Pat Digest

7/30/2019 Pat Digest

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usiness OrganizationPartnership, Agency, TrustShares in LiquidationNetProfitvsGross

Income

In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally

instituted a partnership with them as partners. Their venture is to set up a lending business where

it was agreed that Santos shall be financier and that Nieves and Zabat shall contribute their

industry. **The percentages after their names denote their share in the profit.

Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a corporation. It

was agreed that the partnership shallprovide loansto the employees of Grageras corporation

and Gragera shall earn commission from loan payments.

In August 1986, the three partners put into writing their verbal agreement to form the

partnership. As earlier agreed, Santos shall finance and Nieves shall do thedaily cashflow more

particularly from their dealings with Gragera, Zabat on the other hand shall be

a loaninvestigator. But then later, Nieves and Santos found out that Zabat was engaged in

another lending business which competes with their partnership hence Zabat was expelled.

The two continued with the partnership and they took with them Nieves husband, Arsenio, whobecame their loan investigator.

Later, Santos accused the spouses of not remitting Grageras commissions to the latter. He sued

them for collection of sum ofmoney. The spouses countered that Santos merely filed the

complaint because he did not want the spouses to get their shares in the profits. Santos argued

that the spouses, insofar as the dealing with Gragera is concerned, are merely his employees.

Santos alleged that there is a distinct partnership between him and Gragera which is separate

from the partnership formed between him, Zabat and Nieves.

The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to pay

the shares of the spouses.ISSUE: Whether or not the spouses are partners.

HELD: Yes. Though it is true that the original partnership between Zabat, Santos and Nieves

was terminated when Zabat was expelled, the said partnership was however considered

continued when Nieves and Santos continued engaging as usual in the lending business even

getting Nieves husband, who resigned from theAsian Development Bank, to be

their loan investigatorwho, in effect, substituted Zabat.

There is no separate partnership between Santos and Gragera. The latter being merely a

commission agent of the partnership. This is even though the partnership was formalized shortly

after Gragera met with Santos (Note that Nieves was even the one who introduced Gragera to

Santos exactly for the purpose of setting up a lending agreement between the corporation and the

partnership).

HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their shares

in the profit is premature. The accounting made by the trial court is based on the total income

of the partnership. Such total income calculated by the trial court did not consider the expenses

sustained by the partnership. All expenses incurred by the money-lending enterprise of the


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parties must first be deducted from the total income in order to arrive at the net profit of the

partnership. The share of each one of them should be based on this net profit and not from the

gross income or total income.

ESTANISLAO, JR. VS. COURT OF APPEALSFacts:The petitioner and private respondents arebrothers and sisters who are co-owners

of certainlots at the in Quezon City which were then beingleased to SHELL. Theyagreed to open and operate agas station thereat to be known as EstanislaoShellS e r v i c e S t a t i o n w i t h a n i n i t i a l i n v e s t m e n t o f PhP15,000.00 to

be taken from the advance rentalsdue to them from SHE LL fo r the occupancy of the said

lots owned in common by them. A joint affidavitw a s e x e c u t e d b y t h e m o nA p r i l 1 1 , 1 9 6 6 . T h e respondents agreed to help their brother, petitionertherein, by

allowing him to operate and manage thegasoline service station of the family. In order not torun

counter to the companys policy of appointingonly one dealer, it was agreed that

petitioner wouldappl y for the dealership. Responden t Remedios helped in co-managing thebusiness with petitionerfrom May 1966 up to February 1967.On May 1966, the parties entered

into an AdditionalCash Pledge Agreement with SHELL wherein i t was reiterated that the

P15,000.00 advance rental shallbe deposited with SHELL to cover advances of fueltop e t i t i o n e r a s d e a l e r w i t h a p r o v i s o t h a t s a i d a g r e e m e n t c a n ce l s a n d s u p e r s e d e s t h e J o i n t Affidavit.

For sometime, the pet itione r submit ted financia lstatement regarding the operation of the

business tothe private respondents , but the reaft er pet it ioner failed to render subsequentaccounting. Hence , theprivate respondents filed a compl aint against

thepetitioner praying among others that the latter beordered:(1 )T o ex e cu te a

p u bl i c do cume nt

e m b od y in g a l l t h e p r o v i s i o n s o f t h e p a r t n e r s h i p agreement they enteredinto;( 2 ) T o r e n d e r a f o r m a l a c c o u n t i n g o f t h e business operation

veering the period fromMay 6, 1966 up to December 21, 1968, andfr om J an ua ry 1 , 19 69

u p t o t he t ime th eorder is issued and that the same be subjectto proper audit;(3)To pay thepla in ti ff s thei r lawful shares

andp a r t i c i p a t i o n i n t h e n e t p r o f i t s o f t h e business;

a n d ( 4 ) T o p a y t h e p l a i n t i f f s a t t o r n e y s f e e s a n d costs of the suit.

Issue:Can a partnership exist between members of the same family arising from their joint ownership

of certain properties?

Trial Court:The complaint (of the respondents) wasdismissed. But upon a motion for reconsideration of the

decision, another decision was rendered in favorof the respondents.

CA:

Affirmed in totoPetitioner:The CA erred in interpreting the legalimport of the Joint Affidavit vis--vis the

AdditionalCash Pledge Agreement. Because ofthe stipulationca nc el l in g an d su pe rse di ng th e Joi nt Aff id av it , whatever

par tnershi p agreement there was in saidprevious agreement had ther eb y been

abrogated.Also, the CA erred in declaring that a partnership wasestabl ished by and among


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the petitioner and theprivate respondents as regards the ownership and /oroperation of

the gasoline service station business.

Held:There is no merit in the petitionerscontentiont h a t b e c a u s e o f t h e s t i p u l a t i o n c a n c e l l i n g a n d s uperseding the p

revious joint affidavit, whateverpartnership agreement therewas in said previousagre eme nt had the reb y bee nabr oga t ed . Sa i dcance l l i ng p r ov i s i on was neces s a r y f o r t he J o i n t Af f i dav i t s

p ea ks o f P1 5 ,00 0. 00 ad v an ce re nt a l star ting Ma y 25 , 1966 whi le the lat ter

agreementalso refers to advance rentals of the same amounts t a r t i n g M a y 2 4 ,1 9 6 6 . T h e r e i s t h e r e f o r e a duplication of reference to the P15,000.00 hence theneed

to provide in the subsequent document that

it c a n c e l s a n d s u p e r c e d e s t h e p r e v i o u s n o n e . Indeed, it is true that the latter

document is silent asto the statement in the Join Affidavit that the valuerepresents thecapital investment of the parties inthe business and it speaks of the petitioner as thesole

dealer, but this is as it should be for in the latterdocument, SHELL was a signatory and it

would beagainst their policy if in the agreement it should bestated that the business is apartnership with

privateres p on d en t s an d n o t a s o l e p ropr i e t o r s hi p o f t he petitioner.Furthermore,

there are other evidences in the recordwhich show that there was in fact such

partnershipa g r e e m e n t b e t w e e n p a r t i e s . T h e p e t i t i o n e r s u b m i t t e d t o t h ep r i v a t e r e s p o n d e n t s p e r i o d i c accoun t i n g o f t he b us i n es s a nd

g av e a wr it te na u t h o r i t y t o t h e p r i v a t e r e s p o n d e n t R e m e d i o s E stanislao

to examine and audit the books of their c o m m o n b u s i n e s s ( a m i n gn e g o s y o ) . T h e respondent Remedios, on the other hand, assisted inthe running of the

bus iness. Indeed , the

par tiesh e r e t o f o r m e d a p a r t n e r s h i p w h e n t h e y b o u n d themselves to

contribute money in a commonfundwit h the int ent i on of div idin g the pro f i t s amon gthemselves.

1.) DAN FUE LEUNG,

petitioner, vs.HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU,

respondents.

G.R. No. 70926 January 31, 1989GUTIERREZ,JR., J.:

FACTS:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in

AC-G.R. No. CV-00881 whichaffirmed the decision of the then Court of First Instance ofManila, Branch II in Civil Case No. 116725 declaring privaterespondent Leung Yiu a partner of

petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering thepetitioner to

pay to the private respondent his share in the annual profits of the said restaurant.This case

originated from a complaint filed by respondent Leung Yiu with the then Court of First Instanceof Manila, BranchII to recover the sum equivalent to twenty-two percent (22%) of the annual

profits derived from the operation of Sun WahPanciteria since October, 1955 from petitioner

Dan Fue Leung.The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta.Cruz, Manila, was established sometime inOctober, 1955. It was registered as a single


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proprietorship and its licenses and permits were issued to and in favor of petitioner Dan Fue

Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the

case toshow that Sun Wah Panciteria was actually a partnership and that he was one of thepartners having contributed P4,000.00to its initial establishment.The private respondents

evidence is summarized as follows:About the time the Sun Wah Panciteria started to become

operational, the private respondent gave P4,000.00 as hiscontribution to the partnership. This isevidenced by a receipt wherein the petitioner acknowledged his acceptance of theP4,000.00 byaffixing his signature thereto. Furthermore, the private respondent received from the petitioner

the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check from the

profits of the operation of the restaurantfor the year 1974The petitioner denied having receivedfrom the private respondent the amount of P4,000.00. He contested and impugnedthe

genuineness of the receipt. His evidence is summarized as follows:The petitioner did not receive

any contribution at the time he started the Sun Wah Panciteria. He used his savings from

hissalaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the TohoRestaurant amounting to a littlemore than P2,000.00 as capital in establishing Sun Wah

Panciteria. Petitioner presented various government licenses andpermits showing the Sun Wah

Panciteria was and still is a single proprietorship solely owned and operated by himselfalone.Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit

G) and the Equitable BankingCorporation's Check No. 13389470 B in the amount of P12,000.00

(Exhibit B).

ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah Panciteria?HELD:The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a

or industry to a common fund; and 2) intention on thepart of the partners to divide the profitsamong themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.110)-have

been established. As stated by the respondent, a partner shares not only in profits but also in the

losses of thefirm. If excellent relations exist among the partners at the start of business and all the

partners are more interested in seeingthe firm grow rather than get immediate returns, adeferment of sharing in the profits is perfectly plausible. It would beincorrect to state that if a

partner does not assert his rights anytime within ten years from the start of operations, such

rightsare irretrievably lost. The private respondent's cause of action is premised upon the failureof the petitioner to give him theagreed profits in the operation of Sun Wah Panciteria. In effect

the private respondent was asking for an accounting of hisinterests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is

applicable. Article 1842 states:The right to an account of his interest shall accrue to any partner,

or his legal representative as againstthe winding up partners or the surviving partners or theperson or partnership continuing the business, atthe date of dissolution, in the absence or any

agreement to the contrary.Regarding the prescriptive period within which the private respondent

may demand an accounting, Articles 1806, 1807, and1809 show that the right to demand an

accounting exists as long as the partnership exists. Prescription begins to run onlyupon the


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dissolution of the partnership when the final accounting is done.Considering the facts of this

case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil

Codewhich, in part, provides:Art. 1831. On application by or for a partner the court shall decreea dissolution whenever:xxx xxx xxx(3) A partner has been guilty of such conduct as tends to

affect prejudicially the carrying on of thebusiness;(4) A partner willfully or persistently commits

a breach of the partnership agreement, or otherwise soconducts himself in matters relating to thepartnership business that it is not reasonably practicable tocarry on the business in partnershipwith him;xxx xxx xxx(6) Other circumstances render a dissolution equitable.There shall be a

liquidation and winding up of partnership affairs, return of capital, and other incidents of

dissolution becausethe continuation of the partnership has become inequitable.

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 contractexpired, 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 one- half of the net profits derived by the corporation form

certain fertilizer contracts.


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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.

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