Agency and Partnership 1st Day Rocky Reyes

Agency and Partnership Day 1 1767 - 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. Two or more persons may form a partnership for the exercise of a profession. 1768 – The partnership has a judicial personality separate and distinct from that of each of the partners, even in failure to comply with the requirements of Article 1722, first paragraph. 1769 – In determining whether a partnership exists, these rules shall apply: (1) Except as provided by Article 1825, persons who are not partner to each other are not partners as to third persons; (2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the rights are derived; (4) The receipt of a person of the share of a profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) as a debt by installments or otherwise; (b) as wages of an employee or rent to a landlord (c) as an annuity to a widow or representative of a deceased partner (d) as consideration for the sale of a goodwill of a business or other property by installments or otherwise 1770 – A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code, governing the confiscation of the instruments and effects of a crime. 1771 – A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument may be necessary. 1772 – Every contract of partnership having a capital of three thousand (P3,000) pesos or more in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. 1773 – A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. 1774 – Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name.

1775 – Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. 1776 – As to its object, a partnership may be UNIVERSAL or PARTICULAR. As regards the liability of partners, a partnership may be GENERAL or LIMITED. 1777 – A universal partnership may refer to all the present property or to all the profits. 1778 – A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as the profits which they may acquire therewith. 1779 – In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as the profits they may acquire therewith. 1780 – A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. 1781 – Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. 1782 – Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership. 1783 – A particular partnership has for its object determinate things, their use or fruits or specific undertaking, or the exercise of a profession or vocation. CASES: Commissioner vs. Burroughs FACTS: On March 1979, Burroughs Limited applied with the Central Bank authority to remit to its parent company abroad profit amounting to P7,647,058.00. On March 14, 1979, it paid the CB 15% of the branch profit, amounting to P1,147,058.70. Burroughs claims that the profit remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not the amount before profit remittance tax.. Burroughs Limited wanted a refund/tax credit of P172,058.90, representing alleged overpaid branch profit remittance tax. BL filed with the CTA a petition for review for the refund, to which the CTA decided in favor of Burroughs. The Commissioner of Internal Revenue fo;ed a petition for review WoN respondent is entitled to a refund. HELD: Yes, respondent is legally entitled to a refund.

Sec. 24 (b)(2)(ii) states that: Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of 15 %. In a BIR ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana, the aforequoted provision had been interpreted to mean that “the tax base upon which the 15% branch profit remittance tax shall be imposed is the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made”. Contention that respondent is no longer entitled to a refund because MC No. 8-82 dates March 17, 1982 had revoked or repealed the BIR ruling of 1/21/80 is without merit, because the MC is dated 3/17/82, and the remittance tax was paid 3/14/79. Sec. 327 of the NIRC provides that rulings are non-retroactive. Commissioner v. Suter and the CTA William J. Suter Morcoin Co. Ltd. Was formed on 9/30/47 by William J. Suter, Julia Spirig, and Gustav Carlson as limited partners. They contributed P20,000, P18,000, and P2,000 to the partnership. It was registered on 10/1047 with the SEC, and the firm engaged in the phonograph, television, and amusement machine industry. On 1948, Suter married Spirig, and Carlson sold his share in the partnership to Suter and his wife on 12/18/1948. On 1959, the Commissioner of Internal Revenue consolidated the income of the rfirm and the individual incomes of Suter and Spirig and determined a deficiency of income tax against Suter in the amount of 2,678.06 for 1954 and P4,567 for 1955. Suter appealed with the CTA, which reversed the decision of the Commissioner of Internal Revenue. CIR filed a petition for review raising whether: ISSUES: WoN the corporate personality of Morcoin should be disregarded for income tax purposes, considering that Suter and Spirig actually formed a single taxable unit WoN the partnership was dissolved after the marriage of the partners, and the subsequent sale to them by Carlson of his participation of P2000 in the amount of P1 CIR theory is that the marriage of Suter and Spirig and the acquisition of Carlson’s interests in the partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership should be disregarded for income tax purposes because the spouses have exclusive ownership and control of the business; consequently, the income tax return of repsondent Suter should have included his and his wife’s invidivual incomes and that of the limited partnership, in accordance with Sec. 45(d) of the NIRC, which provides (d) Husband and wife – In case of married persons, whether citizens, residents or non-residents, only one consolidate dreturn for the taxable year shall be filed by eithe rspouse to cover the income of both spouses. Suter: Juridical personality had not been affected, as it is a limited partnership, distinguished from a general parntership, and is taxable on its income similarly with corporations. Suter was not required to include in his individual return the income of the limited partnership. HELD: Petition UNMERITORIOUS.

CIR cites Sen. Tolentino in Commentaries and Jurisprudence on Commercial Laws of the PH, Col. 1, 4th Ed., p. 58: A husband and wife may not enter into a contract of general copartnership, because under the CC, which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from entering into universal partnerships. CIR failed to observe that Morcoin Co. was NOT a universal partnership but a particular partnership. Art. 1674 and Art. 1675 says that a UNIVERSAL partnership requires EITHER that the object of the association be ALL the PRESENT PROPERTY of the partners, as contributed by them to the common fund, or else “all that the partners may acquire by their industry or work during the existence of the partnership”. Morcoin was NOT a UNIVERSAL PARTNERSHIP because the contributions were fixed sums of money, and neither of them was an industrial partner. Marriage could not dissolve it, as it is not one of the causes provided for that purpose by the Spanish Civil Code or Code of Commerce. The company neither became a single proprietorship, because they were separately owned and contributed by them before their marriage. Spanish CC (Art. 1396): The following shall be EXCLUSIVE property of each spouse: (a) That which is brought to the marriage as his or her own A partnership has a juridical personality of its own, distinct and separate from that of its partners. Limited partnership has a separate individuality which makes it impossible to equate its income with that of the component members. Sec. 24 of NIRC merges registered general co-partnerships with the personality of the individual partners for income tax purposes, but this does not extend by mere implication to limited partnerships. In the cases mentioned by CIR, the corpos merely served as alter egos or business conduits of stockholders, while Morcoin was organized for legitimate business purposes, as it had been operating and filing tax returns prior to respondents’ marriage and as an independent identity. It was not proved that respondents wed and bought the interests of the remaining partner with a premeditated shceme to use the partnership as a business conduit to dodge tax laws. Income of the olimited partnership is constructively the income of the spouses, and henceforth forms part of the conjugal partnership of gains  INCORRECT. Fruits of the wife’s parapherna become conjugal only when no longer needed to defray the expenses for the administration and preservation of the paraphernal captal of the wife. Conjugal partnership of gains is not a taxable unit, only income of spouses is taxable. IN The MATTER OF AUTHORITY TO CONTINUE USE OF THE FIRM NAME... Two petitionsfiled by partners of Atty. Sycup and Atty. Ozaeta, praying they be allowed to continue using the names of their partners who had passed away. PETITIONERS: Art. 1840 sanctions the practice (The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership). A partnership is NOT prohibited from continuing its business under a firm name which includes the name of a deceased partner.

Other professions such as accountancy and engineering have been authorized to adopt firm names without any restriction as to the use of the name of a deceased partner. The Canons of Professional Ethics allow the continued use of a name of a deceased partner in the firm name of a law partnership (Canon 33, not unethical, but care should be taken that no imposition or deception is practiced through this use). No possibility of imposition or deception because deaths of the respective deceased partners were wellpublicized in all newspapers of general circulation for several days. Stationeries include the years when the deceased partners were connected with the firm and petitioners will notify all leading national and international law directories of the fact of their respective deceased partners’ deaths. No custom or usage in the PH, at least in Greater Manila, which recognizes that the name of a law firm necessarily identifies individual members of the firm. Continued use of a deceased partner’s name of law partnerships allowed by US Courts Resolution in Deen and Perkins and Ponce-Enrile: In view of the personal and confidential nature of the relations between attorney and client, and the high standards demanded in the canons of professional ethics, no practice should be allowed which even in a remote degree could give rise to the possibility of deception. COURT: A. Art. 1815 – Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners. Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. Art. 1825 prohibits third person’s name in the name of a firm under pain of assuming the liability of a partner. Heirs of a deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers. Widows nor heirs can be held liable for transcations entered into after the death of their lawyer-predecessor. PR value of the use of an old firm name can tend to create undue advantages and disadvantages in the practice of the profession. B. Art. 1840 is actually within “Dissolution and Winding Up” 1840 deals with the exemption from liability in cases of a dissolved partnership, of the individual property od the deceased partner for debts contracted by the person or partnership which continues the business using the partnership name or the name of the deceased partner as part thereof. 1840 treats more of a commercial partnership with a good will to protect rather than of a professional partnership, with no saleable good but whose rep depends on the personal qualifications of its individual members. C. Law partnerships cannot be likened to partnerships formed by other professionals or for business. Accountancy allows the use of a trade name in connection with the practice of accountancy.

D. No local custom permits or allows the continued use of a deceased or former partner’s name in the firm names of law partnerships. Firm names, under PH custom, identify the more active and/or more senior members or partners of the law firm, E. In the States, US sanctions the continued use of a deceased partner’s name; such custom is not practiced in the PH. Even if it were, no proof substantiated such claim. Ortega v. CA Joaquin L. Misa wanted to withdraw and retire from the firm of Bito, Misa, and Lozada. He also wanted to make proper the liquidation of his participation in the firm. He has an interest in the two floors of the building and has issues with the working conditions of their employees, as the pay scale has been inhumange and the attorneys were humiliated in such way that deprived them of their self respect. Misa filed with the SEC a petition for dissolution and liquidation of partnership. Misa wanted, aside from the dissolution and the liquidation of the partnership, the delivery or the payment for petitioner’s share in the partnership assets plus the profits, rent, or interest attributable to the use of his right in the assets of the dissolved partnership. He also wanted the respondent enjoined from using the firm name of B, M & L, and to pay petitioner’s attorney’s fees and litigation expenses, aside from moral damages and exemplary damages. The Hearing Officer decided that Misa’s withdrawal did not dissolve the partnership. Petitioner and respondents are enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidations of the shares of any retiring or withdrawing partner in the partnership interest. SEC reversed the decision and held that Misa’s withdrawal dissolved the partnership. Being a PARTNERSHIP AT WILL, the law firm could be dissolved by any partner at anytime, regardless of good faith or bad faith, since no partner cannot be forced to continue in the partnership against his will. Misa also asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. SEC denied the reconsideration and rejected the petition for receivership. Bito and Lozada died, and their death, compounded by the admission of new partners, prompted Misa to renew his application for receivership. The CA affirmed the SEC decision, and held that a.) Misa’s witdrawal had changed the relation of the parties and inevitably caused dissolution of the partnership b.) Withdrawal was NOT in bad faith c.) Liquidation should be to the extent of Misa’s interest or participation in the partnership w/c could be computed and paid in the manner stipulated in the partnership agreemnt d.) The case should be remanded to the SEC Hearing Officer for the corresponding determination of the value of Misa’s share in partnership assets e.) Appointment of a receiver was unnecessary as no sufficient proof indicated that partnership assets were in any such danger of being lost, removed, or materially impaired ISSUESl WoN CA erred in holding the BML is a partnership at will WoN CA erred in holding that the withdrawal of private respondent dissolved the partnership regardless of good faith or bad faith

WoN CA erred in holding that PR’s demand for dissolution of the partnership so he can get a physical partition of partnership was not made in bad faith HELD: Partnership that DOES NOT fix its term is a partnership at will. BML now Bito, Lozada, Ortega, and Castilla is such a partnership.Birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. Right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Existence depends on the constancy of that mutual resolve, along with each partner’s capability to give it. ANY ONE of the partners may dictate a dissolution of the partnership at will, BUT in good faith. Attendance of BAD FAITH results in liability ofr DAMAGES. Presence of a period for its specific duration or the statment of a particular purpose for its creation does not prevent the dissolution of any partnership by an act or will of a partmer. Among partners, mutual agency arises and the doctrine of delectus personae (partners can choose who their copartners are; no partner can take in another partner without others’ consent) allows them to have power, although not necessarily the right to dissolve the partnership. Unjustified dissolution can subject him to a possible action for damages. Dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on. Upon dissolution, partnership continues and legal personality is retained UNTIL the COMPLETE WINDING UP of its business culminating in its termination. Misa did not act in bad faith. As long as reason for withdrawal of a partner is NOT contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. ESTANISLAO v. CA Eligio, Remedios, and Estanislao are brothers and sisters who own certain lots in Annapolis and Aurora Blvd., QC. These lots were being leased to Shell. The siblings wanted to operate a gas station to be known as Estanislao Shell Service Station, with an initial investment of P15,000 to be taken from the advance rentals due them from SHELL for the occupancy of their lots. They agreed that Eligio was to operate and manage the gas service station for the family, and it was agreed that petitioner would apply for the dealership as the company had a policy of having only one dealer. The P15,000 advance would be deposited with Shell to cover fuel advances to petitioner as dealer with a proviso that said agreement “cancels and supersedes the Joint Affidavit dated April 11 1966 executed by the co-owners”. Petitioner submitted financial statements diligently at first, but failed to do so after. A demand was made on the petitioner, and it was revealed that the business had made a profit of )150,000. Respondents prayed that (1) petitioner be ordered to execute a public document embodying all the provisions of the partnership agreement entered into between plaintiffs and defendant as provided by Art. 1771 of the CC; (2) to render a formal accounting of the business operation covering the period from May 6, 1966 up to Dec. 21, 1968 and from 1/1/69 up to the time the order was issued; (3)pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount no less than P150,000 with interest rate at 1% per month from date of demand until full payment thereof for the entire duration of the business; (4) attorney’s fees and costs of the suit.

RTC: dismissed complaint RTC (Hon. Ricardo Tensuan): decided in favor of respondents ELIGIO: Additional Cash Pledge Agreement cancelled and superseded the previous Joint Affidavit, and wahtever partnership there was in said previous agreement had thereby been abrogated. HELD: PETITION HAS NO MERIT. The cancelling provision was necessary because the JA speaks of P15,000 advance rentals starting May 24, 1966, while the latter agreement also refers to advance rentals of the same amount of May 24, 1966. There is a duplication of reference to the P15,000 hence the need to provide in the subsequent document that it “cancels and supersedes” the previous one. The ACPA is silent as to the statement in the JA that the P15k represents the “capital investment” and that the ACPA speaks of petitioner as sole dealer, but it is as it should be as SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a partnership with private respondents, and not a sole proprietorship of petitioner. Testimonies of private respondent Remedio attests that there was a partnership agreement. Petitioner gave respondents periodic accounting of the business, written authority to Remedios to examine and audit the books of their common business, and Remedios assisted in the running of the business. Sole dealership was made in compliance with Shell’s policy of having only one dealer.