Evangelista, et al. v. CIR, GR No. L-9996, October 15, 1957 transaction, but in a series of transactions.
ies of transactions. The number of lots acquired
Facts: Herein petitioners seek a review of CTA’s decision holding them
liable for income tax, real estate dealer’s tax and residence tax. As
stipulated, petitioners borrowed from their father a certain sum for the
purpose of buying real properties. Within February 1943 to April 1994,
they have bought parcels BUSORG CASE DIGESTS Atty. Charlie Mendoza 7
of land from different persons, the management of said properties was
charged to their brother Simeon evidenced by a document. These
properties were then leased or rented to various tenants. On September
1954, CIR demanded the payment of income tax on corporations, real
estate dealer’s fixed tax, and corporation residence tax to which the
petitioners seek to be absolved from such payment.
Issue: Whether petitioners are subject to the tax on corporations.
Ruling: The Court ruled that with respect to the tax on corporations, the
issue hinges on the meaning of the terms “corporation” and “partnership”
as used in Section 24 (provides that a tax shall be levied on every
corporation no matter how created or organized except general
copartnerships) and 84 (provides that the term corporation includes
among others, partnership) of the NIRC. Pursuant to Article 1767, NCC
(provides for the concept of partnership), its essential elements are: (a) an
agreement to contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting parties. It is of
the opinion of the Court that the first element is undoubtedly present for
petitioners have agreed to, and did, contribute money and property to a
common fund. As to the second element, the Court fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves as indicated by the following
circumstances: 1. The common fund was not something they found already
in existence nor a property inherited by them pro indiviso. It was created
purposely, jointly borrowing a substantial portion thereof in order to
establish said common fund; 2. They invested the same not merely in one
and transactions undertake is strongly indicative of a pattern or common
design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired. In other
words, one cannot but perceive a character of habitually peculiar to
business transactions engaged in the purpose of gain; 3. Said properties
were not devoted to residential purposes, or to other personal uses, of
petitioners but were leased separately to several persons; 4. They were
under the management of one person where the affairs relative to said
properties have been handled as if the same belonged to a corporation or
business and enterprise operated for profit; 5. Existed for more than ten
years, or, to be exact, over fifteen years, since the first property was
acquired, and over twelve years, since Simeon Evangelista became the
manager; 6. Petitioners have not testified or introduced any evidence,
either on their purpose in creating the set up already adverted to, or on
the causes for its continued existence. The collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein. Also, petitioners’ argument that their
being mere coowners did not create a separate legal entity was rejected
because, according to the Court, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different from
"partnerships". When the NIRC includes "partnerships" among the entities
subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical
sense of the term. The qualifying expression found in Section 24 and 84(b)
clearly indicates that a joint venture need not be undertaken in any of the
standard forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for purposes
of the tax on corporations. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the
partnerships therein referred to. For purposes of the tax on corporations,
NIRC includes these partnerships - with the exception only of duly
registered general co partnerships - within the purview of the term
"corporation." It is, therefore, clear that petitioners herein constitute a
partnership, insofar as said Code is concerned and are subject to the
income tax for corporations. As regards the residence of tax for
corporations (Section 2 of CA No. 465), it is analogous to that of section 24
and 84 (b) of the NIRC. It is apparent that the terms "corporation" and
"partnership" are used in both statutes with substantially the same
meaning. Consequently, petitioners are subject, also, to the residence tax
for corporations. Finally, on the issues of being liable for real estate
dealer’s tax, they are also liable for the same because the records show
that they have habitually engaged in leasing said properties whose yearly
gross rentals exceeds P3,000.00 a year.
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-
appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
LABRADOR, J.:
Appeal from the judgment of the Court of First Instance of Manila, Hon.
Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as
defendant's counterclaim. The appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao Seng
wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the formation of
a partnership between them to run and operate a theatre on the premises
occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal
conditions of the offer are (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 a period of two
years and six months, starting from July 1, 1945 to December 31, 1947, 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 as is ordinarily carried on
in lobbies of theatres in operation, provided the said business may not
obstruct the free ingress and agrees of patrons of the theatre; (4) that after
December 31, 1947, all improvements placed by the partnership shall
belong to Mrs. Yulo, but 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.
Pursuant to the above offer, which plaintiff evidently accepted, the parties
executed a partnership agreement establishing the "Yang & Company,
Limited," which was to exist from July 1, 1945 to December 31, 1947. It
states that it will conduct and carry on the business of operating a theatre for
the exhibition of motion and talking pictures. The capital is fixed at P100,000,
P80,000 of which is to be furnished by Yang Chiao Seng and P20,000, by
Mrs. Yulo. All gains and profits are to be distributed among the partners in
the same proportion as their capital contribution and the liability of Mrs. Yulo,
in case of loss, shall be limited to her capital contribution (Exh. "B").
In June , 1946, they executed a supplementary agreement, extending the
partnership for a period of three years beginning January 1, 1948 to
December 31, 1950. The benefits are to be divided between them at the rate
of 50-50 and after December 31, 1950, the showhouse building shall belong
exclusively to the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff Mrs.
Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In
the contract of lease it was stipulated that the lease shall continue for an
indefinite period of time, but that after one year the lease may be cancelled
by either party by written notice to the other party at least 90 days before the
date of cancellation. The last contract was executed between the owners
and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for the
owners notified Mrs. Yulo of the owner's desire to cancel the contract of
lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her
husband brought a civil action to the Court of First Instance of Manila on July
3, 1949 to declare the lease of the premises. On February 9, 1950, the
Municipal Court of Manila rendered judgment ordering the ejectment of Mrs.
Yulo and Mr. Yang. The judgment was appealed. In the Court of First
Instance, the two cases were afterwards heard jointly, and judgment was
rendered dismissing the complaint of Mrs. Yulo and her husband, and
declaring the contract of lease of the premises terminated as of July 31,
1949, and fixing the reasonable monthly rentals of said premises at P100.
Both parties appealed from said decision and the Court of Appeals, on April
30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her
share in the profits of the business. Yang answered the letter saying that
upon the advice of his counsel he had to suspend the payment (of the
rentals) because of the pendency of the ejectment suit by the owners of the
land against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals
from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954, alleging the existence of a partnership
between them and that the defendant Yang Chiao Seng has refused to pay
her share from December, 1949 to December, 1950; that after December
31, 1950 the partnership between Mrs. Yulo and Yang terminated, as a
result of which, plaintiff became the absolute owner of the building occupied
by the Cine Astor; that the reasonable rental that the defendant should pay
therefor from January, 1951 is P5,000; that the defendant has acted
maliciously and refuses to pay the participation of the plaintiff in the profits of
the business amounting to P35,000 from November, 1949 to October, 1950,
and that as a result of such bad faith and malice on the part of the
defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and
exemplary damages to the extent of P5,000. The prayer includes a demand
for the payment of the above sums plus the sum of P10,000 for the
attorney's fees.
In answer to the complaint, defendant alleges that the real agreement
between the plaintiff and the 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 said property. As to the other claims,
he denies the same and alleges that the fair rental value of the land is only
P1,100. By way of counterclaim he alleges that by reason of an attachment
issued against the properties of the defendant the latter has suffered
damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff
appeared. The court heard evidence of the plaintiff in the absence of the
defendant and thereafter rendered judgment ordering the defendant to pay
to the plaintiff P41,000 for her participation in the business up to December,
1950; P5,000 as monthly rental for the use and occupation of the building
from January 1, 1951 until defendant vacates the same, and P3,000 for the
use and occupation of the lobby from July 1, 1945 until defendant vacates
the property. This decision, however, was set aside on a motion for
reconsideration. In said motion it is claimed that defendant failed to appear
at the hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable
settlement, would be granted; that in view of the decision of the Court of
Appeals in two previous cases between the owners of the land and the
plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged
participation in the profit of the business, etc. The court, finding the above
motion, well-founded, set aside its decision and a new trial was held. After
trial the court rendered the decision making the following findings: that it is
not true that a partnership was created between the plaintiff and the
defendant because defendant has not actually contributed the sum
mentioned in the Articles of Partnership, or any other amount; that the real
agreement between the plaintiff and the defendant is not of the partnership
but one of the lease for the reason that under the agreement the plaintiff did
not share either in the profits or in the losses of the business as required by
Article 1769 of the Civil Code; and that the fact that plaintiff was granted a
"guaranteed participation" in the profits also belies the supposed existence
of a partnership between them. It. therefore, denied plaintiff's claim for
damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use
of the supposed lobby of the theatre, the court after ocular inspection found
that the said lobby was very narrow space leading to the balcony of the
theatre which could not be used for business purposes under existing
ordinances of the City of Manila because it would constitute a hazard and
danger to the patrons of the theatre. The court, therefore, dismissed the
complaint; so did it dismiss the defendant's counterclaim, on the ground that
the defendant failed to present sufficient evidence to sustain the same. It is
against this decision that the appeal has been prosecuted by plaintiff to this
Court.
The first assignment of error imputed to the trial court is its order setting
aside its former decision and allowing a new trial. This assignment of error is
without merit. As that parties agreed to postpone the trial because of a
probable amicable settlement, the plaintiff could not take advantage of
defendant's absence at the time fixed for the hearing. The lower court,
therefore, did not err in setting aside its former judgment. The final result of
the hearing shown by the decision indicates that the setting aside of the
previous decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower
court erred in not striking out the evidence offered by the defendant-appellee
to prove that the relation between him and the plaintiff is one of the sublease
and not of partnership. The action of the lower court in admitting evidence is
justified by the express allegation in the defendant's answer that the
agreement set forth in the complaint was one of lease and not of
partnership, and that the partnership formed was adopted in view of a
prohibition contained in plaintiff's lease against a sublease of the property.
The most important issue raised in the appeal is that contained in the fourth
assignment of error, to the effect that the lower court erred in holding that the
written contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are
one of lease and not of partnership. 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. (Art. 1767, Civil Code.).
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 can
not be interpreted in any manner than a payment for the use of the premises
which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"),
which shows that both parties considered this offer as the real contract
between them.
Plaintiff claims the sum of P41,000 as representing her share or participation
in the business from December, 1949. But the original letter of the
defendant, Exh. "A", expressly states that the agreement between the
plaintiff and the defendant was to end upon the termination of the right of the
plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as found
by the Court of Appeals, the partnership agreement or the agreement for her
to receive a participation of P3,000 automatically ceased as of said date.
We find no error in the judgment of the court below and we affirm it in toto,
with costs against plaintiff-appellant.
Estanislao, Jr. v. Court of Appeals G.R. No. L-49982 April 27, 1988
Facts: Petitioner and private respondents are brothers and sisters who are
co-owners of certain lots which were then being leased to the Shell
Company of the Philippines Limited (SHELL). They agreed to open and
operate a gas station thereat to be known as Estanislao Shell Service
Station with an initial investment of P 15,000.00 to be taken from the
advance rentals due to them from SHELL. They agreed to help their
brother, petitioner herein, by allowing him to operate and manage the
gasoline service station of the family. They negotiated with SHELL. It was
agreed that petitioner would apply for the dealership. Respondent
Remedios helped in managing the business with petitioner. Later the
parties herein entered into an Additional Cash Pledge Agreement with
SHELL wherein it was reiterated that the P 15,000.00 advance rental shall
be deposited with SHELL to cover advances of fuel to petitioner as dealer
with a proviso BUSORG CASE DIGESTS Atty. Charlie Mendoza 14 that said
agreement “ cancels and supersedes the Joint Affidavit executed by the co-
owners. ” For sometime, the petitioner submitted financial statements
regarding the operation of the business to private respondents, but
therafter petitioner failed to render subsequent accounting. Private
respondents filed a complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be ordered: (1) to execute
a public document embodying all the provisions of the partnership
agreement entered into between plaintiffs and defendant as provided in
Article 1771 of the New Civil Code; (2) to render a formal accounting of the
business operation 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. The trial court dismissed the
complaint. Private respondents moved for reconsideration. The dismissal
was set aside and the trial court rendered in their favor. Petitioner
appealed, the appellate court affirmed in toto the decision of the trial
court and denied the subsequent motion for reconsideration. Hence, this
petition for certiorari. Petitioner argued that because of the said
stipulation cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous agreement
had thereby been abrogated.
Issue(s): Whether or not a partnership exists between members of the
same family arising from their joint ownership of certain properties
Held: “ We find no merit in [petitioner’s] argument. Said cancelling
provision was necessary for 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. True it is that in the latter document, it is silent as to the
statement in the Joint Affidavit that the P 15,000.00 represents the "capital
investment" of the parties in the gasoline station business and it speaks of
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 its policy if in the
agreement it should be stated that the business is a partnership with
private respondents and not a sole proprietorship of petitioner. “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
private respondent Remedies Estanislao and Atty. Angeles. Petitioner
submitted to private respondents periodic accounting of the business.
Petitioner gave a written authority to private respondent Remedies
Estanislao, his sister, to examine and audit the books of their “common
business” (aming negosyo). Respondent Remedios assisted in the running
of the business. There is no doubt that the parties hereto 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 the petitioner and the issuance of all government
permits and licenses in the name of petitioner 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.”
Bastida vs Menzi
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: Is the relationship between the petitioner and Menzi 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 onehalf 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.
ONA VS CIR
Facts: Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña
and her five children. A civil case was instituted for the settlement of her
state, in which Oña was appointed administrator and later on the guardian
of the three heirs who were still minors when the project for partition was
approved. This shows that the heirs have undivided ½ interest in 10 parcels
of land, 6 houses and money from the War Damage Commission. Although
the project of partition was approved by the Court, no attempt was made
to divide the properties and they remained under the management of 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. Petitioners returned for income tax
purposes their shares in the net income but they did not actually receive
their shares because this left with Oña who invested them. Based on these
facts, CIR decided that petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, particularly for years 1955
and 1956. Petitioners asked for reconsideration, which was denied hence
this petition for review from CTA’s decision.
Issue: W/N there was a co-ownership or an unregistered partnership W/N
the petitioners are liable for the deficiency corporate income tax
Held: Unregistered partnership. The Tax Court found that instead of
actually distributing the estate of the deceased among themselves
pursuant to the project of partition, the heirs allowed their properties to
remain under the management of Oña and let him use their shares as part
of the common fund for their ventures, even as they paid corresponding
income taxes on their respective shares. Yes. 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 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.
For purposes of the tax on corporations, our National Internal Revenue
Code includes these partnerships — The term “partnership” includes a
syndicate, group, pool, joint venture or other unincorporated organization,
through or by means of which any business, financial operation, or venture
is carried on… (8 Merten’s Law of Federal Income Taxation, p. 562 Note 63;
emphasis ours.) 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. Judgment affirmed.
G.R. No. L-35469 March 17, 1932
E. S. LYONS vs. C. W. ROSENSTOCK,Executor of the Estate
of Henry W. Elser, deceased
FACTS:
Henry W. Elser was engaged in buying, selling, and administering
real estate. E. S.Lyons joined with him, the profits being shared by
the two in equal parts.Lyons, whose regular vocation was that of a
missionary or missionary agent, of theMethodist Episcopal Church,
went on leave to the United States and was gone for nearly a year
and a half. Elser made written statements showing that Lyons was,
atthat time, half owner with Elser of three particular pieces of real
property. Concurrentlywith this act Lyons execute in favor of Elser a
general power of attorney empoweringhim to manage and dispose of
said properties at will and to represent Lyons fully andamply, to the
mutual advantage of both.The attention of Elser was drawn to a
piece of land, referred to as the San JuanEstate. He obtained the
loan of P50,000 to complete the amount needed for the firstpayment
on the San Juan Estate. The lender insisted that he should procure
thesignature of the Fidelity & Surety Co. on the note to be given for
said loan. Elser mortgaged to the Fidelity & Surety Co. the equity of
redemption in the property ownedby himself and Lyons on Carriedo
Street to secure the liability thus assumed by it.The case for the
plaintiff supposes that, when Elser placed a mortgage for
P50,000upon the equity of redemption in the Carriedo property,
Lyons, as half owner of saidproperty, became, as it were,
involuntarily the owner of an undivided interest in theproperty
acquired partly by that money; and it is insisted for him that, in
considerationof this fact, he is entitled to the four hundred forty-six
and two-thirds shares of J. K.Pickering & Company, with the
earnings thereon, as claimed in his complaint.
ISSUE:
Whether there was a general relation of partnership.
RULING
:
NO,
The position of the appellant is, in our opinion, untenable. If Elser
hadused any money actually belonging to Lyons in this deal, he
would under article 1724of the Civil Code and article 264 of the Code
of Commerce, be obligated to payinterest upon the money so applied
to his own use. Under the law prevailing in this jurisdiction a trust
does not ordinarily attach with respect to property
acquired by aperson who uses money belonging to another
(Martinez vs. Martinez, 1 Phil., 647;Enriquez vs. Olaguer, 25 Phil.,
641.). Of course, if an actual relation of partnershiphad existed in the
money used, the case might be different; and much emphasis islaid
in the appellant's brief upon the relation of partnership which, it is
claimed,existed. But there was clearly no general relation of
partnership, under article 1678 of the Civil Code. It is clear that Elser,
in buying the San Juan Estate, was not acting for any partnership
composed of himself and Lyons, and the law cannot be distorted
intoa proposition which would make Lyons a participant in this deal
contrary to hisexpress determination.It seems to be supposed that
the doctrines of equity worked out in the jurisprudenceof England
and the United States with reference to trust supply a basis for this
action.The doctrines referred to operate, however, only where money
belonging to oneperson is used by another for the acquisition of
property which should belong to both;and it takes but little
discernment to see that the situation here involved is not one for the
application of that doctrine, for no money belonging to Lyons or any
partnershipcomposed of Elser and Lyons was in fact used by Elser in
the purchase of the SanJuan Estate. Of course, if any damage had
been caused to Lyons by the placing of the mortgage upon the
equity of redemption in the Carriedo property, Elser's estatewould be
liable for such damage. But it is evident that Lyons was not prejudice
by thatact.
FERNANDEZ VS. DELA ROSA
Facts: On the part of plaintiff Fernandez, he claims that he entered
into a verbal agreement with defendant De la Rosa to form a
partnership for the purchase of cascoes with the undertaking that the
defendant will buy the cascoes and that each partner will furnish
such amount as he could, while the profits will be divided
proportionately. Plaintiff furnished P300 for casco No. 1515 and
P825 for casco No. 2089, both of which were placed under the name
of the defendant only. In April 1900, the parties undertook to draw up
articles of their partnership for the purpose of embodying it in an
authentic document. The agreement however did not materialize
because defendant proposed articles which were materially different
from their verbal agreement, and he was also unwilling to include
casco No. 2089 in the partnership. Because the cascoes were under
the management of the defendant, the plaintiff demanded an
accounting over it to which the defendant refused claiming that no
partnership existed between them.
De la Rosa, on the other hand, admits that he desired to form a
partnership with the plaintiff but denies that any agreement was ever
consummated. Moreover, he denied receiving any money furnished
by plaintiff for casco No. 1515, but claims that he merely borrowed
the P300 on his individual account from the bakery business in which
plaintiff was a copartner. And as for the P825 furnished by the
plaintiff, the defendant claims that it was actually for casco No. 1515
and not for casco No. 2089. He also added that the repairs made on
the two cascoeswere exclusively borne by him, and that he returned
a sum of P1,125 to plaintiff with an express reservation on his part of
all his rights as a partner.
Issue: a) W/N a partnership existed between the parties. Yes.
a) The essential points upon which the minds of the parties must
meet in a contract of partnershipare 1) mutual contribution and 2)
joint interest in the profits.
The fact that the defendant received money furnished by the plaintiff
for the purpose of using it to purchase the cascoes establishes the
first element of the partnership, mutual contribution to a common
stock. For the second element, the fact that the formation of
partnership had been a subject of negotiation between them, even
before the purchase of the first casco, and that both parties intended
to purchase the cascoes in common satisfies the requirement that
there should be an intention on the part of both parties to share the
profits. With these, a complete and perfect contract of partnership
was entered into by the parties.
It must be noted however that this partnership was subject to a
suspensive condition which is the execution of a written agreement
regarding the distribution of profits, character ofxpartnership, etc. But
since the defendant actually purchased the cascoes, it would seem
that the partnership already existed. And as furthermore provided by
the Civil Code, a written agreement was not necessary in order to
give efficacy to the verbal agreement of the partnership because the
contributions of the partners to the partnership were not in the form
of immovables.
b) W/N the partnership was terminated when the defendant returned
the P1,125 to plaintiff. No.
Held:
b) During trial, the court was able to prove that plaintiff actually
furnished some amount for the repair of the cascoesand that it was
presumed that a profit has been obtained by the defendant prior to
the return of the money. With these, the return of the
P1,125 fell short of the amount which the plaintiff has actually
contributed to the partnership. For these reasons, the acceptance by
the plaintiff of the amount returned by the defendant did not have the
effect of terminating the legal existence of the partnership by
converting it into a societasleonina.
The court also proved that there was no intention on the part of the
plaintiff, in accepting the money, to relinquish his rights as a partner.
On the contrary he notified defendant that he waived none of his
rights in the partnership. Also the lack of recognition on the part of
the defendant of the plaintiff’s right in the partnership property and in
the profits does not give the former the right to force a dissolution
upon the later upon the terms which the plaintiff is unwilling to
accept. A partnership therefore existed between the two and
cascoes No. 1515 and 2089 are partnership properties.
CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F.
HALILI, defendant-appellant. G.R. No. L-4811 July 31, 1953
FACTS: On November 29, 1947, plaintiff Woodhouse entered into a
written agreement with defendant Halili stating among others that:
1) that they shall organize a partnership for the bottling and
distribution of Missionsoft drinks, plaintiff to act as industrial
partner or manager, and the defendant as a capitalist, furnishing
the capital necessary therefore; 2) that plaintiff was to secure the
Mission Soft Drinks franchise for and in behalf of the proposed
partnership and 3) that the plaintiff was to receive 30 per cent of
the net profits of the business. Prior to entering into this
agreement, plaintiff had informed the Mission Dry Corporation of
Los Angeles, California, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a
milliondollars in the bottling and distribution of the said beverages,
and requested, in order that he may close the deal with him, that
the right to bottle and distribute be granted him for a limited time
under the condition that it will finally be transferred to the
corporation. Pursuant to this request, plaintiff was given “a thirty
days’ option on exclusive bottling and distribution rights for the
Philippines”. The contract was finally signed by plaintiff on
December 3, 1947. When the bottling plant was already in
operation, plaintiff demanded of defendant that the partnership
papers be executed. Defendant Halili gave excuses and would not
execute said agreement, thus the complaint by the plaintiff. Plaintiff
prays for the : 1.execution of the contract of partnership; 2)
accounting of profits and 3)share thereof of 30 percent with 4)
damages in the amount of P200,000. The Defendant on the other
hand claims that: 1) the defendant’s consent to the agreement, was
secured by the representation of plaintiff that he was the owner, or
was about to become owner of an exclusive bottling franchise,
which representation was false, and that plaintiff did not secure the
franchise but was given to defendant himself 2) that defendant did
not fail to carry out his undertakings, but that it was plaintiff who
failed and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a 4)
counterclaim for P200,00 as damages. The CFI ruling: 1) accounting
of profits and to pay plaintiff 15 % of the profits and that the 2)
execution of contract cannot be enforced upon parties. Lastly, the
3) fraud wasn’t proved
ISSUES 1. WON plaintiff falsely represented that he had an exclusive
franchise to bottle Mission beverages 2. WON false representation,
if it existed, annuls the agreement to form the BUSORG CASE
DIGESTS Atty. Charlie Mendoza 20 partnership
HELD 1. Yes. Plaintiff did make false representations and this can be
seen through his letters to Mission Dry Corporation asking for the
latter to grant him temporary franchise so that he could settle the
agreement with defendant. The trial court reasoned, and the
plaintiff on this appeal argues, that plaintiff only undertook in the
agreement “to secure the Mission Dry franchise for and in behalf of
the proposed partnership.” The existence of this provision in the
final agreement does not militate against plaintiff having
represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The
defendant believed, or was made to believe, that plaintiff was the
grantee of an exclusive franchise. Thus it is that it was also agreed
upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same
shall be reassigned to the plaintiff. Again, the immediate reaction of
defendant, when in California he learned that plaintiff did not have
the exclusive franchise, was to reduce, as he himself testified,
plaintiff’s participation in the net profits to one half of that agreed
upon. He could not have had such a feeling had not plaintiff actually
made him believe that he(plaintiff) was the exclusive grantee of the
franchise. 2. No. In consequence, article 1270 of the Spanish Civil
Code distinguishes two kinds of (civil) fraud, the causal fraud, which
may be ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for
damages only. The Supreme Court has held that in order that fraud
may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the making of
the contract. The record abounds with circumstances indicative of
the fact that the principal consideration, the main cause that
induced defendant to enter into the partnership agreement with
plaintiff, was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership. The
original draft prepared by defendant’s counsel was to the effect
that plaintiff obligated himself to secure a franchise for the
defendant. But if plaintiff was guilty of a false representation, this
was not the causal consideration, or the principal inducement, that
led plaintiff to enter into the partnership agreement. On the other
hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the
share of 30 per cent granted him in the net profits of the
partnership business. Defendant agreed to give plaintiff 30 per cent
share in the net profits because he was transferring his exclusive
franchise to the partnership. Having arrived at the conclusion that
the contract cannot be declared null and void, may the agreement
be carried out or executed? The SC finds no merit in the claim of
plaintiff that the partnership was already a fait accompli from the
time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended that the
execution of the agreement to form a partnership was to be carried
out at a later date. , The defendant may not be compelled against
his will to carry out the agreement nor execute the partnership
papers. 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.
ROJAS V. MAGLANA December 10, 1990 Paras, C.J. Rañeses,
Roberto Miguel
SUMMARY: Maglana and Rojas executed their articles of co-
partnership called EDE. It had an indefinite term, was registered
with the SEC, and had a Timer License. Later, Agustin Pahamitang
became an industrial partner and another articles of co-partnership
was executed. The term of the second co-partnership was fixed to
30 years. After some time, the three executed a conditional sale of
interest in the partnership where Magalana and Rojas shall
purchase the interest, share, and participation of Pahamotang. It
was agreed that, after payment of such including the loan secured
by Pahamotang, the two shall become owners of all equipment
contributed by Pahamotang. The two continued the partnership
without any written agreement or reconstitution of the articles of
partnership. Subsequently, Rojas entered into a contarct with CMS
Estate. Maglana reminded him of his contribution to the capital
investments and his duties to the partnership. Rojas said he would
not be able to comply. Maglana told Rojas that the latter is only
entitled to 20% of the profits, which was the sharing from 1957-
1959 without dispute. Rojas took funds from the partnership which
was more than his share. Maglana notified Rojas that he had
dissolved the partnership. Rojas filed an action against Magallana.
The CFI ruled that the partnership of the two after Pahamotang left
was one de facto and at will. The SC said that it was not, considering
that the first partnership was never dissolved. With regard to the
issue of unilateral dissolution, the SC held that Maglana had the
power to do so.
DOCTRINE: Under Article 1830, par. 2 of the Civil Code, even if there
is a specified term, one partner can cause its dissolution by
expressly withdrawing even before the expiration of the period,
with or without justifiable cause. Of course, if the cause is not
justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm.
With his withdrawal, the number of members is decreased, hence,
the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in
the liquidation of the partnership by the provisions of its duly
registered Articles of Co-Partnership; that is, all profits and losses of
the partnership shall be divided "share and share alike" between
the partners.
FACTS: Maglana and Rojas executed their Articles of Co-partnership
called “Eastcoast Development Enterpises” (EDE) which had an
indefinite term of existence and was registered with the SEC and
had a Timber License. One of the EDE’s purposes was to apply or
secure timber and/or private forest lands and to operate, develop
and promote such forests rights and concessions. Maglana shall
manage the business affairs while Rojas shall be the logging
superintendent. All profits and losses shall be divided share and
share alike between them. Later on, the two availed the services of
Agustin Pahamotang as industrial partner and executed another
articles of copartnership with the latter. The purpose of this second
partnership was to hold and secure renewal of timber license and
the term of which was fixed to 30 years. Still later on, the three
executed a conditional sale of interest in the partnership wherein
Maglana and Rojas shall purchase the interest, share and
participation in the partnership of Pahamotang. It was also agreed
that after payment of such including amount of loan secured by
Pahamotang in favor of the partnership, the two shall become
owners of all equipment contributed by Pahamotang. After this, the
two continued the partnership without any written agreement or
reconstitution of their articles of partnership. Subsequently, Rojas
entered into a management contract with CMS Estate Inc. Maglana
wrote him regarding his contribution to the capital investments as
well as his duties as logging superintendent. Rojas replied that he
will not be able to comply with both. Maglana then told Rojas that
the latter’s share will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or dispute. Rojas took
BUSORG CASE DIGESTS Atty. Charlie Mendoza 11 funds from the
partnership more than his contribution. Maglana notified Rojas that
he dissolved the partnership. Rojas filed an action against Maglana
for the recovery of properties and accounting of the partnership
and damages.
CFI RULING: 1. The partnership of Maglana and Rojas after
Pahamotang retired is one of de facto and at will; the sharing of
profits and losses is on the basis of actual contributions; 2. there is
no evidence these properties were acquired by the partnership
funds thus it should not belong to it; 3. neither is entitled to
damages; the letter of Maglana in effect dissolved the partnership;
4. sale of forest concession is valid and binding and should be
considered as Maglana’s contribution; 5. Rojas must pay or turn
over to the partnership the profits he received from CMS and pay
his personal account to the partnership; 6. Maglana must be paid
85k which he should’ve received but was not paid to him and must
be considered as his contribution ACTION AND PRAYER: N/A
ISSUE: 1. WON the partnership carried on after the second
partnership was a de facto partnership and at will. 2. WON
Magalana may unilaterally dissolve the partnership.
HELD: 1. No. 2. Yes. RATIO: 1. There was no intention to dissolve the
first partnership upon the constitution of the second as everything
else was the same except for the fact that they took in an industrial
partner: they pursued the same purposes, the capital contributions
call for the same amounts, all subsequent renewals of Timber
License were secured in favor of the first partnership, all businesses
were carried out under the registered articles. To all intents and
purposes therefore, the First Articles of Partnership were only
amended, in the form of Supplementary Articles of CoPartnership.
On the other hand, there is no dispute that the second partnership
was dissolved by common consent. Said dissolution did not affect
the first partnership which continued to exist. Significantly, Maglana
and Rojas agreed to purchase the interest, share and participation
in the second partnership of Pahamotang and that thereafter, the
two (Maglana and Rojas) became the owners of equipment
contributed by Pahamotang. Maglana even reminded Rojas of his
obligation to contribute either in cash or in equipment, to the
capital investment of the partnership as well as his obligation to
perform his duties as logging superintendent. This reminder cannot
refer to any other but to the provisions of the duly registered
Articles of Co-Partnership. 2. As there are only two parties when
Maglana notified Rojas that he dissolved the partnership, it is in
effect a notice of withdrawal. Under Article 1830, par. 2 of the Civil
Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of
the period, with or without justifiable cause. Of course, if the cause
is not justified or no cause was given, the withdrawing partner is
liable for damages but in no case can he be compelled to remain in
the firm. With his withdrawal, the number of members is
decreased, hence, the dissolution. And in whatever way he may
view the situation, the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share and
share alike" between the partners. But an accounting must first be
made and which in fact was ordered by the trial court and
accomplished by the commissioners appointed for the purpose.
According to the Commissioners’ report, Rojas is not entitled to any
profits as he failed to give the amount he had undertaken to
contribute thus, had become a debtor of the partnership. Maglana
cannot be liable for damages as Rojas abandoned the partnership
thru his acts and also took funds in an amount more than his
contribution DISPOSITIVE: PREMISES CONSIDERED, the assailed
decision of the Court of First Instance of Davao, Branch III, is hereby
MODIFIED in the sense that the duly registered partnership of
Eastcoast Development Enterprises continued to exist until
liquidated and that the sharing basis of the partners should be on
share and share alike as provided for in its Articles of Partnership, in
accordance with the computation of the commissioners. We also
hereby AFFIRM the decision of the trial court in all other respects
Ortega vs. CA
FACTS:
On December 19, 1980, respondent Misa associated himself together, as
senior partner with petitioners Ortega, del Castillo, Jr., and Bacorro, as
junior partners. On Feb. 17, 1988, respondent Misa wrote a letter stating
that he is withdrawing and retiring from the firm and asking for a meeting
with the petitioners to discuss the mechanics of the liquidation. On June 30,
1988, petitioner filed a petition to the Commision's Securities Investigation
and Clearing Department for the formal dissolution and liquidation of the
partnership. On March 31, 1989, the hearing officer rendered a decision
ruling that the withdrawal of the petitioner has not dissolved the
partnership. On appeal, the SEC en banc reversed the decision and was
affirmed by the Court of Appeals. Hence, this petition.
ISSUE:
Whether or not the Court of Appeals has erred in holding that the
partnership is a partnership at will and whether or not the Court of Appeals
has erred in holding that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith
HELD:
No. The SC upheld the ruling of the CA regarding the nature of the
partnership. The SC further stated that a partnership that does not fix its
term is a partnership at will. The birth and life of a partnership at will is
predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in
turn, dependent on the constancy of that mutual resolve, along with each
partner's capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will. He must, however,
act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages.