, 1992 and was renewed twice for a term of 3 years each
 March 24, 1992: Estrada through counsel demanded his
commission for the MERALCO account and 9 other accounts but it was
denied by MAXICARE because he was not given a go signal to
intervene in the negotiations for the terms and conditions
 RTC: Maxicare liable for breach of contract and ordered it to pay
Estrada actual damages in the amount equivalent to 10% of
P20,169,335 representing her commission for Meralco
 CA: Affirms in toto
ISSUE: W/N Estrada should be paid his commission for the Maxicare Plans
subscribed by Meralco
HELD: YES. petition is DENIED
 Both courts were one in the conclusion that Maxicare successfully
landed the Meralco account for the sale of healthcare plans only by
virtue of Estrada’s involvement and participation in the negotiations
 Maxicare’s contention that Estrada may only claim commissions
from membership dues which she has collected and remitted to
Maxicare as expressly provided for in the letter-agreement does not
convince us. It is readily apparent that Maxicare is attempting to evade
payment of the commission which rightfully belongs to Estrada as the
broker who brought the parties together.
 The only reason Estrada was not able to participate in the
collection and remittance of premium dues to Maxicare was because
she was prevented from doing so by the acts of Maxicare, its officers,
and employees.
 Agent vs. Broker:
 agent
 receives a commission upon
the successful conclusion of a sale
 broker
 earns his pay merely by bringing the buyer and
the seller together, even if no sale is eventually made
 "procuring cause" in describing a broker’s activity
 cause originating a series of events which, without break
in their continuity, result in the accomplishment
 efforts must have been the foundation on which the
negotiations resulting in a sale began
 Even a cursory reading of the Complaint and all the pleadings filed
thereafter before the RTC, CA, and this Court, readily show that Estrada
does not concede, at any point, that her negotiations with Meralco
failed -Counsel's contention is wrong
 Estrada is entitled to 10% of the total amount of premiums paid by
Meralco to Maxicare as of May 1996 (including succeeding renewals)
RURAL BANK OF MILAOR vs OCFEMIA
FACTS: Several parcels of land were mortgaged by the respondents during
the lifetime of the respondent’s grandparents to the Rural bank of Milaor as
shown by the Deed of Real Estate Mortgage and the Promissory Note.
Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the respondents,
were not able to redeem the mortgaged properties consisting of seven
parcels of land and so the mortgage was foreclosed and thereafter
ownership was transferred to the petitioner bank. Out of the seven parcels
of land that were foreclosed, five of them are in the possession of the
respondents because these five parcels of land were sold by the petitioner
bank to the respondents as evidenced by a Deed of Sale. However, the five
parcels of land cannot be transferred in the name of the parents of Merife
Nino, one of the respondents, because there is a need to have the
document of sale registered. The Register of deeds, however, said that the
document of sale cannot be registered without the board resolution of the
petitioner bank confirming both the Deed of sale and the authority of the
bank manager, Fe S. Tena, to enter such transaction.
The petitioner bank refused her request for a board resolution and made
many alibis. Respondents initiated the present proceedings so that they
could transfer to their names the subject five parcel of land and
subsequently mortgage said lots and to use the loan proceeds for the
medical expenses of their ailing mother.
ISSUE: May the Board of Directors of a rural banking corporation be
compelled to confirm a deed of absolute sale of real property owned by the
corporation which deed of sale was executed by the bank manager without
prior authority of the board of directors of the rural banking corporation?
HELD: YES. The bank acknowledges, by its own acts or failure to act, the
authority of Fe S. Tena to enter into binding contracts. After the execution of
the Deed of Sale, respondents occupied the properties in dispute and paid
the real estate taxes. If the bank management believed that it had title to
the property, it should have taken measured to prevent the infringement
and invasion of title thereto and possession thereof. Likewise, Tena had
previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons
where representation is made in the course of its normal business by an
agent like Manager Tena even though such agent is abusing her authority.
Clearly, persons dealing with her could not be blamed for believing that she
was authorized to transact business for and on behalf of the bank.
The bank is estopped from questioning the authority of the bank to enter
into contract of sale. If a corporation knowingly permits one of its officers or
any other agent to act within the scope of an apparent authority, it holds
the agent out to the public as possessing the power to do those acts; thus,
the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agent’s authority.
DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF
APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA,
respondents.
PARDO, J.:
FACTS: Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of
money, seeking to recover the sum of P156,473.90 against Dominion
Insurance Corporation.
Guevarra claimed to have advanced in his capacity as manager of DIC to
satisfy certain claims filed by DIC’s clients.
DIC denied any liability to Guevarra and asserted a counterclaim for
P249,672.53.
In 1991, DIC filed a third-party complaint against Fernando Austria, who, at
the time relevant to the case, was its Regional Manager for Central Luzon
area.
After repeated postponements filed by both parties, DIC was declared in
default by the RTC.
RTC issued a decision; the dispositive portion is read as:
WHEREFORE, premises considered, judgment is hereby rendered ordering:
“1. Dominion Insurance Corporation to pay [Guevarra] the sum of
P156,473.90 representing the total amount advanced by [DIC] in the
payment of the claims of [Guevarra]’s clients;
“2. [DIC] to pay [Guevarra] P10,000.00 as and by way of attorney’s fees;
“3. The dismissal of the counter-claim of the [DIC] and the third-party
[Austria] complaint;
“4. [DIC] to pay the costs of suit.”
DIC brought the case up to the CA; CA affirmed the decision of the RTC.
Hence this case.
ISSUE/S: Whether or not Guevarra acted within his authority as agent for
DIC;
Whether or not Guevarra is entitled to reimbursement of amounts he paid
out of his personal money in settling the claims of several insured.
HELD: NO, because his authority as agent does not grant such powers (a
special power of attorney is required);
YES, because this case falls squarely under the general law on obligations
and contracts.
RATIO: A perusal of the Special Power of Attorney would show that DIC
(represented by third-party defendant Austria) and Guevarra intended to
enter into a principal-agent relationship. Despite the word “special” in the
title of the document, the contents reveal that what was constituted was
actually a general agency. [Refer to the original case for the said contract
stipulations]
The instruction of DIC as the principal could not be any clearer. Guevarra
was authorized to pay the claim of the insured, but the payment shall come
from the revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that
Guevarra incurred in the settlement of the claims of the insured may not be
reimbursed from DIC.
Article 1918, Civil Code: The principal is not liable for the expenses incurred
by the agent in the following cases:
(1) If the agent acted in contravention of the principal’s instructions, unless
the latter should wish to avail himself of the benefits derived from the
contract;
“xxx xxx xxx
HOWEVER, while the law on agency prohibits respondent Guevarra from
obtaining reimbursement, his right to recover may still be justified under
the general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides: Whoever pays for
another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.
CMS Logging v. CA (1992; Nocon, J.)
Facts:
1. CMS (a forest concessionaire engaged in the logging business) and
DRACOR (engaged in the business of exporting and selling logs
and lumber) entered into a contract of agency whereby the former
appointed the latter as its exclusive export and sales agent for all
logs that the former may produce, for a period of five (5) years. By
virtue of this agreement, CMS was able to sell 77M board feet of
logs in Japan.
2. Six months before the expiration of the agreement, CMS’ president
Atty. Sison and its general manager and legal counsel Atty.
Dominguez discovered while on a trip to Japan that DRACOR had
used Shinko Trading Corp. as agent, representative or liaison
officer for selling their company’s logs and earned a commission of
$1/1,000 board feet, such that it was able to get $77k from the
arrangement.
 a. CMS claimed that this commission paid to Shinko was in
violation of the agreement and that it (CMS) is entitled to
this amount as part of the proceeds of the sale of the
logs. CMS contended that since DRACOR had been paid
the 5% commission under the agreement, it is no longer
entitled to the additional commission paid to Shinko as
this tantamount to DRACOR receiving double
compensation for the services it rendered. (Basically, CMS
claims that DRACOR got the contested amount from the
proceeds of the sales over and above the commission
they themselves were to receive under the agreement.)
b. After this discovery, CMS sold and shipped logs valued at
U.S. $739,321.13 or P2,883,351.90, 4 directly to several
firms in Japan without the aid or intervention of DRACOR.
3. CMS sued DRACOR for the commission and for moral and
exemplary damages.
a. DRACOR’s counterclaim: that it was entitled to a P144k
commission from the sales made directly by CMS.
b. CMS’ reply: in its defense, said that DRACOR retained as
part of its commission P101k as part of its commission
from the sale made directly by CMS.
i. CMS’ counterclaim to DRACOR’S counterclaim:
demanded the return of the amount DRACOR
unlawfully retained.
c. DRACOR’s amended counterclaim: alleged that the
balance of its commission on the sales CMS made was
P42k (impliedly admitting that it retained the amount
alleged in the reply)
4. TC: Complaint DISMISSED.
a. Though there was indeed receipt by Shinko of the $77k,
there is no evidence that such amount was for the sale of
CMS’ logs.
b. Counterclaim also dismissed as it was shown that
DRACOR had waived its rights to the balance of its
commission in a letter to Atty. Sison.
c. CMS appealed.
5. CA: Dismissal AFFIRMED.
a. No evidence supporting CMS’ claims.
b. A letter between DRACOR and Shinko shows that the
amount paid to the latter was taken from the 5% that
DRACOR received from CMS.
c. Petition for review on certiorari filed before the SC.
Issue:
1. WON Shinko received the commission in question.
2. WON DRACOR is entitled to a commission for the sales made by
CMS directly to Japanese firms.
Held/Ratio:
1. NO, it Shinko not receive the commission in question.
a. Atty. Dominguez’ testimony that he heard said news from
Shinko’s president is hearsay, as well as the letter of one
Mr. Shibata
b. The alleged admissions made by DRACOR’s president and
its counsel in other letters cannot be categorized as
admissions because they do not state the facts to be
proven in definite, certain, and unequivocal language.
Sample “admissions”:
i. “…it is obvious that they paid Shinko for certain
services which Shinko must have satisfactorily
performed…”
ii. “There appears to be no justification for your
client's contention that these benefits, whether
they can be considered as commissions paid by
Toyo Menka Kaisha to Shinko Trading, are to be
regarded part of the gross sales.”
iii. “…our shipment of logs to Toyo Menka Kaisha,
Ltd., is only for a net volume of 67,747,732
board feet which should enable Shinko to collect
a commission of US $67,747.73 only…” (here,
the numbers pointed to include logs sold to
various firms, and not just sales allegedly made
by Shinko)
c. There was no admission by DRACOR’s alleged silence as
to the fact of payment made by Toyo Menka directly to
Shinko because there was in fact a response to this
allegation though a letter from the respondent
categorically denying knowledge of any such payment.
d. Even if it was shown that Shinko did in fact receive the
commissions in question, CMS is not entitled thereto
since these were apparently paid by the buyers to Shinko
for arranging the sale. This is therefore not part of the
gross sales of CMS's logs.
2. NO, DRACOR is not entitled to its commission to the
subsequent sales.
a. Art. 1924 The agency is revoked if the principal directly
manages the business entrusted to the agent, dealing
directly with third persons.
b. In this case, there was an implied revocation when CMS
sold its logs directly to Japanese firms. Since the contract
of agency had been revoked by the time these sales were
effected, the DRACOR is no longer entitled to claim or
retain commission in relation to these transactions.
 c. Neither would DRACOR be entitled to collect damages
from CMS, since damages are generally not awarded to
the agent for the revocation of the agency, and the case
at bar is not one falling under the exception mentioned,
which is to evade the payment of the agent's
commission.
d. Fraud and bad faith were not adequately proven in the
LC, and the SC is bound by its finding.
Dispositive: Decision MODIFIED. CA ruling as to the Shinko commission
AFFIRMED, but portion as to DRACOR’s right to retain subsequent
commissions REVERSED.
DY BUNCIO & COMPANY, INC. v.ONG GUAN CAN
G.R. No. L-40681 October 2, 1934
Facts: A deed dated July 31, 1931 by Ong Guan Can, Jr. states that he, as
agent of Ong Guan Can, sells a rice-mill and camarin to Juan Tong and gives
as his authority the power of attorney dated May 23, 1928. The power of
attorney is a limited one and does not give the express power to alienate
the properties in question. However, a general power of attorney has
previously been given to the same agent in 1920.
Issue: Whether or not Ong Guan Can, the judgment debtor, is still the
owner of the rice-mill and camarin – YES
Ratio: The making and accepting of a new power of attorney, whether it
enlarges or decreases the power of the agent under a prior power of
attorney, must be held to supplant and revoke the latter when the two are
inconsistent. The title of Ong Guan Can has not been divested by the so-
called deed of July 31, 1931. His properties are subject to attachment and
execution.
VALENZUELA v. COURT OF APPEALS
G.R. No. 83122 October 19, 1990
Facts: Arturo P. Valenzuela is a General Agent of Philippine American
General Insurance Company, Inc. since 1965. As such, he was authorized to
solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in
consideration of services rendered was entitled to receive the full agent's
commission of 32.5% from Philamgen under the scheduled commission
rates. From 1973 to 1975, Valenzuela solicited marine insurance from one
of his clients, the Delta Motors, Inc. in the amount of P4.4 Million from
which he was entitled to a commission of 32%. However, Valenzuela did not
receive his full commission which amounted to P1.6 Million from the P4.4
Million insurance coverage of the Delta Motors. In 1977,Philamgen started
to become interested in and expressed its intent to share in the commission
due Valenzuela on a fifty-fifty basis. Valenzuela refused. Philamgen insisted
on the sharing of the commission with Valenzuela. On June 16,1978,
Valenzuela firmly reiterated his objection to the proposals of respondents.
Because of the refusal of Valenzuela, Philamgen took drastic action against
Valenzuela. All of these acts resulted in the decline of his business as an
insurance agent. Then on December 27, 1978, Philamgen terminated the
General Agency Agreement of Valenzuela. Thus, Valenzuela filed a
complaint against Philamgen. The trial court ruled in favor Valenzuela and
ordered his reinstatement. On appeal, the Court of Appeals modified the
judgment in favor of Philamgen. Hence, this petition.
Issue: Whether or not Philamgen validly terminated the contract of agency.
– NO
Ratio: As a general rule, an agency is revocable at will except when the
agency has been given not only for the interest of the principal but for the
interest of third persons or for the mutual interest of the principal and the
agent. In these cases, it is evident that the agency ceases to be freely
revocable by the sole will of the principal. With the termination of the
General Agency Agreement, Valenzuela would no longer be entitled to
commission on the renewal of insurance policies of clients sourced from his
agency. Worse, Philamgen continued to hold Valenzuela jointly and
severally liable with the insured for unpaid premiums. Under these
circumstances, it is clear that Valenzuela had an interest in the continuation
of the agency when it was unceremoniously terminated not only because of
the commissions he should continue to receive from the insurance business
he has solicited and procured but also for the fact that by the very acts of
the respondents, he was made liable to Philamgen in the event the insured
fail to pay the premiums due. They are estopped by their own positive
averments and claims for damages. Therefore, the respondents cannot
state that the agency relationship between Valenzuela and Philamgen is not
coupled with interest. There may be cases in which an agent has been
induced to assume a responsibility or incur a liability, in reliance upon the
continuance of the authority under such circumstances that, if the authority
be withdrawn, the agent will be exposed to personal loss or liability.
LIM v. SABAN
GR. No. 163720 December 16, 2004
Facts: The late Eduardo Ybañez, the owner of a 1000 square meter lot in
Cebu City entered into an agency agreement with respondent Florencio
Saban. Under the agency agreement, Ybañez authorized Saban to look for a
buyer of the lot for P200,000 and to mark up the selling price to include the
amounts needed for payment of taxes, transfer of title and other expenses
incident to the sale, as well as Saban’s commission for the sale. Through
Saban’s effort, Ybañez and his wife were able to sell the lot to petitioner
Genevieve Lim and the spouses Benjamin and Lourdes Lim. The price
indicated in the Deed of Absolute Sale was P200,000, however, it appears
that the parties agreed to purchase the lot for P600,000 inclusive of taxes
and other expenses of the sale. Lim remitted to Saban the amounts of
P113,257.00 for the payment of taxes as well as P50,000 as broker’s
commission. Lim also issued in the name of Saban four postdated checks in
the aggregate amount of P236,743.00. Subsequently, Ybañez sent letter to
him convincing her to cancel all the checks she issued in the name of
Saban and pay directly to him. Saban filed a complaint for the collection of
sum of money and damages against Ybañez and Lim with the RTC of Cebu
City. Saban alleged that Ybañez connived with Lim to deprive him of his
sales commission by withholding the payment of the checks. Ybañez for his
part claimed that Saban was not entitled to any commission because he
concealed the actual selling price from him and because he was not a
licensed broker. Ybañez died during the pendency of the case. The case
was dismissed with respect to Ybañez and only the complaint against Lim
was continued. The RTC of Cebu dismissed the complaint of Saban. On
appeal, the Court of Appeals ruled that the revocation of the contract of
agency by Ybañez was invalid because the agency was coupled with
interest and Ybañez effected the revocation in bad faith in order to deprive
Saban of his commission. Not satisfied with the decision of the Court of
Appeals, Lim filed the present petition. She further contends that she
should not be liable for Ybañez debt to Saban as she was not a party to the
contract of agency between them.
Issues: (1) Whether or not the contract of agency was revoked. – NO
(2) Whether or not the contract of agency was coupled with interest. – NO
Ruling: (1) The agency was not revoked since Ybañez requested that Lim
to make stop payment orders for the checks issued to Saban only after the
consummation of the sale. At that time, Saban had already performed his
obligation as Ybañez’s agent when, through Saban’s efforts, Ybañez
executed the Deed of Absolute Sale of the lot with Lim and Spouses Lim. To
deprive Saban of his commission subsequent to the sale which was
consummated through his efforts would be a breach of contract of agency.
Moreover, the Court has sufficient basis to conclude that Ybañez and Lim
connived with each other to deprive Saban of his commissions by dealing
with each other directly and reducing the purchase price of the lot and
leaving nothing for Saban to compensate him for his efforts. Hence, it is
proper that Lim pays Saban the amount due to him.
(2) An agency is deemed as one coupled with interest where it is
established for the mutual benefit of the principal and of third persons, and
it cannot be revoked by the principal so long as the interest of the agent or
of third person subsists. In an agency coupled with an interest, the agent’s
interest must be in the subject matter of the power conferred and not
merely an interest in the exercise of the power because it entitles him to
compensation. When the agent’s interest is confined to earning his agreed
compensation, the agency is not coupled with an interest, since the agent’s
interest in obtaining his compensation as such agent is an ordinary incident
of the agency relationship.
Philex Mining Corp vs CIR
Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining
Corporation for the former to manage the latter’s mining claim known as
the Sto. Mine. The parties’ agreement was denominated as “Power of
Attorney”. The mine suffered continuing losses over the years, which
resulted in petitioners’ withdrawal as manager of the mine. The parties
executed a “Compromise Dation in Payment”, wherein the debt of Baguio
amounted to Php. 112,136,000.00. Petitioner deducted said amount from
its gross income in its annual tax income return as “loss on the settlement
of receivables from Baguio Gold against reserves and allowances”. BIR
disallowed the amount as deduction for bad debt. Petitioner claims that it
entered a contract of agency evidenced by the “power of attorney”
executed by them and the advances made by petitioners is in the nature of
a loan and thus can be deducted from its gross income. Court of Tax
Appeals (CTA) rejected the claim and held that it is a partnership rather
than an agency. CA affirmed CTA
Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the “Power of Attorney” (PA)
is the instrument material that is material in determining the true nature of
the business relationship between petitioner and Baguio. An examination of
the said PA reveals that a partnership or joint venture was indeed intended
by the parties. While a corporation like the petitioner cannot generally
enter into acontract of partnership unless authorized by law or its charter, it
has been held that it may enter into a joint venture, which is akin to a
particular partnership. The PA indicates that the parties had intended to
create a PAT and establish a common fund for the purpose. They also had a
joint interest in the profits of the business as shown by the 50-50 sharing of administration, unless a specification of their respective duties has been
income of the mine. agreed upon, or else it is stipulated that any one of them shall not act
without the consent of all the others. At any rate, Paule does not have any
Moreover, in an agency coupled with interest, it is the agency that cannot
valid cause for opposition because his only role in the partnership is to
be revoked or withdrawn by the principal due to an interest of a third party
that depends upon it or the mutual interest of both principal and agent. In provide his contractor’s license and expertise, while the sourcing of funds,
this case the non-revocation or non-withdrawal under the PA applies to the materials, labor and equipment has been relegated to Mendoza.
advances made by the petitioner who is the agent and not the principal
under the contract. Thus, it cannot be inferred from the stipulation that it is
an agency.

MENDOZA v. PAULE

G.R. No. 175885, 13 February 2009

Facts: Engineer Eduardo M. Paule, the proprietor of E.M. Paule Construction

and Trading (EMPCT), executed on 24 May 1999 a special power of attorney
(SPA) authorizing Zenaida G. Mendoza to participate in the bidding of a
National Irrigation Administration (NIA) and to represent him in all
transactions related thereto. The said project, which involves construction
of a road system, canal structures and drainage box culverts, was later
awarded to EMPCT through Mendoza. Mendoza entered into a lease
contract with Manuel Cruz for the heavy equipment to be used in the NIA
project. Said lease contract was entered into by Mendoza upon several
meetings with Cruz and Paule. Mendoza and Cruz signed job orders dated 2
and 22 December 1999. But on 27 April 2000, Paule revoked the SPA issued
in favor of Mendoza so NIA refused to pay Mendoza on her billings.
Consequently, Cruz could not be paid for the rent of the equipment and
filed an action for collection sum of money.

Issue: Whether or not Mendoza acted beyond her authority, granted by

Paule through an SPA, when she contracted with Cruz for the lease of heavy
equipment to be used in the implementation of the NIA project. – NO

Ruling: Although the SPA limit Mendoza’s authority to such acts as

representing EMPCT in its business transactions with NIA, participating in
the bidding of the project, receiving and collecting payment in behalf of
EMPCT, and performing other acts in furtherance thereof, the evidence
shows that when Mendoza and Cruz met and discussed the lease of the
latter’s heavy equipment for use in the project, PAULE was present and
interposed no objection to Mendoza’s actuations. Her actions were in
accord with what she and Paule originally agreed upon, as records show, as
to division of labor and delineation of functions within their partnership.
Under the Civil Code, every partner is an agent of the partnership for the
purpose of its business; each one may separately execute all acts of