Heirs of Tan Eng Kee vs Court of Appeals

On June 30, 2012 Business Organization Partnership, Agency, Trust Periodic Accounting Profit Sharing Benguet Lumber has been around even before World War II but during the war, its stocks were confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee pooled their resources in order to revive the business. In 1981, Tan Eng Lay caused the conversion of Benguet Lumber into a corporation called Benguet Lumber and Hardware Company, with him and his family as the incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of Tan Eng Kee demanded for an accounting and the liquidation of the partnership. Tan Eng Lay denied that there was a partnership between him and his brother. He said that Tan Eng Kee was merely an employee of Benguet Lumber. He showed evidence consisting of Tan Eng Kees payroll; his SSS as an employee and Benguet Lumber being the employee. As a result of the presentation of said evidence, the heirs of Tan Eng Kee filed a criminal case against Tan Eng Lay for allegedly fabricating those evidence. Said criminal case was however dismissed for lack of evidence. ISSUE: Whether or not Tan Eng Kee is a partner. HELD: No. There was no certificate of partnership between the brothers. The heirs were not able to show what was the agreement between the brothers as to the sharing of profits. All they presented were circumstantial evidence which in no way proved partnership. It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kees death in 1984. It had no business book, no written account nor any memorandum for that matter and no license mentioning the existence of a partnership. In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole proprietorship. He registered the same as such in 1954; that Kee was just an employee based on the latters payroll and SSS coverage, and other records indicating Tan Eng Lay as the proprietor. Also, the business definitely amounted to more P3,000.00 hence if there was a partnership, it should have been made in a public instrument. But the business was started after the war (1945) prior to the publication of the New Civil Code in 1950? Even so, nothing prevented the parties from complying with this requirement.

Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses. Each has the right to demand an accounting as long as the partnership exists. Even if it can be speculated that a scenario wherein if excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of his concerns. A demand for periodic accounting is evidence of a partnership which Kee never did. The Supreme Court also noted: In determining whether a partnership exists, these rules shall apply: (1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; (2) Co-ownership or co-possession does not of itself establish a partnership, whether such coowners 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 a partnership, whether or not the persons sharing them have a joint or common right or interest in any property which the returns are derived; (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installment or otherwise; (b) As wages of an employee or rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

Fernando Santos vs Spouses Reyes

On July 19, 2012

Business Organization Partnership, Agency, Trust Shares in Liquidation Net Profit vs Gross 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 shall provide loans to 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 the daily cash flow more particularly from their dealings with Gragera, Zabat on the other hand shall be a loan investigator. 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, who became their loan investigator. Later, Santos accused the spouses of not remitting Grageras commissions to the latter. He sued them for collection of sum of money. 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 the Asian Development Bank, to be their loan investigator who, 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 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.

Aurelio Litonjua Jr vs Eduardo Litonjua Sr. et al

On June 24, 2012 Business Organization Partnership, Agency, Trust Partnership, how formed Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the latter is allowing Aurelio to manage their family business (if Eduardos away) and in exchange thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum was subsequently made for the said partnership agreement. The memorandum this time stated that in exchange of Aurelio, who just got married, retaining his share in the family business (movie theatres, shipping and land development) and some other immovable properties, he will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded an accounting and the liquidation of his share in the partnership. Eduardo did not heed and so Aurelio sued Eduardo. ISSUE: Whether or not there exists a partnership. HELD: No. The partnership is void and legally nonexistent. The documentary evidence presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership. The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that said letter does not meet the public instrumentation requirements exacted under Article 1771 (how partnership is constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, said letter cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as the

inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of Aurelios contribution, if any, to the supposed partnership. The Memorandum is also not a proof of the partnership for the same is not a public instrument and again, no inventory was made of the immovable property and no inventory was attached to the Memorandum. Article 1773 of the Civil Code requires that if immovable property is contributed to the partnership an inventory shall be had and attached to the contract.
Philex Mining Corporation vs. CIR [G.R. No. 148187 (April 16, 2008)] Post under case digests, Civil Law at Tuesday, February 21, 2012 Posted by Schizophrenic Mind

Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former to manage the latters mining claim know as the Sto. Mine. The parties agreement was denominated as Power of Attorney. The mine suffered continuing losses over the years, which resulted in petitioners withdrawal as manager of the mine. The parties executed a Compromise Dation in Payment, wherein the debt of Baguio amounted to Php. 112,136,000.00. Petitioner deducted said amount from its gross income in its annual tax income return as loss on the settlement of receivables from Baguio Gold against reserves and allowances. BIR disallowed the amount as deduction for bad debt. Petitioner claims that it entered a contract of agency evidenced by the power of attorney executed by them and the advances made by petitioners is in the nature of a loan and thus can be deducted from its gross income. Court of Tax Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. CA affirmed CTA

Issue: Whether or not it is an agency. Held: No. The lower courts correctly held that the Power of Attorney (PA) is the instrument material that is material in determining the true nature of the business relationship between petitioner and Baguio. An examination of the said PA reveals that a partnership or joint venture was indeed intended by the parties. While a corporation like the petitioner cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a joint venture, which is akin to a particular partnership. The PA indicates that the parties had intended to create a PAT and establish a common fund for the purpose. They also had a joint interest in the profits of the business as shown by the 50-50 sharing of income of the mine. Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it or the mutual interest of both principal and agent. In this case the nonrevocation or non-withdrawal under the PA applies to the advances made by the petitioner who is the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that it is an agency.

Infante vs. Cunanan G.R L-5180 August 31, 1953 Bautista Angelo, J: Facts: Infante was the owner of the Land and with a house built on it. Cunanan and Mijares were contracted to sell the property from which they would receive commission. Noche agreed to purchase the lot but Infante informed C & M about her change of mind to sell the lot and had them sign a document, stating that their authority to sell was already cancelled. Subsequently, Infante sold the lot & house to Noche. Defendants herein demanded for their commission. RTC ordered Infante to pay commission, CA affirmed. Issue: Whether or not petitioner was duty bound to pay commission not withstanding that authority to sell has been cancelled.

Pascual and Dragon vs. CIR and CTA GRN- 78133 Gancayco, &. Facts: Petitioners bought to proceeds the following year. The 2 parcels were sold on 1970. Realizing profits from the sale petitioners filed capital gains tax. However, defendants assessed petitioners with deficiency tax corporate income taxes. Issue: Whether or not petitioners formed and unregistered partnership thereby assessed with corporate income tax. Ruling: By the contract of partnership two or more persons bind themselves to0 contribute money, property or industry to a common fund with the intention of dividing the profits among themselves. In the presents cases, there is no evidence that the petitioners into an agreement to contribute MPI to a common fund and that they intend to divide profits among themselves the petitioners purchased parcels of land and became co-owner thereof. Their transaction of selling the lots was an isolated case. The character of habituality peculiar to the business transactions for the purpose of gained was not present. The sharing of return does not in itself established a partnership whether or not the persons sharing theres have a joint or common right or interest in the property. There must be a October 18, 1988

clear intent to form partnership, the existence of juridical personality deferent from the individual partners, and the freedom of each party to transfer or assign the whole property. Goguilay and Partnership vs. Sycip et. Al. GRN L-1184 Reyes J& L: & Facts: Tan Sin and Goguilay into a partnership in business of buying and selling real state properties. Partners stipulated that Tan Sin will be the managing partner and that heirs shall represent the deceased partnership incurred debts and Tan Sin died, he was represents the deceased partner should the 10 years lifetime of the partnership has not yet expired. When the partnership incurred debts and Tan Sin will be managing partnership has not yet expired. When the partnership incurred and Tan Sin died, he has represented by his widow. In order to satisfy the partnerships debts the widow sold the properties to defendant. Goquilay opposed the sail assailing that widow has no authority to do so, without his Kn. Issue: Whether or not the consent of the other partner way necessary to perfect the sale of the partnership properties. Riling: First, Goquilay is stopped from asserting that upon the death of Tan Sin, his management of partnership affairs had also been terminated. He was stopped in the same that after the death of Tan Sin, the partnership affairs from 1945 to 1949. It is only when the sale with the defendant that the authority of the widow was questioned. It is a well settled rule that third persons. Are not bound in entering into a contract with any of the two partners, the ascertain whether or not his partner with whom the transaction is made has the consent of the other partner. The public need not make inquiries as to the agreement had between the partners. Its knowledge has enough that it is contracting with the partnership which is represented by one of the managing partners. Business Organization Singson vs. Isabela Sawmill GRN L- 27343 Fernadez, J February 28, 1979 July 26, 1960

Facts: Isabela Sawmill was formed by partners Saldajeno, Lon and Timoteo. Withdraw from the partnership and after dissolution, L and T continued the business still under the name Isbel Sawmill. The partnership is indebted to various creditors and that Sheriff sold the assets of Isabela Sawmill to s and was subsequently sold to a separate company. Issue: Whether or not Isabela Sawmill ceased to be a partnership and that creditors could no longer demand payment. Ruling: On dissolution, the partnership is not terminated but continues until the winding up of the business. It does not appear that the withdrawal of S from the partnership was published in the newspapers. The Apelles and the public had a right to expect the public had a right to expect that whatever credit they extended to L & T doing business. In the name of the partnership could be enforced against the partnership of said partnership. The judicial foreclosure of the chattel mortrage executed in the favor of S did not relieve her from liability to the creditors of the partnership. It may be presumed S acted in good faith, the Apelles also acted in good faith in extending credit to they partnership. Where one of the two innocent persons must suffer, that persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Business Organization- Partnership Sardane vs. CA Acojedo GRN- L 47045 Regalads, J Facts: Sardane executed promissory notes in the amount of P 5, 217.25 because of failure to pay; acojedo brought an action for collection of sum of money. MTC granted the petition but RTC reversed upholding reason that the existed partnership between the 2, which could them vary the meaning of the promissory notes. RTC concluded the PN involved were merely receipts for the contributions to said partnership and upheld the claim that there was ambiguity in the PN hence; parol evidence was allowable to contradict the terms of the represented loan contract. Issue: November 22, 1980

Whether or not partnership exited Ruling: Even if evidence other that PN may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private parties. In the fact that he had received 50% of the net profits does not conclusively establish that he was a partner of acojeda. Article 1769 NCC explicitly provides that the receipts of the person of a share of the profits of a business is a prima farcies evidence that he is a partner in the business, no such profits were received in payment as wages of an employee.

Ruling: A principal may withdraw the authority given to an agent at will .But respondents agreed to cancel the written authority given to them upon assurance by petition that should property be sold to Noche, they would be given commission. That petitioner had changed her mind even if respondents had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequences if respondents agree to call off to transaction in difference to the request of the of the petitioner. Petitioner took advantage of the services of respondent. But believing that she could evade payment of their commission, she induced them to sign the deed of cancellation. This act of submission cannot serve as basis for petitioner to escape payment of the commission agreed upon. Business Org. Agency Genevieve Lim vs. Florencio Saban G. R 163720 December 16, 2004 Tinga, J: Facts: Ybez, owner of a lot entered into an Agency agreement with Saban authorizing the latter to look for a buyer of the Lot, with 200k as selling price which he can mark up to cover commission and transfer expenses. Saban sold the lot to Lim in the amount of 600k. Lim issued four checks to Saban but Ybaez asked Lim to cancel said checks and pay the remaining amount directly to Ybaez. Saban filed a case against Ybaez and Lim. Pending case, Ybaez died without being substituted. RTC dismissed Sabans complaint, the four checks issued by Lim were stale and non-negotiable and the Latter was absolved. CA reversed the decision. ISSUE: Whether or not as agent, Saban is entitled to receive his commission and Lim should pay the same. RULING: The court affirms the CAs finding that agency was not revoked since Ybaez requested that Lim stop payment of the checks payable to Saban only after the consummation of the sale. At that time, Saban had already performed his obligation as agent when the Deed of Absolute Sale was

executed. To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency. The logical conclusion of Court is that Lim changed her mind in agreeing to purchase the lot at 600k after talking to Ybaez and realizing that Sabans commission was higher than the share of the owner. It was sufficient to conclude Ybaez and Lim connived to deprive Saban of his commission by dealing with each other directly and reducing the price and leaving nothing to compensate Saban for his effort.

Partnership Tocao vs. CA and Nenita Anay 365 SCRA 463 G.R 127405 Ynares-Santiago, J: Facts: Respondent met the petitioner through Belo. Petitioner Tacao conveyed her desire to enter into a joint venture with her and Anay is to be the marketing head of local distribution of kitchen wares, the former to finance the business. Anay was made to receive commissions based on her performance, as verbally agreed upon by her and Belo, the latter acting as the guarantor of Geminesse enterprise. In 1887, Belo signed a memorandum granting 37% commission to Anay for her business transaction. Two days after, Anay discovered that she was in effect no longer the head of marketing and had been barred from holding office. Issue: Whether or not Anay was an employee or partner of Tocao and thus entitled to damages. Ruling: The RTC and CA found the partnership between petitioners and private respondent exists based on the facts presented. This amount be determined by S.C To be considered as a judicial personality, a partnership must fulfill these requisites: 1) two or more persons bind themselves to contribute money, property or industry to a common fund; (2) intention on the part of the partners to divide profits among themes selves. Where no immovable le property in involved, an oral agreement will suffice to create partnership. Thus, a subject he to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power although not necessarily the right to dissolve the partnership. October 4, 2000

 In 2001, SC issued a resolution, modifying its decision regarding as a partner to firm because he merely acted as a guarantor. As for the award of damages to Anay, the decision was sustained.

Sugar Corp., [G.R. # 117356]

Victorias Milling Co., Inc. vs. CA and Consolidated Sugar Corp., [G.R. # 117356] Post under case digests, Civil Law at Tuesday, February 21, 2012 Posted by Schizophrenic Mind

Facts: St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc. In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. SLDR No. 1214M covers 25,000 bags of sugar. The transaction it covered was a "direct sale." Thereafter, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M. That same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by the SLDR. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar. CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags. In its reply, petitioner said that it could not allow any further withdrawals of sugar because STM had already withdrawn all the sugar covered by the cleared checks. Petitioner also noted that CSC

had represented itself to be STM's agent as it had withdrawn the 2,000 bags "for and in behalf" of STM. As a result, CSC filed a complaint for specific performance. Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC. Furthermore, the SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests. The Trial Court rendered its judgment favoring the private respondent CSC. The appellate court affirmed said decision but modified the costs against petitioner. Issue: Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee. Held: No. It is clear from Article 1868 that the basis of agency is representation. One factor which most clearly distinguishes agency from other legal concepts is control; one person - the

agent - agrees to act under the control or direction of another the principal That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties. That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.