AgPart 925- Part Digest

Nature and Attributes of the Partnership PARTNERSHIPS

1 ALOJADO. ATIENZA. BALDERAMA. CAMARAO. CARANDANG. CRUZ. ESTILLES. GARCIA. GONZAGA. HUI. LAZARO.SENAJON

YU V NLRC .............................................................................................................. 2

ESTANISLAO JR. V CA (160 SCRA 830) ..................................................................... 3

YULO V YANG CHIAO SENG ..................................................................................... 4

EVANGELISTA V COLLECTOR OF INTERNAL REVENUE.............................................. 6

ONA V COMMISSIONER OF INTERNAL REVENUE .................................................... 8

PASCUAL V COMMISSIONER OF INTERNAL REVENUE ............................................. 9

BASTIDA V. MENZI AND CO .................................................................................. 11

ANTON V OLIVA.................................................................................................... 12

TOCAO V CA ......................................................................................................... 13

ORTEGA V CA........................................................................................................ 13



YU V NLRC G.R. No. 97212, June 30, 1993 BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION(NLRC) and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents. FACTS

Benjamin Yu was the former Asst. General Manager of Jade Mountain, a partnership engaged in marble quarrying and export of a marble deposit in Bulacan, formed between Lea Bendal and Rhodora Bendal as general partners and three other Taiwanese limited partners (1st PARTNERSHIP). According to Yu, he actually received only half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. As Asst. GM, he managed the operations and finances of the business and had overall supervision of the workers at the marble quarry.

Sometime in 1988, without the knowledge of, the two general partners SOLD and transferred their interests in the partnership to Willy Co and Emmanuel Zapanta. Eventually, the partnership was constituted solely by Co and Zapanta who continued to use the old firm name of Jade Mountain. After the change, all partnership employees continued working in the business except for Yu, whose salaries remained unpaid.

On Dec 1988, Yu filed a complaint for illegal dismissal and recovery of unpaid salaries against Jade Mountain, Co and the other private respondents. The respondents mainly contend that Yu was never hired as an employee by the present and new partnership.

The Labor arbiter ruled in favor of Yu and ordered his reinstatement and awarded his claim for unpaid salaries. On appeal, the NLRC reversed the decision and dismissed the complaint, holding that a new partnership was formed which had not retained Yu as Asst. GM, and that there was no law requiring the new partnership to absorb the employees of the old partnership. Therefore, Yu had not been illegally dismissed and that claim for unpaid salaries should be claimed against the old partnership.

Yu is now requesting the reversal, and mainly argues that a partnership has a juridical personality separate and distinct from that of each of its members. Such independent legal personality subsists, he claims, notwithstanding changes in the identities of the partners. Consequently, his employment with Jade Mountain could not have been affected by changes in the latter's membership.

ISSUE

(1) Whether the partnership which had hired Yu as Assistant General Manager had been EXTINGUISHED and REPLACED by a new partnership composed of Co and Zapanta

(2) If yes, whether Yu could nonetheless assert his rights under his employment contract as against the new partnership.

HELD / RATIO

(1) YES. When the original partners sell their equity interest in the company, the original juridical person was extinguished and the new set of partners constituted a new partnership arrangement with a new juridical personality. Yet the underlying business enterprise remained the same between the two sets of investors and liability rules pertaining to the underlying business enterprise must be respected.

A new partnership was formed which dissolved old partnership by virtue of Art. 1828. 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. Nevertheless, based on Art 1829, on



dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. However, the new partnership simply took over the business owned by the preceding partnership and did not undertake the dissolution and winding up of its business affairs.

(2) The new partnership is still liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, the Court held that under similar set of facts, a withdrawing partner remains liable to a third party creditor of the old partnership.

Under Art. 1840, the liability of a third person becoming a partner in the partnership continuing the business to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary. Such creditors have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. Yu is such a creditor.

However, the new owners of the business enterprise have a right to choose who would be employed in their newly acquired business, and they cannot be compelled to maintain employment contracts of the managers and employees existing with the transferor. Therefore, the non-retention of Benjamin Yu as Asst. General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause, which in the case at bar is redundancy. The new partnership had its own new General Manager, Mr. Co, the principal owner himself. Nevertheless, Mr. Yu is entitled to separation pay.

ESTANISLAO JR. V CA (160 SCRA 830) G.R. NO. L-49982 APRIL 27, 1988

ELIGIO ESTANISLAO, JR., petitioner, vs. THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO,respondents. Estanislao Jr and his siblings are co-owners of certain lots which were then being leased to SHELL. They agreed to open and operate a gas station known as Estanislao Shell Service Station. The initial investment was to be taken from the advance rentals due to them from SHELL for the occupancy of the lots.

In a joint affidavit, the other siblings agreed that Estanislao Jr would operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical purposes and in order not to run counter to the company's policy of appointing only one dealer, it was agreed that Estanislao Jr would apply for the dealership. For a year, Estanislao Jrs sister helped in managing the bussiness.

Later, Estanislao Jr and his siblings entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the advance rental shall be deposited with SHELL to cover advances of fuel to Estanislao Jr as dealer with a proviso that said agreement cancels and supersedes the Joint Affidavit executed by the co-owners."

For sometime, Estanislao Jr submitted financial statements regarding the operation of the business to his other siblings, but therafter Estanislao Jr failed to render subsequent accounting. A demand was made on Estanislao Jr to render an accounting of the profits.

The financial report showed the profit made by the business, so the other siblings filed a complaint praying that Estanislao Jr be ordered to render a formal accounting of the business operation and to pay the plaintiffs their lawful shares and participation in the net profits of the business plus interest.



Estanislao Jr. contends that because of the said stipulation in the Additional Cash Pledge Agreement cancelling and superseding that previous Joint Affidavit, whatever partnership agreement there was in said previous agreement had thereby been abrogated.

ISSUE: W/N a partnership was established by and among Estanislao Jr and his siblings as regards the ownership and or operation of the gasoline service station business

HELD: Yes.

RATIO: The cancelling provision was necessary because the Joint Affidavit speaks of P 15,000.00 advance rentals 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 P 15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the previous one.

While it is true that in the latter document (Additional Cash Pledge Agreement), it speaks of Estanislao Jr. as the sole dealer, but this is as it should be because in the latter document SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a partnership with the siblings and not a sole proprietorship of Estanislao Jr.

Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by:

- the testimonies of the sister and Atty. Angeles. - Submission by Estanislao Jr of periodic accounting of the

business

- Written authority given by Estanislao Jr to his sister to examine and audit the books of their common business

- sister assisted in the running of the business

There is no doubt that the parties formed a partnership when they bound themselves to contribute money to a common fund with the intention of dividing the profits among themselves. The sole dealership by Estanislao Jr and the issuance of all government permits and licenses in the name of Estanislao Jr was in compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products.

YULO V YANG CHIAO SENG ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs and appellants, vs. YANG CHIAO SENG, defendant and appellee. FACTS: Yang Chiao Seng wrote a letter to the plaintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to operate a theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila with the conditions: (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000, payable quarterly in advance within the first 15 days of each quarter,; (2) that the partnership shall be for two years and six months, with the condition that if the land is expropriated or rendered impracticable for the business, or if the owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner, then the partnership shall be terminated even if the period for which the partnership was agreed to be established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in



the lobby of the building. (4) that after December 31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but that if the partnership agreement is terminated before the lapse of one and a half years period under any of the causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away all improvements that the partnership may place in the premises. Hence, a partnership agreement was made and Yang & Company, Limited was established which was to exist from July 1, 1945 to December 31, 1947. In June 1946, they executed a supplementary agreement extending the partnership for 3 years beginning Jan 1, 1948 to Dec 31, 1950. The land on which the theater was constructed was leased by Yulo from owners, Emilia Carrion and Maria Carrion Santa Marina for an indefinite period but that after 1 year, such lease may be cancelled by either party upon 90-day notice. In Apr 1949, the owners notified Yulo of their desire to cancel the lease contract come July. Yulo and husband brought a civil action to declare the lease for a indefinite period. Owners brought their own civil action for ejectment upon Yulo and Yang. In 1950, Yulo demanded from Yang her share in the profits of the business. Yang answered saying he had to suspend payment because of pending ejectment suit. Defendant claims that the real agreement between plaintiff and defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to get around the prohibition contained in the contract of lease between the owners and the plaintiff against the sublease of the property. ISSUE: Whether or not, by virtue of the contracts between the parties, there existed a partnership. HELD:

We have gone over the evidence and we fully agree with the conclusion of the trial court that the agreement was a sublease, not a partnership. The following are the requisites of partnership: (1) two or more persons who bind themselves to contribute money, property, or industry to a common fund; (2) intention on the part of the partners to divide the profits among themselves. Where one of the parties to a contract does not contribute the capital he is supposed to contribute to a common fund; does not furnish any help or intervention in the management of the business subject of the contract; does not demand from the other party an accounting of the expenses and earnings of the business; and is absolutely silent with respect to any of the acts that a partner should have done, but, on the other hand, receives a fixed monthly sum from the other party, there can be no other conclusion than that the contract between the parties is one of lease and not of partnership. In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not furnish any help or intervention in the management of the theatre. In the third place, it does not appear that she has ever demanded from defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to receive her share of P3,000 a month, which cannot be interpreted in any manner than a payment for the use of the premises which she had leased from the owners. We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-appellant.



EVANGELISTA V COLLECTOR OF INTERNAL REVENUE FACTS Petitioners Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista borrowed from their father the sum of P59,1400.00 which amount together with their personal monies was used by them for the purpose of buying real properties. They bought from:

1. Mrs. Josefina Florentino, a lot with an area of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00,

2. Mrs. Josefa Oppus, 21 parcels of land with an aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00,

3. the Insular Investments Inc., a lot of 4,353 sq. m. including improvements thereon for P108,825.00, and

4. Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements thereon for P237,234.34.

In a document they appointed their brother Simeon Evangelista to manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them. After having bought the above-mentioned real properties the petitioners had the same rented or leases to various tenants. 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, computed, according to assessment made by said officer. Said letter of demand and corresponding assessments were delivered to petitioners 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 be reversed, and that they be absolved from the payment of the taxes in question, with costs against the respondent. ISSUE W/N petitioners 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. RATIO YES. Pursuant to Article 1767 of the Civil Code, 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. Hence, the issue narrows down to their intent in acting as they did. 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:

Said common fund was not something they found already in existence. It was not property inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to establish said common fund.

They invested the same, not merely not merely in one transaction, but in a series of transactions. The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired by the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose of gain.



The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any change in the utilization thereof.

Since August, 1945, the properties have been under the management of one person, namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit.

The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager.

Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.

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. Only one or two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those cases are not in point. BAUTISTA ANGELO, J., concurring: I agree with the opinion that petitioners have actually contributed money to a common fund with express purpose of engaging in real estate business for profit. The series of transactions which they had

undertaken attest to this. I wish however to make to make the following observation: Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself establish partnership, whether or not the person sharing them have a joint or common right or interest in any property from which the returns are derived;

From the above it appears that the fact that those who agree to form a co-ownership shared or do not share any profits made by the use of property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a judicial personality different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635- 636). It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership.



ONA V COMMISSIONER OF INTERNAL REVENUE G.R. NO. L-19342 MAY 25, 1972 LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZB. OA, VIRGINIA B. OA and LORENZO B. OA, JR., petitioners, vs. THE COMMISSIONER OF INTERNAL REVENUE (CIR), respondent. FACTS: Julia Buales (Buales) died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa (Oa) and her five children. Oa eventually was appointed as administrator of the estate of Buales. Because three of Buales children were still minors, Oa was also appointed as guardians of the persons and properties of the minor children. A project partition was submitted by Oa which was duly approved by the court on May 16, 1949. However, no attempt was made to divide the properties which remained in the management of Oa who used said properties in business by leasing and selling them and investing the income derived and the proceeds from the sales in real properties and securities. As a result, petitioners' properties and investments graduallyincreased from PhP105,450.00 in 1949 to PhP480,005.20 in 1956. The said incomes are recorded in the books of account kept by Oa and every year, the heirs file their income tax including their shares in the net income derived from said properties and securities and from transactions involving them. In 1955 and 1956, the CIR assessed against the heirs corporate income taxes. CIR decided that the heirs formed an unregistered partnership and therefore, subject to corporate income tax pursuant to Section24, in relation to Section 84(b), of the Tax Code.

ISSUE/S: WON an unregistered partnership was formed RULING: From the moment the heirs allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Oa 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 above-mentioned provisions of the Tax Code. RATIO: For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to petitioners in this case.



Buales died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949. 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, the heirs engaged, thru Oa, 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.

PASCUAL V COMMISSIONER OF INTERNAL REVENUE G.R. NO. 78133 OCTOBER 18, 1988 MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents. FACTS The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this petition. Pascual and Dragon bought 2 parcels of land from Santiago Bernardino, et al. They bought another 3 parcels of land from Juan Roque. The first 2 parcels of land were sold by petitioners in 1968 to Marenir Development Corporation, while the 3 parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson. Petitioners realized net profits in the said sales. The corresponding capital gains taxes were paid by petitioners by availing of the tax amnesties. However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.

Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed. ISSUE: Was there an unregistered partnership between the petitioners? HELD No. RATIO The basis of the subject decision of the respondent court WAs the ruling of this Court in Evangelista. In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds they used in buying several real properties. They appointed their brother to manage their properties with full power to lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various tenants for several years and they gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from them. xxx 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: 1. Said common fund was not something they found already in existence. It was not a property inherited by them pro indiviso. They created it



purposely. What is more they jointly borrowed a substantial portion thereof in order to establish said common fund; 2. They invested the same, not merely in one transaction, but in a series of transactions. The number of lots (24) acquired and transcations undertaken, as well as the brief interregnum between each, particularly the last 3 purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired by petitioners. One cannot but perceive a character of habituality peculiar to business transactions for gain. 3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners herein. The properties were leased separately to several persons by way of rentals. 4. The properties have been under the management of one person, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. The affairs relative to said properties have been handled as if the same belonged to a business enterprise operated for profit. 5. The foregoing conditions have existed for more than 10 years, or, to be exact, over 15 years, since the first property was acquired, and over 12 years, since Simeon Evangelists became the manager. xxx In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof.

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



circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

BASTIDA V. MENZI AND CO

FACTS: In November 1921, Bastida, who had had some experience in mixing and selling fertilizer, 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 later by the letter of Menzi to Bastida 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: Is the relationship between the petitioner and Menzi that of partners?

HELD: No.

RATIO: 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.



Despite the agreement that Bastida was to receive 35% of the profit from the business of mixing and distributing fertilizer registered in the name of Menzi and Co., there was never any contract of partnership constituted between them based on the following key elements: a) there was never any common fund created between the parties, since the entire business as well as the expenses and disbursements for operating it were entirely for the account of Menzi and Co.; b) there was no provision in the agreement for reimbursing Menzi and Co. in case there should be no profits at the end of the year; and c) the fertilizer business was just one of the many lines of business of Menzi and Co., and there were no separate books and no separate bank accounts kept for that particular line of business. The arrangement was deemed to be one of employment, with Bastida contributing his services to manage the particular line of business of Menzi and Co.

ANTON V OLIVA FACTS: Ernesto and Corazon (Olivas) filed an action for accounting and specific performance with damages against spouses Jose Miguel and Gladys Miriam Anton (Antons) before RTC. The Olivas alleged that they entered into 3 MOAs setting up a business partnership covering 3 fast food stores known as Pinoy Toppings to be established at SM Megamall, Cubao and Southmall. In the agreement, Olivas will get 30% of the net profits in megamall and 20% in cubao and southmall stores. Antons gave them P2,547,000 as shares of Olivas. But did not give them their shares in SM Cubao and later on beginning Nov. 1997, Antons stopped giving the shares of Olivas. Antons alleged that they never partnered with the Olivas in the operations of the 3 stores. It is to be noted that Gladys filed a separation case with Jose Miguel (partnership terminated).

RTC holds that there was no partnership but Antons had an obligation to render accounting and pay the share of Olivas. Antons appealed but CA affirmed the decision but modified it by deleting the order to get an independent accountant. It further ordered to pay Olivas the shares with interest. ISSUE: W/N Antons have the obligation to pay the Olivas their shares of the net profits of the 3 stores plus legal interest on the shares. HELD: Yes! RATIO: The relationship between the parties was that creditor-debtor and not partnership. Although MOA denominated the Oliva as partners the amounts they gave did not appear to be capital contributions to the establishment of the stores. Although Olivas were mere creditors, Antons agreed to compensate them for the risk they have taken. There was nothing illegal or immoral about this compensation scheme. Thus, unless the MOAs are subsequently terminated on valid grounds, the same remain valid and enforceable. Their obligation to pay their shares was not extinguished. Olivas have no right to demand accounting since they were not partners, but they have the right to know so that they will know how much profit they will make (diba based on percentages). The interest (12%) awarded are not interest on the loan but interest on the unpaid shares of net profits of the 3 stores.



TOCAO V CA G.R. NO. 127405. SEPTEMBER 20, 2001 PETITIONERS: Marjorie Tocao and William T. Belo RESPONDENTS: Court Of Appeals and Nenita A. Anay

FACTS:

On November 14, 2001, Tocao and Belo filed a Motion for Reconsideration of the SC Decision dated October 4, 2000. The dispositive portion of said decision states:

"WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---"

They maintain that there was no partnership between Belo and Anay; and that the latter being merely an employee of Tocao.

According to the testimony of Elizabeth Bantilan, a witness, Belo guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We can borrow money from him. She affirmed that Lo is the one fixing our orders that open the L/C. She affirmed that Lo was the financier and Belo was a guarantor.

ISSUE(S):

Whether or not a partnership existed between Belo and Anay.

RULING:

No. Belo acted merely as a guarantor of Geminesse Enterprise. Inasmuch as Belo was not a partner in Geminesse Enterprise, Anay had no cause of action against him and her complaint against him should accordingly be dismissed.

RATIO:

The business relationship created between Tocao and Anay was an informal partnership, which was not even recorded with the Securities and Exchange Commission. As such, it was understandable that Belo, who was Tocaos good friend and confidante, would occasionally participate in the affairs of the business, although never in a formal or official capacity.

No evidence was presented to show that petitioner Belo participated in the profits of the business enterprise. Anay herself professed lack of knowledge that petitioner Belo received any share in the net income of the partnership. On the other hand, Tocao declared that Belo was not entitled to any share in the profits of Geminesse Enterprise. With no participation in the profits, Belo cannot be deemed a partner since the essence of a partnership is that the partners share in the profits and losses.

ORTEGA V CA

FACTS:

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and



reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating that he is withdrawing and retiring from the firm of Bito, Misa and Lozada and that the assets of the firm be liquidated and his share be given to him.

Petitioner then filed a petition for dissolution with the SEC. the other partners opposed the dissolution of the partnership.

ISSUE: whether the Withdrawal and retirement of Joaquin Misa dissolved the partnership of Bito, Misa and Lozada?

HELD:

Yes. A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," (somewhere during the pendency of the case, new partners were included and Misa died) is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners."

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership 4 but that it can result in a liability for damages. 5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination. 9



(not part of the decision of the SC but what this is the decision which was reversed by the SEC en banc, whose decision was ultimately affirmed by SC)

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of completion. 3

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