G.R. No. 143340 August 15, 2001
While Jacinto furnished respondent with the merchandise inventories,
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
of the Decision1 of the Court of Appeals dated January 31, 2000 in the case entitled
"Lamberto T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and of the Resolution
dated May 23, 2000 denying the motion for reconsideration of herein petitioners
Lilibeth Sunga and Cecilia Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint
against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga
(hereafter petitioner Cecilia), daughter and wife, respectively of the deceased
Jacinto L. Sunga (hereafter Jacinto), for "Winding Up of Partnership Affairs,
Accounting, Appraisal and Recovery of Shares and Damages with Writ of
Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan,
Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with
Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For
business convenience, respondent and Jacinto allegedly agreed to register the
business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter
Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly
delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in
turn produced P100,000.00 as his counterpart contribution, with the intention that
the profits would be equally divided between them. The partnership allegedly had
Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the
wife respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's
fee or remuneration of 10% of the gross profit and Josephine would receive 10% of
the net profits, in addition to her wages and other remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its
business operation went quite and was profitable. Respondent claimed that he
could attest to success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum
Corporation.
balance sheets and net worth of Shellite from 1977 to 1989, respondent however
suspected that the amount indicated in these documents were understated and
undervalued by Jacinto and Josephine for their own selfish reasons and for tax
avoidance.
Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia
and particularly his daughter, petitioner Lilibeth, took over the operations, control,
custody, disposition and management of Shellite without respondent's consent.
Despite respondent's repeated demands upon petitioners for accounting,
inventory, appraisal, winding up and restitution of his net shares in the partnership,
petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations
of Shellite, converting to her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the
alibis and reasons to evade respondent's demands, she disbursed out of the
partnership funds the amount of P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00
represented partial payment of the latter's share in the partnership, with a promise
that the former would make the complete inventory and winding up of the
properties of the business establishment. Despite such commitment, petitioners
allegedly failed to comply with their duty to account, and continued to benefit from
the assets and income of Shellite to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that
the Securities and Exchange Commission (SEC) in Manila, not the Regional Trial
Court in Zamboanga del Norte had jurisdiction over the action. Respondent
opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in from and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counter-
claims, contending that they are not liable for partnership shares, unreceived
income/profits, interests, damages and attorney's fees, that respondent does not
have a cause of action against them, and that the trial court has no jurisdiction over
the nature of the action, the SEC being the agency that has original and exclusive
jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and
expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the
ground that the claim for winding up of partnership affairs, accounting and
recovery of shares in partnership affairs, accounting and recovery of shares in
partnership assets/properties should be dismissed and prosecuted against the
estate of deceased Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition
and Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499
questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend
Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial
conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by
petitioner, "as petitioners failed to show that a reversible error was committed by
the appellate court."2
On February 20, 1995, entry of judgment was made by the Clerk of Court and the
case was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and set
the hearing of the case of January 17, 1996. Respondent presented his evidence
while petitioners were considered to have waived their right to present evidence
for their failure to attend the scheduled date for reception of evidence despite
notice.
On October 7, 1997, the trial court rendered its Decision ruling for respondent. The
dispositive of the Decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting
procedures and standards of the properties, assets, income and profits of the
Shellite Gas Appliance Center Since the time of death of Jacinto L. Sunga, from
whom they continued the business operations including all businesses derived
from Shellite Gas Appliance Center, submit an inventory, and appraisal of all these
properties, assets, income, profits etc. to the Court and to plaintiff for approval or
disapproval;
(2) ORDERING them to return and restitute to the partnership any and all
properties, assets, income and profits they misapplied and converted to their own
use and advantage the legally pertain to the plaintiff and account for the properties
mentioned in pars. A and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of
the plaintiff in the partnership of the listed properties, assets and good will (sic) in
schedules A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits
from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the
closure of the store the sum of P35,000.00 per month, with legal rate of interest
until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the ½ interest,
shares, participation and equity in the partnership, or the value thereof in money
or money's worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad
faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and
exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic)
and P25,000.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED."3
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court,
appealing the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive
portion of the Decision reads:
"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED
in all respects."4
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed
by petitioner.
Hence, this petition wherein petitioner relies upon following grounds:
"1. The Court of Appeals erred in making a legal conclusion that there existed a
partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga
upon the latter'' invitation and offer and that upon his death the partnership assets
and business were taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches and/or
prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was
competent and credible evidence to warrant the finding of a partnership, and
assuming arguendo that indeed there was a partnership, the finding of highly
exaggerated amounts or values in the partnership assets and profits."5
Petitioners question the correctness of the finding of the trial court and the Court
of Appeals that a partnership existed between respondent and Jacinto from 1977
until Jacinto's death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners argues that these courts
were proscribes from hearing the testimonies of respondent and his witness,
Josephine, to prove the alleged partnership three years after Jacinto's death. To
support this argument, petitioners invoke the "Dead Man's Statute' or
"Survivorship Rule" under Section 23, Rule 130 of the Rules of Court that provides:
"SEC. 23. Disqualification by reason of death or insanity of adverse party. – Parties
or assignors of parties to a case, or persons in whose behalf a case is prosecuted,
against an executor or administrator or other representative of a deceased person,
or against a person of unsound mind, upon a claim or demand against the estate of
such deceased person, or against such person of unsound mind, cannot testify as to
any matter of fact occurring before the death of such deceased person or before
such person became of unsound mind."
Petitioners thus implore this Court to rule that the testimonies of respondent and
his alter ego, Josephine, should not have been admitted to prove certain claims
against a deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property
of real rights are contributed thereto, in which case a public instrument shall
necessary.6 Hence, based on the intention of the parties, as gathered from the facts
and ascertained from their language and conduct, a verbal contract of partnership
may arise.7 The essential profits that must be proven to that a partnership was
agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest
in the profits.8 Understandably so, in view of the absence of the written contract of
partnership between respondent and Jacinto, respondent resorted to the
introduction of documentary and testimonial evidence to prove said partnership.
The crucial issue to settle then is to whether or not the "Dead Man's Statute"
applies to this case so as to render inadmissible respondent's testimony and that of
his witness, Josephine.
The "Dead Man's Statute" provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the
surviving party is not entitled to the undue advantage of giving his own
uncontradicted and unexplained account of the transaction.9 But before this rule
can be successfully invoked to bar the introduction of testimonial evidence, it is
necessary that:
"1. The witness is a party or assignor of a party to case or persons in whose behalf a
case in prosecuted.
2. The action is against an executor or administrator or other representative of a
deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such
deceased person or against person of unsound mind;
4. His testimony refers to any matter of fact of which occurred before the death of
such deceased person or before such person became of unsound mind."10
Two reasons forestall the application of the "Dead Man's Statute" to this case.
First, petitioners filed a compulsory counterclaim11 against respondents in their
answer before the trial court, and with the filing of their counterclaim, petitioners
themselves effectively removed this case from the ambit of the "Dead Man's
Statute".12 Well entrenched is the rule that when it is the executor or administrator
or representatives of the estates that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat
the counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not
disqualified from testifying as to matters of facts occurring before the death of the
deceased, said action not having been brought against but by the estate or
representatives of the deceased.14
Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for
the simple reason that she is not "a party or assignor of a party to a case or persons
in whose behalf a case is prosecuted." Records show that respondent offered the
testimony of Josephine to establish the existence of the partnership between
respondent and Jacinto. Petitioners' insistence that Josephine is the alter ego of
respondent does not make her an assignor because the term "assignor" of a party
means "assignor of a cause of action which has arisen, and not the assignor of a
right assigned before any cause of action has arisen."15 Plainly then, Josephine is
merely a witness of respondent, the latter being the party plaintiff.
We are not convinced by petitioners' allegation that Josephine's testimony lacks
probative value because she was allegedly coerced coerced by respondent, her
brother-in-law, to testify in his favor, Josephine merely declared in court that she
was requested by respondent to testify and that if she were not requested to do so
she would not have testified. We fail to see how we can conclude from this candid
admission that Josephine's testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent.
Also, the fact that Josephine is the sister of the wife of respondent does not
diminish the value of her testimony since relationship per se, without more, does
not affect the credibility of witnesses.16
Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's
claim cannot prevail over the factual findings of the trial court and the Court of
Appeals that a partnership was established between respondent and Jacinto. Based
not only on the testimonial evidence, but the documentary evidence as well, the
trial court and the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the
weight of judicial precedents, a factual matter like the finding of the existence of a
partnership between respondent and Jacinto cannot be inquired into by this Court
on review.17 This Court can no longer be tasked to go over the proofs presented by
the parties and analyze, assess and weigh them to ascertain if the trial court and
the appellate court were correct in according superior credit to this or that piece of
evidence of one party or the other.18 It must be also pointed out that petitioners
failed to attend the presentation of evidence of respondent. Petitioners cannot
now turn to this Court to question the admissibility and authenticity of the
documentary evidence of respondent when petitioners failed to object to the
admissibility of the evidence at the time that such evidence was offered.19
With regard to petitioners' insistence that laches and/or prescription should have
extinguished respondent's claim, we agree with the trial court and the Court of
Appeals that the action for accounting filed by respondents three (3) years after
Jacinto's death was well within the prescribed period. The Civil Code provides that
an action to enforce an oral contract prescribes in six (6) years20 while the right to
demand an accounting for a partner's interest as against the person continuing the
business accrues at the date of dissolution, in the absence of any contrary
agreement.21 Considering that the death of a partner results in the dissolution of
the partnership22 , in this case, it was Jacinto's death that respondent as the
surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacinto's death dissolved the partnership, the dissolution
did not immediately terminate the partnership. The Civil Code23 expressly provides
that upon dissolution, the partnership continues and its legal personality is
retained until the complete winding up of its business, culminating in its
termination.24
In a desperate bid to cast doubt on the validity of the oral partnership between
respondent and Jacinto, petitioners maintain that said partnership that had initial
capital of P200,000.00 should have been registered with the Securities and
Exchange Commission (SEC) since registration is mandated by the Civil Code, True,
Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00
or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership
retains its juridical personality even if it fails to register. The failure to register the
contract of partnership does not invalidate the same as among the partners, so
long as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the
members themselves knew of the contents of their contract.26 In the case at bar,
non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that respondent
and Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.
SO ORDERED.
 ARSENIO T. MENDIOLA, Petitioner,
- versus -
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION,
PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB,
Respondents.
x-----------------------------------------------------------x
DECISION
PUNO, J.:
On appeal are the Decision[1] and Resolution[2] of the Court of Appeals,
dated January 30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028,
affirming the ruling[3] of the National Labor Relations Commission (NLRC), which in
turn set aside the July 30, 2001 Decision[4] of the labor arbiter. The labor
arbiter declared illegal the dismissal of petitioner from employment and awarded
separation pay, moral and exemplary damages, and attorneys fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of
Cellulose Marketing International, a corporation duly organized under the laws
of Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc.[5] with petitioner Arsenio T.
Mendiola (ATM), effective May 1, 1995, assuming that Pacfor-Phils. is already
approved by the Securities and Exchange Commission [SEC] on the said date.[6] The
Side Agreement outlines the business relationship of the parties with regard to the
Philippine operations of Pacfor. Private respondent will establish a Pacfor
representative office in the Philippines, to be known as Pacfor Phils, and petitioner
ATM will be its President. Petitioners base salary and the overhead expenditures of
the company shall be borne by the representative office and funded by
Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and
Pacfor-USA.
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a
license to transact business in the Philippines under the name of Pacfor or Pacfor
Phils.[7] In its application, private respondent Pacfor proposed to establish its
representative office in the Philippines with the purpose of monitoring and
coordinating the market activities for paper products. It also designated petitioner
as its resident agent in the Philippines, authorized to accept summons and
processes in all legal proceedings, and all notices affecting the corporation.[8]
In March 1997, the Side Agreement was amended through a Revised Operating and
Profit Sharing Agreement for the Representative Office Known as Pacific Forest
Resources (Philippines),[9] where the salary of petitioner was increased to $78,000
per annum. Both agreements show that the operational expenses will be borne by
the representative office and funded by all parties as equal partners, while the
profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils.[10] Private respondent Pacfor,
through William Gleason, its President, replied that petitioner is not a part-owner
of Pacfor Phils. because the latter is merely Pacfor-USAs representative office and
not an entity separate and distinct from Pacfor-USA. Its simply a theoretical
company with the purpose of dividing the income 50-50.[11] Petitioner presumably
knew of this arrangement from the start, having been the one to propose to
private respondent Pacfor the setting up of a representative office, and not a
branch office in the Philippines to save on taxes.[12]
Petitioner claimed that he was all along made to believe that he was in a joint
venture with them. He alleged he would have been better off remaining as an
independent agent or representative of Pacfor-USA as ATM Marketing Corp.[13] Had
he known that no joint venture existed, he would not have allowed Pacfor to take
the profitable business of his own company, ATM Marketing Corp.[14] Petitioner
raised other issues, such as the rentals of office furniture, salary of the employees,
company car, as well as commissions allegedly due him. The issues were not
resolved, hence, in October 2000, petitioner wrote Pacfor-USA demanding
payment of unpaid commissions and office furniture and equipment rentals,
amounting to more than one million dollars.[15]
On November 27, 2000, private respondent Pacfor, through counsel, ordered
petitioner to turn over to it all papers, documents, files, records, and other
materials in his or ATM Marketing Corporations possession that belong to Pacfor or
Pacfor Phils.[16] On December 18, 2000, private respondent Pacfor also required
petitioner to remit more than three hundred thousand-peso Christmas giveaway
fund for clients of Pacfor Phils.[17] Lastly, private respondent Pacfor withdrew all its
offers of settlement and ordered petitioner to transfer title and turn over to it
possession of the service car.[18]
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper
Industries, Inc., dated November 21, 2000, private respondent Pacfor stated:
Until further notice, please course all inquiries and communications for Pacific
Forest Resources (Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio Boy T. Mendiola or to the
offices of ATM Marketing Corporation at Room
504, Concorde Building, Legaspi Village, Makati City, Philippines.[19]
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated
December 2000, private respondent directed said client to please communicate
directly with us on any further questions associated with these payments or any
future business. Do not communicate with [Pacfor] and/or [ATM].[20]
Petitioner construed these directives as a severance of the unregistered
partnership between him and Pacfor, and the termination of his employment as
resident manager of Pacfor Phils.[21] In a memorandum to the employees of Pacfor
Phils., dated January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all
records to them effective December 19, 2000. The company records were turned
over only on January 26, 2001. This means our jobs with Pacific Forest were
terminated effective December 19, 2000. I am concerned about your welfare. I
would like to help you by offering you to work with ATM Marketing Corporation.
Please let me know if you are interested.[22]
On the basis of the Side Agreement, petitioner insisted that he and Pacfor equally
own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis,
Pacfor Phils. office furniture and equipment and the service car. He also reiterated
his demand for unpaid commissions, and proposed to offset these with the
remaining Christmas giveaway fund in his possession.[23] Furthermore, he did not
renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises
of Pacfor Phils., wherein he was the signatory to the lease agreement.[24]
On February 2, 2001, private respondent Pacfor placed petitioner on preventive
suspension and ordered him to show cause why no disciplinary action should be
taken against him. Private respondent Pacfor charged petitioner with willful
disobedience and serious misconduct for his refusal to turn over the service car and
the Christmas giveaway fund which he applied to his alleged unpaid commissions.
Private respondent also alleged loss of confidence and gross neglect of duty on the
part of petitioner for allegedly allowing another corporation owned by petitioners
relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business of private
respondent for HEPIs principal, International Forest Products, a competitor of
private respondent.[25]
Petitioner denied the charges. He reiterated that he considered the import of
Pacfor President William Gleasons letters as a cessation of his position and of the
existence of Pacfor Phils. He likewise informed private respondent Pacfor that ATM
Marketing Corp. now occupies Pacfor Phils. office premises,[26] and demanded
payment of his separation pay.[27] On February 15, 2001, petitioner filed his
complaint for illegal dismissal, recovery of separation pay, and payment of
attorneys fees with the NLRC.[28]
In the meantime, private respondent Pacfor lodged fresh charges against
petitioner. In a memorandum dated March 5, 2001, private respondent directed
petitioner to explain why he should not be disciplined for serious misconduct and
conflict of interest. Private respondent charged petitioner anew with serious
misconduct for the latters alleged act of fraud and misrepresentation in authorizing
the release of an additional peso salary for himself, besides the dollar salary agreed
upon by the parties. Private respondent also accused petitioner of disloyalty and
representation of conflicting interests for having continued using the Pacfor Phils.
office for operations of HEPI. In addition, petitioner allegedly solicited business for
HEPI from a competitor company of private respondent Pacfor. [29]
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive
dismissal. By directing petitioner to turn over all office records and materials,
regardless of whether he may have retained copies, private respondent Pacfor
virtually deprived petitioner of his job by the gradual diminution of his authority as
resident manager. Petitioners position as resident manager whose duty, among
others, was to maintain the security of its business transactions and
communications was rendered meaningless. The dispositive portion of the decision
of the Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering herein
respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to
compensate complainant Arsenio T. Mendiola separation pay equivalent to at least
one month for every year of service, whichever is higher (sic), as reinstatement is
no longer feasible by reason of the strained relations of the parties equivalent to
five (5) months in the amount of $32,000.00 plus the sum of P250,000.00; pay
complainant the sum of P500,000.00 as moral and exemplary damages and ten
percent (10%) of the amounts awarded as and for attorneys fees.
All other claims are dismissed for lack of basis.
SO ORDERED.[30]
Private respondent Pacfor appealed to the NLRC which ruled in its
favor. On December 20, 2001, the NLRC set aside the July 30, 2001 decision of the
labor arbiter, for lack of jurisdiction and lack of merit.[31] It held there was no
employer-employee relationship between the parties. Based on the two
agreements between the parties, it concluded that petitioner is not an employee of
private respondent Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioners Motion for Reconsideration.[32]
Petitioner was not successful on his appeal to the Court of Appeals. The appellate
court upheld the ruling of the NLRC.
Petitioners Motion for Reconsideration[33] of the decision of the Court of Appeals
was denied.
Hence, this appeal.[34]
Petitioner assigns the following errors:
A. THE RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR
AND ABUSED ITS DISCRETION IN RENDERING JUDGMENT AGAINST PETITIONER
SINCE JURISDICTION HAS BEEN ACQUIRED OVER THE SUBJECT MATTER OF THE
CASE AS THERE EXISTS EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE
PARTIES.
B. THE RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR
AND ABUSED ITS DISCRETION IN RULING THAT JURISDICTION OVER THE SUBJECT
MATTER CANNOT BE WAIVED AND MAY BE ALLEGED EVEN FOR THE FIRST TIME ON
APPEAL OR CONSIDERED BY THE COURT MOTU PROP[R]IO.[35]
The first issue is whether an employer-employee relationship exists between
petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with
private respondent Pacfor, and also an employee of the partnership. Petitioner
insists that an industrial partner may at the same time be an employee of the
partnership, provided there is such an agreement, which, in this case, is the Side
Agreement and the Revised Operating and Profit Sharing Agreement. The Court of
Appeals denied the appeal of petitioner, holding that the legal basis of the
complaint is not employment but perhaps partnership, co-ownership, or
independent contractorship. Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no
partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the
firm capital and of all property that may be acquired thereby and through the
efforts of the members.[36] The property or stock of the partnership forms a
community of goods, a common fund, in which each party has a proprietary
interest.[37] In fact, the New Civil Code regards a partner as a co-owner of specific
partnership property.[38] Each partner possesses a joint interest in the whole of
partnership property. If the relation does not have this feature, it is not one of
partnership.[39] This essential element, the community of interest, or co-ownership
of, or joint interest in partnership property is absent in the relations between
petitioner and private respondent Pacfor. Petitioner is not a part-owner of Pacfor
Phils. William Gleason, private respondent Pacfors President established this fact
when he said that Pacfor Phils. is simply a theoretical company for the purpose of
dividing the income 50-50. He stressed that petitioner knew of this arrangement
from the very start, having been the one to propose to private respondent Pacfor
the setting up of a representative office, and not a branch office in the Philippines
to save on taxes. Thus, the parties in this case, merely shared profits. This alone
does not make a partnership.[40]
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter.[41] This doctrine is based on the
following considerations: (1) that the mutual agency between the partners,
whereby the corporation would be bound by the acts of persons who are not its
duly appointed and authorized agents and officers, would be inconsistent with the
policy of the law that the corporation shall manage its own affairs separately and
exclusively; and, (2) that such an arrangement would improperly allow corporate
property to become subject to risks not contemplated by the stockholders when
they originally invested in the corporation.[42]No such authorization has been
proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-
employee relationship is present in the case at bar. The elements to determine the
existence of an employment relationship are: (a) the selection and engagement of
the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employees conduct. The most important element
is the employers control of the employees conduct, not only as to the result of the
work to be done, but also as to the means and methods to accomplish it.[43]
In the instant case, all the foregoing elements are present. First, it was private
respondent Pacfor which selected and engaged the services of petitioner as its
resident agent in the Philippines. Second, as stipulated in their Side Agreement,
private respondent Pacfor pays petitioner his salary amounting to $65,000 per
annum which was later increased to $78,000. Third, private respondent Pacfor
holds the power of dismissal, as may be gleaned through the various memoranda it
issued against petitioner, placing the latter on preventive suspension while
charging him with various offenses, including willful disobedience, serious
misconduct, and gross neglect of duty, and ordering him to show cause why no
disciplinary action should be taken against him.
Lastly and most important, private respondent Pacfor has the power of control
over the means and method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and
not to the actual exercise thereof. The principal consideration is whether the
employer has the right to control the manner of doing the work, and it is not the
actual exercise of the right by interfering with the work, but the right to control,
which constitutes the test of the existence of an employer-employee
relationship.[44] In the case at bar, private respondent Pacfor, as employer, clearly
possesses such right of control. Petitioner, as private respondent Pacfors resident
agent in the Philippines, is, exactly so, only an agent of the corporation, a
representative of Pacfor, who transacts business, and accepts service on its behalf.
This right of control was exercised by private respondent Pacfor during the period
of November to December 2000, when it directed petitioner to turn over to it all
records of Pacfor Phils.; when it ordered petitioner to remit the Christmas
giveaway fund intended for clients of Pacfor Phils.; and, when it withdrew all its
offers of settlement and ordered petitioner to transfer title and turn over to it the
possession of the service car. It was also during this period when private
respondent Pacfor sent letters to its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR, advising them not to deal with
petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor
replied to the clients request for an invoice payment extension, and formulated a
revised payment program for DAVCOR. This is one unmistakable proof that private
respondent Pacfor exercises control over the petitioner.
Next, we shall determine if petitioner was constructively dismissed from
employment.
The evidence shows that when petitioner insisted on his 50% equity in Pacfor
Phils., and would not quit however, private respondent Pacfor began to
systematically deprive petitioner of his duties and benefits to make him
feel that his presence in the company was no longer wanted. First, private
respondent Pacfor directed petitioner to turn over to it all records of Pacfor
Phils. This would certainly make the work of petitioner very difficult, if not
impossible. Second, private respondent Pacfor ordered petitioner to remit the
Christmas giveaway fund intended for clients of Pacfor Phils. Then it ordered
petitioner to transfer title and turn over to it the possession of the service car. It
also advised its clients in the Philippines, particularly Intercontinental Paper
Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor Phils. Lastly,
private respondent Pacfor appointed a new resident agent for Pacfor Phils.[45]
Although there is no reduction of the salary of petitioner, constructive dismissal is
still present because continued employment of petitioner is rendered, at the very
least, unreasonable.[46] There is an act of clear discrimination, insensibility or
disdain by the employer that continued employment may become so unbearable
on the part of the employee so as to foreclose any choice on his part except to
resign from such employment.[47]
The harassing acts of the private respondent are unjustified. They were
undertaken when petitioner sought clarification from the private respondent about
his supposed 50% equity on Pacfor Phils. Private respondent Pacfor invokes its
rights as an owner. Allegedly, its issuance of the foregoing directives against
petitioner was a valid exercise of management prerogative. We remind private
respondent Pacfor that the exercise of management prerogative is not absolute. By
its very nature, encompassing as it could be, management prerogative must be
exercised in good faith and with due regard to the rights of labor verily, with the
principles of fair play at heart and justice in mind. The exercise of management
prerogative cannot be utilized as an implement to circumvent our laws and oppress
employees.[48]
As resident agent of private respondent corporation, petitioner occupied a
position involving trust and confidence. In the light of the strained relations
between the parties, the full restoration of an employment relationship based on
trust and confidence is no longer possible. He should be awarded separation pay, in
lieu of reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals January 30,
2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the
December 20, 2001 Decision of the National Labor Relations Commission,
are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter
is REINSTATED with the MODIFICATION that the amount of P250,000.00
representing an alleged increase in petitioners salary shall be deducted from the
grant of separation pay for lack of evidence.
SO ORDERED.
G.R. No. 126881 October 3, 2000
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY,respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of
Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the
complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by their children Teresita, Nena,
Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS
OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on
February 19, 1990. The complaint,3 docketed as Civil Case No. 1983-R in the
Regional Trial Court of Baguio City was for accounting, liquidation and winding up
of the alleged partnership formed after World War II between Tan Eng Kee and Tan
Eng Lay. On March 18, 1991, the petitioners filed an amended
complaint4 impleading private respondent herein BENGUET LUMBER COMPANY, as
represented by Tan Eng Lay. The amended complaint was admitted by the trial
court in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the second World War, Tan
Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered
into a partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of the alleged partners.
However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was purportedly a ruse to deprive
Tan Eng Kee and his heirs of their rightful participation in the profits of the
business. Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division of the net
assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on
April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a particular
partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers
and/or partners in a business venture and/or particular partnership called Benguet
Lumber and as such should share in the profits and/or losses of the business
venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to
Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer
and/or as partner in a particular partnership have descended to the plaintiffs who
are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all the assets
of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the
business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets
of Benguet Lumber Company, Inc. until such time that said corporation is finally
liquidated are directed to submit the name of any person they want to be
appointed as receiver failing in which this Court will appoint the Branch Clerk of
Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the
expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13,
1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against
Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a
judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee
was a mere employee of Benguet Lumber, were fake, based on the discrepancy in
the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed
Tan, for alleged falsification of commercial documents by a private individual. On
March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the
charges were filed, rendered judgment9 dismissing the cases for insufficiency of
evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND
(E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE
13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-
SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS
A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING
FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT
THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE
PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO
TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC,
ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN
BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17,
DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY
MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT
CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC
INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court
of Appeals will not be disturbed on appeal if such are supported by the
evidence.10 Our jurisdiction, it must be emphasized, does not include review of
factual issues. Thus:
Filing of petition with Supreme Court. — A party desiring to appeal by certiorari
from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly set
forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may
compel us to analyze the evidentiary basis on which the lower court rendered
judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or
conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the
case, and such findings are contrary to the admissions of both appellant and
appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension
of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence
of evidence but such findings are contradicted by the evidence on record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the plaintiffs
mentioned only the existence of a partnership, the Court in turn went beyond that
by justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of standing
between the parties, equal proprietary interest and the exercise by the parties
equally of the conduct of the business, thus:
xxx xxx xxx
We have the admission that the father of the plaintiffs was not a partner of the
Benguet Lumber before the war. The appellees however argued that (Rollo, p. 104;
Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet
Lumber were confiscated if not burned by the Japanese. After the war, because of
the absence of capital to start a lumber and hardware business, Lay and Kee pooled
the proceeds of their individual businesses earned from buying and selling military
supplies, so that the common fund would be enough to form a partnership, both in
the lumber and hardware business. That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually established.
That the father of the plaintiffs and Lay were partners, is obvious from the fact
that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2)
they were the ones giving orders to the employees, (3) they were the ones
preparing orders from the suppliers, (4) their families stayed together at the
Benguet Lumber compound, and (5) all their children were employed in the
business in different capacities.
xxx xxx xxx
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 Kee's 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 [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the
only registered owner of the Benguet Lumber and Hardware. His application for
registration, effective 1954, in fact mentioned that his business started in 1945
until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand,
was merely an employee of the Benguet Lumber Company, on the basis of his SSS
coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U", inclusive,
for the years 1982 to 1983, Kee was similarly listed only as an employee; precisely,
he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay was
mentioned also as the proprietor.
xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be
constituted in any form, but when an immovable is constituted, the execution of a
public instrument becomes necessary. This is equally true if the capitalization
exceeds P3,000.00, in which case a public instrument is also necessary, and which is
to be recorded with the Securities and Exchange Commission. In this case at bar,
we can easily assume that the business establishment, which from the language of
the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in
addition to the accumulation of real properties and to the fact that it is now a
compound. The execution of a public instrument, on the other hand, was never
established by the appellees.
And then in 1981, the business was incorporated and the incorporators were only
Lay and the members of his family. There is no proof either that the capital assets
of the partnership, assuming them to be in existence, were maliciously assigned or
transferred by Lay, supposedly to the corporation and since then have been treated
as a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8
of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a
room in the bunk house in Trinidad, but within the compound of the lumber
establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a
table and were "commanding people" as testified to by the son, Elpidio Tan; 3) that
both were supervising the laborers, as testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80
pieces of the G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a contract,
either oral or written. However, if it involves real property or where the capital is
P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the
parties to execute the contract; 3) money property or industry contribution; 4)
community of funds and interest, mentioning equality of the partners or one
having a proportionate share in the benefits; and 5) intention to divide the profits,
being the true test of the partnership. The intention to join in the business venture
for the purpose of obtaining profits thereafter to be divided, must be established.
We cannot see these elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which
had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a
joint venture. In this connection, we have held that whether a partnership exists is
a factual matter; consequently, since the appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the correctness of the assessment of the
evidence by the court a quo.13 Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to
determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among
themselves.
Two or more persons may also form a partnership for the exercise of a
profession.14
Thus, in order to constitute a partnership, it must be established that (1) two or
more persons bound themselves to contribute money, property, or industry to a
common fund, and (2) they intend to divide the profits among themselves. 15 The
agreement need not be formally reduced into writing, since statute allows the oral
constitution of a partnership, save in two instances: (1) when immovable property
or real rights are contributed,16 and (2) when the partnership has a capital of three
thousand pesos or more.17 In both cases, a public instrument is required.18 An
inventory to be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable property is
contributed to the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a
joint venture, which it said is akin to a particular partnership.20 A particular
partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of
informal partnership, with no firm name and no legal personality. In a joint
account, the participating merchants can transact business under their own name,
and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful termination may
continue for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind.21
A joint venture "presupposes generally a parity of standing between the joint co-
ventures or partners, in which each party has an equal proprietary interest in the
capital or property contributed, and where each party exercises equal rights in the
conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture
may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed
for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly
distinguishable from the partnership, since their elements are similar —
community of interest in the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12
289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law
jurisdiction is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2
P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the
law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint venture
with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself,
or the articles of partnership but there is none. The alleged partnership, though,
was never formally organized. In addition, petitioners point out that the New Civil
Code was not yet in effect when the partnership was allegedly formed sometime in
1945, although the contrary may well be argued that nothing prevented the parties
from complying with the provisions of the New Civil Code when it took effect on
August 30, 1950. But all that is in the past. The net effect, however, is that we are
asked to determine whether a partnership existed based purely on circumstantial
evidence. A review of the record persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The evidence presented by petitioners falls
short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from
Tan Eng Lay, could have expounded on the precise nature of the business
relationship between them. In the absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly contributed his resources to a common
fund for the purpose of establishing a partnership. The testimonies to that effect of
petitioners' witnesses is directly controverted by Tan Eng Lay. It should be noted
that it is not with the number of witnesses wherein preponderance lies; 24 the
quality of their testimonies is to be considered. None of petitioners' witnesses
could suitably account for the beginnings of Benguet Lumber Company, except
perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the latter
asked the former to accompany him to get 80 pieces of G.I. sheets supposedly
owned by both brothers.26 Tan Eng Lay, however, denied knowledge of this
meeting or of the conversation between Peralta and his brother.27 Tan Eng Lay
consistently testified that he had his business and his brother had his, that it was
only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it
may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an
indicium of the existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an accounting.
The essence of a partnership is that the partners share in the profits and
losses.29 Each has the right to demand an accounting as long as the partnership
exists.30 We have allowed a scenario wherein "[i]f 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."31 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.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 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 even 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 P3,000.00 a month,
which cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. 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.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership.34 During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from
his brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called. The authenticity of these
documents was questioned by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal
cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact
shows that Tan Eng Kee received sums as wages of an employee. In connection
therewith, Article 1769 of the Civil Code provides:
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 co-owners or co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself establish 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 a 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.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was
only an employee, not a partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee received amounts of
money allegedly representing his share in the profits of the enterprise. Petitioners
failed to show how much their father, Tan Eng Kee, received, if any, as his share in
the profits of Benguet Lumber Company for any particular period. Hence, they
failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of
the business between themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged
existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan
Eng Kee were commanding the employees; that both were supervising the
employees; that both were the ones who determined the price at which the stocks
were to be sold; and that both placed orders to the suppliers of the Benguet
Lumber Company. They also point out that the families of the brothers Tan Eng Kee
and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not
extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated
powers and privileges granted in favor of Tan Eng Kee, were indicative of his being
a partner in Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's position is
higher in rank, it is not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed
by the owner, can order materials from suppliers for and in behalf of Benguet
Lumber. Furthermore, even a partner does not necessarily have to perform this
particular task. It is, thus, not an indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound
and this privilege was not accorded to other employees, the undisputed fact
remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal
relations existed between them. Whatever privileges Tan Eng Lay gave his brother,
and which were not given the other employees, only proves the kindness and
generosity of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence
of a partnership relation between them. Even highly confidential employees and
the owners of a company sometimes argue with respect to certain matters which,
in no way indicates that they are partners as to each other.35
In the instant case, we find private respondent's arguments to be well-taken.
Where circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such
as to support a finding of the existence of the parties' intent.36 Yet, in the case at
bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what capacity is unclear. We
cannot discount the likelihood that as a member of the family, he occupied a niche
above the rank-and-file employees. He would have enjoyed liberties otherwise
unavailable were he not kin, such as his residence in the Benguet Lumber Company
compound. He would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of supervision. It may even be
that among his duties is to place orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or
liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court
of Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 127405. October 4, 2000]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and
NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV
No. 41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch
140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T. Belo, then
the vice-president for operations of Ultra Clean Water Purifier, through her former
employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who
conveyed her desire to enter into a joint venture with her for the importation and
local distribution of kitchen cookwares. Belo volunteered to finance the joint
venture and assigned to Anay the job of marketing the product considering her
experience and established relationship with West Bend Company, a manufacturer
of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager, and Anay as head of the
marketing department and later, vice-president for sales. Anay organized the
administrative staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belos name should not appear in any
documents relating to their transactions with West Bend Company. Instead, they
agreed to use Anays name in securing distributorship of cookware from that
company. The parties agreed further that Anay would be entitled to: (1) ten
percent (10%) of the annual net profits of the business; (2) overriding commission
of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the
sales she would make; and (4) two percent (2%) for her demonstration services.
The agreement was not reduced to writing on the strength of Belos assurances that
he was sincere, dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware
business took off successfully. They operated under the name of Geminesse
Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at
712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary
commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company
invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A.,
from July 19 to 21, 1987 and to the southwestern regional convention in Pismo
Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with
the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy
in Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co.
for twenty (20) years now, acquired the distributorship of Royal Queen cookware
for Geminesse Enterprise, is the Vice President Sales Marketing and a business
partner of our company, will attend in response to the invitation. (Italics
supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the
task of saving the business on account of the unsatisfactory sales record in the
Makati and Cubao offices. On August 31, 1987, she received a plaque of
appreciation from the administrative and sales people through Marjorie
Tocao[4] for her excellent job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo[5] entitling her to a thirty-seven percent (37%)
commission for her personal sales "up Dec 31/87. Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits. On October
9, 1987, Anay learned that Marjorie Tocao had signed a letter[6] addressed to the
Cubao sales office to the effect that she was no longer the vice-president of
Geminesse Enterprise. The following day, October 10, she received a note from
Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding
office and conducting demonstrations in both Makati and Cubao offices.[7] Anay
attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of
the company to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that
letter was not answered.
Anay still received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission although
the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages[8] against Marjorie D. Tocao and William Belo before the
Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from
January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception of its business operation until
she was illegally dismissed to determine her ten percent (10%) share in the net
profits. She further prayed that she be paid the five percent (5%) overriding
commission on the remaining 150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement
with Anay that was neither reduced in writing, nor ratified, was either
unenforceable or void or inexistent. As far as Belo was concerned, his only role was
to introduce Anay to Marjorie Tocao. There could not have been a partnership
because, as Anay herself admitted, Geminesse Enterprise was the sole
proprietorship of Marjorie Tocao. Because Anay merely acted as marketing
demonstrator of Geminesse Enterprise for an agreed remuneration, and her
complaint referred to either her compensation or dismissal, such complaint should
have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on
account of ill-will and resentment because Marjorie Tocao did not allow her to lord
it over in the Geminesse Enterprise. Anay had acted like she owned the enterprise
because of her experience and expertise. Hence, petitioners were the ones who
suffered actual damages including unreturned and unaccounted stocks of
Geminesse Enterprise, and serious anxiety, besmirched reputation in the business
world, and various damages not less than P500,000.00. They also alleged that, to
vindicate their names, they had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the
plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether
or not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the
profit of the business. He, however, admitted that the two had agreed that Anay
would receive a three to four percent (3-4%) share in the gross sales of the
cookware. He denied contributing capital to the business or receiving a share in its
profits as he merely served as a guarantor of Marjorie Tocao, who was new in the
business. He attended and/or presided over business meetings of the venture in his
capacity as a guarantor but he never participated in decision-making. He claimed
that he wrote the memo granting the plaintiff thirty-seven percent (37%)
commission upon her dismissal from the business venture at the request of Tocao,
because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership
agreement with Anay. However, she admitted that Anay was an expert in the
cookware business and hence, they agreed to grant her the following commissions:
thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two
percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on
the net profits. Marjorie claimed that she got the capital for the business out of the
sale of the sewing machines used in her garments business and from Peter Lo, a
Singaporean friend-financier who loaned her the funds with interest. Because she
treated Anay as her co-equal, Marjorie received the same amounts of commissions
as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which
is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the
partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil
Code in order to determine the ten percent (10%) share of plaintiff in the net
profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February 5, 1988
amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as
exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as
costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between
the plaintiff and the defendants, based on the following: (a) there was an intention
to create a partnership; (b) a common fund was established through contributions
consisting of money and industry, and (c) there was a joint interest in the profits.
The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer of
Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between the
parties. The letter of Roger Muencheberg of West Bend Company stating that he
awarded the distributorship to Anay and Marjorie Tocao because he was convinced
that with Marjories financial contribution and Anays experience, the combination
of the two would be invaluable to the partnership, also supported that conclusion.
Belos claim that he was merely a guarantor has no basis since there was no written
evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his
issuance of a memo giving Anay 37% commission on personal sales belied this. On
the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in
business circles as an impetus to bigger sales volume. It did not matter that the
agreement was not in writing because Article 1771 of the Civil Code provides that a
partnership may be constituted in any form. The fact that Geminesse Enterprise
was registered in Marjorie Tocaos name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What
was registered with the Bureau of Domestic Trade was merely the business name
or style of Geminesse Enterprise.
The trial court finally held 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.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of
damages awarded by the trial court were reduced to P50,000.00 for moral
damages and P50,000.00 as exemplary damages. Their Motion for Reconsideration
was denied by the Court of Appeals for lack of merit.[12] Petitioners Belo and
Marjorie Tocao are now before this Court on a petition for review on certiorari,
asserting that there was no business partnership between them and herein private
respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded
to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that
a partnership existed between them and private respondent Anay because
Geminesse Enterprise came into being exactly a year before the alleged
partnership was formed, and that it was very unlikely that petitioner Belo would
invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing,
without any memorandum whatsoever regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within
the exclusive domain of both the trial and appellate courts. This Court cannot set
aside factual findings of such courts absent any showing that there is no evidence
to support the conclusion drawn by the court a quo.[14] In this case, both the trial
court and the Court of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This Court finds no reason to rule
otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites:
(1) two or more persons bind themselves to contribute money, property or
industry to a common fund; and (2) intention on the part of the partners to divide
the profits among themselves.[15] It may be constituted in any form; a public
instrument is necessary only where immovable property or real rights are
contributed thereto.[16] This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as a written one. Where no
immovable property or real rights are involved, what matters is that the parties
have complied with the requisites of a partnership. The fact that there appears to
be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil
Code[17] did not cause the nullification of the partnership. The pertinent provision
of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from
that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the
business of distributorship of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law, she was the industrial or
managing partner. It was through her reputation with the West Bend Company
that the partnership was able to open the business of distributorship of that
companys cookware products; it was through the same efforts that the business
was propelled to financial success. Petitioner Tocao herself admitted private
respondents indispensable role in putting up the business when, upon being asked
if private respondent held the positions of marketing manager and vice-president
for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one
to sell yet, its only me there then her and then two (2) people, so about four (4).
Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz these
two (2) people were given the designation of marketing managers of which
definitely Nita as superior to them would be the Vice President. [18]
By the set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and private respondents.
Thus, the communication dated June 4, 1986 of Missy Jagler of West Bend
Company to Roger Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the
operations. Marge does not have cookware experience. Nita Anay has started to
gather former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All they need is the finance
and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the partnership rings
hollow in the face of the established fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover, his having authorized in
writing on October 7, 1987, on a stationery of his own business firm, Wilcon
Builders Supply, that private respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted otherwise than that he
had a proprietary interest in the business. His claim that he was merely a guarantor
is belied by that personal act of proprietorship in the business. Moreover, if he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the
Civil Code,[20] he should have presented documentary evidence therefor. While
Article 2055 of the Civil Code simply provides that guaranty must be express,
Article 1403, the Statute of Frauds, requires that a special promise to answer for
the debt, default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and petitioner
Belos roles as both capitalists to the partnership with private respondent are
buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriend
and that the partnership was not their only business venture together. They also
established a firm that they called Wiji, the combination of petitioner Belos first
name, William, and her nickname, Jiji.[23] The special relationship between them
dovetails with petitioner Belos claim that he was acting in behalf of petitioner
Tocao. Significantly, in the early stage of the business operation, petitioners
requested West Bend Company to allow them to utilize their banking and trading
facilities in Singapore in the matter of importation and payment of the cookware
products.[24] The inevitable conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the partnership of distributing
cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent.
While it is true that the receipt of a percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the business,[25] the evidence in the
case at bar controverts an employer-employee relationship between the parties. In
the first place, private respondent had a voice in the management of the affairs of
the cookware distributorship,[26] including selection of people who would
constitute the administrative staff and the sales force. Secondly, petitioner Tocaos
admissions militate against an employer-employee relationship. She admitted that,
like her who owned Geminesse Enterprise,[27] private respondent received only
commissions and transportation and representation allowances[28] and not a fixed
salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs.
X and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with
ending August 21, 1987, will you please go over this and tell the Honorable Court
whether you ever came across this document and know of your own knowledge
the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you
earlier a certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and
words which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means that
you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay
P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court
that there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi,
you know in a sense because of her expertise in the business she is vital to my
business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having
gotten from the company P21,140.50 is your way of indicating that you were
treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao
P15,314.25 the amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an
indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are
the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to
believe that they shall receive the same income in the business. In a partnership,
each partner must share in the profits and losses of the venture, except that the
industrial partner shall not be liable for the losses.[31] As an industrial partner,
private respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of
Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered
with the Bureau of Domestic Trade on August 19, 1987 was merely the name of
that enterprise.[33] While it is true that in her undated application for renewal of
registration of that firm name, petitioner Tocao indicated that it would be engaged
in retail of kitchenwares, cookwares, utensils, skillet,[34] she also admitted that the
enterprise was only 60% to 70% for the cookware business, while 20% to 30% of its
business activity was devoted to the sale of water sterilizer or
purifier.[35] Indubitably then, the business name Geminesse Enterprise was used
only for practical reasons - it was utilized as the common name for petitioner
Tocaos various business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the
unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00.[36] Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still received
her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting
from private respondents efforts to make the business venture a success. Thus, as
petitioner Tocao became adept in the business operation, she started to assert
herself to the extent that she would even shout at private respondent in front of
other people.[38] Her instruction to Lina Torda Cruz, marketing manager, not to
allow private respondent to hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent was no longer
necessary in the business operation,[39] and resulted in a falling out between the
two.However, a mere falling out or misunderstanding between partners does not
convert the partnership into a sham organization.[40] The partnership exists until
dissolved under the law.Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated on
their mutual desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. 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 partners
capability to give it, and the absence of 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.[41]
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.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise.[43] 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.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been entrusted
to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual
findings upon which it is based is primarily the task of the trial court.[45] The Court
of Appeals may modify that amount only when its factual findings are diametrically
opposed to that of the lower court,[46] or the award is palpably or scandalously and
unreasonably excessive.[47]However, exemplary damages that are awarded by way
of example or correction for the public good,[48] should be reduced to P50,000.00,
the amount correctly awarded by the Court of Appeals. Concomitantly, the award
of moral damages of P100,000.00 was excessive and should be likewise reduced to
P50,000.00. Similarly, attorneys fees that should be granted on account of the
award of exemplary damages and petitioners evident bad faith in refusing to satisfy
private respondents plainly valid, just and demandable claims,[49] appear to have
been excessively granted by the trial court and should therefore be reduced to
P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The
partnership among petitioners and private respondent is ordered dissolved, and
the parties are ordered to effect the winding up and liquidation of the partnership
pursuant to the pertinent provisions of the Civil Code. This case is remanded to the
Regional Trial Court for proper proceedings relative to said dissolution. The
appealed decisions of the Regional Trial Court and the Court of Appeals are
AFFIRMED with MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a formal account of
the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the
Civil Code, in order to determine private respondents ten percent (10%) share in
the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five
percent (5%) overriding commission for the one hundred and fifty (150) cookware
sets available for disposition since the time private respondent was wrongfully
excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent
overriding commission on the total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral
damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint
venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of
land from Juan Roque. The first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968 in the amount of P165,224.70, while
they realized a net profit of P60,000.00 in the sale made in 1970. The
corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I.
Plana, petitioners were assessed and required to pay a total amount of
P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and
1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that
they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that
in the years 1968 and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under Section 24,
both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved
petitioners of their individual income tax liabilities but did not relieve them from
the tax liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals
docketed as CTA Case No. 3045. In due course, the respondent court by a majority
decision of March 30, 1987, 2 affirmed the decision and action taken by respondent
commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an
unregistered partnership was in fact formed by petitioners which like a corporation
was subject to corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a co-
ownership between the petitioners, there was no adequate basis for the
conclusion that they thereby formed an unregistered partnership which made
"hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following
alleged errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE
RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT
THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE
PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS,
THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE
REQUIREMENTS LAID DOWN BY LAW THAT WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM
PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-
13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court
in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which
together with their own personal funds they used in buying several real properties.
They appointed their brother to manage their properties with full power to lease,
collect, rent, issue receipts, etc. They had the real properties rented or leased to
various tenants for several years and they gained net profits from the rental
income. Thus, the Collector of Internal Revenue demanded the payment of income
tax on a corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations
and the real estate dealers' fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and partnership as used in
sections 24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected,
and paid annually upon the total net income received in the preceding taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (companies collectives), a tax upon such income equal to
the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participation),
associations or insurance companies, but does not include duly registered general
co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not
a property inherited by them pro indiviso. They created it purposely. What is more
they jointly borrowed a substantial portion thereof in order to establish said
common fund.
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. This was soon followed, on April 23,
1944, by the acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transcations undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality
peculiar to business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal
uses, of petitioners herein. The properties were leased separately to several
persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by
way of rentals. Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely, Simeon Evangelists, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business enterprise operated
for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over twelve
(12) years, since Simeon Evangelists 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. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund, and that
they intended to divide the profits among themselves. Respondent commissioner
and/ or his representative just assumed these conditions to be present on the basis
of the fact that petitioners purchased certain parcels of land and became co-
owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the conservation
or preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the
purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not
sell the same nor make any improvements thereon. In 1966, they bought another
three (3) parcels of land from one seller. It was only 1968 when they sold the two
(2) parcels of land after which they did not make any additional or new purchase.
The remaining three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The
business was under the management of one of the partners. Such condition existed
for over fifteen (15) years. None of the circumstances are present in the case at
bar. The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he
said:
I wish however to make the following observation Article 1769 of the new Civil
Code lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the property held in
common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership,
the existence of a juridical personality different from that of the individual partners,
and the freedom to transfer or assign any interest in the property by one with the
consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953
ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but
who severally retain the title to their respective contribution, are not thereby
rendered partners. They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the proceeds derived.
(Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect
thereto; nor does an agreement to share the profits and losses on the sale of land
create a partnership; the parties are only tenants in common. (Clark vs. Sideway,
142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract
of realty, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in plaintiffs commission, no
partnership existed as between the three parties, whatever their relation may have
been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property.-
Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a partnership between
the owners, though they may use it for the purpose of making gains; and they may,
without becoming partners, agree among themselves as to the management, and
use of such property and the application of the proceeds therefrom. (Spurlock vs.
Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter did
not thereby make them partners. They shared in the gross profits as co- owners
and paid their capital gains taxes on their net profits and availed of the tax amnesty
thereby. Under the circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income tax, as the
respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets that can be held liable for
said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership p. 7 However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in
these transactions, they are thereby relieved of any further tax liability arising
therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent
Court of Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and
another decision is hereby rendered relieving petitioners of the corporate income
tax liability in this case, without pronouncement as to costs.
SO ORDERED.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO,
ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF
APPEALS, respondents.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in
all subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its
three (3) nominees; that, on the other hand, the Filipino stockholders can nominate
only six (6) candidates and in the event they cannot agree on the six (6) nominees,
they shall vote only among themselves to determine who the six (6) nominees will
be, with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling here and
abroad vitreous china and sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an incorporated enterprise and
that the name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation."
The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the
form annexed hereto as Exhibit A and, insofar as permitted under Philippine law,
shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors,
which shall consist of nine individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as
a minority group, including the grant of veto powers over a number of corporate
acts and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned
by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it
apparently had other subsidiaries of joint joint venture groups in the countries
where Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin Young. The
minutes were taken by the Secretary, Avelino Cruz. After disposing of the
preliminary items in the agenda, the stockholders then proceeded to the election
of the members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine
investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then
nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay.
The chairman, Baldwin Young ruled the last two nominations out of order on the
basis of section 5 (a) of the Agreement, the consistent practice of the parties during
the past annual stockholders' meetings to nominate only nine persons as nominees
for the nine-member board of directors, and the legal advice of Saniwares' legal
counsel. The following events then, transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and
the 3 nominees of ASI, thus effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua protested the decision of the Chairman and announced
that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP
No. 05617) were being cumulatively voted for the three ASI nominees and Charles
Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other
proxy holders announced that all the votes owned by and or represented by them
467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively
in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless
instructed the Secretary to cast all votes equally in favor of the three ASI nominees,
namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul
Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin
Young. The Secretary then certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young.
The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The
Chairman then threatened to have the stockholders who did not agree to the
decision of the Chairman on the casting of votes bodily thrown out. The ASI Group,
Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the
shares of Saniwares, decided to continue the meeting at the elevator lobby of the
American Standard Building. The continued meeting was presided by Luciano E.
Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative
votes cast earlier in the meeting, the ASI Group nominated its four nominees;
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano
E. Salazar voted for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the explanation that
there was a tie among the other six (6) nominees for the four (4) remaining
positions of directors and that the body decided not to break the tie. (pp. 37-39,
Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No.
2417. The second petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets
of parties except for Avelino Cruz claimed to be the legitimate directors of the
corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court
in its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN
IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING
THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO
THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of
such agreements with terms never contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the
property rights of stockholders without due process of law in order that a favored
group of stockholders may be illegally benefitted and guaranteed a continuing
monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT
THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To
answer this question the following factors should be determined: (1) the nature of
the business established by the parties whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their additional 10%
equity during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation depends
upon their actual intention which is determined in accordance with the rules
governing the interpretation and construction of contracts. (Terminal Shares, Inc. v.
Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California
Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder. (At P.
66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the
parties' agreement was to establish a joint venture presented by the Lagdameo and
Young Group on the ground that it contravenes the parol evidence rule under
section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo
and Young Group never pleaded in their pleading that the "Agreement" failed to
express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and
therefore, there can be, between the parties and their successors in interest, no
evidence of the terms of the agreement other than the contents of the writing,
except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true
intent and agreement of the parties or the validity of the agreement is put in issue
by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed
to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at
third parties and is not inconsistent with, and does not preclude, the existence of
two distinct groups of stockholders in Saniwares one of which (the Philippine
Investors) shall constitute the majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident intention of the Philippine Investors
and ASI in entering into the Agreement is to enter into ajoint venture enterprise,
and if some words in the Agreement appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former (Art. 1370, New Civil Code).
The various stipulations of a contract shall be interpreted together attributing to
the doubtful ones that sense which may result from all of them taken jointly (Art.
1374, New Civil Code). Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No.
2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question
whether they intended by their agreement to create a joint adventure, or to
assume some other relation is a question of fact for the jury. (Binder v. Kessler v
200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge
v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation.
The history of the organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint venture and not with
an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI
agreed to accept the role of minority vis-a-vis the Philippine National group of
investors, on the condition that the Agreement should contain provisions to
protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the
right to designate the president and plant manager [Sec. 5 (6)]. The Agreement
further provides that the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9
votes of the board of directors for certain actions, in effect gave ASI (which
designates 3 directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements for amendments of the
articles and by-laws; and most significantly to the issues of tms case, the provision
that ASI shall designate 3 out of the 9 directors and the other stockholders shall
designate the other 6, clearly indicate that there are two distinct groups in
Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%, and that 2) ASI is given certain
protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special
contractual relationship between the parties, i.e., ASI and the other stockholders.
(pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder" was merely to
obviate the possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of
a firm in exchange for its manufacturing expertise, use of its brand names, and
other such assistance. However, there is always a danger from such arrangements.
The foreign group may, from the start, intend to establish its own sole or
monopolistic operations and merely uses the joint venture arrangement to gain a
foothold or test the Philippine waters, so to speak. Or the covetousness may come
later. As the Philippine firm enlarges its operations and becomes profitable, the
foreign group undermines the local majority ownership and actively tries to
completely or predominantly take over the entire company. This undermining of
joint ventures is not consistent with fair dealing to say the least. To the extent that
such subversive actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal requirements
reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders
to enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the
parties thereto, may provide that in exercising any voting rights, the shares held by
them shall be voted as therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation
because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at
the time of the disputed stockholders meeting, these 95 stockholders are not
separate from each other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the
95 stockholders. The YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy
family for 7 stockholders, etc. If the members of one family and/or business or
interest group are considered as one (which, it is respectfully submitted, they
should be for purposes of determining how closely held Saniwares is there were as
of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to
discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11 December
1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim that Saniwares is a
public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard
Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris,
207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90,
295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint
Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt
with legal questions as to the extent to which the requirements arising from the
corporate form of joint venture corporations should control, and the courts ruled
that substantial justice lay with those litigants who relied on the joint venture
agreement rather than the litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has
pointed out that just as in close corporations, shareholders' agreements in joint
venture corporations often contain provisions which do one or more of the
following: (1) require greater than majority vote for shareholder and director
action; (2) give certain shareholders or groups of shareholders power to select a
specified number of directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed.,
Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this
provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to
in close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close
corporations to those which comply with the requisites laid down by section 96, it
is entirely possible that a corporation which is in fact a close corporation will not
come within the definition. In such case, its stockholders should not be precluded
from entering into contracts like voting agreements if these are otherwise valid.
(Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation
or nomination of directors restricts the right of the Agreement's signatories to vote
for directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants. (Rollo No. 75951,
pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court of
Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a)
hereof says that three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino stockholders. This
allocation of board seats is obviously in consonance with the minority position of
ASI.
Having entered into a well-defined contractual relationship, it is imperative that
the parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even in
joint venture corporations, are null and void to the extent that such may interfere
with the stockholder's rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and
local stockholders, so long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule
on this question. Rather, all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats Cannot be disregarded. On the other hand,
the rights of the stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should
recognize and uphold the division of the stockholders into two groups, and at the
same time uphold the right of the stockholders within each group to cumulative
voting in the process of determining who the group's nominees would be. In
practical terms, as suggested by appellant Luciano E. Salazar himself, this means
that if the Filipino stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only. During this voting,
each Filipino stockholder can cumulate his votes. ASI, however, should not be
allowed to interfere in the voting within the Filipino group. Otherwise, ASI would
be able to designate more than the three directors it is allowed to designate under
the Agreement, and may even be able to get a majority of the board seats, a result
which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-
Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof
which provides:
And provided finally that the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in partially
nationalized activities shall be allowed in proportion to their allowable participation
or share in the capital of such entities. (amendments introduced by Presidential
Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact
hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12
289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2
P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the
law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint venture
with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev.
(167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of
the question of whether or not the ASI Group may vote their additional equity lies
in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in
the process of determining who the group's nominees would be under Section 3 (a)
(1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of the board of directors while
Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it
is allowed to designate under the Agreement, and may even be able to get a
majority of the board seats, a result which is clearly contrary to the contractual
intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is
the consideration as regards the possible domination by the foreign investors of
the enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In
the instant case, the foreign Group ASI was limited to designate three directors.
This is the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the
joint venture agreement exists considering that in limiting 3 board seats in the 9-
man board of directors there are provisions already agreed upon and embodied in
the parties' Agreement to protect the interests arising from the minority status of
the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which
were impliedly affirmed by the appellate court declaring Messrs. Wolfgang
Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young,
Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as
the duly elected directors of Saniwares at the March 8,1983 annual stockholders'
meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees
separately and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative
voting while section 5(a) relates to the manner of nominating the members of the
board of directors. The petitioners in G.R. No. 75951 agreed to this procedure,
hence, they cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under
its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the
majority status of the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN
JENG and CHEN HO-FU, respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm
name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The
partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all
citizens of the Republic of China (Taiwan), as limited partners. The partnership
business consisted of exploiting a marble deposit found on land owned by the Sps.
Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum
Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its
main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985,
as Assistant General Manager with a monthly salary of P4,000.00. According to
petitioner Yu, however, he actually received only half of his stipulated monthly
salary, since he had accepted the promise of the partners that the balance would
be paid when the firm shall have secured additional operating funds from abroad.
Benjamin Yu actually managed the operations and finances of the business; he had
overall supervision of the workers at the marble quarry in Bulacan and took charge
of the preparation of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners
Lea Bendal and Rhodora Bendal sold and transferred their interests in the
partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu
Chang, a limited partner, also sold and transferred his interest in the partnership to
Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co
acquired the great bulk of the partnership interest. The partnership now
constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm
name of Jade Mountain, though they moved the firm's main office from Makati to
Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum
Agreement relating to the operation of the marble quarry was entered into with
the Cruz spouses in February of 1988.2 The actual operations of the business
enterprise continued as before. All the employees of the partnership continued
working in the business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from
Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong
office for work and there met private respondent Willy Co for the first time.
Petitioner was informed by Willy Co that the latter had bought the business from
the original partners and that it was for him to decide whether or not he was
responsible for the obligations of the old partnership, including petitioner's unpaid
salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain
business enterprise. His unpaid salaries remained unpaid.3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and
recovery of unpaid salaries accruing from November 1984 to October 1988, moral
and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co
and the other private respondents. The partnership and Willy Co denied
petitioner's charges, contending in the main that Benjamin Yu was never hired as
an employee by the present or new partnership.4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his
reinstatement and awarded him his claim for unpaid salaries, backwages and
attorney's fees.5
On appeal, the National Labor Relations Commission ("NLRC") reversed the
decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution
dated 29 November 1990. The NLRC held that a new partnership consisting of Mr.
Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that
the new partnership had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law requiring the new
partnership to absorb the employees of the old partnership. Benjamin Yu,
therefore, had not been illegally dismissed by the new partnership which had
simply declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should
be asserted against the original members of the preceding partnership, but these
though impleaded had, apparently, not been served with summons in the
proceedings before the Labor Arbiter.6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking
us to set aside and annul the Resolution of the NLRC as a product of grave abuse of
discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle
that a partnership has a juridical personality separate and distinct from that of each
of its members. Such independent legal personality subsists, petitioner claims,
notwithstanding changes in the identities of the partners. Consequently, the
employment contract between Benjamin Yu and the partnership Jade Mountain
could not have been affected by changes in the latter's membership.7
Two (2) main issues are thus posed for our consideration in the case at bar: (1)
whether the partnership which had hired petitioner Yu as Assistant General
Manager had been extinguished and replaced by a new partnerships composed of
Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come
into existence, whether petitioner Yu could nonetheless assert his rights under his
employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is,
that the legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection — of which the NLRC seemed quite unaware
— is found in the Civil Code provisions relating to partnerships. Article 1828 of the
Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no definite
term or particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the
original partnership interest. The acquisition of 82% of the partnership interest by
new partners, coupled with the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of
a partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding
up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership
persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the
business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to
dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net assets, and then re-
assembling the said assets or most of them and opening a new business enterprise.
There were, no doubt, powerful tax considerations which underlay such an
informal approach to business on the part of the retiring and the incoming
partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new
partnership itself which continued the business of the old, dissolved, one, are liable
for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et
al,8 the Court held that under facts very similar to those in the case at bar, a
withdrawing partner remains liable to a third party creditor of the old
partnership.9 The liability of the new partnership, upon the other hand, in the set
of circumstances obtaining in the case at bar, is established in Article 1840 of the
Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership
are also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner assigns)
his rights in partnership property to two or more of the partners, or to one or more
of the partners and one or more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner,
who continues the business without liquidation of partnership affairs, either alone
or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any
assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who
continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners
continue the business under the provisions of article 1837, second paragraph, No.
2, either alone or with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business
either alone or with others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the retiring or deceased partner
or the representative of the deceased partner, have a prior right to any claim of the
retired partner or the representative of the deceased partner against the person or
partnership continuing the business on account of the retired or deceased
partner's interest in the dissolved partnership or on account of any consideration
promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set
assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of
the new Jade Mountain which continued the business of the old one without
liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain,
like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to
priority vis-a-vis any claim of any retired or previous partner insofar as such retired
partner's interest in the dissolved partnership is concerned. It is not necessary for
the Court to determine under which one or mare of the above six (6) paragraphs,
the case at bar would fall, if only because the facts on record are not detailed with
sufficient precision to permit such determination. It is, however, clear to the Court
that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for
unpaid salaries, as well as other claims relating to his employment with the
previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was
entitled to appoint and hire a new general or assistant general manager to run the
affairs of the business enterprise take over. An assistant general manager belongs
to the most senior ranks of management and a new partnership is entitled to
appoint a top manager of its own choice and confidence. The non-retention of
Benjamin Yu as Assistant General Manager did not therefore constitute unlawful
termination, or termination without just or authorized cause. We think that the
precise authorized cause for termination in the case at bar was redundancy. 10 The
new partnership had its own new General Manager, apparently Mr. Willy Co, the
principal new owner himself, who personally ran the business of Jade Mountain.
Benjamin Yu's old position as Assistant General Manager thus became superfluous
or redundant. 11It follows that petitioner Benjamin Yu is entitled to separation pay
at the rate of one month's pay for each year of service that he had rendered to the
old partnership, a fraction of at least six (6) months being considered as a whole
year.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE
COURSE, the Comment filed by private respondents is treated as their Answer to
the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is
hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring
private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the
rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984
to December 1987) in the total amount of P72,000.00;

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin (b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by
Yu in its employ, we consider that Benjamin Yu was very shabbily treated by the three (3) years of service or a total of P12,000.00;
new partnership. The old partnership certainly benefitted from the services of (c) indemnity for moral damages in the amount of P20,000.00;
Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing
and exporting enterprise. His work constituted value-added to the business itself (d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
and therefore, the new partnership similarly benefitted from the labors of commencing on 26 December 1989 and until fully paid; and
Benjamin Yu. It is worthy of note that the new partnership did not try to suggest
that there was any cause consisting of some blameworthy act or omission on the (e) ten percent (10%) attorney's fees on the total amount due from private
part of Mr. Yu which compelled the new partnership to terminate his services. respondent Jade Mountain.
Nonetheless, the new Jade Mountain did not notify him of the change in ownership Costs against private respondents.
of the business, the relocation of the main office of Jade Mountain from Makati to
Mandaluyong and the assumption by Mr. Willy Co of control of operations. The SO ORDERED.
treatment (including the refusal to honor his claim for unpaid wages) accorded to
Assistant General Manager Benjamin Yu was so summary and cavalier as to amount
to arbitrary, bad faith treatment, for which the new Jade Mountain may
legitimately be required to respond by paying moral damages. This Court,
exercising its discretion and in view of all the circumstances of this case, believes
that an indemnity for moral damages in the amount of P20,000.00 is proper and
reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the

legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his
separation pay, computed from the date of promulgation of the award of the Labor
Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort
to litigation to protect his rights in the premises, he is entitled to attorney's fees in
the amount of ten percent (10%) of the total amount due from private respondent
Jade Mountain.
[G.R. No. 30616 : December 10, 1990.]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.
MAGLANA,Defendant-Appellee.
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First
Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518,
dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership
(Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of
them as partners. The partnership EDE with an indefinite term of existence was
duly registered on January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure
timber and/or minor forests products licenses and concessions over public and/or
private forest lands and to operate, develop and promote such forests rights and
concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application
for a timber concession covering the area located at Cateel and Baganga, Davao
with the Bureau of Forestry which was approved and Timber License No. 35-56 was
duly issued and became the basis of subsequent renewals made for and in behalf of
the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the
business affairs of the partnership, including marketing and handling of cash and is
authorized to sign all papers and instruments relating to the partnership, while
appellant Rojas shall be the logging superintendent and shall manage the logging
operations of the partnership. It is also provided in the said articles of co-
partnership that all profits and losses of the partnership shall be divided share and
share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation
of said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the
services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles
of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST
DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose
of the second partnership which is to hold and secure renewal of timber license
instead of to secure the license as in the first partnership and the term of the
second partnership is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on
May 1, 1956, and was able to ship logs and realize profits. An income was derived
from the proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document
entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST
DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves
that Maglana and Rojas shall purchase the interest, share and participation in the
Partnership of Pahamotang assessed in the amount of P31,501.12. It was also
agreed in the said instrument that after payment of the sum of P31,501.12 to
Pahamotang including the amount of loan secured by Pahamotang in favor of the
partnership, the two (Maglana and Rojas) shall become the owners of all
equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT
ENTERPRISES, the name also given to the second partnership, be dissolved.
Pahamotang was paid in fun on August 31, 1957. No other rights and obligations
accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana
and Rojas without the benefit of any written agreement or reconstitution of their
written Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another
logging enterprise, the CMS Estate, Inc. He left and abandoned the partnership
(Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in
the newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership
and was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A.
p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital investments of the
partnership as well as his obligation to perform his duties as logging
superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to
comply with the promised contributions and he will not work as logging
superintendent. 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 (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his contribution.
Thus, in a letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that
he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao
against Maglana for the recovery of properties, accounting, receivership and
damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to
examine the long and voluminous accounts of the Eastcoast Development
Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp.
102-114) was denied by Judge Romero for want of merit (Ibid., p. 125). Judge
Romero also required the inclusion of the entire year 1961 in the report to be
submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the
commissioners started examining the records and supporting papers of the
partnership as well as the information furnished them by the parties, which were
compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer
with counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336),
which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners'
Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May
27, 1964 approving the report of the commissioners which was opposed by the
appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid.,
pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the
following issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the
dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and
share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the
partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive
portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby
rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after
Pahamotang retired from the second partnership, that is, after August 31, 1957,
when Pahamotang was finally paid his share — the partnership of the defendant
and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of
computation, that is the ratio and proportion of their respective contributions, or
on the basis of share and share alike — this covered by actual contributions of the
plaintiff and the defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from 1957 to 1959,
the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the
profits, but from 1960 to the date of dissolution, February 23, 1961, the plaintiff's
share will be on the basis of his actual contribution and, considering his
indebtedness to the partnership, the plaintiff is not entitled to any share in the
profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed
in his or in his wife's name were acquired with partnership funds or with funds of
the defendant and — the Court declares that there is no evidence that these
properties were acquired by the partnership funds, and therefore the same should
not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused
them and who should be liable for them — the Court declares that neither parties
is entitled to damages, for as already stated above it is not a wise policy to place a
price on the right of a person to litigate and/or to come to Court for the assertion
of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated
February 23, 1961; did it dissolve the partnership or not — the Court declares that
the letter of the defendant to the plaintiff dated February 23, 1961, in effect
dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and
other merchandise to the laborers and employees of the Eastcoast Development
Enterprises, — the COURT DECLARES THE SAME AS NOT BELONGING TO THE
PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo
Angeles David — is VALID AND BINDING UPON THE PARTIES AND SHOULD BE
CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the
partnership the amount of P69,000.00 the profits he received from the CMS Estate,
Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of
P85,000.00 which according to him he is still entitled to receive from the CMS
Estate, Inc. is hereby denied considering that it has not yet been actually received,
and further the receipt is merely based upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19
his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he
should have received as logging superintendent, and which was not paid to him,
and this should be considered as part of Maglana's contribution likewise to the
partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of
the Maglana-Rojas after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so
that when the second partnership was dissolved there was no written contract of
co-partnership; there was no reconstitution as provided for in the Maglana, Rojas
and Pahamotang partnership contract. Hence, the partnership which was carried
on by Rojas and Maglana after the dissolution of the second partnership was a de
facto partnership and at will. It was considered as a partnership at will because
there was no term, express or implied; no period was fixed, expressly or impliedly
(Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm
name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-
Partnership dated January 14, 1955 (Exhibit "A") has not been novated, superseded
and/or dissolved by the unregistered articles of co-partnership among appellant
Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit
"C") and accordingly, the terms and stipulations of said registered Articles of Co-
Partnership (Exhibit "A") should govern the relations between him and Maglana.
Upon withdrawal of Agustin Pahamotang from the unregistered partnership
(Exhibit "C"), the legally constituted partnership EDE (Exhibit "A") continues to
govern the relations between them and it was legal error to consider a de facto
partnership between said two partners or a partnership at will. Hence, the letter of
appellee Maglana dated February 23, 1961, did not legally dissolve the registered
partnership between them, being in contravention of the partnership agreement
agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather,
appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and
to the sharing profits between them of "share and share alike" as stipulated in the
registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and
Maglana, it appears evident that it was not the intention of the partners to dissolve
the first partnership, upon the constitution of the second one, which they
unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-
Appellee, pp. 24-25). Except for the fact that they took in one industrial partner;
gave him an equal share in the profits and fixed the term of the second partnership
to thirty (30) years, everything else was the same. Thus, they adopted the same
name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes
and the capital contributions of Rojas and Maglana as stipulated in both
partnerships call for the same amounts. Just as important is the fact that all
subsequent renewals of Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and purposes therefore, the First
Articles of Partnership were only amended, in the form of Supplementary Articles
of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-
Appellant, p. 5). Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under the duly registered
articles. As found by the trial court, it is an admitted fact that even up to now,
there are still subsisting obligations and contracts of the latter (Decision, R.A. pp.
950-957). No rights and obligations accrued in the name of the second partnership
except in favor of Pahamotang which was fully paid by the duly registered
partnership (Decision, R.A., pp. 919-921).
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. Even more convincing, is the fact that Maglana on
March 17, 1957, wrote Rojas, reminding the latter 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. As earlier stated, Rojas replied that he will not be able to comply with
the promised contributions and he will not work as logging superintendent. By such
statements, it is obvious that Roxas understood what Maglana was referring to and
left no room for doubt that both considered themselves governed by the articles of
the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the
withdrawal of Pahamotang can neither be considered as a De Facto Partnership,
nor a Partnership at Will, for as stressed, there is an existing partnership, duly
registered.
As to the question of whether or not Maglana can unilaterally dissolve the
partnership in the case at bar, the answer is in the affirmative.
Hence, 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.
On the basis of the Commissioners' Report, the corresponding contribution of the
partners from 1956-1961 are as follows: Eufracio Rojas who should have
contributed P158,158.00, contributed only P18,750.00 while Maglana who should
have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is
a settled rule that when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever he may
have promised to contribute (Article 1786, Civil Code) and for interests and
damages from the time he should have complied with his obligation (Article 1788,
Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of
partnership, each partner must share in the profits and losses of the venture. That
is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits.
In their voluminous reports which was approved by the trial court, they showed
that on 50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%,
he will be liable for P40,092.96 and finally on the basis of actual capital
contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the
withdrawal of Pahamotang which is unquestionably a continuation of the duly
registered partnership and the sharing of profits and losses which should be on the
basis of share and share alike as provided for in the duly registered Articles of Co-
Partnership, no plausible reason could be found to disturb the findings and
conclusions of the trial court.: nad

As to whether Maglana is liable for damages because of such withdrawal, it will be

recalled that after the withdrawal of Pahamotang, Rojas entered into a
management contract with another logging enterprise, the CMS Estate, Inc., a
company engaged in the same business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in equipment to the capital
investment and to perform his duties as logging superintendent, as stipulated in
their partnership agreement. The records also show that Rojas not only abandoned
the partnership but also took funds in an amount more than his contribution
(Decision, R.A., p. 949).

In the given situation Maglana cannot be said to be in bad faith nor can he be liable
for damages.

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.

SO ORDERED.