TOCAO v. CA

G.R. No. 127405; October 4, 2000

FACTS: 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. 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

The parties agreed that Belo's name should not appear in any documents relating to their transactions with West Bend Company. 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 Tocao's name.

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 Belo's assurances that he was sincere, dependable and honest when it came to financial commitments.

On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to the Cubao sales office to the effect that she was no longer thevice-president of Geminesse Enterprise.

Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988and the audit of the company to determine her share in the net profits.

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 P 13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint forsum of money with damages against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140

The trial court held that there was indeed an "oral partnership agreement between the plaintiff and the defendants. The Court of Appeals affirmed thelower court’s decision.

ISSUE: Whether the parties formed a partnership

HELD: Yes, the parties involved in this case formed a partnership

The Supreme Court held that 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. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto.

This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one.

In the case at hand, Belo acted as capitalist while Tocao as president and general manager, and Anay as head of the marketing department and later, vice-president for sales. Furthermore, Anay was entitled to a percentage of the net profits of the business.

Therefore, the parties formed a partnership.

JM TUAZON and CO v. BOLANOS

95 PHIL 106

Facts: This is an action to recover possession of registered land situated inBarrio Tatalon, Quezon City. The complaint of plaintiff JM Tuason & Co Incwas amended 3 times with respect to the extent and description of the landsough to be recovered. Originally, the land sought to be recovered was saidto be more or less 13 hectares, but it was later amended to 6 hectares,after the defendant had indicated the plaintiff's surveyors the portion ofland claimed and occupied by him. The second amendment is that theportion of the said land was covered in another TCT and the 3rdamendment was made after the defendant' surveyor and a witness, QuirinoFeria testified that the land occupied by the defendant was about 13hectares.

Defendant raised the defense of prescription and title thru "open,continuous, exclusive and public and notorious possession of land indispute. He also alleged that the registration of the land was obtained byplaintiff's predecessor through fraud or error.

The lower court rendered judgment in favor of the plaintiff and ordered thedefendant to restore possession of the land to the plaintiff, as well as to paycorresponding rent from January 1940 until he vacates the land. On appealdefendant raised a number of assignments or errors in the decision, one ofwhich is that the trial court erred in not dismissing the case on the groundthat the case was not brought by the real party in interest.

Issue: Whether or not the lower court erred in not dismissing the case onthe ground that it was not brought by the real party in interest? – NO

Held: What the Rules of Court require is that an action be broughtin thename of, but not necessarily by, the real party in interest. In fact thepractice is for an attorney-at-law to bring the action, that is to file thecomplaint, in the name of the plaintiff. That practice appears to have beenfollowed in this case, since the complaint is signed by the law firm ofAraneta and Araneta, "counsel for plaintiff" and commences with thestatement "comes now plaintiff, through its undersigned counsel." It is truethat the complaint also states that the plaintiff is "represented herein by itsManaging Partner Gregorio Araneta, Inc.", another corporation, but there isnothing against one corporation being represented by another person,natural or juridical, in a suit in court. The contention that Gregorio Araneta,Inc. cannot act as managing partner for plaintiff on the theory that it isillegal for two corporations to enter into a partnership is without merit, forthe true rule is that "though a corporation has no power to enter into apartnership, it may nevertheless enter into a joint venture with anotherwhere the nature of that venture is in line with the business authorized byits charter."

AGUILA, JR. v. CA

FACTS: In April 1991, the spouses Ruben and Felicidad Abrogar enteredinto a loan agreement with a lending firm called A.C. Aguila & Sons, Co., apartnership. The loan was for P200k. To secure the loan, the spousesmortgaged their house and lot located in a subdivision. The terms of theloan further stipulates that in case of non-payment, the property shall beautomatically appropriated to the partnership and a deed of sale be readilyexecuted in favor of the partnership. She does have a 90 day redemptionperiod.

Ruben died, and Felicidad failed to make payment. She refused to turn overthe property and so the firm filed an ejectment case against her (whereinshe lost). She also failed to redeem the property within the periodstipulated. She then filed a civil case against Alfredo Aguila, manager of thefirm, seeking for the declaration of nullity of the deed of sale. The RTC

retained the validity of the deed of sale. The Court of Appeals reversed theRTC. The CA ruled that the sale is void for it is a pactum commissorium sale which is prohibited under Art. 2088 of the Civil Code (note the disparityof the purchase price, which is the loan amount, with the actual value ofthe property which is after all located in a subdivision).

ISSUE: Whether or not the case filed by Felicidad shall prosper.

HELD: No. Unfortunately, the civil case was filed not against the real partyin interest. As pointed out by Aguila, he is not the real party in interest butrather it was the partnership A.C. Aguila & Sons, Co. The Rules of Courtprovide that “every action must be prosecuted and defended in the nameof the real party in interest.” A real party in interest is one who would bebenefited or injured by the judgment, or who is entitled to the avails of thesuit. Any decision rendered against a person who is not a real party ininterest in the case cannot be executed. Hence, a complaint filed againstsuch a person should be dismissed for failure to state a cause of action, asin the case at bar.

Under Art. 1768 of the Civil Code, a partnership “has a juridical personalityseparate and distinct from that of each of the partners.” The partnerscannot be held liable for the obligations of the partnership unless it isshown that the legal fiction of a different juridical personality is being usedfor fraudulent, unfair, or illegal purposes. In this case, Felicidad has notshown that A.C. Aguila & Sons, Co., as a separate juridical entity, is beingused for fraudulent, unfair, or illegal purposes. Moreover, the title to thesubject property is in the name of A.C. Aguila & Sons, Co. It is thepartnership, not its officers or agents, which should be impleaded in anylitigation involving property registered in its name. A violation of this rulewill result in the dismissal of the complaint.

PASCUAL v. COMMISSIONER OF INTERNAL REVENUE

166 SCRA 560 (1988)

Facts: On June 22, 1965, petitioners Mariano Pascual and Renato Dragonbought two (2) parcels of land from Santiago Bernardino, et al. and on May28, 1966, they bought another three (3) parcels of land from Juan Roque.

The first two parcels of land were sold by petitioners in 1968 to MarenirDevelopment Corporation, while the three parcels of land were sold bypetitioners to Erlinda Reyes and Maria Samson on March 19, 1970.

Petitioners realized a net profit in the sale made in 1968 in the amount ofP165,224.70, while they realized a net profit of P60,000.00 in the sale madein 1970. The corresponding capital gains taxes were paid by petitioners in1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter of then Acting BIR Commissioner Efren I. Plana,

petitioners were assessed and required to pay a total amount ofP107,101.70 as alleged deficiency corporate income taxes for the years1968 and 1970. Petitioners protested the said assessment asserting thatthey had availed of tax amnesties way back in 1974.

Respondent Commissioner informed petitioners that in the years 1968 and1970, petitioners as co-owners in the real estate transactions formed anunregistered partnership or joint venture taxable as a corporation under theNational Internal Revenue Code.

Issue: Whether or not respondent is correct in its presumptivedetermination that petitioners formed an unregistered partnership thussubject to corporate income tax. – NO

Ruling: There is no evidence that petitioners entered into an agreement tocontribute money, property or industry to a common fund, and that theyintended to divide the profits among themselves. Respondentcommissioner and/ or his representative just assumed these conditions tobe present on the basis of the fact that petitioners purchased certainparcels of land and became co-owners thereof. In Evangelista, there was aseries of transactions where petitioners purchased twenty-four (24) lotsshowing that the purpose was not limited to the conservation orpreservation of the common fund or even the properties acquired by them.The character of habituality peculiar to business transactions engaged infor the purpose of gain was present. Reliance of the lower court to the caseof Evangelista v. Collector is untenable. In order to constitute a partnershipinter sese there must be: (a) An intent to form the same; (b) generallyparticipating in both profits and losses; (c) and such a community ofinterest, as far as third persons are concerned as enables each party tomake contract, manage the business, and dispose of the wholeproperty.There is no adequate basis to support the proposition that theythereby formed an unregistered partnership. The two isolated transactionswhereby they purchased properties and sold the same a few yearsthereafter did not thereby make them partners.

OÑA v. THE COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-19342 May 25, 1972

Facts: Julia Bunales died on March 23, 1944, leaving as heirs her survivingspouse. Lorenzo T. Oña and her five children. Lorenzo T. Oña, the survivingspouse was appointed administrator of the estate of said deceased. Apartition was thereafter approved by the Court. The Court also appointedLorenzo, upon petition to the CFI of Manila, to be appointed guardian of thepersons and property of Luz, Virginia and Lorenzo, Jr., who were minors atthe time.

“Although the project of partition was approved by the Court on May 16,1949. no attempt was made to divide the properties therein listed. Instead,

the properties remained under the management of Lorenzo T. Oña whoused said properties in business by leasing or selling them and investingthe income derived therefrom and the proceeds from the sales thereof inreal properties and securities. As a result, petitioners’ properties andinvestments gradually increased from P105,450.00 in 1949 to P480.005.20in 1956. However, petitioners did not actually receive their shares in theyearly income. The income was always left in the hands of Lorenzo T. Oñawho, as heretofore pointed out, invested them in real properties andsecurities.

On the basis of the foregoing facts, respondent (Commissioner of InternalRevenue) decided that petitioners formed an unregistered partnership andtherefore, subject to the corporate income tax, pursuant to Section 24, inrelation to Section 84(b), of the Tax Code. Accordingly, he assessed againstthe petitioners the amounts of P8,092.00 and P13,899.00 as corporateincome taxes for 1955 and 1956, respectively. The defense of petitionersrevolved mainly in the contention that they are co-owners of the propertiesinherited from Julia Buñales and the profits derived therefrom rather thanhaving formed a partnership.

Issue: Whether or not it was proper to consider petitioners as anunregistered partnership.– YES

Ruling: The first thing that has struck the Court is that whereas petitioners’predecessor in interest died way back on March 23, 1944 and the project ofpartition of her estate was judicially approved as early as May 16, 1949,and presumably petitioners have been holding their respective shares intheir inheritance since those dates admittedly under the administration ormanagement of the head of the family, the widower and father Lorenzo T.Oña, the assessment in question refers to the later years 1955 and 1956.We believe this point to be important because, apparently, at the start, orin the years 1944 to 1954, the respondent Commissioner of InternalRevenue did treat petitioners as co-owners, not liable to corporate tax, andit was only from 1955 that he considered them as having formed anunregistered partnership.

Under the management of Lorenzo T. Oña who used said properties inbusiness by leasing or selling them and investing the income derivedtherefrom and the proceeds from the sales thereof in real properties andsecurities,” as a result of which said properties and investments steadilyincreased yearly from P87,860.00 in “land account” and P17,590.00 in“building account’ ‘in 1949 to P175,028.68 in “investment account,”P135,714.68 in “land account” and P169,262.52 in “building account” in1956. And all these became possible because, admittedly, petitioners neveractually received any share of the income or profits from Lorenzo T. Oña,and instead, they allowed him to continue using said shares as part of thecommon fund for their ventures, even as they paid the correspondingincome taxes on the basis of their respective shares of the profits of theircommon business as reported by the said Lorenzo T. Oña.

It is thus incontrovertible that petitioners did not, contrary to theircontention, merely limit themselves to holding the properties inherited bythem. Indeed, it is admitted that during the material years herein involved,some of the said properties were sold at considerable profit, and that withsaid profit, petitioners engaged, thru Lorenzo T. Oña, in the purchase andsale of corporate securities. It is likewise admitted that all the profits fromthese ventures were divided among petitioners proportionately inaccordance with their respective shares in the inheritance. In thesecircumstances, it is Our considered view that from the moment petitionersallowed not only the incomes from their respective shares of theinheritance but even the inherited properties themselves to be used byLorenzo T. Oña as a common fund in undertaking several transactions or inbusiness, with the intention of deriving profit to be shared by themproportionally, such act was tantamount to actually contributing suchincomes to a common fund and, in effect, they thereby formed anunregistered partnership within the purview of the abovementionedprovisions of the Tax Code.

GATCHALIAN v. COLLECTOR OF INTERNAL REVENUE

67 Phil. 666 (1939)

Facts: Plaintiffs (15 persons), in order to enable them to purchase onesweepstakes ticket valued at two pesos (P2), subscribed and paid eachvaried amounts aggregating 2 pesos. The said ticket was registered in thename of Jose Gatchalian and Company . The above-mentioned ticketbearing No. 178637 won one of the third prizes in the amount of 50, 000.Jose Gatchalian was required by income tax examiner Alfredo David to filethe corresponding income tax return covering the prize won by JoseGatchalian & Company. The Collector of Internal Revenue collected the taxunder section 10 of Act No. 2833, as last amended by section 2 of Act No.3761, reading as follows:

"SEC. 10. (a) There shall be levied, assessed, collected, and paid annuallyupon the total net income received in the preceding calendar year from allsources by every corporation, joint-stock company, partnership, jointaccount (cuenta en participación), association or insurance company,organized in the Philippine Islands, no matter how created or organized, butnot including duly registered general copartnerships (compañiascolectivas), a tax of three per centum upon such income;

Issue: Whether or not the plaintiffs formed a partnership, or merely acommunity of property without a personality of its own; in the first case it isadmitted that the partnership thus formed is liable for the payment ofincome tax, whereas if there was merely a community of property, they areexempt from such payment.

Held: There is no doubt that if the plaintiffs merely formed a community ofproperty the latter is exempt from the payment of income tax under the

law. But according to the stipulated facts the plaintiffs organized apartnership of a civil nature because each of them put up money to buy asweepstakes ticket for the sole purpose of dividing equally the prize whichthey may win, as they did in fact in the amount of P50,000 (article 1665,Civil Code). The partnership was not only formed, but upon the organizationthereof and the winning of the prize, Jose Gatchalian personally appeared inthe office of the Philippine Charity Sweepstakes, in his capacity as co-partner, as such collected the prize, the office issued the check for P50,000in favor of Jose Gatchalian and company, and the said partner, in the samecapacity, collected the said check. All these circumstances repel the ideathat the plaintiffs organized and formed a community of property only.Having organized and constituted a partnership of a civil nature, the 'saidentity is the one bound to pay the income tax which the defendantcollected.

OBILLOS, JR. v. COMMISSIONER OF INTERNAL REVENUE

139 SCRA 436 (1985)

Facts: On 2 March 1973, Jose Obillos, Sr. completed payment to Ortigas &Co Ltd. on two lots located at Greenhills, San Juan, Rizal. The next day, hetransferred his rights to his four children (petitioners) to enable them tobuild their residences. The company sold the two lots to petitioners, andthe torrens title issued to them show that they were co-owners of the twolots. In 1974, petitioners resold the lots to Walled City SecuritiesCorporation and Olga Cruz and divided among themselves the profit. Theytreated the profit as capital gain and paid an income tax on one-halfthereof. In 1980, or a day before the expiration of the five-year prescriptiveperiod, the CIR required the petitioners to pay corporate income tax on thetotal profit, in addition to individual income tax on their shares thereof. Atotal of Php 127,781.76 was ordered to be paid by the petitioners, includingthe corporate income tax, 50% fraud surcharge, accumulated interest,income taxes and distributive dividend. Such was ordered by theCommissioner, acting on the theory that the four petitioners had formed anunregistered partnership or joint venture.

Issue: Whether or not the petitioners formed an unregistered partnershipby the act of selling the two lots, of which they were co-owners. – NO

Ruling: It is wrong to consider petitioners as having formed a partnershipunder Article 1767 of the Civil Code simply because they allegedlycontributed money to buy the two lots, resold the same and divided theprofit among themselves. They were co-owners, pure and simple. Thepetitioners were not engaged in any joint venture by reason of that isolatedtransaction.

Their original purpose was to divide the lots for residential purposes. If lateron they found it not feasible to build their residences on the lots because ofthe high cost of construction, then they had no choice but to resell the

same to dissolve the co-ownership. The division of the profit wasmerely incidental to the dissolution of the co-ownership which wasin the nature of things a temporary state.

Article 1769(3) of the Civil Code provides that "the sharing of grossreturns does not of itself establish a partnership, whether or notthe persons sharing them have a joint or common right or interestin any property from which the returns are derived". There mustbe an unmistakable intention to form a partnership or jointventure.

EVANGELISTA v. CIR

G.R. No. L-9996, October 15, 1957

Facts: Petitioners borrowed sum of money from their father and togetherwith their own personal funds they used said money to buy several realproperties. They then appointed their brother (Simeon) as manager of thesaid real properties with powers and authority to sell, lease or rent out saidproperties to third persons. They realized rental income from the saidproperties for the period 1945-1949.

On September 24, 1954 respondent Collector of Internal Revenuedemanded the payment of income tax on corporations, real estate dealer'sfixed tax and corporation residence tax for the years 1945-1949. The letterof demand and corresponding assessments were delivered to petitioners onDecember 3, 1954, whereupon they instituted the present case in the Courtof Tax Appeals, with a prayer that "the decision of the respondent containedin his letter of demand dated September 24, 1954" be reversed, and thatthey be absolved from the payment of the taxes in question. CTA deniedtheir petition and subsequent MR and New Trials were denied. Hence thispetition.

Issue: Whether or not petitioners have formed a partnership andconsequently, are subject to the tax on corporations provided for in section24 of Commonwealth Act. No. 466, otherwise known as the NationalInternal Revenue Code, as well as to the residence tax for corporations andthe real estate dealers fixed tax.

Held: YES. The essential elements of a partnership are two, namely: (a) anagreement to contribute money, property or industry to a commonfund; and (b) intent to divide the profits among the contractingparties. The first element is undoubtedly present in the case at bar, for,admittedly, petitioners have agreed to, and did, contribute money andproperty to a common fund. Upon consideration of all the facts andcircumstances surrounding the case, we are fully satisfied that theirpurpose was to engage in real estate transactions for monetary gain andthen divide the same among themselves, because of the followingobservations, among others: (1) Said common fund was not something they

found already in existence; (2) They invested the same, not merely in onetransaction, but in a series of transactions; (3) The aforesaid lots were notdevoted to residential purposes, or to other personal uses, of petitionersherein.

Although, taken singly, they might not suffice to establish the intentnecessary to constitute a partnership, the collective effect of thesecircumstances is such as to leave no room for doubt on the existence ofsaid intent in petitioners herein.

For purposes of the tax on corporations, our National Internal RevenueCode, includes these partnerships — with the exception only of dulyregistered general copartnerships — within the purview of the term"corporation." It is, therefore, clear to our mind that petitioners hereinconstitute a partnership, insofar as said Code is concerned and are subjectto the income tax for corporations.

AFISCO INSURANCE CORP. et al. vs. COURT OF APPEALS

G.R. No. 112675. January 25, 1999

DOCTRINE:

Unregistered Partnerships and associations are considered as corporations for tax purposes – Under the old internal revenue code, “A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how created or organized, xxx.” Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations.

Insurance pool in the case at bar is deemed a partnership or association taxable as a corporation – In the case at bar, petitioners-insurance companies formed a Pool Agreement, or an association that would handle all the insurance businesses covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich is considered a partnership or association which may be taxed as a corporation.

Double Taxation is not Present in the Case at Bar – Double taxation means “taxing the same person twice by the same jurisdiction for the same thing.”In the instant case, the insurance pool is a taxable entity distince from the individual corporate entities of the ceding companies. The tax on its incomeis obviously different from the tax on the dividends received by the companies. There is no double taxation.

FACTS:

The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance policies for machines. The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation. The reinsurance treaties required petitioners to form a pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an “Information Return of Organization Exempt from Income Tax” for 1975. On the basis of this, the CIR assessed a deficiency of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners, respectively.

The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed their appeal.

The CA ruled in that the pool of machinery insurers was a partnership taxable as a corporation, and that the latter’s collection of premiums on behalf of its members, the ceding companies, was taxable income.

ISSUE/S:

1. Whether or not the pool is taxable as a corporation.

2. Whether or not there is double taxation.

HELD:

1) Yes: Pool taxable as a corporation

Argument of Petitioner: The reinsurance policies were written by them “individually and separately,” and that their liability was limited to the extent of their allocated share in the original risks thus reinsured. Hence, the pool did not act or earn income as a reinsurer. Its role was limited to its principal function of “allocating and distributing the risk(s) arising from the original insurance among the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions, such as records, maintenance, collection and custody of funds, etc.”

Argument of SC: According to Section 24 of the NIRC of 1975:

“SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is hereby imposed upon the taxable net income received during each 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-partnership (compañias colectivas), general professional partnerships, private educational institutions, and building and loan associations xxx.”

Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations. Interestingly, the NIRC’s inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act of 1997 Sec. 27 read together with Sec. 22 reads:

“SEC. 27. Rates of Income Tax on Domestic Corporations. --

(A) In General. -- Except as otherwise provided in this Code, an income tax of thirty-five percent (35%) is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation, as defined in Section 22 (B) of this Code, and taxable under this Title as a corporation xxx.”

“SEC. 22. -- Definition. -- When used in this Title:

xxx xxx xxx

(B) The term ‘corporation’ shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not include general professional partnerships [or] a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract without the Government. ‘General professional partnerships’ are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.

Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section 24 covered these unregistered partnerships and even associations or joint accounts, which had no legal personalities apart from their individual members.

Furthermore, Pool Agreement or an association that would handle all the insurance businesses covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich may be considered a partnership because it contains the following elements: (1) The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool. This common fund pays for the administration and operation expenses of the pool. (2) The pool functions through an executive board, which resembles the board of directors of a corporation, composed of one representative for each of the ceding companies. (3) While, the pool itself is not a reinsurer and does not issue any policies; its work is indispensable, beneficial and economically useful tothe business of the ceding companies and Munich, because without it they would not have received their premiums pursuant to the agreement with Munich. Profit motive or business is, therefore, the primordial reason for thepool’s formation.

TORRES v. CA

FACTS: In 1969, sisters Antonia Torres and Emeteria Baring entered into ajoint venture agreement with Manuel Torres. Under the agreement, thesisters agreed to execute a deed of sale in favor Manuel over a parcel ofland, the sisters received no cash payment from Manuel but the promise ofprofits (60% for the sisters and 40% for Manuel) – said parcel of land is tobe developed as a subdivision.

Manuel then had the title of the land transferred in his name and hesubsequently mortgaged the property. He used the proceeds from themortgage to start building roads, curbs and gutters. Manuel also contractedan engineering firm for the building of housing units. But due to adverse

claims in the land, prospective buyers were scared off and thesubdivision project eventually failed.

The sisters then filed a civil case against Manuel for damages equivalent to60% of the value of the property, which according to the sisters, is what’sdue them as per the contract.

The lower court ruled in favor of Manuel and the Court of Appeals affirmedthe lower court.

The sisters then appealed before the Supreme Court where they arguedthat there is no partnership between them and Manuel because the jointventure agreement is void.

ISSUE: Whether or not there exists a partnership.

HELD: Yes. The joint venture agreement the sisters entered into withManuel is a partnership agreement whereby they agreed to contributeproperty (their land) which was to be developed as a subdivision. While onthe other hand, though Manuel did not contribute capital, he is an industrialpartner for his contribution for general expenses and other costs.Furthermore, the income from the said project would be divided accordingto the stipulated percentage (60-40). Clearly, the contract manifested theintention of the parties to form a partnership. Further still, the sisterscannot invoke their right to the 60% value of the property and at the sametime deny the same contract which entitles them to it.

At any rate, the failure of the partnership cannot be blamed on the sisters,nor can it be blamed to Manuel (the sisters on their appeal did not showevidence as to Manuel’s fault in the failure of the partnership). The sistersmust then bear their loss (which is 60%). Manuel does not bear the loss ofthe other 40% because as an industrial partner he is exempt from losses.

LIM TONG LIM v. PHIL. FISHING GEAR INDUSTRIES

FACTS: It was established that Lim Tong Lim requested Peter Yao to engagein commercial fishing with him and one Antonio Chua. The three agreed topurchase two fishing boats but since they do not have the money theyborrowed from one Jesus Lim (brother of Lim Tong Lim). They againborrowed money and they agreed to purchase fishing nets and other fishingequipments. Now, Yao and Chua represented themselves as acting in behalfof “Ocean Quest Fishing Corporation” (OQFC) they contracted withPhilippine Fishing Gear Industries (PFGI) for the purchase of fishing netsamounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their ownnames because apparently OQFC is a non-existent corporation. Chua

admitted liability and asked for some time to pay. Yao waived his rights. LimTong Lim however argued that he’s not liable because he was not awarethat Chua and Yao represented themselves as a corporation; that the twoacted without his knowledge and consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear thatChua, Yao and Lim had decided to engage in a fishing business, which theystarted by buying boats worth P3.35 million, financed by a loan securedfrom Jesus Lim. In their Compromise Agreement, they subsequentlyrevealed their intention to pay the loan with the proceeds of the sale of theboats, and to divide equally among them the excess or loss. These boats,the purchase and the repair of which were financed with borrowed money,fell under the term “common fund” under Article 1767. The contribution tosuch fund need not be cash or fixed assets; it could be an intangible likecredit or industry. That the parties agreed that any loss or profit from thesale and operation of the boats would be divided equally among them alsoshows that they had indeed formed a partnership.

Lim Tong Lim cannot argue that the principle of corporation by estoppelscan only be imputed to Yao and Chua. Unquestionably, Lim Tong Limbenefited from the use of the nets found in his boats, the boat which hasearlier been proven to be an asset of the partnership. Lim, Chua and Yaodecided to form a corporation. Although it was never legally formed forunknown reasons, this fact alone does not preclude the liabilities of thethree as contracting parties in representation of it. Clearly, under the lawon estoppel, those acting on behalf of a corporation and those benefited byit, knowing it to be without valid existence, are held liable as generalpartners.

AGAD v. MABOLO and AGAD CO.

23 SCRA 1223 (1968)

Facts: Petitioner Mauricio Agad claims that he and defendant SeverinoMabato are partners in a fishpond business to which they contributedP1000 each. As managing partner, Mabato yearly rendered the accounts ofthe operations of the partnership. However, for the years 1957-1963,defendant failed to render the accounts despite repeated demands. Petitioner filed a complaint against Mabato to which a copy of the public

instrument evidencing their partnership is attached. Aside from the share ofprofits (P14,000) and attorney’s fees (P1000), petitioner prayed for thedissolution of the partnership and winding up of its affairs.

Mabato denied the existence of the partnership alleging that Agad failed topay his P1000 contribution. He then filed a motion to dismiss on the groundof lack of cause of action. The lower court dismissed the complaint finding afailure to state a cause of action predicated upon the theory that thecontract of partnership is null and void, pursuant to Art. 1773 of our CivilCode, because an inventory of the fishpond referred in said instrument hadnot been attached thereto.

Art. 1771. A partnership may be constituted in any form, except whereimmovable property or real rights are contributed thereto, in which case apublic instrument shall be necessary.

Art. 1773. A contract of partnership is void, whenever immovable propertyis contributed thereto, if inventory of said property is not made, signed bythe parties; and attached to the public instrument.

Issue: Whether or not immovable property or real rights have beencontributed to the partnership. – NO

Ratio: Based on the copy of the public instrument attached in thecomplaint, the partnership was established to operate a fishpond", and notto "engage in a fishpond business.” Thus, Mabato’s contention that “it isreally inconceivable how a partnership engaged in the fishpond businesscould exist without said fishpond property (being) contributed to thepartnership” is without merit. Their contributions were limited to P1000each and neither a fishpond nor a real right thereto was contributed to thepartnership.

Therefore, Article 1773 of the Civil Code finds no application in the case atbar. Case remanded to the lower court for further proceedings.

YU v. NLRC

G.R. No. 97212; June 30, 1993

FACTS: Petitioner Benjamin Yu was formerly the Assistant General Managerof the marble quarrying and export business operated by a registeredpartnership with the firm name of "Jade Mountain Products CompanyLimited" ("Jade Mountain"). The partnership was originally organized on 28June 1984 with Lea Bendal and Rhodora Bendal as general partners andChiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic ofChina (Taiwan), as limited partners.

Sometime in 1988, without the knowledge of Benjamin Yu, the generalpartners Lea Bendal and Rhodora Bendal sold and transferred their

interests in the partnership to private respondent Willy Co and to oneEmmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold andtransferred his interest in the partnership to Willy Co. Between Mr.Emmanuel Zapanta and himself, private respondent Willy Co acquired thegreat bulk of the partnership interest. The partnership now constitutedsolely by Willy Co and Emmanuel Zapanta continued to use the old firmname of Jade Mountain, though they moved the firm's main office fromMakati to Mandaluyong, Metropolitan Manila

Petitioner was informed by Willy Co that the latter had bought the businessfrom the original partners and that it was for him to decide whether or nothe was responsible for the obligations of the old partnership, includingpetitioner's unpaid salaries. Petitioner was in fact not allowed to workanymore in the Jade Mountain business enterprise. His unpaid salariesremained unpaid.

On 21 December 1988, Benjamin Yu filed a complaint for illegal dismissaland recovery of unpaid salaries accruing from November 1984 to October1988

ISSUE: Whether the partnership which had hired petitioner Yu as AssistantGeneral Manager had been extinguished and replaced by a new partnershipcomposed of Willy Co and Emmanuel Zapanta

HELD: Yes, the partnership which hired Yu was extinguished and replacedby a new partnership.

In the case at bar, just about all of the partners had sold their partnershipinterests (amounting to 82% of the total partnership interest) to Mr. WillyCo and Emmanuel Zapanta. The record does not show what happened tothe remaining 18% of the original partnership interest. The acquisition of82% of the partnership interest by new partners, coupled with theretirement or withdrawal of the partners who had originally owned such82% interest, was enough to constitute a new partnership

In the ordinary course of events, the legal personality of the expiringpartnership persists for the limited purpose of winding up and closing of theaffairs of the partnership.

In other words, the new partnership simply took over the businessenterprise owned by the preceding partnership, and continued using theold name of Jade Mountain Products Company Limited, without winding upthe business affairs of the old partnership, paying off its debts, liquidatingand distributing its net assets, and then re-assembling the said assets ormost of them and opening a new business enterprise.

The new partnership itself which continued the business of the old,dissolved, one, are liable for the debts of the preceding partnership.

ROJAS v. MAGLANA

Facts: Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development Enterprises (EDE). It was a partnership with an indefinite term of existence. Maglana shall manage the business affairs while Rojas shall be the logging superintendant and shall manage the logging operation. They shall share in all profits and loss equally. Due to difficulties encountered they decided to avail of the sources of Pahamatong as industrial partners. They again executed their Articles of Co-Partnership under EDE. The term is 30 years. After sometime Pamahatong sold his interest to Maglana and Rojas including equipment contributed. After withdrawal of Pamahatong, Maglana and Rojas continued the partnership. After 3 months, Rojas entered into a management contract with another logging enterprise. He left and abandoned the partnership. He even withdrew his equipment from the partnership and was transferred to CMS. He never 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 share will just be 20% of the net profits. Rojas tookfunds from the partnership more than his contribution. Thus, Maglana notified Rojas that he dissolved the partnership.

Issue: What is the nature of the partnership and legal relationship ofMaglana and Rojas after Pahamatong retired from the second partnership

Ruling: It was not the intention of the partners to dissolve the firstpartnership, upon the constitution of the second one, which theyunmistakably called “additional agreement.” Otherwise stated even duringthe existence of the second partnership, all business transactions werecarried out under the duly registered articles. No rights and obligationsaccrued in the name of the second partnership except in favor ofPahamatong which was fully paid by the duly registered partnership.  

SANTOS v. REYES

G.R. No. 135813. October 25, 2001

Facts: In June 1986, Fernando Santos, Nieves Reyes and Melton Zabatorally agreed to form a partnership – a lending business. Santos contributed70% (as financier) while Reyes and Zabat shared 30% (as industrialpartners). Later, Reyes introduced Cesar Gragera whom they would provideloans to Gragera’s corporation particularly its employees. In return Gragerashall have a commission based on the loan payments. The partners decided on August 1986 to have a written agreement but they found out

that Zabat engaged in a competitor venture thus expelled him. The two hadArsenio Reyes (husband of Nieves) replaced Zabat.

However, Santos accused the Spouses of not remitting the loans payments.He argued that the couple were only his employees and there was a special arrangement between him and Gragera. The trial court and the Court of Appeals ruled against Santos.

Issue: Whether or not there was a partnership formed between Santos and the Spouses Reyes

Held: YES. The original partnership with Zabat continued even after the expulsion of the latter from the partnership because there was no intent to dissolve the (partnership) relationship.

” [Respondents] were industrial partners of [petitioner]. . . . Nieves herself provided the initiative in the lending activities with Monte Maria. In consonance with the agreement between appellant, Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund with the intention of sharing in the profits of the partnership. [Respondents] provided services without which the partnership would not have [had] the wherewithal to carry on the purpose for which it was organized and as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).

“While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the business of the partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to participate as a partner in their operations. There was therefore, no intent to dissolve the earlier partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and continued the business of the former partnership with Zabat, one of the incidents of which was the lending operations with Monte Maria.”

MORAN JR. v. COURT OF APPEALS

133 SCRA 88 (1984)

Facts: Moran and Pecson agreed to contribute P15 000 each for thepurpose of printing 95,000 posters of the delegates to the then 1971Constitutional Commission. It was further agreed that Pecson will receive acommission of P 1000 a month and that the partnership is to be liquidated

on December 15, 1971.

Pecson partially fulfilled his obligation when he issued P10k in favor of thepartnership. He gave the P10k to Moran as the managing partner. Moranhowever did not add anything and, instead, he only used P4k out of theP10k in printing 2,000 posters. He only printed 2,000 posters. All theposters were sold for a total of P10k.

Pecson sued Moran. The trial court ordered Moran to pay Pecson damages.The Court of Appeals affirmed the decision but modified the same as itordered Moran to pay P47.5k for unrealized profit; P8k for Pecson’s monthlycommissions; P7k as return of investment because the venture never tookoff; plus interest.

Issue: Whether or not the Court of Appeals erred in holding Moran liable torespondent Pecson in the sum of P47,500 as the supposed expected profitsdue him.

Ruling: The first question raised in this petition refers to the award ofP47,500.00 as the private respondent's share in the unrealized profits ofthe partnership. The award of speculative damages has no basis in fact andlaw.

The rule is, when a partner who has undertaken to contribute a sum ofmoney fails to do so, he becomes a debtor of the partnership for whateverhe may have promised to contribute (Art. 1786, Civil Code) and for interestsand damages from the time he should have complied with his obligation(Art. 1788, Civil Code. In this case, there was mutual breach. Privaterespondent failed to give his entire contribution in the amount ofP15,000.00. He contributed only P10,000.00. The petitioner likewise failedto give any of the amount expected of him. He further failed to comply withthe agreement to print 95,000 copies of the posters. Instead, he printedonly 2,000 copies.

There is no evidence whatsoever that the partnership between thepetitioner and the private respondent would have been a profitableventure. In fact, it was a failure doomed from the start. There is thereforeno basis for the award of speculative damages in favor of the privaterespondent

Being a contract of partnership, each partner must share in the profits andlosses of the venture. That is the essence of a partnership. And even withan assurance made by one of the partners that they would earn a hugeamount of profits, in the absence of fraud, the other partner cannot claim aright to recover the highly speculative profits

Bastida vs Menzi & Co.

Facts: Bastida offered to assign to Menzi & Co. his contract with Phil Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain other orders for 50 % of the net profit that Menzi & Co., Inc., might derive therefrom. J. M. Menzi (gen. manager of Menzi & Co.) accepted the offer. The agreement between the parties was verbal and was confirmed by the letter of Menzi to the plaintiff on January 10, 1922. Pursuant to the verbal agreement, the defendant corporation on April 27, 1922 entered into a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action. Still, the fertilizer business as carried on in the same manner as it was prior to the written contract, but the net profit that the plaintiff herein shall get would only be 35%. The intervention of the plaintiffwas limited to supervising the mixing of the fertilizers in the bodegas of Menzi. Prior to the expiration of the contract (April 27, 1927), the manager of Menzi notified the plaintiff that the contract for his services would not be renewed. Subsequently, when the contract expired, Menzi proceeded to liquidate the fertilizer business in question. The plaintiff refused to agree to this. It argued, among others, that the written contract entered into by the parties is a contract of general regular commercial partnership, wherein Menzi was the capitalist and the plaintiff the industrial partner.

Issue: Whether the relationship between the petitioner and Menzi is that of partners?

Held: The relationship established between the parties was not that of partners, but that of employer and employee, whereby the plaintiff was to receive 35% of the net profits of the fertilizer business of Menzi in compensation for his services for supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior orsubsequent to its execution justified the finding that it was a contract of copartnership.

The written contract was, in fact, a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived by the corporation form certain fertilizer contracts.

According to Art. 116 of the Code of Commerce, articles of association by which two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shallbe commercial, no matter what it class may be, provided it has been established in accordance with the provisions of the Code.

However in this case, there was no common fund. The business belonged toMenzi & Co.

The plaintiff was working for Menzi, and instead of receiving a fixed salary, he was to receive 35% of the net profits as compensation for his services.

The phrase in the written contract “en sociedad con”, which is used as a basis of the plaintiff to prove partnership in this case, merely means “en reunion con” or in association with.

It is also important to note that although Menzi agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary credit.

HEIRS OF TAN ENG KEE v. COURT OF APPEALS

341 SCRA 740 (2000)

Facts: The heirs of Tan Eng Kee filed a suit against the decedent’s brotherTan Eng Lay. The complaint alleged that after the Second World War, thebrothers, pooling their resources and industry together, entered into apartnership engaged in the selling of lumber and hardware andconstruction supplies. They named their enterprise “Benguet Lumber”which they jointly managed until Tan Kee’s death. Petitioners averred thatthe business prospered due to the hard work and thrift of the allegedpartners. However, they claimed that in 1981, Tan Eng Lay and his childrencaused the conversion of the partnership “Benguet Lumber” into acorporation called “Benguet Lumber Company.” The incorporation waspurportedly a ruse to deprive Tan Eng Kee and his heirs of their rightfulparticipation in the profits of the business. Petitioners prayed for accountingof the partnership assets, and the dissolution, and winding up of thealleged partnership formed after the World War II between Tan Eng Kee andTan Eng Lay. The Regional Trial court found that Benguet Lumber is a jointventure which is akin to a particular partnership, and declared that theassets of Benguet Lumber are the same assets turned over to Benguetlumber Co. and as such the heirs or legal representatives of the deceasedTan Eng Kee have a legal right to share in the said assets. The Court ofAppeals reversed the judgment of the Trial Court.

Issue: Whether or not a partnership existed between Tan Eng Kee and TanEng Lay – NO

Ruling: In order to constitute a partnership, it must be established that (1)two or more persons bound themselves to contribute money, property, orindustry to a common fund, and (2) they intend to divide the profits amongthemselves. The best evidence of the partnership’s existence would havebeen the contract of partnership itself, or the articles of partnership butthere is none. The alleged partnership, though, was never formallyorganized. In addition, petitioners point out that the New Civil Code was notyet in effect when the partnership was allegedly formed sometime in 1945,although the contrary may well be argued that nothing prevented theparties from complying with the provisions of the New Civil Code when it

took effect on August 30, 1950. A review of the record persuades us thatthe Court of Appeals correctly reversed the decision of the trial court. Theevidence presented by petitioners falls short of the quantum of proofrequired to establish a partnership.

It is indeed odd, if not unnatural, that despite the forty years thepartnership was allegedly in existence, Tan Eng Kee never asked for anaccounting. The essence of a partnership is that the partners share in theprofits and losses. Each has the right to demand an accounting as long asthe partnership exists. A demand for periodic accounting is evidence of apartnership. During his lifetime, Tan Eng Kee appeared never to have madeany such demand for accounting from his brother.

This brings us to the matter of Exhibits “4” to “4-U” for privaterespondents, consisting of payrolls purporting to show that Tan Eng Kee wasan ordinary employee of Benguet Lumber, as it was then called. Exhibits“4” to “4-U” in fact shows that Tan Eng Kee received sums as wages of anemployee.In connection therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

XXX

(4) The receipt by a person of a share of the profits of a business is primafacie evidence that he is a partner in the business, but no such inferenceshall 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;

(b) As an annuity to a widow or representative of a deceasedpartner;

(d) As interest on a loan, though the amount of payment varywith the profits of the business;

(e) As the consideration for the sale of a goodwill of abusiness or other property by installments orotherwise.

In the light of the aforequoted legal provision, we conclude that Tan EngKee was only an employee, not a partner. Even if the payrolls as evidencewere 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 EngKee received amounts of money allegedly representing his share in theprofits 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 LumberCompany 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 betweenthemselves, which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the allegedexistence of a partnership from this set of circumstances: that Tan Eng Layand Tan Eng Kee were commanding the employees; that both weresupervising the employees; that both were the ones who determined theprice at which the stocks were to be sold; and that both placed orders tothe suppliers of the Benguet Lumber Company. They also point out that thefamilies of the brothers Tan Eng Kee and Tan Eng Lay lived at the BenguetLumber Company compound, a privilege not extended to its ordinaryemployees.

Even the aforesaid circumstances, when taken together are not persuasiveindicia of a partnership. They only tend to show that Tan Eng Kee wasinvolved in the operations of Benguet Lumber, but in what capacity isunclear. We cannot discount the likelihood that as a member of the family,he occupied a niche above the rank-and-file employees. He would haveenjoyed liberties otherwise unavailable were he not kin, such as hisresidence in the Benguet Lumber Company compound. He would havemoral, if not actual, superiority over his fellow employees, thereby entitlinghim to exercise powers of supervision. It may even be that among hisduties is to place orders with suppliers. Again, the circumstances profferedby petitioners do not provide a logical nexus to the conclusion desired;these are not inconsistent with the powers and duties of a manager, evenin a business organized and run as informally as Benguet Lumber Company.

ESTANISLAO, JR. v. COURT OF APPEALS

Facts: The petitioner and private respondents are brothers and sisters whoare co-owners of certain lots at the in Quezon City which were then beingleased to SHELL. They agreed to open and operate a gas station thereat tobe known as Estanislao Shell Service Station with an initial investment ofPhP15,000.00 to be taken from the advance rentals due to them fromSHELL for the occupancy of the said lots owned in common by them. Ajoint affidavit was executed by them on April 11, 1966. The respondentsagreed to help their brother, petitioner therein, by allowing him to operateand manage the gasoline service station of the family. In order not to runcounter to the company’s policy of appointing only one dealer, it wasagreed that petitioner would apply for the dealership. RespondentRemedios helped in co-managing the business with petitioner from May1966 up to February 1967.

On May 1966, the parties entered into an Additional Cash PledgeAgreement with SHELL wherein it was reiterated that the P15,000.00advance rental shall be deposited with SHELL to cover advances of fuel topetitioner as dealer with a proviso that said agreement “cancels andsupersedes the Joint Affidavit.”

For some time, the petitioner submitted financial statement regarding theoperation of the business to the private respondents, but thereafterpetitioner failed to render subsequent accounting. Hence , the privaterespondents filed a complaint against the petitioner praying among othersthat the latter be ordered:

(1) To execute a public document embodying all the provisions of thepartnership agreement they entered into;

(2) To render a formal accounting of the business operation veeringthe period from May 6, 1966 up to December 21, 1968, and from January 1,1969 up to the time the order is issued and that the same be subject toproper audit;

(3) To pay the plaintiffs their lawful shares and participation in the netprofits of the business; and

(4) To pay the plaintiffs attorney’s fees and costs of the suit.

Issue: Can a partnership exist between members of the same familyarising from their joint ownership of certain properties?

Held: There is no merit in the petitioner’s contention that because of thestipulation cancelling and superseding the previous joint affidavit, whateverpartnership agreement there was in said previous agreement had therebybeen abrogated. Said cancelling provision was necessary for the JointAffidavit speaks of P15,000.00 advance rental starting May 25, 1966 whilethe latter agreement also refers to advance rentals of the same amountstarting May 24, 1966. There is therefore a duplication of reference to theP15,000.00 hence the need to provide in the subsequent document that it“cancels and supercedes” the previous none. Indeed, it is true that thelatter document is silent as to the statement in the Join Affidavit that thevalue represents the “capital investment” of the parties in the business andit speaks of the petitioner as the sole dealer, but this is as it should be for inthe latter document, SHELL was a signatory and it would be against theirpolicy if in the agreement it should be stated that the business is apartnership with private respondents and not a sole proprietorship of thepetitioner.

Furthermore, there are other evidences in the record which show that therewas in fact such partnership agreement between parties. The petitionersubmitted to the private respondents periodic accounting of the businessand gave a written authority to the private respondent Remedios Estanislaoto examine and audit the books of their “common business” (amingnegosyo). The respondent Remedios, on the other hand, assisted in therunning of the business. Indeed, the parties hereto formed a partnershipwhen they bound themselves to contribute money in a common fund withthe intention of dividing the profits among themselves.

SY v. CA

FACTS: Sometime in 1958, private respondent Jaime Sahot[5] startedworking as a truck helper for petitioners’ family-owned trucking businessnamed Vicente Sy Trucking. In 1965, he became a truck driver of the samefamily business, renamed T. Paulino Trucking Service, later 6B’s TruckingCorporation in 1985, and thereafter known as SBT Trucking Corporationsince 1994. Throughout all these changes in names and for 36 years,private respondent continuously served the trucking business ofpetitioners. When Sahot was 59 years old, he incurred several absencesdue to various ailments. Particularly causing him pain was his left thigh,which greatly affected the performance of his task as a driver. He inquiredabout his medical and retirement benefits with the Social Security System(SSS) on April 25, 1994, but discovered that his premium payments had notbeen remitted by his employer.Sahot filed a week-long leave to get medicalattention. He was treated for EOR, presleyopia, hypertensive retinopathy GII and heart enlargement. Because of such, Belen Paulino of the SBTTrucking Service management told him to file a formal request forextension of his leave. When Sahot applied for an extended leave, he wasthreatened of termination of employment should he refuse to go back towork. Eventually, Sahot was dismissed from employment which promptedthe latter to file an illegal dismissal case with the NLRC. For their part,petitioners admitted they had a trucking business in the 1950s but deniedemploying helpers and drivers. They contend that private respondent wasnot illegally dismissed as a driver because he was in fact petitioner’sindustrial partner. They add that it was not until the year 1994, when SBTTrucking Corporation was established, and only then did respondent Sahotbecome an employee of the company, with a monthly salary that reachedP4,160.00 at the time of his separation. The NLRC and the CA ruled thatSahot was an employee of the petitioner.

ISSUE: Whether Sahot is an industrial partner

RULING: No. Article 1767 of the Civil Code states that in a contract ofpartnership two or more persons bind themselves to contribute money,property or industry to a common fund, with the intention of dividing theprofits among themselves. Not one of these circumstances is present in thiscase. No written agreement exists to prove the partnership between theparties. Private respondent did not contribute money, property or industryfor the purpose of engaging in the supposed business. There is no proofthat he was receiving a share in the profits as a matter of course, duringthe period when the trucking business was under operation. Neither isthere any proof that he had actively participated in the management,

administration and adoption of policies of the business. Thus, the NLRC andthe CA did not err in reversing the finding of the Labor Arbiter that privaterespondent was an industrial partner from 1958 to 1994. On this point, theCourt affirmed the findings of the appellate court and the NLRC. Privaterespondent Jaime Sahot was not an industrial partner but an employee ofpetitioners from 1958 to 1994. The existence of an employer-employeerelationship is ultimately a question of fact and the findings thereon by theNLRC, as affirmed by the Court of Appeals, deserve not only respect butfinality when supported by substantial evidence. Substantial evidence issuch amount of relevant evidence which a reasonable mind might acceptas adequate to justify a conclusion.

HEIRS OF JOSE LIM v. LIM

FACTS: In 1980, the heirs of Jose Lim alleged that Jose Lim entered into apartnership agreement with Jimmy Yu and Norberto Uy. Thethree contributed P50,000.00 each and used the funds to purchase a truckto start their trucking business. A year later however, Jose Lim died. Theeldest son of Jose Lim, Elfledo Lim, took over the trucking business andunder his management, the trucking business prospered. Elfledo was ableto but real properties in his name. From one truck, he increased it to 9trucks, all trucks were in his name however. He also acquired other motorvehicles in his name.

In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack.Elfledo’s wife, Juliet Lim, took over the properties but she intimated toJimmy and the heirs of Norberto that she could not go on with the business.So the properties in the partnership were divided among them.

Now the other heirs of Jose Lim, represented by Elenito Lim, required Julietto do an accounting of all income, profits, and properties from the estate ofElfledo Lim as they claimed that they are co-owners thereof. Juliet refusedhence they sued her.

The heirs of Jose Lim argued that Elfledo Lim acquired his properties fromthe partnership that Jose Lim formed with Norberto and Jimmy. In court,Jimmy Yu testified that Jose Lim was the partner and not Elfledo Lim.The heirs testified that Elfledo was merely the driver of Jose Lim.

ISSUE: Who is the “partner” between Jose Lim and Elfledo Lim?

HELD: It is Elfledo Lim based on the evidence presented regardless ofJimmy Yu’s testimony in court that Jose Lim was the partner. If Jose Lim wasthe partner, then the partnership would have been dissolved upon hisdeath (in fact, though the SC did not say so, I believe it should have beendissolved upon Norberto’s death in 1993). A partnership is dissolved uponthe death of the partner. Further, no evidence was presented as to the

articles of partnership or contract of partnership between Jose, Norbertoand Jimmy. Unfortunately, there is none in this case, because the allegedpartnership was never formally organized.

But at any rate, the Supreme Court noted that based on the functionsperformed by Elfledo, he is the actual partner.

The following circumstances tend to prove that Elfledo was himself thepartner of Jimmy and Norberto:

1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in thepartnership, on a date that coincided with the payment of the initial capitalin the partnership;

2.) Elfledo ran the affairs of the partnership, wielding absolute control,power and authority, without any intervention or opposition whatsoeverfrom any of petitioners herein;

3.) all of the properties, particularly the nine trucks of the partnership, wereregistered in the name of Elfledo;

4.) Jimmy testified that Elfledo did not receive wages or salaries from thepartnership, indicating that what he actually received were shares of theprofits of the business; and

5.) none of the heirs of Jose, the alleged partner, demanded periodicaccounting from Elfledo during his lifetime. As repeatedly stressed in thecase of Heirs of Tan Eng Kee, a demand for periodic accounting is evidenceof a partnership.

Furthermore, petitioners failed to adduce any evidence to show that thereal and personal properties acquired and registered in the names ofElfledo and Juliet formed part of the estate of Jose, having been derivedfrom Jose’s alleged partnership with Jimmy and Norberto.

Elfledo was not just a hired help but one of the partners in the truckingbusiness, active and visible in the running of its affairs from day one untilthis ceased operations upon his demise. The extent of his control,administration and management of the partnership and its business, thefact that its properties were placed in his name, and that he was not paidsalary or other compensation by the partners, are indicative of the fact thatElfledo was a partner and a controlling one at that. It is apparent that theother partners only contributed in the initial capital but had no saythereafter on how the business was ran. Evidently it was through Elfredo’sefforts and hard work that the partnership was able to acquire more trucksand otherwise prosper. Even the appellant participated in the affairs of thepartnership by acting as the bookkeeper sans salary.

ARBES v. POLISTICO

G.R. No. 31057 September 7, 1929

FACTS:

This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members orshareholders, and the defendants were designated as president-treasurer, directors and secretary of said association.

This case is brought for 2nd time. In the 1st one, the court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action. The court appointed commissioner of Insular Auditor's Office, to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence. Commissioner's report show a balance of P24, 607.80 cash on hand. Despite defendant’s objection to the report, the trial court rendered judgment holding said association is unlawful. And sentenced defendants jointly and severally to return the amount and documents to the plaintiffs and members of the association. The Appellant alleged that the association being unlawful, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. Referring to Article 1666 of the Civil Code which provides that “A partnership must have a lawful object, and must be established for the common benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.”

ISSUE: Whether or not charitable institution is a necessary party to this case.

HELD: No. No charitable institution is a necessary party in the present caseof determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case.

The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result ofthe business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self-evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution. The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different.

Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.

WOODHOUSE v. HALILI

Facts: Defendant Halili informed Woodhouse, plaintiff, of his desire to invest half a million dollars in the bottling and distribution of Mission Soft Drinks. Woodhouse then relayed this message to Mission Dry Corporation ofLos Angeles, USA. Mission Dry Corporation then gave plaintiff a thirty day option on exclusive bottling and distribution rights in the Philippines (Exhibit J).

Thereafter, plaintiff and defendant entered into a written agreement with the ff. pertinent provisions: 1) they shall organize a partnership for the bottling and distributing of Mission soft drinks, with plaintiff, Woodhouse, asindustrial partner or manager, and defendant, Halili, as capitalist; 2)defendant was to decide matters of general policy regarding the business, while plaintiff was to attend the operation and development of the bottling plant; 3) plaintiff was to secure Mission soft drinks franchise for and in behalf of the proposed partnership; and 4) plaintiff was to receive 30 percent of the net profits of the business. This contract was signed and the parties to this case then went to the United States to finalize the franchising agreement. Mission Dry Corporation then granted the defendantthe exclusive right, license, and authority to produce, bottle, distribute and sell Mission beverages in the Philippines.

When both parties went back to the Philippines, the bottling plant began itsoperation. At first, plaintiff was given advances, on account of the profits, and allowances which however ceased after two months. Moreover, when plaintiff demanded that the partnership papers be executed, defendant refused to do so and instead suggest that they just enter into a settlement. As no settlement was reached, the plaintiff filed a complaint in the CFI.

In the CFI, plaintiff asks for execution of the contract of partnership, accounting of the profits and a share thereof of 30 percent. Defendant on his defense claims that plaintiff misrepresented himself that he was about to become the owner of an exclusive bottling franchise when in fact franchise was exclusively given to defendant, and that the plaintiff failed to contribute to the exclusive franchise of the partnership. CFI ordered defendant to render an accounting of the profits of the business and to pay plaintiff 15 percent thereof. But it held that the execution of the contract could not be enforced and the defense of fraud was not proved. Unsatisfied with this ruling, both parties appealed to the SC.

Issues: a) W/N plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages. Yes.

b) W/N this false representation amounts to fraud and may annul the agreement to form a partnership

Held: a) As found by the SC, Exhibit J was used by plaintiff as an instrumentwith which to bargain with the defendant and to close a deal with him, because if plaintiff claimed that all he had was an option to exclusively bottle and distribute Mission soft drinks in the Philippines, he would have probably lost the deal itself. This is further supported by the fact that when defendant learned that plaintiff did not have an exclusive franchise, he reduced plaintiff’s participation in the profit to 15 percent, to which the plaintiff agreed.

b) Article 1270 of the Spanish Civil Code distinguished two kinds of fraud, causal fraud, which may be a ground for the annulment of a contract, and the incidental fraud, which only renders the party who employs it liable for damages.

As founded by the SC the misrepresentation of plaintiff does not amount tocausal fraud because it was not the principal inducement that led the plaintiff to enter into the partnership agreement. As it was already noted, both parties expressly agreed that they shall form a partnership.

Lastly, the SC upheld the ruling of the trial court that the defendant may not be compelled against his will to carry out the partnership. The law

recognizes the individual’s freedom or liberty to do an act he has promised to do or not to do it as he pleases.

LITONJUA, JR. v. LITONJUA, SR.

FACTS: Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract of partnership with him. Aurelio showed asevidence a letter sent to him by Eduardo that the latter isallowing Aurelio to manage their family business (if Eduardo’s away) and inexchange thereof he will be giving Aurelio P1 million or 10% equity,whichever is higher. A memorandum was subsequently made for the saidpartnership agreement. The memorandum this time stated that inexchange ofAurelio, who just got married, retaining his share in the familybusiness (movie theatres, shipping and land development) and some otherimmovable properties, he will be given P1 Million or 10% equity in all thesebusinesses and those to be subsequently acquired by them whichever isgreater.

In 1992 however, the relationship between the brothers went sour. Andso Aureliodemanded an accounting and the liquidation of his share in thepartnership. Eduardo did not heed and so Aurelio sued Eduardo.

ISSUE: Whether or not there exists a partnership.

HELD: No. The partnership is void and legally nonexistent. Thedocumentary evidence presented by Aurelio, i.e. the letter from Eduardoand the Memorandum, did not prove partnership.

The 1973 letter from Eduardo on its face, contains typewritten entries,personal in tone, but is unsigned and undated. As an unsigned document,there can be no quibbling that said letter does not meet the publicinstrumentation requirements exacted under Article 1771 (how partnershipis constituted) of the Civil Code. Moreover, being unsigned and doubtlessreferring to a partnership involving more than P3,000.00 in money orproperty, said letter cannot be presented for notarization, let aloneregistered with the Securities and Exchange Commission (SEC), as calledfor under the Article 1772 (capitalization of a partnership) of the Code. Andinasmuch as the inventory requirement under the succeeding Article 1773goes into the matter of validity when immovable property is contributed tothe partnership, the next logical point of inquiry turns on the nature ofAurelio’s contribution, if any, to the supposed partnership.

The Memorandum is also not a proof of the partnership for the same is nota public instrument and again, no inventory was made of the immovableproperty and no inventory was attached to the Memorandum. Article 1773

of the Civil Code requires that if immovable property is contributed to thepartnership an inventory shall be had and attached to the contract.

EVANGELISTA & CO. v. ABAD SANTOS

G.R. No. L-31684; June 28, 1973

FACTS: On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership were amended so as to include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonarda Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution of P17,500 each

On December 17, 1963 herein respondent filed suit against the three other partners, alleging that the partnership, which was also made a party-defendant, had been paying dividends to the partners except to her; and that notwithstanding her demands the defendants had refused and continued to refuse to let her examine the partnership books or to give her information regarding the partnership affairs or to pay her any share in the dividends declared by the partnership

The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership books; and by way of affirmative defense alleged that the amended Articles of Co-partnership did not express the true agreement of the parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership.

ISSUE: Whether Abad Santos is entitled to see the partnership books because she is an industrial partner in the partnership

HELD: Yes, Abad Santos is entitled to see the partnership books.

The Supreme Court ruled that according to

ART. 1299. Any partner shall have the right to a formal account as to partnership affairs:

(1)If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

(2)If the right exists under the terms of any agreement;

(3)As provided by article 1807;

(4)Whenever other circumstances render it just and reasonable."

In the case at hand, the company is estopped from denying Abad Santos asan industrial partner because it has been 8 years and the company never corrected their agreement in order to show their true intentions. The company never bothered to correct those up until Abad Santos filed a complaint.

FUE LEUNG v. INTERMEDIATE APPELLATE COURT

G.R. No. 70926 January 31, 1989

Facts: The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual profits ofthe said restaurant. This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, BranchII to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung. The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in October, 1955. It was registered as a single proprietorship andits licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed

P4,000.00 to its initial establishment. Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the restaurant for the year 1974. The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned the genuineness of the receipt. To bolster his contention that he was the sole owner of the restaurant, the petitioner presented various government licenses and permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself alone. Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the setting up and operations of the panciteria. While the dispositive portions merely ordered the payment of the respondents share, there is no question from the factual findings that the respondent invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled to a share of the annual profits of the restaurant. The petitioner, however, claims that this factual finding is erroneous. The petitioner also claims that it was an error for the Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by a partner to a partnership;"

Issue: Whether or not the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria – YES

Ruling: In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent (22%) of theannual profit derived from the operation of the said panciteria. These allegations, which were proved, make the private respondent and the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "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".Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein.

LIM TANHU v. RAMOLETE

G.R. No. L-40098; August 29, 1975

FACTS: Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership, Glory Commercial Company with Antonio Lim Tanhu and Alfonso Ng Sua".

Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud and machination, took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company, defendants managed to use the funds of the partnership to purchase lands and buildings in the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla.

She alleged in her complaint that after the death of Tee Hoon Lim Po Chuan,the defendants, without liquidation, continued the business of Glory Commercial Company, by purportedly organizing a corporation known as the Glory Commercial Company, Incorporated and sometime in the month of November, 1967, defendants, particularly Antonio Lim Tanhu, by means of fraud deceit, and misrepresentations did then and there, induce and convince her to execute a quitclaim of all her rights and interests, in the assets of the partnership of Glory Commercial Company.

Thereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid properties and assets in favor, among others of plaintiff and until the middle of the year 1970 when the plaintiff formally demanded from the defendants the accounting of real and personal properties of the Glory Commercial Company, defendants refused and stated that they would not give the share of the plaintiff.

ISSUE: Whether Tan has a right over the liquidated properties of the partnership

HELD: No, Tan has no right over the liquidated properties of the partnership

The Supreme Court held that there is no alternative but to hold that plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuanhas not been satisfactorily established and that, on the contrary, the evidence on record convincingly shows that her relation with said deceasedwas that of a common-law wife.

Moreover, the Supreme Court said that the lower courts committed an error by awarding 1/3 of the partnership properties to Tan because there has been no liquidation proceedings yet. And if there has not yet been any liquidation of the partnership, the only right plaintiff could have would be towhat might result after much liquidation to belong to the deceased partner (her alleged husband) and before this is finished, it is impossible to determine, what rights or interest, if any the deceased had.

In other words, no specific amounts or properties may be adjudicated to theheir or legal representative of the deceased partner without the liquidation being first terminated.

RAMNANI v. CA

196 SCRA 731; May 7, 1991

FACTS: Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full blood. Ishwar and his spouse Sonya had their main business based in New York. Realizing the difficulty of managing their investments in the Philippines they executed a general power of attorney on January 24, 1966 appointing Navalrai and Choithram as attorneys-in-fact, empowering them to manage and conduct their business concern in the Philippines

On February 1, 1966 and on May 16, 1966, Choithram entered into two agreements for the purchase of two parcels of land located in Barrio Ugong,Pasig, Rizal, from Ortigas & Company, Ltd. Partnership. A building was constructed thereon by Choithram in 1966. Three other buildings were builtthereon by Choithram through a loan of P100,000.00 obtained from the Merchants Bank as well as the income derived from the first building.

Sometime in 1970 Ishwar asked Choithram to account for the income and expenses relative to these properties during the period 1967 to 1970. Choithram failed and refused to render such accounting. Thereafter, Ishwar revoked the general power of attorney. Choithram and Ortigas were duly notified of such revocation on April 1, 1971 and May 24, 1971, respectively. Said notice was also registered with the Securities and Exchange Commission on March 29, 1971 and was published in the April 2, 1971 issue of The Manila Times for the information of the general public.

Nevertheless, Choithram, transferred all rights and interests of Ishwar and Sonya in favor of his daughter-in-law, Nirmla Ramnani, on February 19, 1973.

On October 6, 1982, Ishwar and Sonya filed a complaint against Choitram and/or spouses Nirmla and Moti and Ortigas for reconveyance of said properties or payment of its value and damages.

ISSUE: Whether Ishram can recover the entire properties subject in the ligitation

HELD: No, Ishram cannot recover the entire properties subject.

The Supreme Court held that despite the fact that Choithram, et al., have committed acts which demonstrate their bad faith and scheme to defraud spouses Ishwar and Sonya of their rightful share in the properties in litigation, the Court cannot ignore the fact that Choithram must have been

motivated by a strong conviction that as the industrial partner in the acquisition of said assets he has as much claim to said properties as Ishwar, the capitalist partner in the joint venture.

Choithram in turn decided to invest in the real estate business. He bought the two (2) parcels of land in question from Ortigas as attorney-in-fact of Ishwar. Instead of paying for the lots in cash, he paid in installments and used the balance of the capital entrusted to him, plus a loan, to build two buildings. Although the buildings were burned later, Choithram was able to build two other buildings on the property. He rented them out and collected the rentals. Through the industry and genius of Choithram, Ishwar's property was developed and improved into what it is now.

Justice and equity dictate that the two share equally the fruit of their joint investment and efforts. Perhaps this Solomonic solution may pave the way towards their reconciliation. Both would stand to gain. No one would end upthe loser. After all, blood is thicker than water.

ORIENT-AIR SERVICES & HOTEL REPRESENTATIVES v. COURT OFAPPEALS

G.R. No. 76933 May 29, 1991

Facts: American Airlines, Inc. (American Air), an air carrier offeringpassenger and air cargo transportation in the Philippines, and Orient AirServices and Hotel Representatives (Orient Air), entered into a GeneralSales Agency Agreement (Agreement), whereby the former authorized thelatter to act as its exclusive general sales agent within the Philippines forthe sale of air passenger transportation. In the agreement, Orient Air shallremit in United States dollars to American the ticket stock or exchangeorders, less commissions to which Orient Air Services is entitled, not lessfrequently than semi-monthly. On the other hand, American will pay OrientAir Services commission on transportation sold by Orient Air Services or itssub-agents. Thereafter, American alleged that Orient Air had reneged on itsobligations under the Agreement by failing to promptly remit the netproceeds of sales for the months of January to March 1981 in the amount ofUS $254,400.40, American Air by itself undertook the collection of theproceeds of tickets sold originally by Orient Air and terminated forthwiththe Agreement in accordance with paragraph 13 which authorize thetermination of the thereof in case Orient Air is unable to transfer to theUnited States the funds payable by Orient Air Services to American.American Air instituted suit against Orient Air with the Court of FirstInstance of Manila “for Accounting with Preliminary Attachment orGarnishment, Mandatory Injunction and Restraining Order” averring theaforesaid basis for the termination of the Agreement as well as thereindefendant's previous record of failures "to promptly settle past outstanding

refunds of which there were available funds in the possession of thedefendant, . . . to the damage and prejudice of plaintiff."

Orient Air denied the material allegations of the complaint with respect toplaintiff's entitlement to alleged unremitted amounts, contending that afterapplication thereof to the commissions due it under the Agreement, plaintiffin fact still owed Orient Air a balance in unpaid overriding commissions.Further, the defendant contended that the actions taken by American Air inthe course of terminating the Agreement as well as the termination itselfwere untenable. The trial court ruled in its favor which decision wasaffirmed with modification by Court of Appeals. It held the terminationmade by the latter as affecting the GSA agreement illegal and improperand ordered the plaintiff to reinstate defendant as its general sales agentfor passenger transportation in the Philippines in accordance with said GSAagreement.

Issue: Whether or not the Court of Appeals erred in ordering thereinstatement of the defendant as its general sales agent for passengertransportation in the Philippines in accordance with said GSA Agreement –YES

Ruling: By affirming this ruling of the trial court, respondent appellatecourt, in effect, compels American Air to extend its personality to Orient Air.Such would be violative of the principles and essence of agency, defined bylaw as a contract whereby "a person binds himself to render some serviceor to do something in representation or on behalf of another, WITH THECONSENT OR AUTHORITY OF THE LATTER . In an agent-principalrelationship, the personality of the principal is extended through the facilityof the agent. In so doing, the agent, by legal fiction, becomes the principal,authorized to perform all acts which the latter would have him do. Such arelationship can only be effected with the consent of the principal, whichmust not, in any way, be compelled by law or by any court. The Agreementitself between the parties states that "either party may terminate theAgreement without cause by giving the other 30 days' notice by letter,telegram or cable." (emphasis supplied) We, therefore, set aside the portionof the ruling of the respondent appellate court reinstating Orient Air asgeneral sales agent of American Air.

NARIC v. COURT OF APPEALS

G.R. No. L-32320 July 16, 1979

FACTS: The National Rice and Corn Corporation (Naric) had on stock 8000 metric tons of corn which it could not dispose of due to its poor quality. Naric called for bids for the purchase of the corn and rice. But precisely because of the poor quality of the corn, a direct purchase of said corn even with the privilege of importing commodities did not attract good offers. Davao Merchandising Corporation (Damerco) came in with its offer to act as agent in the exportation of the corn, with the agent answering for the

price thereof and shouldering all expenses incidental thereto, provided it can import commodities, paying the NARIC therefor from the price it offeredfor the corn. Damerco was to open a domestic letter of credit, which shall be available to the NARIC drawing therefrom through sight draft without recourse. The availability of said letter or letters of credit to the NARIC was dependent upon the issuance of the export permit. The payment therefor depended on the importation of the collateral goods, that is after its arrival.

The first half of the collateral goods were successfully imported. Due to the inferior quality of the corn, it had to be replaced with more acceptable stock. This caused such delay that the letters of credit expired without the NARIC being able to draw the full amount therefrom. Checks and PN were issued by DAMERCO for the purpose of securing the unpaid part of the priceof the corn and as guaranty that DAMERCO will purchase the correspondingcollateral goods.

But because of the change of administration in the government, barter transactions were suspended. Hence, DAMERCO was not able to import the remaining collateral goods.

NARIC instituted in the CFI of Manila against DAMERCO and Fieldmen’s Insurance Co. Inc. an action for recovery of a sum of money representing the balance of the value of corn and rice exported by DAMERCO.

The trial court rendered in favor of NARIC ordering DAMERCO and Fieldmen’s Insurance Co. Inc., to pay, jointly and severally. CA reversed the trial court’s decision and rendered a new judgement dismissing the complaint as premature and for lack of cause of action. Hence this petition for certiorari.

ISSUE: Whether DAMERCO only acted as an agent of NARIC or is a buyer

HELD: the petition for review is denied and the resolution of the CA appealed from is hereby affirmed

AGENT Clearly from the contract between NARIC and DAMERCO: bids were previously called for by the NARIC for the purchase of corn and rice to be exported as well as of the imported commodities that will be brought in, butsaid biddings did not succeed in attracting good offers. Subsequently, Damerco made an offer. Now, to be sure, the contract designates the Naric as the seller and the Damerco as the buyer. These designations, however, are merely nominal, since the contract thereafter sets forth the role of the “buyer” (Damerco)’ “as agent of the seller” in exporting the quantity and kind of corn and rice as well as in importing the collateral goods thru barter and “to pay the aforementioned collateral goods.”

The contract between the NARIC and the DAMERCO is bilateral and gives rise to a reciprocal obligation. The said contract consists of two parts: (1) the exportation by the DAMERCO as agent for the NARIC of the rice and

corn; and (2) the importation of collateral goods by barter on a back to back letter of credit or no-dollar remittance basis. It is evident that the DAMERCO would not have entered into the agreement were it not for the stipulation as to the importation of the collateral goods which it could purchase.

It appears that we were also misled to believe that the Damerco was buying the corn. A closer look at the pertinent provisions of the contract, however, reveals that the price as stated in the contract was given tentatively for the purpose of fixing the price in barter. It should likewise be stressed that the aforesaid exportation and importation was on a “no-dollar remittance basis”. In other words, the agent, herein defendant Damerco, was not to be paid by its foreign buyer in dollars but in commodities. Damerco could not get paid unless the commodities were imported, and Damerco was not exporting and importing on its own but as agent of the plaintiff, because it is the latter alone which could export and import on barter basis according to its charter.Thus, unless Damerco was made an agent of the plaintiff, the former could not export the corn and rice nor import at the same time the collateral goods. This was precisely the intention of the parties.

He is not to be considered a buyer, who should be liable for the sum soughtby NARIC because the contract itself clearly provides the Damerco was to export the rice and corn, AND TO BUY THE collateral goods. There is nothing in the contract providing unconditionally that Damerco was buying the rice and corn. To be more specific, if the agreement was just a sale of corn to Damerco, the contract need not specify that Damerco was to buy the collateral goods.

MEDRANO and IBAAN RURAL BANK vs. COURT OF APPEALS

G.R. No. 150678 February 18, 2005

Facts: Bienvenido Medrano was the Vice-Chairman of Ibaan Rural Bank. He asked Flor (a cousin), to look for a buyer of a foreclosed asset of the bank (17-hectare mango plantation with 720 trees priced at P2.2M). Dominador Lee, a Makati businessman was a client of respondent Pacita Borbon, a licensed real estate broker. Borbon relayed to her business associates and friends that she had a ready buyer for a mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation which was up for sale.She told Flor to confer with Medrano and to give them a written authority tonegotiate the sale of the property. Medrano issued the Letter of Authority toBorbon and Antonio to negotiate with any prospective buyer for the sale of the mango plantation. He promised Borbon to pay a commission of 5% of the total purchase price to be agreed upon by the buyer and seller.

An ocular inspection was held by Lee. Lee informed Antonio that he already purchased the property and had made a down payment ofP1M. The remaining balance of P1.2M was to be paid upon the approval of the incorporation papers of the corporation he was organizing by the SEC. According to Antonio, Lee asked her if they had already received their commission. She answered “no,” and Lee expressed surprise over this. Since the sale of the property was consummated, the respondents asked from the petitioners their commission, or 5% of the purchase price. The petitioners refused to pay and offered a measly sum of P5,000.00 each. Hence, the present action.

Medrano’s defense: Borbon and Antonio did not perform any act to consummate the sale. The petitioners pointed out that the respondents (1) did not verify the real owner of the property; (2) never saw the property in question; (3) never got in touch with the registered owner of the property; and (4) neither did they perform any act of assisting their buyer in having the property inspected and verified.

Issue: WON the plaintiffs are entitled to any commission for the sale of the subject property? YES

Held: The respondents are indeed the procuring cause of the sale. If not forthe respondents, Lee would not have known about the mango plantation being sold by the petitioners. The sale was consummated. The bank had profited from such transaction. It would certainly be iniquitous if the respondents would not be rewarded their commission pursuant to the letterof authority.

“Procuring cause” = the proximate cause. The term “procuring cause,” in describing a broker’s activity, refers to a cause originating a series of events which, without break in their continuity, result in accomplishment of prime objective of the employment of the broker – producing a purchaser ready, willing and able to buy real estate on the owner’s terms.

The evidence on record shows that the respondents were instrumental in the sale of the property to Lee. Without their intervention, no sale could have been consummated. They were the ones who set the sale of the subject land in motion. While the letter-authority issued in favor of the respondents was non-exclusive, no evidence was adduced to show that there were other persons, aside from the respondents, who informed Lee about the property for sale. When there is a close, proximate and causal connection between the broker’s efforts and the principal’s sale of his property, the broker is entitled to a commission.

In the absence of fraud, irregularity or illegality in its execution, such letter-authority serves as a contract, and is considered as the law between the

parties. The clear intention is to reward the respondents for procuring a buyer for the property.

Bicol Savings and Loan Association vs. CA

Facts:Juan de Jesus was the owner of a parcel of land in Naga City. He executed a Special Power of Attorney in favor of Jose de Jesus, his son, wherein the latter could negotiate and mortgage the former’s property in any bank preferably in the Bicol Savings and Loan Association. By virtue of such document, Jose was able to obtain P20,000 from Bicol Savings. To secure payment, he executed a deed of mortgage wherein it was stipulatedthat upon the mortgagor’s failure or refusal to pay the obligation, the mortgagee may immediately foreclose the property. Juan de Jesus died and the loan obligation was not paid. As a result, Bicol Savings extrajudicially foreclosed the mortgaged property. The bank won as the highest bidder during the auction sale. Jose and the other heirs failed to redeem the property. Thereafter, they tried to negotiate with Bicol Savings but the parties did not come up to an agreement. Bicol Savings sold the property toanother person. Hence, Jose filed for annulment of the foreclosure sale. Thelower court dismissed the case. On appeal, the CA reversed RTC’s decision. Hence, this appeal.

Issue:Whether or not the extrajudicial foreclosure sale of the property was valid.

Ruling: Yes. Art 1879 of the CC which states that special power to sell excludes the power to mortgage and vice versa is inapplicable in the case. What it proscribes is a voluntary and independent contract of sale and not an auction sale resulting from extrajudicial foreclosure caused by the default of the mortgagor. The power to foreclose is not an ordinary agency but is primarily conferred upon the mortgagee for its protection. The right of the bank to foreclose is independent of the mortgage contract as it is recognized by the Rules of Court.

PAHUD v. CA

FACTS: Spouses Pedro San Agustin and Agatona Genil were able to acquirea 246-square meter parcel of land situated in Barangay Anos. Both died intestate, survived by their eight (8) children: respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio. In 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided Shares conveying in favor of petitioners (the Pahuds, for brevity) their respective shares from the lot they inherited from their deceased parents for P525,000.00- Eufemia also signed the deed on behalf of her

four (4) other co-heirs, namely: Isabelita on the basis of a special power of attorney executed on September 28, 1991 and also for Milagros, Minerva, and Zenaida but without their apparent written authority. The deed of sale was also not notarized. When Eufemia and her co-heirs drafted an extra-judicial settlement of estate to facilitate the transfer of the title to the Pahuds, Virgilio refused to sign it. Virgilio’s co-heirs filed a complaint for judicial partition of the subject property before the RTC. In the course of theproceedings for judicial partition, a Compromise Agreement17 was signed with seven (7) of the co-heirs agreeing to sell their undivided shares to Virgilio for P700,000.00.

The trial court did however, not approve compromise agreement. Eufemia and her six (6) co-heirs, refused to sign the agreement because he knew of the previous sale made to the Pahuds. On December 1, 1994, Eufemia acknowledged having received P700,000.00 from Virgilio. Virgilio then sold the entire property to spouses Isagani Belarmino and Leticia Ocampo (Belarminos). Belarminos immediately constructed a building on the subjectproperty. Pahuds confronted Eufemia who confirmed to them that Virgilio had sold the property to the Belarminos. Pahuds filed a complaint in intervention in the pending case for judicial partition.

After trial, the RTC upheld the validity of the sale to petitioners

-sale of the 7/8 portion of the property cover

-declaring the defendant Virgilio San Agustin and the Third-Party defendants spouses Isagani and Leticia Belarmino as in bad faith in buying the portion of the property already sold by the plaintiffs

Respondents appealed the decision to the CA arguing, in the main, that the sale made by Eufemia for and on behalf of her other co-heirs to the Pahuds should have been declared void and inexistent for want of a written authority. The CA REVERSED and SET ASIDE the trial court decision, and a new one entered, as follows:

Declaring the sale of appellant Virgilio San Agustin to appellants spouses, Isagani and Leticia Belarmino, as valid and binding

Issue: The status of the sale of the subject property by Eufemia and her co-heirs to the Pahuds

Ruling: Article 1874 of the Civil Code plainly provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.

Also, under Article 1878, a special power of attorney is necessary for an agent to enter into a contract by which the ownership of an immovable property is transmitted or acquired, either gratuitously or for a valuable consideration.

A special power of attorney is necessary to enter into any contract by whichthe ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration

For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language

Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia, Isabelita and her two brothers to the Pahuds sometime in 1992 should be valid only with respect to the 4/8 portion of thesubject property. The sale with respect to the 3/8 portion, representing the shares of Zenaida, Milagros, and Minerva, is void because Eufemia could not dispose of the interest of her co-heirs in the said lot absent any written authority from the latter, as explicitly required by law. This was, in fact, the ruling of the CA.

While the sale with respect to the 3/8 portion is void by express provision oflaw and not susceptible to ratification,31 we nevertheless uphold its validity on the basis of the common law principle of estoppel.

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

True, at the time of the sale to the Pahuds, Eufemia was not armed with therequisite special power of attorney to dispose of the 3/8 portion of the property.

However, they admitted that they had indeed sold 7/8 of the property to the Pahuds sometime in 1992. Thus, the previous denial was superseded, if not accordingly amended, by their subsequent admission. They opted to remain silent and left the task of raising the validity of the sale as an issue to their co-heir, Virgilio, who is not privy to the said transaction

By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that they have indeed clothed Eufemia with the authorityto transact on their behalf. Clearly, the three co-heirs are now estopped from impugning the validity of the sale from assailing the authority of Eufemia to enter into such transaction.

Belaraminos cannot argue that they purchased the property in good faith. The sale made by respondent Virgilio San Agustin to respondent spouses

Isagani Belarmino and Leticia Ocampo is valid only with respect to the 1/8 portion of the subject property.

INLAND REALTY v. COURT OF APPEALS

GR No. 76969. June 9, 1997

Facts: Plaintiff Inland Realty Investment Service, Inc. is a corporation engaged among others in the real estate business and brokerages which sent proposal letters to prospective buyers for their sales campaign. One such prospective buyer to whom a proposal letter was sent to was Stanford Microsystems, Inc. which counter-proposed. Upon plaintiffs' receipt of the said counter-proposal, it immediately wrote defendant a letter to register Stanford Microsystems, Inc. as one of its prospective buyers. Defendant Araneta, Inc., thru its Assistant General Manager Eduque, replied that the price offered by Stanford was too low and suggested that plaintiffs see if the price and terms of payment can be improved upon by Stanford. The authority to sell given to plaintiffs by defendants was extended several times until it expired. Plaintiffs finally sold the 9,800 shares of stock in Architects Bldg., Inc. to Stanford Microsystems, Inc. for P13, 500,000.00. Plaintiffs demanded formally from defendants, through a letter of demand, for payment of their 5% broker's commission which was declined by defendants on the ground that the claim has no factual or legal basis. Private respondent argues that after their authority to sell expired, petitioners abandoned the sales transaction and were no longer privy to theconsummation and documentation thereof, Trial court dismissed petitioners' complaint for collection. Respondent appellate court likewise dismissed petitioners' appeal.

Issues: (1) Whether or not the agency contract and authority to sell were extended. – NO

(2) Whether or not the broker is automatic entitlement to the stipulated commission merely upon securing for, and introducing to, the seller, the particular buyer who ultimately purchases from the former the object of thesale, regardless of the expiration of the broker's contract of agency and authority to sell. – NO

Ruling: (1) Petitioners have conspicuously failed to attach a certified copy of the letter renewing petitioner Inland Realty's authority to act as agent to sell. Such naivety, this court will not tolerate.

(2)It is understandable why petitioners have resorted to a campaign for an automatic and blanket entitlement to brokerage commission upon doing nothing but submitting to private respondent Araneta, Inc., the name of Stanford as prospective buyer of the latter's shares in Architects'. Of course petitioners would advocate as such because precisely petitioners didnothing but submit Stanford's name as prospective buyer. Petitioners did not succeed in outrightly selling said shares under the predetermined terms

and conditions set out by Araneta, Inc., e.g., that the price per share is P1,500.00. when petitioners' authority to sell was subsisting, if at all, petitioners had nothing to show that they actively served their principal's interests, pursued to sell the shares in accordance with their principal's terms and conditions, and performed substantial acts that proximately and causatively led to the consummation of the sale to Stanford of Araneta, Inc.'s 9,800 shares in Architects'.The Court of Appeals cannot be faulted for emphasizing the lapse of more than one (1) year and five (5) months between the expiration of petitioners' authority to sell and the consummation of the sale to Stanford, to be a significant index of petitioners' non-participation in the really critical events leading to the consummation of said sale.

MANOTOK BROTHERS, INC. v. COURT OF APPEALS

G.R. No. 94753 DATE: April 7, 1993

Campos Jr., J.

FACTS: The petitioner in this case is the owner of a parcel of land and building which was leased to the City of Manila and was used by Claro M. Recto High school. Respondent here, Salvador Saligumba, was the agent of the petitioner who negotiated with the city for the sale of the said property.

Accordingly as such, he was given letters of authority that allowed him to negotiate the property at a price not less than 425k. He was to get a 5% commission from the said sale

His authority was extended several times, the last one lasting for 180 days from November 16, 1987, also it was at this time that petitioner allowed thesale to be consummated for the amount of 410k.

However, it was only on April 26, 1968, passed Ordinance No. 6603, appropriating the sum of P410,816.00 for the purchase of the property which private respondent was authorized to sell. Said ordinance however, was signed by the City Mayor only on May 17, 1968, one hundred eighty three (183) days after the last letter of authorization. On January 14, 1969, the parties signed the deed of sale of the subject property. The initial payment of P200,000.00 having been made, the purchase price was fully satisfied with a second payment on April 8, 1969 by a check in the amount of P210,816.00.

Respondent now asks that the 5% commission be paid to him in the amount of P20,554.50. But petitioners refused to pay up, arguing that: (1) Private respondent would be entitled to a commission only if the sale was consummated and the price paid within the period given in the respective letters of authority; (2) Private respondent was not the person responsible for the negotiation and consummation of the sale; instead it was Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto High

School. Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino Manotok. Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he followed up the sale from the start with Councilor Magsalin until after it was approved by the Mayor on May 17, 1968. He also said that he came to know Rufino Manotok only in August, 1968, at which meeting the latter told him that he would be given a "gratification" in the amount of P20,000.00 if the sale wasexpedited.

Petitioner’s contention that as a broker, private respondent's job is to bring together the parties to a transaction. Accordingly, if the broker does not succeed in bringing the minds of the purchaser and the vendor to an agreement with respect to the sale, he is not entitled to a commission.

The Court ruled in favor of the respondent, with the CA affirming the RTC decision. Hence, the appeal.

ISSUE: Whether or not private respondent is entitled to the 5% commission

HELD: It is to be noted that the ordinance was approved on April 26, 1968 when private respondent's authorization was still in force. Moreover, the approval by the City Mayor came only three days after the expiration of private respondent's authority. It is also worth emphasizing that from the records, the only party given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent. When there is a close, proximate and causal connection between the agent's efforts and labor and the principal's sale of his property, the agent is entitled to a commission. Private respondent is the efficient procuring cause for without his efforts, the municipality would not have anything to pass and the Mayor would not have anything to approve. The SC agrees with respondent Court that the City of Manila ultimately became the purchaser of petitioner's property mainly through the efforts of private respondent. Decision of the RTC is affirmed.

LIM v. COURT OF APPEALS

G.R. No. 102784, 28 February, 1996

Facts: An Information for Estafa was filed against petitioner Rosa Lim for allegedly defrauding Victoria Suarez. Lim received from Suarez a 3.35-caratdiamond ring and a bracelet to be sold on commission basis; such agreement was reflected in a receipt. Later, Lim returned to Suarez only thebracelet without the diamond ring nor the proceeds thereof if sold. Suarez made verbal and written demands on Lim for the return of the diamond ringbut the latter responded that she had already returned both ring and bracelet to the former, thus she had no longer any liability.

However, petitioner Lim averred that a certain Aurelia Nadera introduced her to Suarez, that she received the two pieces of jewelry for her to

consider buying them for her own use and not to sell them on commission basis, and that she would inform Suarez of such decision before she goes back to Cebu. She also said that since she was not yet ready to buy, she asked Suarez to prepare a paper for her to sign and that she signed said document on its upper portion and not at the bottom where a space was provided for the signature of the person receiving the jewelry. Before departing, Lim informed Suarez that she was no longer interested in buyingthe jewelry and the latter instructed her to give them to Nadera which the former allegedly did. Petitioner asserts that she never received the jewelry in trust or on commission basis since the real agreement between them was a sale on credit.

Issue: Whether or not the real transaction between Lim and Suarez was a contract of agency to sell on commission basis – YES

Ruling: The real transaction was a contract of agency to sell as evidenced by the receipt which stated that Suarez’ compensation or commission would be the over-price on the value of each jewelry and that she was prohibited from selling them on credit or by installment, from giving for safekeeping, lending, pledging, or giving as security or guaranty. The fact that Lim’s signature appeared on the upper portion of the receipt did not have the effect of altering the terms of the transaction from a contract of agency to sell on commission basis to a contract of sale. Neither does it indicate absence or vitiation of consent thereto in Lim’s part which would otherwise render the contract void or voidable. The moment Lim affixed hersignature thereon, she became bound by all the terms stipulated in the receipt. Article 1356 of the Civil Code pronounces, “Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.” The exceptions to thisrule are: 1) when form is required for the validity of the contract; 2) when form is required to make the contract effective as against third parties; and,3) when form is required for the purpose of proving the existence of the contract. A contract of agency to sell on commission basis does not belong to any of these three categories; therefore, it is valid and enforceable in whatever form it may be entered into. Furthermore, the only type of legal instrument where the law strictly prescribes the location of the signature of the parties thereto is the notarial will.

DOMINGO v. DOMINGO

GR No. L-30573 Oct. 29, 1971

Makasiar, J.

FACTS: Vicente Domingo granted to Gregorio Domingo, a real estate broker, the exclusive agency to sell his Lot No. 883, Piedad Estate in a document. Said lot has an area of 88,477 sq. m.

According to the document, said lot must be sold for P2 per sq. m. Gregorio is entitled to 5% commission on the total price if the property is sold (1) by Vicente or by anyone else during the 30-day duration of the agency or (2) by Vicente within 3 months from the termination of the agency to a purchaser to whom it was submitted by Gregorio during the effectivity of the agency with notice to Vicente. Gregorio Domingo received P1,000 from Oscar de Leon as gift or propina. Oscar gave him said amount after Gregorio succeeded in persuading Vicente to accept his offer to buy the lot for P1.20 instead of P2.

ISSUE: WON Gregorio’s act of accepting the gift or propina from Oscar constitutes a fraud which would cause the forfeiture of his 5% commission [YES]

HELD: Gregorio Domingo as the broker, received a gift or propina from the prospective buyer Oscar de Leon, without the knowledge and consent of hisprincipal, Vicente Domingo. His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of P3000 on his commission. As a consequence, instead of exerting his best topersuade his prospective buyer to purchase the property on the most advantageous terms desired by his principal, Gregorio Domingo, succeededin persuading his principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per sq. m.

The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal.

An agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it.

Philippine Health-Care Providers, Inc. v. Estrada

G.R. No. 171052 January 28, 2008

FACTS:

Philippine Health-Care Providers, Inc. (Maxicare) formally appointed Estrada as its General Agent evidenced by a letter-agreement dated February 16, 1991 granting him a commission equivalent to:

15 to 18% from individual, family, group accounts

2.5 to 10% on tailored fit plans

10% on standard plans of commissionable amount on corporate accounts

Maxicare had a "franchising system" in dealing with its agents whereby an agent had to first secure permission from to list a prospective company as client

MERALCO account was included as corporate accounts applied by Estrada

Estrada submitted proposals and made representations to the officers of MERALCO regarding the MAXICARE Plan but MERALCO directly negotiated with MAXICARE from December 1, 1991 to November 30, 1992 and was renewed twice for a term of 3 years each

March 24, 1992: Estrada through counsel demanded his commission for the MERALCO account and 9 other accounts but it was denied by MAXICARE because he was not given a go signal to intervene in the negotiations for the terms and conditions

RTC: Maxicare liable for breach of contract and ordered it to pay Estrada actual damages in the amount equivalent to 10% of P20,169,335 representing her commission for Meralco

CA: Affirms in totoISSUE: W/N Estrada should be paid his commission for the Maxicare Plans subscribed by Meralco

HELD: YES. petition is DENIED Both courts were one in the conclusion that Maxicare successfully

landed the Meralco account for the sale of healthcare plans only by virtue of Estrada’s involvement and participation in the negotiations

Maxicare’s contention that Estrada may only claim commissions from membership dues which she has collected and remitted to Maxicare as expressly provided for in the letter-agreement does not convince us. It is readily apparent that Maxicare is attempting to evadepayment of the commission which rightfully belongs to Estrada as the broker who brought the parties together.

The only reason Estrada was not able to participate in the collection and remittance of premium dues to Maxicare was because she was prevented from doing so by the acts of Maxicare, its officers, and employees.

Agent vs. Broker:

agent

receives a commission upon the successful conclusion of a sale

broker

earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made

"procuring cause" in describing a broker’s activity

cause originating a series of events which, without break in their continuity, result in the accomplishment

efforts must have been the foundation on which the negotiations resulting in a sale began

Even a cursory reading of the Complaint and all the pleadings filedthereafter before the RTC, CA, and this Court, readily show that Estradadoes not concede, at any point, that her negotiations with Meralco failed -Counsel's contention is wrong

Estrada is entitled to 10% of the total amount of premiums paid byMeralco to Maxicare as of May 1996 (including succeeding renewals)

RURAL BANK OF MILAOR vs OCFEMIA

FACTS: Several parcels of land were mortgaged by the respondents during the lifetime of the respondent’s grandparents to the Rural bank of Milaor as shown by the Deed of Real Estate Mortgage and the Promissory Note. Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the respondents, were not able to redeem the mortgaged properties consisting of seven parcels of land and so the mortgage was foreclosed and thereafter ownership was transferred to the petitioner bank. Out of the seven parcels of land that were foreclosed, five of them are in the possession of the respondents because these five parcels of land were sold by the petitioner bank to the respondents as evidenced by a Deed of Sale. However, the five parcels of land cannot be transferred in the name of the parents of Merife Nino, one of the respondents, because there is a need to have the document of sale registered. The Register of deeds, however, said that the document of sale cannot be registered without the board resolution of the petitioner bank confirming both the Deed of sale and the authority of the bank manager, Fe S. Tena, to enter such transaction.

The petitioner bank refused her request for a board resolution and made many alibis. Respondents initiated the present proceedings so that they could transfer to their names the subject five parcel of land and subsequently mortgage said lots and to use the loan proceeds for the medical expenses of their ailing mother.

ISSUE: May the Board of Directors of a rural banking corporation be compelled to confirm a deed of absolute sale of real property owned by the corporation which deed of sale was executed by the bank manager without prior authority of the board of directors of the rural banking corporation?

HELD: YES. The bank acknowledges, by its own acts or failure to act, the authority of Fe S. Tena to enter into binding contracts. After the execution ofthe Deed of Sale, respondents occupied the properties in dispute and paid the real estate taxes. If the bank management believed that it had title to the property, it should have taken measured to prevent the infringement and invasion of title thereto and possession thereof. Likewise, Tena had previously transacted business on behalf of the bank, and the latter had

acknowledged her authority. A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena even though such agent is abusing her authority. Clearly, persons dealing with her could not be blamed for believing that shewas authorized to transact business for and on behalf of the bank.

The bank is estopped from questioning the authority of the bank to enter into contract of sale. If a corporation knowingly permits one of its officers orany other agent to act within the scope of an apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.

DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents. PARDO, J.: FACTS: Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money, seeking to recover the sum of P156,473.90 against Dominion Insurance Corporation. Guevarra claimed to have advanced in his capacity as manager of DIC to satisfy certain claims filed by DIC’s clients. DIC denied any liability to Guevarra and asserted a counterclaim for P249,672.53. In 1991, DIC filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area. After repeated postponements filed by both parties, DIC was declared in default by the RTC. RTC issued a decision; the dispositive portion is read as: WHEREFORE, premises considered, judgment is hereby rendered ordering:

“1. Dominion Insurance Corporation to pay [Guevarra] the sum of P156,473.90 representing the total amount advanced by [DIC] in the payment of the claims of [Guevarra]’s clients; “2. [DIC] to pay [Guevarra] P10,000.00 as and by way of attorney’s fees; “3. The dismissal of the counter-claim of the [DIC] and the third-party [Austria] complaint; “4. [DIC] to pay the costs of suit.” DIC brought the case up to the CA; CA affirmed the decision of the RTC. Hence this case.

ISSUE/S: Whether or not Guevarra acted within his authority as agent for DIC; Whether or not Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured.

HELD: NO, because his authority as agent does not grant such powers (a special power of attorney is required); YES, because this case falls squarely under the general law on obligations and contracts.

RATIO: A perusal of the Special Power of Attorney would show that DIC (represented by third-party defendant Austria) and Guevarra intended to enter into a principal-agent relationship. Despite the word “special” in the title of the document, the contents reveal that what was constituted was actually a general agency. [Refer to the original case for the said contract stipulations] The instruction of DIC as the principal could not be any clearer. Guevarra was authorized to pay the claim of the insured, but the payment shall comefrom the revolving fund or collection in his possession. Having deviated from the instructions of the principal, the expenses that Guevarra incurred in the settlement of the claims of the insured may not bereimbursed from DIC. Article 1918, Civil Code: The principal is not liable for the expenses incurredby the agent in the following cases: (1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the benefits derived from the contract; “xxx xxx xxx HOWEVER, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts. Article 1236, second paragraph, Civil Code, provides: Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recoveronly insofar as the payment has been beneficial to the debtor.

CMS Logging v. CA (1992; Nocon, J.)

Facts:

1. CMS (a forest concessionaire engaged in the logging business) andDRACOR (engaged in the business of exporting and selling logs and lumber) entered into a contract of agency whereby the formerappointed the latter as its exclusive export and sales agent for all logs that the former may produce, for a period of five (5) years. Byvirtue of this agreement, CMS was able to sell 77M board feet of logs in Japan.

2. Six months before the expiration of the agreement, CMS’ presidentAtty. Sison and its general manager and legal counsel Atty. Dominguez discovered while on a trip to Japan that DRACOR had used Shinko Trading Corp. as agent, representative or liaison officer for selling their company’s logs and earned a commission of$1/1,000 board feet, such that it was able to get $77k from the arrangement.

a. CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that since DRACOR had been paid the 5% commission under the agreement, it is no longer entitled to the additional commission paid to Shinko as this tantamount to DRACOR receiving double compensation for the services it rendered. (Basically, CMSclaims that DRACOR got the contested amount from the proceeds of the sales over and above the commission they themselves were to receive under the agreement.)

b. After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention of DRACOR.

3. CMS sued DRACOR for the commission and for moral and exemplary damages.

a. DRACOR’s counterclaim: that it was entitled to a P144k commission from the sales made directly by CMS.

b. CMS’ reply: in its defense, said that DRACOR retained as part of its commission P101k as part of its commission from the sale made directly by CMS.

i. CMS’ counterclaim to DRACOR’S counterclaim: demanded the return of the amount DRACOR unlawfully retained.

c. DRACOR’s amended counterclaim: alleged that the balance of its commission on the sales CMS made was P42k (impliedly admitting that it retained the amount alleged in the reply)

4. TC: Complaint DISMISSED.a. Though there was indeed receipt by Shinko of the $77k,

there is no evidence that such amount was for the sale of CMS’ logs.

b. Counterclaim also dismissed as it was shown that DRACOR had waived its rights to the balance of its commission in a letter to Atty. Sison.

c. CMS appealed.5. CA: Dismissal AFFIRMED.

a. No evidence supporting CMS’ claims.b. A letter between DRACOR and Shinko shows that the

amount paid to the latter was taken from the 5% that DRACOR received from CMS.

c. Petition for review on certiorari filed before the SC.

Issue:

1. WON Shinko received the commission in question.2. WON DRACOR is entitled to a commission for the sales made by

CMS directly to Japanese firms.

Held/Ratio:

1. NO, it Shinko not receive the commission in question.a. Atty. Dominguez’ testimony that he heard said news from

Shinko’s president is hearsay, as well as the letter of one Mr. Shibata

b. The alleged admissions made by DRACOR’s president andits counsel in other letters cannot be categorized as admissions because they do not state the facts to be proven in definite, certain, and unequivocal language. Sample “admissions”:

i. “…it is obvious that they paid Shinko for certain services which Shinko must have satisfactorily performed…”

ii. “There appears to be no justification for your client's contention that these benefits, whether they can be considered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be regarded part of the gross sales.”

iii. “…our shipment of logs to Toyo Menka Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which should enable Shinko to collect a commission of US $67,747.73 only…” (here, the numbers pointed to include logs sold to various firms, and not just sales allegedly made by Shinko)

c. There was no admission by DRACOR’s alleged silence as to the fact of payment made by Toyo Menka directly to Shinko because there was in fact a response to this allegation though a letter from the respondent categorically denying knowledge of any such payment.

d. Even if it was shown that Shinko did in fact receive the commissions in question, CMS is not entitled thereto since these were apparently paid by the buyers to Shinko for arranging the sale. This is therefore not part of the gross sales of CMS's logs.

2. NO, DRACOR is not entitled to its commission to the subsequent sales.

a. Art. 1924 The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons.

b. In this case, there was an implied revocation when CMS sold its logs directly to Japanese firms. Since the contract of agency had been revoked by the time these sales wereeffected, the DRACOR is no longer entitled to claim or retain commission in relation to these transactions.

c. Neither would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded to the agent for the revocation of the agency, and the case at bar is not one falling under the exception mentioned, which is to evade the payment of the agent's commission.

d. Fraud and bad faith were not adequately proven in the LC, and the SC is bound by its finding.

Dispositive: Decision MODIFIED. CA ruling as to the Shinko commission AFFIRMED, but portion as to DRACOR’s right to retain subsequent commissions REVERSED.

DY BUNCIO & COMPANY, INC. v.ONG GUAN CAN

G.R. No. L-40681 October 2, 1934

Facts: A deed dated July 31, 1931 by Ong Guan Can, Jr. states that he, asagent of Ong Guan Can, sells a rice-mill and camarin to Juan Tong and givesas his authority the power of attorney dated May 23, 1928. The power ofattorney is a limited one and does not give the express power to alienatethe properties in question. However, a general power of attorney haspreviously been given to the same agent in 1920.

Issue: Whether or not Ong Guan Can, the judgment debtor, is still theowner of the rice-mill and camarin – YES

Ratio: The making and accepting of a new power of attorney, whether itenlarges or decreases the power of the agent under a prior power ofattorney, must be held to supplant and revoke the latter when the two areinconsistent. The title of Ong Guan Can has not been divested by the so-called deed of July 31, 1931. His properties are subject to attachment andexecution.

VALENZUELA v. COURT OF APPEALS

G.R. No. 83122 October 19, 1990

Facts: Arturo P. Valenzuela is a General Agent of Philippine AmericanGeneral Insurance Company, Inc. since 1965. As such, he was authorized tosolicit and sell in behalf of Philamgen all kinds of non-life insurance, and inconsideration of services rendered was entitled to receive the full agent'scommission of 32.5% from Philamgen under the scheduled commissionrates. From 1973 to 1975, Valenzuela solicited marine insurance from one

of his clients, the Delta Motors, Inc. in the amount of P4.4 Million fromwhich he was entitled to a commission of 32%. However, Valenzuela did notreceive his full commission which amounted to P1.6 Million from the P4.4Million insurance coverage of the Delta Motors. In 1977,Philamgen startedto become interested in and expressed its intent to share in the commissiondue Valenzuela on a fifty-fifty basis. Valenzuela refused. Philamgen insistedon the sharing of the commission with Valenzuela. On June 16,1978,Valenzuela firmly reiterated his objection to the proposals of respondents.Because of the refusal of Valenzuela, Philamgen took drastic action againstValenzuela. All of these acts resulted in the decline of his business as aninsurance agent. Then on December 27, 1978, Philamgen terminated theGeneral Agency Agreement of Valenzuela. Thus, Valenzuela filed acomplaint against Philamgen. The trial court ruled in favor Valenzuela andordered his reinstatement. On appeal, the Court of Appeals modified thejudgment in favor of Philamgen. Hence, this petition.

Issue: Whether or not Philamgen validly terminated the contract of agency.– NO

Ratio: As a general rule, an agency is revocable at will except when theagency has been given not only for the interest of the principal but for theinterest of third persons or for the mutual interest of the principal and theagent. In these cases, it is evident that the agency ceases to be freelyrevocable by the sole will of the principal. With the termination of theGeneral Agency Agreement, Valenzuela would no longer be entitled tocommission on the renewal of insurance policies of clients sourced from hisagency. Worse, Philamgen continued to hold Valenzuela jointly andseverally liable with the insured for unpaid premiums. Under thesecircumstances, it is clear that Valenzuela had an interest in the continuationof the agency when it was unceremoniously terminated not only because ofthe commissions he should continue to receive from the insurance businesshe has solicited and procured but also for the fact that by the very acts ofthe respondents, he was made liable to Philamgen in the event the insuredfail to pay the premiums due. They are estopped by their own positiveaverments and claims for damages. Therefore, the respondents cannotstate that the agency relationship between Valenzuela and Philamgen is notcoupled with interest. There may be cases in which an agent has beeninduced to assume a responsibility or incur a liability, in reliance upon thecontinuance of the authority under such circumstances that, if the authoritybe withdrawn, the agent will be exposed to personal loss or liability.

LIM v. SABAN

GR. No. 163720 December 16, 2004

Facts: The late Eduardo Ybañez, the owner of a 1000 square meter lot inCebu City entered into an agency agreement with respondent FlorencioSaban. Under the agency agreement, Ybañez authorized Saban to look for abuyer of the lot for P200,000 and to mark up the selling price to include theamounts needed for payment of taxes, transfer of title and other expensesincident to the sale, as well as Saban’s commission for the sale. ThroughSaban’s effort, Ybañez and his wife were able to sell the lot to petitionerGenevieve Lim and the spouses Benjamin and Lourdes Lim. The priceindicated in the Deed of Absolute Sale was P200,000, however, it appearsthat the parties agreed to purchase the lot for P600,000 inclusive of taxesand other expenses of the sale. Lim remitted to Saban the amounts ofP113,257.00 for the payment of taxes as well as P50,000 as broker’scommission. Lim also issued in the name of Saban four postdated checks inthe aggregate amount of P236,743.00. Subsequently, Ybañez sent letter tohim convincing her to cancel all the checks she issued in the name ofSaban and pay directly to him. Saban filed a complaint for the collection ofsum of money and damages against Ybañez and Lim with the RTC of CebuCity. Saban alleged that Ybañez connived with Lim to deprive him of hissales commission by withholding the payment of the checks. Ybañez for hispart claimed that Saban was not entitled to any commission because heconcealed the actual selling price from him and because he was not alicensed broker. Ybañez died during the pendency of the case. The casewas dismissed with respect to Ybañez and only the complaint against Limwas continued. The RTC of Cebu dismissed the complaint of Saban. Onappeal, the Court of Appeals ruled that the revocation of the contract ofagency by Ybañez was invalid because the agency was coupled withinterest and Ybañez effected the revocation in bad faith in order to depriveSaban of his commission. Not satisfied with the decision of the Court ofAppeals, Lim filed the present petition. She further contends that sheshould not be liable for Ybañez debt to Saban as she was not a party to thecontract of agency between them.

Issues: (1) Whether or not the contract of agency was revoked. – NO

(2) Whether or not the contract of agency was coupled with interest. – NO

Ruling: (1) The agency was not revoked since Ybañez requested that Limto make stop payment orders for the checks issued to Saban only after theconsummation of the sale. At that time, Saban had already performed hisobligation as Ybañez’s agent when, through Saban’s efforts, Ybañezexecuted the Deed of Absolute Sale of the lot with Lim and Spouses Lim. Todeprive Saban of his commission subsequent to the sale which wasconsummated through his efforts would be a breach of contract of agency.

Moreover, the Court has sufficient basis to conclude that Ybañez and Limconnived with each other to deprive Saban of his commissions by dealingwith each other directly and reducing the purchase price of the lot andleaving nothing for Saban to compensate him for his efforts. Hence, it isproper that Lim pays Saban the amount due to him.

(2) An agency is deemed as one coupled with interest where it isestablished for the mutual benefit of the principal and of third persons, andit cannot be revoked by the principal so long as the interest of the agent orof third person subsists. In an agency coupled with an interest, the agent’sinterest must be in the subject matter of the power conferred and notmerely an interest in the exercise of the power because it entitles him tocompensation. When the agent’s interest is confined to earning his agreedcompensation, the agency is not coupled with an interest, since the agent’sinterest in obtaining his compensation as such agent is an ordinary incidentof the agency relationship.

Philex Mining Corp vs CIR

Facts: Petitioner Philex entered into an agreement with Baguio Gold MiningCorporation for the former to manage the latter’s mining claim known asthe Sto. Mine. The parties’ agreement was denominated as “Power ofAttorney”. The mine suffered continuing losses over the years, whichresulted in petitioners’ withdrawal as manager of the mine. The partiesexecuted a “Compromise Dation in Payment”, wherein the debt of Baguioamounted to Php. 112,136,000.00. Petitioner deducted said amount fromits gross income in its annual tax income return as “loss on the settlementof receivables from Baguio Gold against reserves and allowances”. BIRdisallowed the amount as deduction for bad debt. Petitioner claims that itentered a contract of agency evidenced by the “power of attorney”executed by them and the advances made by petitioners is in the nature ofa loan and thus can be deducted from its gross income. Court of TaxAppeals (CTA) rejected the claim and held that it is a partnership ratherthan an agency. CA affirmed CTA

Issue: Whether or not it is an agency.

Held: No. The lower courts correctly held that the “Power of Attorney” (PA)is the instrument material that is material in determining the true nature ofthe business relationship between petitioner and Baguio. An examination ofthe said PA reveals that a partnership or joint venture was indeed intendedby the parties. While a corporation like the petitioner cannot generallyenter into acontract of partnership unless authorized by law or its charter, ithas been held that it may enter into a joint venture, which is akin to aparticular partnership. The PA indicates that the parties had intended tocreate a PAT and establish a common fund for the purpose. They also had a

joint interest in the profits of the business as shown by the 50-50 sharing ofincome of the mine.

Moreover, in an agency coupled with interest, it is the agency that cannotbe revoked or withdrawn by the principal due to an interest of a third partythat depends upon it or the mutual interest of both principal and agent. Inthis case the non-revocation or non-withdrawal under the PA applies to theadvances made by the petitioner who is the agent and not the principalunder the contract. Thus, it cannot be inferred from the stipulation that it isan agency.

MENDOZA v. PAULE

G.R. No. 175885, 13 February 2009

Facts: Engineer Eduardo M. Paule, the proprietor of E.M. Paule Constructionand Trading (EMPCT), executed on 24 May 1999 a special power of attorney(SPA) authorizing Zenaida G. Mendoza to participate in the bidding of aNational Irrigation Administration (NIA) and to represent him in alltransactions related thereto. The said project, which involves constructionof a road system, canal structures and drainage box culverts, was laterawarded to EMPCT through Mendoza. Mendoza entered into a leasecontract with Manuel Cruz for the heavy equipment to be used in the NIAproject. Said lease contract was entered into by Mendoza upon severalmeetings with Cruz and Paule. Mendoza and Cruz signed job orders dated 2and 22 December 1999. But on 27 April 2000, Paule revoked the SPA issuedin favor of Mendoza so NIA refused to pay Mendoza on her billings.Consequently, Cruz could not be paid for the rent of the equipment andfiled an action for collection sum of money.

Issue: Whether or not Mendoza acted beyond her authority, granted byPaule through an SPA, when she contracted with Cruz for the lease of heavyequipment to be used in the implementation of the NIA project. – NO

Ruling: Although the SPA limit Mendoza’s authority to such acts asrepresenting EMPCT in its business transactions with NIA, participating inthe bidding of the project, receiving and collecting payment in behalf ofEMPCT, and performing other acts in furtherance thereof, the evidenceshows that when Mendoza and Cruz met and discussed the lease of thelatter’s heavy equipment for use in the project, PAULE was present andinterposed no objection to Mendoza’s actuations. Her actions were inaccord with what she and Paule originally agreed upon, as records show, asto division of labor and delineation of functions within their partnership. Under the Civil Code, every partner is an agent of the partnership for thepurpose of its business; each one may separately execute all acts of

administration, unless a specification of their respective duties has beenagreed upon, or else it is stipulated that any one of them shall not actwithout the consent of all the others. At any rate, Paule does not have anyvalid cause for opposition because his only role in the partnership is toprovide his contractor’s license and expertise, while the sourcing of funds,materials, labor and equipment has been relegated to Mendoza.