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Doctrine: Fraud
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
defendants 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 wasnt 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
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, plaintiffs 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
Facts:
Petitioners borrowed sum of money from their father and together with their
own personal funds theyused said money to buy several real properties.
They then appointed their brother (Simeon) as manager of thesaid real
properties with powers and authority to sell, lease or rent out said properties
to third persons. Theyrealized rental income from the said properties for the
period 1945-1949.On September 24, 1954 respondent Collector of Internal
Revenue demanded the payment of income tax oncorporations, real estate
dealer's fixed tax and corporation residence tax for the years 1945-1949.
The letter of demand and corresponding assessments were delivered to
petitioners on December 3, 1954, whereupon theyinstituted the present case
in the Court of Tax Appeals, with a prayer that "the decision of the
respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from thepayment of the taxes in
question. CTA denied their petition and subsequent MR and New Trials were
denied.Hence this petition.
Issue:
Whether or not petitioners have formed a partnership and consequently, are
subject to the tax oncorporations provided for in section 24 of Commonwealth
Act. No. 466, otherwise known as the NationalInternal Revenue Code, as
well as to the residence tax for corporations and the real estate dealers fixed
tax.
Held: YES.
The essential elements of a partnership are two, namely: (a)an agreement to
contribute money,property or industry to a common fund; and (b)intent to
divide the profits among the contractingparties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have
agreed to,and did, contribute money and property to a common fund. Upon
consideration of all the facts andcircumstances surrounding the case, we are
fully satisfied that their purpose was to engage in real estatetransactions for
monetary gain and then divide the same among themselves, because of the
followingobservations, among others: (1) Said common fund was not
something they found already in existence; (2)They invested the same, not
merely in one transaction, but in a series of transactions; (3) The aforesaid
lotswere not devoted to residential purposes, or to other personal uses, of
petitioners herein.Although, taken singly, they might not suffice to establish
the intent necessary to constitute a partnership, thecollective effect of these
circumstances is such as to leave no room for doubt on the existence of said
intent inpetitioners herein.For purposes of the tax on corporations, our
National Internal Revenue Code, includes these partnerships with the
exception only of duly registered general copartnershipswithin the purview
of the term"corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as saidCode is concerned and are
subject to the income tax for corporations.
TORRES VS CA
Business Organization Partnership, Agency, Trust Sharing of Loss in a
Partnership Industrial Partner
In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint
venture agreement with Manuel Torres. Under the agreement, the sisters
agreed to execute a deed of sale in favor Manuel over a parcel of land, the
sisters received no cash payment from Manuel but the promise of profits
(60% for the sisters and 40% for Manuel) said parcel of land is to be
developed as a subdivision.
Manuel then had the title of the land transferred in his name and he
subsequently mortgaged the property. He used the proceeds from the
mortgage to start building roads, curbs and gutters. Manuel also contracted
an engineering firm for the building of housing units. But due to adverse
claims in the land, prospective buyers were scared off and the subdivision
project eventually failed.
The sisters then filed a civil case against Manuel for damages equivalent to
60% of the value of the property, which according to the sisters, is whats due
them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed
the lower court.
The sisters then appealed before the Supreme Court where they argued that
there is no partnership between them and Manuel because the joint venture
agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters entered into with Manuel
is a partnership agreement whereby they agreed to contribute property (their
land) which was to be developed as a subdivision. While on the other hand,
though Manuel did not contribute capital, he is an industrial partner for his
contribution for general expenses and other costs. Furthermore, the income
from the said project would be divided according to the stipulated percentage
(60-40). Clearly, the contract manifested the intention of the parties to form a
partnership. Further still, the sisters cannot invoke their right to the 60% value
of the property and at the same time deny the same contract which entitles
them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters,
nor can it be blamed to Manuel (the sisters on their appeal did not show
evidence as to Manuels fault in the failure of the partnership). The sisters
must then bear their loss (which is 60%). Manuel does not bear the loss of
the other 40% because as an industrial partner he is exempt from losses.
TOCAO VS CA
Business Organization Partnership, Agency, Trust Dissolution of the
Partnership
William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The
three agreed to form a joint venture for the sale of cooking wares. Belo was
to contribute P2.5 million; Tocao also contributed some cash and she shall
also act as president and general manager; and Anay shall be in charge of
marketing. Belo and Tocao specifically asked Anay because of her
experience and connections as a marketer. They agreed further that Anay
shall receive the following:
10% share of annual net profits
6% overriding commission for weekly sales
30% of sales Anay will make herself
2% share for her demo services
They operated under the name Geminesse Enterprise, this name was
however registered as a sole proprietorship with the Bureau of Domestic
Trade under Tocao. The joint venture agreement was not reduced to writing
because Anay trusted Belos assurances.
The venture succeeded under Anays marketing prowess.
But then the relationship between Anay and Tocao soured. One day, Tocao
advised one of the branch managers that Anay was no longer a part of the
company. Anay then demanded that the company be audited and her shares
be given to her.
ISSUE: Whether or not there is a partnership.
HELD: Yes, even though it was not reduced to writing, for a partnership can
be instituted in any form. The fact that it was registered as a sole
proprietorship is of no moment for such registration was only for the
companys trade name.
Anay was not even an employee because when they ventured into the
agreement, they explicitly agreed to profit sharing this is even though Anay
was receiving commissions because this is only incidental to her efforts as a
head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully
from a partnership is an innocent partner. Hence, the guilty partner must give
him his due upon the dissolution of the partnership as well as damages or
share in the profits realized from the appropriation of the partnership
business and goodwill. An innocent partner thus possesses pecuniary
interest in every existing contract that was incomplete and in the trade name
of the co-partnership and assets at the time he was wrongfully expelled.
An unjustified dissolution by a partner can subject him 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.
Tocaos unilateral exclusion of Anay from the partnership is shown by her
memo to the Cubao office plainly stating that Anay was, as of October 9,
1987, no longer the vice-president for sales of Geminesse Enterprise. By that
memo, petitioner Tocao effected her own withdrawal from the partnership and
considered herself as having ceased to be associated with the partnership in
the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business.
FACTS:
This is an action to bring about liquidation of the funds and property of the
association called "Turnuhan Polistico & Co." The plaintiffs were
members or shareholders, and the defendants were designated as
president-treasurer, directors and secretary of said association. This case is
brought for 2nd time. In the 1st one, the court court held then that in an action
against the officers of a voluntary association to wind up its affairs and
enforce an accounting for money and property in their possessions, it is
not necessary that all members of the association be made parties to the
action. The court appointed commissioner of Insular Auditor's Office, to
examine all the books, documents, and accounts of "Turnuhan Polistico
& Co.," and to receive whatever evidence. Commissioner's report show a
balance of P24, 607.80 cash on hand. Despite defendants objection to
the report, the trial court rendered judgment holding said association is
unlawful. And sentenced defendants jointly and severally to return the
amount and documents to the plaintiffs and members of the
association. The Appellant alleged that the association being unlawful, some
charitable institution to whom the partnership funds may be ordered to be
turned over, should be included, as a party defendant. Referring to article
1666 of the Civil Code, which provides: A partnership musthave a lawful
object, and must be established for the common benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall
be given to charitable institutions of the domicile of the partnership, or, in
default of such, to those of the province.
ISSUE:
Whether or not charitable institution is a necessary party to this case.
HELD:
No. No charitable institution is a necessary party in the present case of
determination of the rights of the parties. The action which may arise
from said article, in the case of unlawful partnership, is that for the recovery
of the amounts paid by the member from those in charge of the
administration of said partnership, and it is not necessary for the said
parties to base their action to the existence of the partnership, but on
the fact that of having contributed some money to the partnership
capital. And hence, the charitable institution of the domicile of the
partnership, and in the default thereof, those of the province are not
necessary parties in this case. The article cited above permits no action for
the purpose of obtaining the earnings made by the unlawful partnership,
during its existence as result of the business in which it was engaged,
because for the purpose, as Manresa remarks, the partner will have to
base his action upon the partnership contract, which is to annul and
without legal existence by reason of its unlawful object; and it is self
evident that what does not exist cannot be a cause of action. Hence,
paragraph 2 of the same article provides that when the dissolution of
the unlawful partnership is decreed, the profits cannot inure to the
benefit of the partners, but must be given to some charitable
institution.The profits are so applied, and not the contributions, because
this would be an excessive and unjust sanction for, as we have seen, there is
no reason, in such a case, for depriving the partner of the portion of the
capital that he contributed, the circumstances of the two cases being
entirely different.
Art. 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without the
consent of the other partners from any transaction connected with the
formation, conduct, or liquidation of the partnership or from any use by him
of its property.
LITONJUA VS LITONJUA
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.
o
o
o
ISSUES/HELD:
1
2
PONENTE: Carpio, J.
FACTS:
Angeles spouses filed a criminal complaint for estafa against Mercado, their
brother-in-law
o
Claimed that Mercado convinced them to enter into a contract of
antichresis, to last for 5 years, covering 8 parcels of land planted with
fruit-bearing lanzones trees in Nagcarlan, Laguna and owned by
Juan Sanzo
o
The parties agreed that Mercado would administer the ands and
complete the necessary paperwork
o
After 3 years, the Angeles spouses asked for an accounting from
Mercado, and they claim that only after this demand for an
accounting did thy discover that Mercado had put the contract of
antichresis over the subject land under Mercado and his spouses
names
Mercado denied the Angeles spouses allegations
o
Claimed that there exists an industrial partnership, colloquially
known as sosyo industrial, between him and his spouse as industrial
partners and the Angeles spouses as financiers, and that this had
existed since 1991, before the contract of antichresis over the subject
land
o
Mercado used his and his spouses earnings as part of the capital in
the business transactions which he entered into in behalf of the
Angeles spouses. It was their practice to enter into business
transactions with other people under the name of Mercado because
the Angeles spouses did not want to be identified as the financiers
o
Attached bank receipts showing deposits in behalf of Emerita
Angeles and contracts under his name for the Angeles spouses
During the barangay conciliation proceedings, Oscar Angeles stated that
there was a written sosyo industrial agreement: capital would come from
the Angeles spouses while the profit would be divided evenly between
Mercado and the Angeles spouses
Provincial Prosecution Office: first recommended the filing of a criminal
information for estafa, but after Mercado filed his counter-affidavit and
moved for reconsideration, issued an amended resolution dismissing the
complaint
Angeles spouses appealed to Sec. of Justice, saying that the document
evidencing the contract of antichresis executed in the name of the
Mercado spouses, instead of the Angeles spouses, and that such
document alone proves Mercados misappropriation of their P210, 000
Sec. of Justice: dismissed the appeal
o
Angeles spouses failed to show sufficient proof that Mercado
deliberately deceived them in the transaction
o
Mercado satisfactorily explained that the Angeles spouses do not
want to be revealed as the financiers
o
Under the circumstances, it was more likely that the Angeles spouses
knew from the very start that the questioned document was not really
in their names
RATIO/RULING:
2. Angeles spouses allege that they had no partnership with Mercado, relying
on Arts. 1771 to 1773 of the Civil Code.
Even the RTC of Sta. Cruz, Laguna, which handled the civil case filed by the
Angeles spouses against Mercado and Leo Cerayban stated that it was
the practice to have the contracts secured in Mercados name as the
Angeles spouses fear being kidnapped by the NPA or being questioned
by the BIR as Oscar Angeles was working with the government.
Accounting of the proceeds is not a proper subject for the present case.
DISPOSITION: Petition for certiorari dismissed. Decision of Sec. of Justice
affirmed.