Partnership and Agency Case Digests

BATCH 1 TOCAO V. COURT OF APPEALS

determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) “overriding commission“ on the remaining 150 West Bend cookware sets before her “dismissal.”

342 SCRA 20 (2000) Facts: Petitioner William T. Bello introduced private respondent Nenita Anay to petitioner Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo acted the capitalist, Tocao as president and general manager, and Anay as head of the marketing department (considering her experience and established relationship with West Bend Company,c a manufacturer of kitchen wares in Wisconsin, U.S.A) and later, vice-president for sales. The parties agreed further that Anay would be entitled to:

However, Tocao and Belo asserted that the alleged agreement was not reduced to writing nor ratified, hence, unenforceable, void, or nonexistent. Also, they denied the existence of a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Belo also contended that he merely acted as a guarantor of Tocao and denied contributing capital. Tocao, on the other hand, denied that they agreed on a ten percent (10%) commission on the net profits. Both trial court and court of appeals ruled that a business partnership existed and ordered the defendants to pay. Issue: Whether or not a partnership existed – YES

(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 same was not reduced to writing on the strength of Belo’s assurances. Later, Anay was able to secure the distributorship of cookware products from the West Bend Company. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s name. Anay attended distributor/dealer meetings with West Bend Company with the consent of Tocao. Due to Anay’s excellent job performance she was given a plaque of appreciation. Also, in a memo signed by Belo, Anay was given 37% commission for her personal sales "up Dec 31/87,” apart from the 10% share in profits. On October 9, 1987, Anay learned that Marjorie Tocao terminated her as vice-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, 1988 and the audit of the company to determine her share in the net profits. Belo did not answer. Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although the company netted a gross sales of P13,300,360.00. On April 5, 1988, Nenita A. Anay filed a complaint for sum of money with damages against Tocao and Belo before the RTC of Makati. She prayed that she be paid (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she was “illegally dismissed” to BUSORG CASE DIGESTS Atty. Charlie Mendoza

Ratio: 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. Private respondent Anay contributed her expertise in the business of distributorship of cookware to the partnership and hence, under the law, she was the industrial or managing partner. Petitioner Belo had an proprietary interest. He presided over meetings regarding matters affecting the operation of the business. Moreover, his having authorized in writing giving Anay 37% of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business. This is inconsistent with his claim that he merely acted as a guarantor. If indeed he was, he should have presented documentary evidence. Also, Art. 2055 requires that a guaranty must be express and the Statute of Frauds requires that it must be in writing. Petitioner Tocao was also a capitalist in the partnership. She claimed that she herself financed the business. The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between petitioners and private respondent. First, Anay had a voice in the management of the affairs of the cookware distributorship and second, Tocao admitted that Anay, like her, received only commissions and transportation and representation allowances and not a fixed salary. If Anay was an employee, it is difficult to believe that they recieve the same income. Also, the fact that they operated under the name of Geminesse 1

Enterprise, a sole proprietorship, is of no moment. Said business name was used only for practical reasons - it was utilized as the common name for petitioner Tocao’s various business activities, which included the distributorship of cookware. The partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Petitioners Tocao’s unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business. The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. Petitioners are ordered to pay Anay’s 10% share in the profits, after accounting, 5% overriding commission for the 150 cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioner, overriding commission on the total production, as well as moral and exemplary damages, and attorney’s fees

The lower court rendered judgment in favor of the plaintiff and ordered the defendant to restore possession of the land to the plaintiff, as well as to pay corresponding rent from January 1940 until he vacates the land. On appeal defendant raised a number of assignments or errors in the decision, one of which is that the trial court erred in not dismissing the case on the ground that the case was not brought by the real party in interest. Issue: Whether or not the lower court erred in not dismissing the case on the ground that it was not brought by the real party in interest? – NO Ratio: What the Rules of Court require is that an action be broughtin the name of, but not necessarily by, the real party in interest. In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized by its charter."

JM TUAZON and CO v. BOLANOS 95 PHIL 106

AGUILA, JR. v. COURT OF APPEALS 316 SCRA 246 (1999)

Facts: Facts: This is an action to recover possession of registered land situated in Barrio Tatalon, Quezon City. The complaint of plaintiff JM Tuason & Co Inc was amended 3 times with respect to the extent and description of the land sough to be recovered. Originally, the land sought to be recovered was said to 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 of land claimed and occupied by him. The second amendment is that the portion of the said land was covered in another TCT and the 3rd amendment was made after the defendant' surveyor and a witness, Quirino Feria testified that the land occupied by the defendant was about 13 hectares. Defendant raised the defense of prescription and title thru "open, continuous, exclusive and public and notorious possession of land in dispute. He also alleged that the registration of the land was obtained by plaintiff's predecessor through fraud or error. BUSORG CASE DIGESTS Atty. Charlie Mendoza

Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Felicidad S. Vda. de Abrogar (private respondent) and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of Agreement which provided that A.C. Aguila & Sons, Co. shall buy the property from private respondent for P200,000 subject to an option to repurchase for P230,000 (valid for 90 days), etc. On the same day, the parties likewise executed a deed of absolute sale, dated June 11, 1991, wherein private respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons, Co., represented by petitioner, for P200,000,00. In a special power of attorney dated the same day, April 18, 1991, private respondent authorized petitioner 2

to cause the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the event she failed to redeem the subject property as provided in the Memorandum of Agreement. Private respondent failed to redeem the property. Pursuant to the special power of attorney mentioned above, petitioner caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co. Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after receipt of the letter and surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the appropriate action in court. Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. MeTC, Marikina, MM (April 3, 1992): Ruled in favor of A.C. Aguila & Sons, Co. Private respondent appealed to RTC Pasig, CA, and then SC but she still lost. Private respondent then filed a petition for declaration of nullity of a deed of sale filed by Felicidad S. Vda. de Abrogar against Alfredo N. Aguila, Jr. She alleged that the signature of her husband on the deed of sale was a forgery because he was already dead when the deed was supposed to have been executed on June 11, 1991. •RTC,Marikina,MM(April11,1995):Dismissed. • CA(November29,1990):Reversed ruling of the RTC. Hence, this petition for review on certiorari. Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which this case should have been brought; (2) the judgment in the ejectment case is a bar to the filing of the complaint for declaration of nullity of a deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale and not an equitable mortgage as held by the appellate court. Issue: Whether the real party in interest is A.C. Aguila & Co. and not petitioner. – YES Ratio: Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that of each of the partners." The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes. In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was executed between private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be impleaded in any litigation involving property registered in its name. A violation of this BUSORG CASE DIGESTS Atty. Charlie Mendoza

rule will result in the dismissal of the complaint. 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 brother Tan Eng Lay. The complaint alleged that after the Second World War, the brothers, pooling their resources and industry together, entered into a partnership engaged in the selling of lumber and hardware and construction supplies. They named their enterprise “Benguet Lumber” which they jointly managed until Tan Kee’s death. Petitioners averred that the business prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership “Benguet Lumber” into a corporation called “Benguet Lumber Company.” The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and the dissolution, and winding up of the alleged partnership formed after the World War II between Tan Eng Kee and Tan Eng Lay. The Regional Trial court found that Benguet Lumber is a joint venture which is akin to a particular partnership, and declared that the assets of Benguet Lumber are the same assets turned over to Benguet lumber Co. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in the said assets. The Court of Appeals reversed the judgment of the Trial Court. Issue: Whether or not a partnership existed between Tan Eng Kee and Tan Eng Lay- NO Ratio: In order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. The best evidence of the partnership’s existence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on August 30, 1950. A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership. It is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses. Each has the right to demand an accounting as long as the partnership exists. A 3

demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother. This brings us to the matter of Exhibits “4” to “4-U” for private respondents, consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. Exhibits “4” to “4-U” in fact shows that Tan Eng Kee received sums as wages of an employee.In connection therewith, Article 1769 of the Civil Code provides:

as his residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a business organized and run as informally as Benguet Lumber Company. PASCUAL vs. COMMISSIONER OF INTERNAL REVENUE

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 prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installment or otherwise; (b) As wages of an employee or rent to a landlord; (b) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the essential features of a partnership. Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees. Even the aforesaid circumstances, when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin, such BUSORG CASE DIGESTS Atty. Charlie Mendoza

166 SCRA 560 (1988) Facts: On June 22, 1965, petitioners Mariano Pascual and Renato Dragon bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19, 1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years. However, in a letter of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970. Petitioners protested the said assessment asserting that they had availed of tax amnesties way back in 1974. Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under the National Internal Revenue Code. Issue: Whether or not respondent is correct in its presumptive determination that petitioners formed an unregistered partnership thus subject to corporate income tax. – NO Ratio: There is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof. In Evangelista, there was a series of transactions where petitioners purchased twenty-four (24) lots 4

showing that the purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present. Reliance of the lower court to the case of Evangelista v. Collector is untenable. In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to make contract, manage the business, and dispose of the whole property.There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. LORENZO T. 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 surviving spouse. Lorenzo T. Oña and her five children. Lorenzo T. Oña, the surviving spouse was appointed administrator of the estate of said deceased. A partition was thereafter approved by the Court. The Court also appointed Lorenzo, upon petition to the CFI of Manila, to be appointed guardian of the persons and property of Luz, Virginia and Lorenzo, Jr., who were minors at the 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 who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners’ properties and investments gradually increased from P105,450.00 in 1949 to P480.005.20 in 1956. However, petitioners did not actually receive their shares in the yearly income. The income was always left in the hands of Lorenzo T. Oña who, as heretofore pointed out, invested them in real properties and securities. On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. The defense of petitioners revolved mainly in the contention that they are co-owners of the properties inherited from Julia Buñales and the profits derived therefrom rather than having formed a partnership. Issue: Whether or not it was proper to consider petitioners as BUSORG CASE DIGESTS Atty. Charlie Mendoza

an unregistered partnership. – YES Ratio: 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 of partition of her estate was judicially approved as early as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since those dates admittedly under the administration or management 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, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co- owners, not liable to corporate tax, and it was only from 1955 that he considered them as having formed an unregistered partnership. Under the management of Lorenzo T. Oña who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities,” as a result of which said properties and investments steadily increased 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” in 1956. And all these became possible because, admittedly, petitioners never actually received any they allowed him to continue using said shares as part of the common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the profits of their common business as reported by the said Lorenzo T. Oña. It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in the purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance. In these circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the abovementioned provisions of the Tax Code. GATCHALIAN v. COLLECTOR OF INTERNAL REVENUE 67 Phil. 666 (1939) Facts: 5

Plaintiffs (15 persons), in order to enable them to purchase one sweepstakes ticket valued at two pesos (P2), subscribed and paid each varied amounts aggregating 2 pesos. The said ticket was registered in the name of Jose Gatchalian and Company . The above-mentioned ticket bearing 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 file the corresponding income tax return covering the prize won by Jose Gatchalian & Company. The Collector of Internal Revenue collected the tax under 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 annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company, partnership, joint account (cuenta en participación), association or insurance company, organized in the Philippine Islands, no matter how created or organized, but not including duly registered general copartnerships (compañias colectivas), a tax of three per centum upon such income; Issue: Whether or not the plaintiffs formed a partnership, or merely a community of property without a personality of its own; in the first case it is admitted that the partnership thus formed is liable for the payment of income tax, whereas if there was merely a community of property, they are exempt from such payment. Ratio: There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax under the law. But according to the stipulated facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they 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 organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippine Charity Sweepstakes, in his capacity as copartner, as such collected the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only. Having organized and constituted a partnership of a civil nature, the 'said entity is the one bound to pay the income tax which the defendant collected. OBILLOS, JR. v. COMMISSIONER OF INTERNAL REVENUE 139 SCRA 436 (1985)

children (petitioners) to enable them to build their residences. The company sold the two lots to petitioners, and the torrens title issued to them show that they were co-owners of the two lots. In 1974, petitioners resold the lots to Walled City Securities Corporation and Olga Cruz and divided among themselves the profit. They treated the profit as capital gain and paid an income tax on one-half thereof. In 1980, or a day before the expiration of the five-year prescriptive period, the CIR required the petitioners to pay corporate income tax on the total profit, in addition to individual income tax on their shares thereof. A total of Php 127,781.76 was ordered to be paid by the petitioners, including the corporate income tax, 50% fraud surcharge, accumulated interest, income taxes and distributive dividend. Such was ordered by the Commissioner, acting on the theory that the four petitioners had formed an unregistered partnership or joint venture. Issue: Whether or not the petitioners formed an unregistered partnership by the act of selling the two lots, of which they were co-owners. – NO Ratio: It is wrong to consider petitioners as having formed a partnership under Article 1767 of the Civil Code simply because they allegedly contributed money to buy the two lots, resold the same and divided the profit among themselves. They were co-owners, pure and simple. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co- ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture. Evangelista, et al. v. CIR, GR No. L-9996, October 15, 1957 Facts:

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, he transferred his rights to his four BUSORG CASE DIGESTS Atty. Charlie Mendoza

Herein petitioners seek a review of CTA’s decision holding them liable for income tax, real estate dealer’s tax and residence tax. As stipulated, petitioners borrowed from their father a certain sum for the purpose of buying real properties. Within February 1943 to April 1994, they have bought parcels 6

of land from different persons, the management of said properties was charged to their brother Simeon evidenced by a document. These properties were then leased or rented to various tenants. On September 1954, CIR demanded the payment of income tax on corporations, real estate dealer’s fixed tax, and corporation residence tax to which the petitioners seek to be absolved from such payment. Issue: Whether petitioners are subject to the tax on corporations. Ruling: The Court ruled that with respect to the tax on corporations, the issue hinges on the meaning of the terms “corporation” and “partnership” as used in Section 24 (provides that a tax shall be levied on every corporation no matter how created or organized except general copartnerships) and 84 (provides that the term corporation includes among others, partnership) of the NIRC. Pursuant to Article 1767, NCC (provides for the concept of partnership), its essential elements are: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. It is of the opinion of the Court that the first element is undoubtedly present for petitioners have agreed to, and did, contribute money and property to a common fund. As to the second element, the Court fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves as indicated by the following circumstances: 1. The common fund was not something they found already in existence nor a property inherited by them pro indiviso. It was created purposely, jointly borrowing a substantial portion thereof in order to establish said common fund; 2. They invested the same not merely in one transaction, but in a series of transactions. The number of lots acquired and transactions undertake is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose of gain; 3. Said properties were not devoted to residential purposes, or to other personal uses, of petitioners but were leased separately to several persons; 4. They were under the management of one person where the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit; 5. Existed for more than ten years, or, to be exact, over fifteen years, since the first property was acquired, and over twelve years, since Simeon Evangelista became the manager; 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. The collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. BUSORG CASE DIGESTS Atty. Charlie Mendoza

Also, petitioners’ argument that their being mere coowners did not create a separate legal entity was rejected because, according to the Court, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When the NIRC includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. The qualifying expression found in Section 24 and 84(b) clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. For purposes of the tax on corporations, NIRC includes these partnerships - with the exception only of duly registered general co partnerships - within the purview of the term "corporation." It is, therefore, clear that petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations. As regards the residence of tax for corporations (Section 2 of CA No. 465), it is analogous to that of section 24 and 84 (b) of the NIRC. It is apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations. Finally, on the issues of being liable for real estate dealer’s tax, they are also liable for the same because the records show that they have habitually engaged in leasing said properties whose yearly gross rentals exceeds P3,000.00 a year. AFISCO v. COURT OF APPEALS 302 SCRA 1 (1999) Facts: The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the Philippines, entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversi-cherungsGesselschaft (hereafter called Munich), a non-resident foreign insurance corporation. The reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners was formed on the same day. The pool of machinery insurers submitted a financial statement and filed an “Information Return of Organization Exempt from Income Tax” for the year ending in 1975, on the basis of which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount 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. These assessments were protested by the petitioners. “On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners, assessed as “Pool of Machinery Insurers,” to pay deficiency income tax, 7

interest, and with[h]olding tax. The CA ruled in the main 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: Whether or not the Clearing House, acting as a mere agent and performing strictly administrative functions, and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a corporation – YES Ratio: Article 1767 of the Civil Code recognizes the creation of a contract of partnership when “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.” Its requisites are: “(1) mutual contribution to a common stock, and (2) a joint interest in the profits.” In other words, a partnership is formed when persons contract “to devote to a common purpose either money, property, or labor with the intention of dividing the profits between themselves.” Meanwhile, an association implies associates who enter into a “joint enterprise x x x for the transaction of business. “ In the case before us, the ceding companies entered into 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. The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC: (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) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not have received their premiums. The ceding companies share “in the business ceded to the pool” and in the “expenses” according to a “Rules of Distribution” annexed to the Pool Agreement. Profit motive or business is, therefore, the primordial reason for the pool’s formation. TORRES v. COURT OF APPEALS G.R. No. 134559 December 9, 1999 Facts: Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a „joint venture agreement with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By BUSORG CASE DIGESTS Atty. Charlie Mendoza

mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project did not push through, and the land was subsequently foreclosed by the bank Issue: Whether or not there was a contract of partnership – YES Ratio: Under the Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. Petitioners also contend that the Joint Venture Agreement is void under Article 1422 of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration. This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another. LIM TONG LIM v. PHILIPPINE FISHING GEAR INDUSTRIES G.R. No. 136448. November 3, 1999 Facts: Antonio Chua and Peter Yao entered into a contract for the purchase of fishing nets from the Philippine Fishing Gear Industries. They claimed that they were engeged in a business venture with petitioner Lim Tong Lim. The buyers however failed to pay for the nets and the floats. Private respondent filed a collection suit against Yao, Chua an Lim Tong Lim with preliminary attachment. Trial court rendered its decision in favor of Phil. Fishing Gear and that Chua, Yao and Lim, as general partners were jointly liable to pay respondents. It based its decision on a compromise agreement wherein joint liability was presumed from the equal distribution of the profit and loss. The Court of Appeals affirmed. Hence, this petition. Issue: Whether or not, by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership. – YES Ratio: 8

There is a partnership between Lim, Chua and Yao. Petitioner Lim requested Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yao’s partner. The three verbally agreed to acquire two fishing boats, FB Lourdes and FB Nelson for the sum of 3.35 million. They also borrowed 3.25 million from Jesus Lim, brother of petitioner Lim Tong Lim. They purchased the boats and later the nets and floats, which constituted the main asets of the partnership and they agreed to divide tha proceeds form the sale and operation thereof. The sale of the boats as well as the division among the three of the balance remaining after the payment of their loans prove that F/B Lourdes was not his own property but an asset of the partnership. Although the corporation was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. Having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. AGAD v. MABOLO and AGAD CO. 23 SCRA 1223 (1968) Facts: Petitioner Mauricio Agad claims that he and defendant Severino Mabato are partners in a fishpond business to which they contributed P1000 each. As managing partner, Mabato yearly rendered the accounts of the 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 of profits (P14,000) and attorney’s fees (P1000), petitioner prayed for the dissolution of the partnership and winding up of its affairs. Mabato denied the existence of the partnership alleging that Agad failed to pay his P1000 contribution. He then filed a motion to dismiss on the ground of lack of cause of action. The lower court dismissed the complaint finding a failure to state a cause of action predicated upon the theory that the contract of partnership is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached thereto. Art. 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 shall be necessary. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties; and attached to the public instrument. Issue: Whether or not immovable property or real rights have been contributed to the partnership. – NO BUSORG CASE DIGESTS Atty. Charlie Mendoza

Ratio: Based on the copy of the public instrument attached in the complaint, the partnership was established to operate a fishpond", and not to "engage in a fishpond business.” Thus, Mabato’s contention that “it is really inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to the partnership” is without merit. Their contributions were limited to P1000 each and neither a fishpond nor a real right thereto was contributed to the partnership. Therefore, Article 1773 of the Civil Code finds no application in the case at bar. Case remanded to the lower court for further proceedings.

Benjamin Yu v. National Labor Relations Commission & Jade Mountain Products Co. Ltd., Willy Co, Rhodora Bendal, Lea Bendal, Chiu Shian Jeng and Chen Ho-Fu Facts: Yu – ex-Assistant General Manager of the marble quarrying and export business operated by a registered partnership called Jade Mountain Products Co. Ltd. partnership was originally organized with Bendals as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang as limited partners; partnership business consisted of exploiting a marble deposit in Bulacan Yu , a s A s s i s t a n t G e n e r a l M a n a g e r, h a d a m o n t h l y s a l a r y o f 4 0 0 0 . Yu , h o w e v e r, a c t u a l l y r e c e i v e d o n l y h a l f o f h i s s t i p u l a t e d s a l a r y, s i n c e h e h a d a c c e p t e d t h e p r o m i s e o f t h e partners that the balance would be paid when the firm shall have secured additional operating funds from a b r o a d . Yu a c t u a l l y m a n a g e d t h e o p e r a t i o n s a n d f i n a n c e s o f t h e business; he had overall supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firm’s products. general partners Bendals sold and transferred their interests in the partnership to Co and Emmanuel Zapanta partnership was constituted solely by Co and Zapanta; it continued to use the old firm name of Jade Mountain Yu – dismissed by the new partners Issues: 1. WON the partnership which had hired Yu a s A s s t . G e n . M a n a g e r h a d b e e n extinguished and replaced by a new partnership composed of Co and Zapanta; 2. if indeed a new partnership had come into existence, WON Yu could nonetheless assert his rights under his employment contract with the old partnership as against the new partnership Held: 1. Yes. Changes in the membership of the partnership resulted in the dissolution of the old partnership which had hired Yu and the emergence of a new partnership composed of Co and Zapanta. 9

Legal bases: A r t . 1 8 2 8 . T h e d i s s o l u t i o n o f a p a r t n e r s h i p i s t h e c h a n g e i n t h e r e l a t i o n o f t h e partners caused by any partner ceasing to be associated in the c a r r y i n g o n a s distinguished from the winding up of the business. Art. 1830. Dissolution is caused: (1) without violation of the agreement between the partners; (b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; (2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; No winding up of affairs in this case as contemplated in Art 1829: on dissolution t h e partnership is not terminated, but continues until the winding up of partnership affairs is completed t h e n e w partnership simply took over the business enterprise owned by the o l d partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise 2. Yes. the new partnership is liable for the debts of the old partnership Legal basis: Art. 1840 (see codal) ROJAS V. MAGLANA December 10, 1990 Paras, C.J. Rañeses, Roberto Miguel SUMMARY: Maglana and Rojas executed their articles of co-partnership called EDE. It had an indefinite term, was registered with the SEC, and had a Timer License. Later, Agustin Pahamitang became an industrial partner and another articles of co-partnership was executed. The term of the second co-partnership was fixed to 30 years. After some time, the three executed a conditional sale of interest in the partnership where Magalana and Rojas shall purchase the interest, share, and participation of Pahamotang. It was agreed that, after payment of such including the loan secured by Pahamotang, the two shall become owners of all equipment contributed by Pahamotang. The two continued the partnership without any written agreement or reconstitution of the articles of partnership. Subsequently, Rojas entered into a contarct with CMS Estate. Maglana reminded him of his contribution to the capital investments and his duties to the partnership. Rojas said he would not be able to comply. Maglana told Rojas that the latter is only BUSORG CASE DIGESTS Atty. Charlie Mendoza

entitled to 20% of the profits, which was the sharing from 1957-1959 without dispute. Rojas took funds from the partnership which was more than his share. Maglana notified Rojas that he had dissolved the partnership. Rojas filed an action against Magallana. The CFI ruled that the partnership of the two after Pahamotang left was one de facto and at will. The SC said that it was not, considering that the first partnership was never dissolved. With regard to the issue of unilateral dissolution, the SC held that Maglana had the power to do so. DOCTRINE: Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners. FACTS: Maglana and Rojas executed their Articles of Co-partnership called “Eastcoast Development Enterpises” (EDE) which had an indefinite term of existence and was registered with the SEC and had a Timber License. One of the EDE’s purposes was to apply or secure timber and/or private forest lands and to operate, develop and promote such forests rights and concessions. Maglana shall manage the business affairs while Rojas shall be the logging superintendent. All profits and losses shall be divided share and share alike between them. Later on, the two availed the services of Agustin Pahamotang as industrial partner and executed another articles of copartnership with the latter. The purpose of this second partnership was to hold and secure renewal of timber license and the term of which was fixed to 30 years. Still later on, the three executed a conditional sale of interest in the partnership wherein Maglana and Rojas shall purchase the interest, share and participation in the partnership of Pahamotang. It was also agreed that after payment of such including amount of loan secured by Pahamotang in favor of the partnership, the two shall become owners of all equipment contributed by Pahamotang. After this, the two continued the partnership without any written agreement or reconstitution of their articles of partnership. Subsequently, Rojas entered into a management contract with CMS Estate Inc. Maglana wrote him regarding his contribution to the capital investments as well as his duties as logging superintendent. Rojas replied that he will not be able to comply with both. Maglana then told Rojas that the latter’s share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute. Rojas took 10

funds from the partnership more than his contribution. Maglana notified Rojas that he dissolved the partnership. Rojas filed an action against Maglana for the recovery of properties and accounting of the partnership and damages. CFI RULING: 1. The partnership of Maglana and Rojas after Pahamotang retired is one of de facto and at will; the sharing of profits and losses is on the basis of actual contributions; 2. there is no evidence these properties were acquired by the partnership funds thus it should not belong to it; 3. neither is entitled to damages; the letter of Maglana in effect dissolved the partnership; 4. sale of forest concession is valid and binding and should be considered as Maglana’s contribution; 5. Rojas must pay or turn over to the partnership the profits he received from CMS and pay his personal account to the partnership; 6. Maglana must be paid 85k which he should’ve received but was not paid to him and must be considered as his contribution ACTION AND PRAYER: N/A ISSUE: 1. WON the partnership carried on after the second partnership was a de facto partnership and at will. 2. WON Magalana may unilaterally dissolve the partnership. HELD: 1. No. 2. Yes. RATIO: 1. There was no intention to dissolve the first partnership upon the constitution of the second as everything else was the same except for the fact that they took in an industrial partner: they pursued the same purposes, the capital contributions call for the same amounts, all subsequent renewals of Timber License were secured in favor of the first partnership, all businesses were carried out under the registered articles. To all intents and purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of CoPartnership. On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Maglana even reminded Rojas of his obligation to contribute either in cash or in equipment, to the capital investment of the BUSORG CASE DIGESTS Atty. Charlie Mendoza

partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership. 2.

As there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal. Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners. But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the purpose. According to the Commissioners’ report, Rojas is not entitled to any profits as he failed to give the amount he had undertaken to contribute thus, had become a debtor of the partnership. Maglana cannot be liable for damages as Rojas abandoned the partnership thru his acts and also took funds in an amount more than his contribution

DISPOSITIVE: PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM the decision of the trial court in all other respects. TACAO v CA William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao also contributed some cash and she shall also act as president and general manager; and Anay shall be in charge of marketing. Belo and Tocao specifically asked Anay because of her experience and connections as a marketer. They agreed further that Anay shall receive the following: 1. 10% share of annual net profits 11

2. 6% overriding commission for weekly sales 3. 30% of sales Anay will make herself 4. 2% share for her demo services They operated under the name Geminesse Enterprise, this name was however registered as a sole proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement was not reduced to writing because Anay trusted Belo’s assurances. The venture succeeded under Anay’s marketing prowess. But then the relationship between Anay and Tocao soured. One day, Tocao advised one of the branch managers that Anay was no longer a part of the company. Anay then demanded that the company be audited and her shares be given to her. ISSUE: Whether or not there is a partnership. HELD: Yes, even though it was not reduced to writing, for a partnership can be instituted in any form. The fact that it was registered as a sole proprietorship is of no moment for such registration was only for the company’s trade name. Anay was not even an employee because when they ventured into the agreement, they explicitly agreed to profit sharing this is even though Anay was receiving commissions because this is only incidental to her efforts as a head marketer. The Supreme Court also noted that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits “realized from the appropriation of the partnership business and goodwill.” An innocent partner thus possesses “pecuniary interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled.” An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily the right to dissolve the partnership. Tocao’s unilateral exclusion of Anay from the partnership is shown by her memo to the Cubao office plainly stating that Anay was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business.

Meliton Zabat started a lending Business venture together proposed by Nieves. It was agreed on the Articles of Agreement that petitioner will get 70% of the profits and Nieves and Zabat would earn 15% each. - Nievas introduced Gragera (chairman of Monte Maria Development Corporation) to petitioner, and sought short term loans for its members and with an agreement that Monte Maria will be entitled to P1.31 commission per thousand paid daily. Nieves acted as bookkeeper while her husband Arsenio acted as credit investigator. - Gragera complained that his commissions were inadequately remitted. This prompt petitioner to file a complaint against respondent allegedly in their capacities as employees of petitioner, with having misappropriated funds. ISSUE: Whether or not the business relationship between petitioner and respondent was one of partnership HELD YES Nieves herself provided the initiative in the lending activities with Monte Maria. - The fact that in their “Articles of Agreement”, the parties agreed to divide the profits of a lending business “in a 70-1515, manner, with petitioner getting the lions share proved the establishment of a partnership,” even when the other parties to the agreement were given separate compensation as bookkeeper and creditor investigator. 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. (Art. 1767 NCC) MORAN JR. v. COURT OF APPEALS 133 SCRA 88 (1984) Facts: Moran and Pecson agreed to contribute P15 000 each for the purpose of printing 95 000 posters of the delegates to the then 1971 Constitutional Commission. It was further agreed that Pecson will receive a commission of P 1000 a month and that the partnership is to be liquidated on December 15, 1971.

SANTOS VS REYES 368 SCRA 261

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

- Petitioner Fernando Santos, Respondent Nieves Reyes and

Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of Appeals affirmed the decision but modified the same as it ordered Moran to pay P47.5k for

FACTS:

BUSORG CASE DIGESTS Atty. Charlie Mendoza

12

unrealized profit; P8k for Pecson’s monthly commissions; P7k as return of investment because the venture never took off; plus interest. Issue: Whether or not the Court of Appeals erred in holding Moran liable to respondent Pecson in the sum of P47,500 as the supposed expected profits due him.

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: Is the relationship between the petitioner and Menzi that of partners?

Ratio:

Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits

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 or subsequent 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 onehalf 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, shall be 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 to Menzi & 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.

Bastida vs Menzi

Estanislao, Jr. v. Court of Appeals

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 plaintiff was 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

G.R. No. L-49982 April 27, 1988 Facts: Petitioner and private respondents are brothers and sisters who are co-owners of certain lots which were then being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance rentals due to them from SHELL. They agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the family. They negotiated with SHELL. It was agreed that petitioner would apply for the dealership. Respondent Remedios helped in managing the business with petitioner. Later the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership. The award of speculative damages has no basis in fact and law. The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code. In this case, there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies. There is no evidence whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private respondent

BUSORG CASE DIGESTS Atty. Charlie Mendoza

13

that said agreement “ cancels and supersedes the Joint Affidavit executed by the co-owners. ” For sometime, the petitioner submitted financial statements regarding the operation of the business to private respondents, but therafter petitioner failed to render subsequent accounting. Private respondents filed a complaint in the Court of First Instance of Rizal against petitioner praying among others that the latter be ordered: (1) to execute a public document embodying all the provisions of the partnership agreement entered into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code; (2) to render a formal accounting of the business operation up to the time the order is issued and that the same be subject to proper audit; (3) to pay the plaintiffs their lawful shares and participation in the net profits of the business. The trial court dismissed the complaint. Private respondents moved for reconsideration. The dismissal was set aside and the trial court rendered in their favor. Petitioner appealed, the appellate court affirmed in toto the decision of the trial court and denied the subsequent motion for reconsideration. Hence, this petition for certiorari. Petitioner argued that because of the said stipulation cancelling and superseding that previous Joint Affidavit, whatever partnership agreement there was in said previous agreement had thereby been abrogated. Issue(s): Whether or not a partnership exists between members of the same family arising from their joint ownership of certain properties Held: “ We find no merit in [petitioner’s] argument. Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P 15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of the parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter document 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. “Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the business. Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their “common business” (aming negosyo). Respondent Remedios assisted in the running of the business. There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the BUSORG CASE DIGESTS Atty. Charlie Mendoza

intention of dividing the profits among themselves. The sole dealership by the petitioner and the issuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products.” VICENTE SY, TRINIDAD PAULINO, 6B’S TRUCKING CORPORATION, and SBT[1] TRUCKING CORPORATION, petitioners, vs. HON. COURT OF APPEALS and JAIME SAHOT, respondents. This petition for review seeks the reversal of the decision[2] of the Court of Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the decision[3] of the National Labor Relations Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the decision[4] of the Labor Arbiter in NLRC NCR Case No. 0009-06717-94. Culled from the records are the following facts of this case: Sometime in 1958, private respondent Jaime Sahot[5] started working as a truck helper for petitioners’ family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the same family business, renamed T. Paulino Trucking Service, later 6B’s Trucking Corporation in 1985, and thereafter known as SBT Trucking Corporation since 1994. Throughout all these changes in names and for 36 years, private respondent continuously served the trucking business of petitioners. In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering from various ailments. Particularly causing him pain was his left thigh, which greatly affected the performance of his task as a driver. He inquired about his medical and retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered that his premium payments had not been remitted by his employer. Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes “G-5” and “G-3”, pp. 48, 104, respectively),[6] HPM, UTI, Osteoarthritis (Annex “G-4”, p. 105),[7] and heart enlargement (Annex G, p. 107).[8] On said grounds, Belen Paulino of the SBT Trucking Service management told him to file a formal request for extension of his leave. At the end of his week-long absence, Sahot applied for extension of his leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened to terminate his employment should he refuse to go back to work. At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But he could not retire on pension because petitioners never paid his correct SSS premiums. The fact remained he could no longer work as his left thigh hurt abominably. Petitioners ended his dilemma. 14

They carried out their threat and dismissed him from work, effective June 30, 1994. He ended up sick, jobless and penniless. On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6B’s Trucking and SBT Trucking, herein petitioners. For their part, petitioners admitted they had a trucking business in the 1950s but denied employing helpers and drivers. They contend that private respondent was not illegally dismissed as a driver because he was in fact petitioner’s industrial partner. They add that it was not until the year 1994, when SBT Trucking Corporation was established, and only then did respondent Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time of his separation. Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not able to report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend his leave of absence until June 30, 1994. It appeared that from the expiration of his leave, private respondent never reported back to work nor did he file an extension of his leave. Instead, he filed the complaint for illegal dismissal against the trucking company and its owners. Petitioners add that due to Sahot’s refusal to work after the expiration of his authorized leave of absence, he should be deemed to have voluntarily resigned from his work. They contended that Sahot had all the time to extend his leave or at least inform petitioners of his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled “Manuelito Jimenez et al. vs. T. Paulino Trucking Service,” as a defense in view of the alleged similarity in the factual milieu and issues of said case to that of Sahot’s, hence they are in pari material and Sahot’s complaint ought also to be dismissed. The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there was no illegal dismissal in Sahot’s case. Private respondent had failed to report to work. Moreover, said the Labor Arbiter, petitioners and private respondent were industrial partners before January 1994. The Labor Arbiter concluded by ordering petitioners to pay “financial assistance” of P15,000 to Sahot for having served the company as a regular employee since January 1994 only. On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It declared that private respondent was an employee, not an industrial partner, since the start. Private respondent Sahot did not abandon his job but his employment was terminated on account of his illness, pursuant to Article 284[9] of the Labor Code. Accordingly, the NLRC ordered petitioners to pay private respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years of service. BUSORG CASE DIGESTS Atty. Charlie Mendoza

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated February 29, 2000, the appellate court affirmed with modification the judgment of the NLRC. It held that private respondent was indeed an employee of petitioners since 1958. It also increased the amount of separation pay awarded to private respondent to P74,880, computed at the rate of P2,080 per year for 36 years of service from 1958 to 1994. It decreed: WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.[10] Hence, the instant petition anchored on the following contentions: I RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL CODE.[11] II RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305 SCRA 233).[12] III PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING CORPORATION.[13] Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed between petitioners and respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay. Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal dismissal can prosper, an employer-employee relationship must first be established.[14] Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that respondent Sahot was not an employee but was in fact, petitioners’ industrial partner.[15] It is contended that it was the Labor Arbiter who 15

heard the case and had the opportunity to observe the demeanor and deportment of the parties. The same conclusion, aver petitioners, is supported by substantial evidence.[16] Moreover, it is argued that the findings of fact of the Labor Arbiter was wrongly overturned by the NLRC when the latter made the following pronouncement:

when the trucking business was under operation. Neither is there any proof that he had actively participated in the management, administration and adoption of policies of the business. Thus, the NLRC and the CA did not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from 1958 to 1994.

We agree with complainant that there was error committed by the Labor Arbiter when he concluded that complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that he was only twenty-three (23) years when he started working with respondent as truck helper. How can we entertain in our mind that a twenty-three (23) year old man, working as a truck helper, be considered an industrial partner. Hence we rule that complainant was only an employee, not a partner of respondents from the time complainant started working for respondent.[17]

On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime Sahot was not an industrial partner but an employee of petitioners from 1958 to 1994. The existence of an employer-employee relationship is ultimately a question of fact[23] and the findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only respect but finality when supported by substantial evidence. Substantial evidence is such amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion.[24]

Because the Court of Appeals also found that an employer-employee relationship existed, petitioners aver that the appellate court’s decision gives an “imprimatur” to the “illegal” finding and conclusion of the NLRC. Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There was no written agreement, no proof that he received a share in petitioners’ profits, nor was there anything to show he had any participation with respect to the running of the business.[18] The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control the employee’s conduct. The most important element is the employer’s control of the employee’s conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.[19] As found by the appellate court, petitioners owned and operated a trucking business since the 1950s and by their own allegations, they determined private respondent’s wages and rest day.[20] Records of the case show that private respondent actually engaged in work as an employee. During the entire course of his employment he did not have the freedom to determine where he would go, what he would do, and how he would do it. He merely followed instructions of petitioners and was content to do so, as long as he was paid his wages. Indeed, said the CA, private respondent had worked as a truck helper and driver of petitioners not for his own pleasure but under the latter’s control. Article 1767[21] of the Civil Code states that in a 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.[22] Not one of these circumstances is present in this case. No written agreement exists to prove the partnership between the parties. Private respondent did not contribute money, property or industry for the purpose of engaging in the supposed business. There is no proof that he was receiving a share in the profits as a matter of course, during the period BUSORG CASE DIGESTS Atty. Charlie Mendoza

Time and again this Court has said that “if doubt exists between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the latter.”[25] Here, we entertain no doubt. Private respondent since the beginning was an employee of, not an industrial partner in, the trucking business. Coming now to the second issue, was private respondent validly dismissed by petitioners? Petitioners contend that it was private respondent who refused to go back to work. The decision of the Labor Arbiter pointed out that during the conciliation proceedings, petitioners requested respondent Sahot to report back for work. However, in the same proceedings, Sahot stated that he was no longer fit to continue working, and instead he demanded separation pay. Petitioners then retorted that if Sahot did not like to work as a driver anymore, then he could be given a job that was less strenuous, such as working as a checker. However, Sahot declined that suggestion. Based on the foregoing recitals, petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition that he did not report for work anymore. In his decision, the Labor Arbiter concluded that: While it may be true that respondents insisted that complainant continue working with respondents despite his alleged illness, there is no direct evidence that will prove that complainant’s illness prevents or incapacitates him from performing the function of a driver. The fact remains that complainant suddenly stopped working due to boredom or otherwise when he refused to work as a checker which certainly is a much less strenuous job than a driver.[26] But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court of Appeals, held that: While it was very obvious that complainant did not have any intention to report back to work due to his illness which incapacitated him to perform his job, such intention cannot be construed to be an abandonment. Instead, the same should have been considered as one of those falling under the just 16

causes of terminating an employment. The insistence of respondent in making complainant work did not change the scenario. It is worthy to note that respondent is engaged in the trucking business where physical strength is of utmost requirement (sic). Complainant started working with respondent as truck helper at age twenty-three (23), then as truck driver since 1965. Complainant was already fifty-nine (59) when the complaint was filed and suffering from various illness triggered by his work and age. x x x[27] In termination cases, the burden is upon the employer to show by substantial evidence that the termination was for lawful cause and validly made.[28] Article 277(b) of the Labor Code puts the burden of proving that the dismissal of an employee was for a valid or authorized cause on the employer, without distinction whether the employer admits or does not admit the dismissal.[29] For an employee’s dismissal to be valid, (a) the dismissal must be for a valid cause and (b) the employee must be afforded due process.[30] Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of disease, viz: Art. 284. Disease as a ground for termination- An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or prejudicial to his health as well as the health of his co-employees: xxx However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of the Labor Code requires: Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the employer shall not terminate his employment unless there is a certification by competent public health authority that the disease is of such nature or at such a stage that it cannot be cured within a period of six (6) months even with proper medical treatment. If the disease or ailment can be cured within the period, the employer shall not terminate the employee but shall ask the employee to take a leave. The employer shall reinstate such employee to his former position immediately upon the restoration of his normal health. (Italics supplied). As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,[31] the requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the employee’s illness and thus defeat the public policy in the protection of labor. BUSORG CASE DIGESTS Atty. Charlie Mendoza

In the case at bar, the employer clearly did not comply with the medical certificate requirement before Sahot’s dismissal was effected. In the same case of Sevillana vs. I.T. (International) Corp., we ruled: Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter should likewise bear the burden of showing that the requisites for a valid dismissal due to a disease have been complied with. In the absence of the required certification by a competent public health authority, this Court has ruled against the validity of the employee’s dismissal. It is therefore incumbent upon the private respondents to prove by the quantum of evidence required by law that petitioner was not dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the dismissal would be unjustified. This Court will not sanction a dismissal premised on mere conjectures and suspicions, the evidence must be substantial and not arbitrary and must be founded on clearly established facts sufficient to warrant his separation from work.[32] In addition, we must likewise determine if the procedural aspect of due process had been complied with by the employer. From the records, it clearly appears that procedural due process was not observed in the separation of private respondent by the management of the trucking company. The employer is required to furnish an employee with two written notices before the latter is dismissed: (1) the notice to apprise the employee of the particular acts or omissions for which his dismissal is sought, which is the equivalent of a charge; and (2) the notice informing the employee of his dismissal, to be issued after the employee has been given reasonable opportunity to answer and to be heard on his defense.[33] These, the petitioners failed to do, even only for record purposes. What management did was to threaten the employee with dismissal, then actually implement the threat when the occasion presented itself because of private respondent’s painful left thigh. All told, both the substantive and procedural aspects of due process were violated. Clearly, therefore, Sahot’s dismissal is tainted with invalidity. On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to separation pay. The law is clear on the matter. An employee who is terminated because of disease is entitled to “separation pay equivalent to at least one month salary or to one-half month salary for every year of service, whichever is greater xxx.”[34] Following the formula set in Art. 284 of the Labor Code, his separation pay was computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the computation, after noting that his last monthly salary was P4,160.00 so that one-half thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part of appellate court, we are constrained to sustain its decision. To avoid further delay in the payment due the separated worker, whose claim was filed way back in 1994, this decision is immediately executory. Otherwise, six percent (6%) interest per annum should be 17

charged thereon, for any delay, pursuant to provisions of the Civil Code. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his separation pay for 36 years of service at the rate of one-half monthly pay for every year of service, amounting to P74,880.00, with interest of six per centum (6%) per annum from finality of this decision until fully paid. Costs against petitioners. HEIRS OF JOSE LIM, represented by ELENITO LIM vs. JULIET VILLA LIM G.R. No. 172690, March 3, 2010 NACHURA, J.: FACTS: Petitioners are the heirs of the late Jose Lim (Jose). They filed a Complaint for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia. Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the trucking business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be used in the hauling and transport of lumber of the sawmill. Jose managed the operations of this trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds. Petitioners alleged that Elfledo was never a partner or an investor in the business and merely supervised the purchase of additional trucks using the income from the trucking business of the partners. On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent took over the administration of the aforementioned properties, which belonged to the estate of Jose, without their consent and approval. Claiming that they are co-owners of the properties, petitioners required respondent to submit an accounting of all income, profits and rentals received from the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of this case. Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and Jimmy. Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could have held in trust. Respondent maintained that all the properties involved in this case were purchased and acquired through her and her husband’s joint efforts and hard work, and without any BUSORG CASE DIGESTS Atty. Charlie Mendoza

participation or contribution from petitioners or from Jose. ISSUE: Whether or not a partnership exists. HELD: YES. A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. A contract of partnership is defined by the Civil Code as one where two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership; (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein; (3) all of the properties were registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business; and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. G.R. No. 31057 September 7, 1929 ADRIANO ARBES, ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET AL., defendants-appellants. This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer, directors and secretary of said association. By agreement of the parties, the court appointed a commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co. The commissioner rendered his report, showing a balance of the cash on hand in the amount of P24,607.80. The trial court in accepting the report, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said plaintiffs. There is no question that "Turnuhan Polistico & Co." is an unlawful partnership, but the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, particularly the second paragraph, which provides: “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 18

of the province.” ISSUE: WHETHER OR NOT A CHARITABLE INSTITUTION IS A NECESSARY PARTY IN THIS CASE. RULING: NO, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. 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. In so ruling, the court had the occasion of explaining the scope and spirit of the provision of Article 1666 of the Civil Code (now Article 1770 of the New Civil Code). With regard to Contributions of an Illegal Partnership: the court holds that – (1) The partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action since said contract does not exist in the eyes of the law, the purpose from which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to recover it. (2) Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed profits, shows that in consequences of said exclusion, the general law must be followed, and hence the partners should reimburse the amount of their respective contributions. (3) Any other solution is immoral, and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them, by denying to the partners the action to demand them. With regard to Profits of an Illegal Partnership: the court holds that – (1) The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, 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. (2) Profits earned in the course of the partnership, because they do not constitute or represent the BUSORG CASE DIGESTS Atty. Charlie Mendoza

partner's contribution but are the result of the industry, business or speculation which is the object of the partnership, and therefor, in order to demand the proportional part of the said profits, the partner would have to base his action on the contract which is null and void, since this partition or distribution of the profits is one of the juridical effects thereof. (3) Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it. CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F. HALILI, defendant-appellant. G.R. No. L-4811 July 31, 1953 FACTS: On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant Halili stating among others that: 1) that they shall organize a partnership for the bottling and distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the plaintiff was to receive 30 per cent of the net profits of the business. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a milliondollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation. Pursuant to this request, plaintiff was given “a thirty days’ option on exclusive bottling and distribution rights for the Philippines”. The contract was finally signed by plaintiff on December 3, 1947. When the bottling plant was already in operation, plaintiff demanded of defendant that the partnership papers be executed. Defendant Halili gave excuses and would not execute said agreement, thus the complaint by the plaintiff. Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and 3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the other hand claims that: 1) the defendant’s consent to the agreement, was secured by the representation of plaintiff that he was the owner, or was about to become owner of an exclusive bottling franchise, which representation was false, and that plaintiff did not secure the franchise but was given to defendant himself 2) that defendant did not fail to carry out his undertakings, but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as damages. The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2) execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasn’t proved

ISSUES 1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages 2. WON false representation, if it existed, annuls the agreement to form the 19

partnership

HELD 1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement “to secure the Mission Dry franchise for and in behalf of the proposed partnership.” The existence of this provision in the final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did actually make the representation. The defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff. Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff’s participation in the net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe that he(plaintiff) was the exclusive grantee of the franchise.

2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages only. The Supreme Court has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente) inducement to the making of the contract. The record abounds with circumstances indicative of the fact that the principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false representation, this was not the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership. Having arrived at the conclusion that the contract cannot be declared null and void, may the agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. , The defendant may not be compelled against his will to carry out the agreement nor execute the partnership papers. The law BUSORG CASE DIGESTS Atty. Charlie Mendoza

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

Aurelio Litonjua Jr vs Eduardo Litonjua Sr. et al

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the latter is allowing Aurelio to manage their family business (if Eduardo’s away) and in exchange thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum was subsequently made for the said partnership agreement. The memorandum this time stated that in exchange of Aurelio, who just got married, retaining his share in the family business (movie theatres, shipping and land development) and some other immovable properties, he will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater.

In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded an accounting and the liquidation of his share in the partnership. Eduardo did not heed and so Aurelio sued Eduardo. ISSUE: Whether or not there exists a partnership. HELD: No. The partnership is void and legally nonexistent. The documentary evidence presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership. The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that said letter does not meet the public instrumentation requirements exacted under Article 1771 (how partnership is constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, said letter cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of Aurelio’s contribution, if any, to the supposed partnership. The Memorandum is also not a proof of the partnership for the same is not a public instrument and again, no inventory was made of the immovable property and no inventory was attached to the Memorandum. Article 1773 of the Civil Code requires that if immovable property is contributed to the partnership an inventory shall be had and attached to the contract. 20

BATCH 2 DAN FUE LEUNG vs HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU G.R. No. 70926, January 31, 1989 GUTIERREZ, JR., J. FACTS: This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch II to recover the sum equivalent to (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 and its 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. The private respondents evidence is summarized as follows: About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a receipt wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters. Witnesses So Sia and Antonio Ah Heng corroborated the private respondents testimony to the effect that they were both present when the receipt was signed by the petitioner. So Sia further testified that he himself received from the petitioner a similar receipt evidencing delivery of his own investment in another amount of P4,000.00 An examination was conducted by the PC Crime Laboratory. The signatures in Exhibits "A" and 'D' when compared to the signature of the petitioner appearing in the pay envelopes of employees of the restaurant, namely Ah Heng and Maria Wong showed that the signatures in the two receipts were indeed the signatures of the petitioner. 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. His evidence is summarized as follows: The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. 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. Fue Leung also flatly denied having issued to the private respondent the receipt and the BUSORG CASE DIGESTS Atty. Charlie Mendoza

Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00. As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs. Ordering the defendant to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955. The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial and he requested that the decision rendered should include the net profit of the Sun Wah Panciteria which was not specified in the decision, and allow private respondent to adduce evidence so that the said decision will be comprehensively adequate and thus put an end to further litigation. The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended decision, ordering the defendant to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand. The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The questioned decision was further modified by the appellate court. Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision. 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. The petitioner, however, claims that this factual finding is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended 'financial assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which private respondent allegedly will receive a share in the profits of the restaurant. The same complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was also 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;" ISSUES: 1.) Whether or not private respondent is a partner. 2.) Whether the petitioner's contention of prescription is correct. HELD: 1.) 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 22% of the annual 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 21

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. We agree with the appellate court's observation to the effect that "... given its ordinary meaning, financial assistance is the giving out of money to another without the expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was given to the petitioner does not obtain in this case.'The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private respondent) would be entitled to 22% of the annual profit derived from the operation of the said panciteria. The well-settled doctrine is that the '"... nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." 2.) The petitioner raises the issue of prescription. he alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent. The petitioner's argument is based on Article 1144 of the Civil Code in relation to Article 1155 thereof. The argument is not well-taken. The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are — 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 have been established. It would be incorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such rights are irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give him the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in the partnership. It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842 states: The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence or any agreement to the contrary. Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final accounting is done. ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners, vs. BUSORG CASE DIGESTS Atty. Charlie Mendoza

HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT, respondents. G.R. No. L-40098 August 29, 1975 Ponente: J. Barredo FACTS: On February 9, 1971, respondent Tan Put filed a complaint in CFI Cebu Branch 3, an action for accounting of properties and money totaling to about P15 million against spouses-petitioner Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended complaint filed on Sept. 26, 2972, the son of spouses Tan Hu herein, Lim Tek Chuan and other spouses petitioners Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo were included as defendants. Respondent Tan Put averred that he is the widow of 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 building's in the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla. In addition respondent alleged the followings that: 1) 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, with paid up capital in the sum of P125,000.00, which money and other assets of the said Glory Commercial Company, Incorporated are actually the assets of the defunct Glory Commercial Company partnership, of which the plaintiff has a share equivalent to one third (¹/ 3) thereof; 2) On several occasions after the death of her husband, has asked defendants of the above-mentioned properties and for the liquidation of the business of the defunct partnership, including investments on real estate in HongKong, but defendants kept on promising to liquidate said properties. 3) Sometime in the month of November, 1967, defendants, Antonio Lim Tanhu, by means of fraud deceit and misrepresentations convince the respondent to execute a quitclaim of all her rights and interests, in the assets of the partnership of Glory Commercial Company, 4) As a matter of fact, after the execution of said quitclaim, defendant Antonio Lim Tanhu offered to pay the respondent the amount P65,000.00 within a period of one (1) month, for which respondent was made to sign a receipt for the amount of P65,000.00 although no such amount was given and respondent was not even given a copy of said document; 5) 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 22

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. On their defense, petitioners denied specifically not only the allegation that respondent Tan is the widow of Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin still living and with whom he had four (4) legitimate children, a twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and conversion quoted above, the truth being, according to them, that proper liquidation had been regularly made of the business of the partnership and Tee Hoon used to receive his just share until his death, as a result of which the partnership was dissolved and what corresponded to him were all given to his wife and children. In a addition petitioners interposed the following: 1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue. 2. That her demand was extinguish by a quitclaim. 3. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law wife and even though she was not entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and generosity on the part of the defendants, particularly Antonio Lain Tanhu, who, was inspiring to be monk and in fact he is now a monk, respondent was given a substantial amount evidenced by the 'quitclaim'. 4. That the defendants have acquired properties out of their own personal fund and certainly not from the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan had acquired properties out of his personal fund and which are now in the possession of the widow and neither the defendants nor the partnership have anything to do about said properties; 5. That it would have been impossible to buy properties from funds belonging to the partnership without the other partners knowing about it considering that the amount taken allegedly is quite big and with such big amount withdrawn the partnership would have been insolvent; 6. That respondent and Tee Hoon Lim Po Chuan were not blessed with children who would have been lawfully entitled to succeed to the properties left by the latter together with the widow and legitimate children; However, petitioners were declared in default by the Court of First Instance. The trial court then declared a decision in favor of Tan Put stating among others that” The plaintiff is is the widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the commercial partnership, Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after the death of her husband on March 11, 1966 she is entitled to share not only in the capital and profits of the partnership but also in the other assets, both real and personal, acquiredby the partnership with funds of the latter during its lifetime." Relatedly, in the latter part of the decision, the findings are to the following effect: . BUSORG CASE DIGESTS Atty. Charlie Mendoza

That the herein plaintiff Tan Put and her late husband Po Chuan married at the Philippine Independent Church of Cebu City on December, 20, 1949; that Po Chuan died on March 11, 1966; that the plaintiff and the late Po Chuan were childless but the former has a foster son Antonio Nuñez whom she has reared since his birth with whom she lives up to the present; that prior to the marriage of the plaintiff to Po Chuan the latter was already managing the partnership Glory Commercial Co. then engaged in a little business in hardware at Manalili St., Cebu City; that prior to and just after the marriage of the plaintiff to Po Chuan she was engaged in the drugstore business; that not long after her marriage, upon the suggestion of Po Chuan the plaintiff sold her drugstore for P125,000.00 which amount she gave to her husband in the presence of defendant Lim Tanhu and was invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of the above stated amount in the partnership its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under huge profits; That the late Po Chuan was the one who actively managed the business of the partnership Glory Commercial Co. he was the one who made the final decisions and approved the appointments of new personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder brothers of the former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner of the partnership having the controlling interest; that defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan. ISSUES: 1) Whether or not the trial court erred in its ruling. 2) Whether or not the claim of respondent Tan Put for an accounting and money claim against the partnership is valid. HELD: The trial court’s conclusion of the supposed marriage of Tan Put to deceased Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during the trial and the pre-trial. TAN PUT is not a widow of deceased Tee Hoon Lim Po Chuan. Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary evidence of a marriage must be an authentic copy of the marriage contract. While a marriage may also be proved by other competent evidence, the 23

absence of the contract must first be satisfactorily explained. Surely, the certification of the person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof of loss of the contract or of any other satisfactory reason for its non-production is first presented to the court. In the case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of the signature of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being authorized by law, since it is not part of the functions of his office. Besides, inasmuch as the bishop did not testify, the same is hearsay. Tan Put claim of accounting and money claim against the PARTNERSHIP not valid. 2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is not only unconvincing but has been actually overcome by the more competent and weighty evidence in favor of the defendants, her attempt to substantiate her main cause of action that defendants Lim Tanhu and Ng Sua have defrauded the partnership GloryCommercial Co. and converted its properties to themselves is even more dismal. From thevery evidence summarized by His Honor in the decision in question, it is clear that not an iota f reliable proof exists of such alleged misdeeds. The claim of Tan Put of 1/3 share in the asset of the partnership is unavailing. Of course, the existence of the partnership has not been denied, it is actually admitted impliedly in defendants' affirmative defense that Po Chuan's share had already been duly settled with and paid to both the plaintiff and his legitimate family. But the evidence as to the actual participation of the defendants Lim Tanhu and Ng Sua in the operation of the business that could have enabled them to make the extractions of funds alleged by plaintiff is at best confusing and at certain points manifestly inconsistent. In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is entitled to ¹/ 3 share of the assets and properties of the partnership. According to the decision, plaintiff had shown that she had money of her own when she "married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan, she was engaged in the drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000 which amount she gave to her husband in the presence of Tanhu and was invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of the above-stated amount in the partnership, its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge profits." BUSORG CASE DIGESTS Atty. Charlie Mendoza

To begin with, this theory of her having contributed of P125,000 to the capital of the partnership by reason of which the business flourished and amassed all the millions referred to in the decision has not been alleged in the complaint, and inasmuch as what was being rendered was a judgment by default, such theory should not have been allowed to be the subject of any evidence. But inasmuch as it was the clerk of court who received the evidence, it is understandable that he failed to observe the rule. Then, on the other hand, if it was her capital that made the partnership flourish, why would she claim to be entitled to onlyto ¹/ 3 of its assets and profits? Under her theory found proven by respondent court, she was actually the owner of everything, particularly because His Honor also found "that defendants Lim Tanhu and Ng Sua were partners in the name but they were employees of Po Chuan that defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their employment with the Glory Commercial Co. under the management of the late Po Chuan except their salaries therefrom; ..." (p. 27, id.) Why then does she claim only ¹/ 3 share? Is this an indication of her generosity towards defendants or of a concocted cause of action existing only in her confused imagination engendered by the death of her common-law husband with whom she had settled her common-law claim for recompense of her services as common law wife for less than what she must have known would go to his legitimate wife and children? Actually, as may be noted from the decision itself, the trial court was confused as to the participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point, they were deemed partners, at another point mere employees and then elsewhere as partners-employees, a newly found concept, to be sure, in the law on partnership. And the confusion is worse compounded in the judgment which allows these "partners in name" and "partners-employees" or employees who had no means of livelihood and who must not have contributed any capital in the business, "as Po Chuan was practically the owner of the partnership having the controlling interest", ¹/ 3 each of the huge assets and profits of the partnership. Incidentally, it may be observed at this juncture that the decision has made Po Chuan play the inconsistent role of being "practically the owner" but at the same time getting his capital from the P125,000 given to him by plaintiff and from which capital the business allegedly "flourished." The allegation as to fraud that the partnership funds was used to form the corporation is bereft of merit Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names of defendants Lim Tanhu and Ng Sua were bought by them with partnership funds, His Honor confirmed the same by finding and holding that "it is likewise clear that real properties together with the improvements in the names of defendants Lim Tanhu and Ng Sua were acquired with partnership funds as these defendants were only partners-employees of deceased Po Chuan in the Glory Commercial Co. until the time of his death on March 11, 1966." (p. 30, id.) It Is Our considered view, however, that this conclusion of His Honor is based on nothing but pure unwarranted conjecture. Nowhere is it shown in the decision how said defendants could have extracted money from the 24

partnership in the fraudulent and illegal manner pretended by plaintiff. Neither in the testimony of Nuñez nor in that of plaintiff, as these are summarized in the decision, can there be found any single act of extraction of partnership funds committed by any of said defendants. That the partnership might have grown into a multi-million enterprise and that the properties described in the exhibits enumerated in the decision are not in the names of Po Chuan, who was Chinese, but of the defendants who are Filipinos, do not necessarily prove that Po Chuan had not gotten his share of the profits of the business or that the properties in the names of the defendants were bought with money of the partnership. In this connection, it is decisively important to consider that on the basis of the concordant and mutually cumulative testimonies of plaintiff and Nuñez, respondent court found very explicitly that, and We reiterate: xxx xxx xxx That the late Po Chuan was the one who actively managed the business of the partnership Glory Commercial Co. he was the one who made the final decisions and approved the appointments of new Personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter to (2) being the elder brothers of the former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese citizen;that the three (3) brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner of the partnership having the controlling interest; that defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan; .... (Pp. 90-91, Record.) If Po Chuan was in control of the affairs and the running of the partnership, how could the defendants have defrauded him of such huge amounts as plaintiff had made his Honor believe? Upon the other hand, since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if defendants had obtained any portion of the funds of the partnership for themselves, it must have been with the knowledge and consent of Po Chuan, for which reason no accounting could be demanded from them therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner without the consent of the other partner or partners. Incidentally again, this theory about Po Chuan having been actively managing the partnership up to his death is a substantial deviation from the allegation in the amended complaint to the effect that "defendants 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 Co., defendants managed to use the funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should not have been permitted to be proven by the hearing officer, who naturally did not know any better. Properties supposed to have been acquired out of partnership funds had been transferred long after the partnership had been dissolved. BUSORG CASE DIGESTS Atty. Charlie Mendoza

Moreover, it is very significant that according to the very tax declarations and land titles listed in the decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969 or later, that is, long after the partnership had been automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have no obligation to account to anyone for such acquisitions in the absence of clear proof that they had violated the trust of Po Chuan during the existence of the partnership. (See Hanlon vs. Hansserman and. Beam, 40 Phil. 796.) There are other particulars which should have caused His Honor to readily disbelieve plaintiffs' pretensions. Nuñez testified that "for about 18 years he was in charge of the GI sheets and sometimes attended to the imported items of the business of Glory Commercial Co." Counting 18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL, the baptismal certificate produced by the same witness as his birth certificate, shows he was born in March, 1942, how could he have started managing Glory Commercial Co. in 1949 when he must have been barely six or seven years old? It should not have escaped His Honor's attention that the photographs showing the premises of Philippine Metal Industries after its organization "a year or two after the establishment of Cebu Can Factory in 1957 or 1958" must have been taken after 1959. How could Nuñez have been only 13 years old then as claimed by him to have been his age in those photographs when according to his "birth certificate", he was born in 1942? His Honor should not have overlooked that according to the same witness, defendant Ng Sua was living in Bantayan until he was directed to return to Cebu after the fishing business thereat floundered, whereas all that the witness knew about defendant Lim Teck Chuan's arrival from Hongkong and the expenditure of partnership money for him were only told to him allegedly by Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan. Neither should His Honor have failed to note that according to plaintiff herself, "Lim Tanhu was employed by her husband although he did not go there always being a mere employee of Glory Commercial Co." (p. 22, Annex the decision.)The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except their salaries. Actually, it is not stated, however, from what evidence such conclusion was derived in so far as Ng Sua is concerned. The trial court failed to explain the amount of P12,223, 132. 55 which the petitioner (defendant in the trial court case) have to account for. On the other hand, with respect to Lim Tanhu, the decision itself states that according to Exhibit NN-Pre trial, in the supposed income tax return of Lim Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal Industries alone and had a total assess sable net income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pretrial in the year, he had a net income of P32,000 for which be paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in 25

Madridejos Cebu was making money, and he reported "a net gain from operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor gather the conclusion that all the properties registered in his name have come from funds malversed from the partnership? It is rather unusual that His Honor delved into financial statements and books of Glory Commercial Co. without the aid of any accountant or without the same being explained by any witness who had prepared them or who has knowledge of the entries therein. This must be the reason why there are apparent inconsistencies and inaccuracies in the conclusions His Honor made out of them. We do not hesitate to make the observation that His Honor, unless he is a certified public accountant, was hardly qualified to read such exhibits and draw any definite conclusions therefrom, without risk of erring and committing an injustice. In any event, there is no comprehensible explanation in the decision of the conclusion of His Honor that there were P12,223,182.55 cash money defendants have to account for, particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not prepared to permit anyone to predicate any claim or right from respondent court's unaided exercise of accounting knowledge. Additionally, We note that the decision has not made any finding regarding the allegation in the amended complaint that a corporation denominated Glory Commercial Co., Inc. was organized after the death of Po Chuan with capital from the funds of the partnership. We note also that there is absolutely no finding made as to how the defendants Dy Ochay and Co Oyo could in any way be accountable to plaintiff, just because they happen to be the wives of Lim Tanhu and Ng Sua, respectively. We further note that while His Honor has ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or ¹/ 3 of the P12,223,182.55, the supposed cash belonging to the partnership as of December 31, 1965, in the same breath, they have also been sentenced to partition and give ¹/ 3 share of the properties enumerated in the dispositive portion of the decision, which seemingly are the very properties allegedly purchased from the funds of the partnership which would naturally include the P12,223,182.55 defendants have to account for. Besides, assuming there has not yet been any liquidation of the partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the status of a partnership in liquidation and the only right plaintiff could have would be to what might result after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to determine, what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other words, no specific amounts or properties may be adjudicated to the heir or legal representative of the deceased partner without the liquidation being first terminated. BATCH 3 ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner, vs. COURT OF BUSORG CASE DIGESTS Atty. Charlie Mendoza

APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents. AMERICAN AIRLINES, INCORPORATED, petitioner, vs. COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED, respondents. MAY 29, 1991 PADILLA FACTS: On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are reproduced: Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines, including any United States military installation therein which are not serviced by an Air Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be performed by Orient Air Services shall include: (a) soliciting and promoting passenger traffic for the services of American and, if necessary, employing staff competent and sufficient to do so;; (b) providing and maintaining a suitable area in its place of business to be used exclusively for the transaction of the business of American; (c) arranging for distribution of American's timetables, tariffs and promotional material to sales agents and the general public in the assigned territory;; (d) servicing and supervising of sales agents (including such sub-agents as may be appointed by Orient Air Services with the prior written consent of American) in the assigned territory including if required by American the control of remittances and commissions retained; and (e) holding out a passenger reservation facility to sales agents and the general public in the assigned territory. In connection with scheduled or non-scheduled air passenger transportation within the United States, neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to be performed hereunder for American without the prior written consent of American. 26

Subject to periodic instructions and continued consent from American, Orient Air Services may sell air passenger transportation to be performed within the United States by other scheduled air carriers provided American does not provide substantially equivalent schedules between the points involved.

Default If Orient Air Services shall at any time default in observing or performing any of the provisions of this Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and American may, without prejudice to any of its rights under this Agreement, take possession of any ticket forms, exchange orders, traffic material or other property or funds take possession of any ticket forms, exchange orders, traffic material or other property or funds belonging to American.

Remittances Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on the 15th and last days of each month for sales made during the preceding half month.

IATA and ATC Rules

All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to American.

The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control in the event of any conflict with the provisions hereof.

Commissions Termination American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or its sub-agents as follows:

American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to transfer to the United States the funds payable by Orient Air Services to American under this Agreement. Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable.

(a) Sales agency commission American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air Services or its sub-agents over American's services and any connecting through air transportation, when made on American's ticket stock, equal to the following percentages of the tariff fares and charges: 1.

2.

For transportation solely between points within the United States and between such points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America. For transportation included in a through ticket covering transportation between points other than those described above: 8% or such other rate(s) as may be prescribed by the International Air Transport Association.

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction Answer: defendant Orient Air denied the material allegations

(b) Overriding commission In addition to the above commission American will pay Orient Air Services an overriding commission of 3% of the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or its sub-agents. BUSORG CASE DIGESTS Atty. Charlie Mendoza

Contending that after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant contended that the actions taken by American Air in the course of terminating the Agreement as well as 27

the termination itself were untenable, Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its business interests. RTC: Ruled in favor of ORIENT CA affirmed court a quo Reconsideration: The decision was modified. -

The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on the date of actual payment.

BOTH PARTIES APPEALED. CONTENTION OF AMERICAN AIR: -

American Air that such commission is based only on sales of its services actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales. Orient Air can claim entitlement to the disputed overriding commission based only on ticketed sales. Thus, to be entitled to the 3% overriding commission, the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks.

CONTENTION OF ORIENT AIR: -

-

Contractual stipulation of a 3% overriding commission covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. Invokes its designation as the exclusive General Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are necessarily by Orient Air."

ISSUE: Extent of Orient Air's right to the 3% overriding commission HELD: Interpretation of contract: -

The entirety thereof must be taken into consideration to ascertain the meaning of its provisions. After a careful examination of the records, the Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, "total flown revenue."

BUSORG CASE DIGESTS Atty. Charlie Mendoza

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In and marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: 1. 2.

first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all sales of passenger transportation over American Air services.

It is immediately observed that the precondition attached to the first type of commission does not obtain for the second type of commissions. The latter type of commissions would accrue for sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding commissions to sales from American Air ticket stock would erase any distinction between the two (2) types of commissions and would lead to the absurd conclusion that the parties had entered into a contract with meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted to harmonize the entire Agreement. CONTRACT OF ADHESION: It is clear from the records that American Air was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Propriety of Agreement:

American

Air's

termination

of

the

CA’s decision: It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise, therefore, for the cancellation of the Agreement did not exist SC: We agree with CA. 28

-

-

-

Orient Air was entitled to an overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where the latter acted in accordance with the Agreement—that of retaining from the sales proceeds its accrued commissions before remitting the balance to American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the Agreement was, therefore, without cause and basis, for which it should be held liable to Orient Air.

DAMAGES: -

No error: appellate court modified by reduction the trial court's award of exemplary damages and attorney's fees.

REINSTATEMENT OF ORIENT AS GSA: -

-

-

-

-

Appellate court erred in affirming the rest of the decision of the trial court. We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its general sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement." In effect, compels American Air to extend its personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a contract whereby "a person binds himself to render some service or to do something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER” In an agent- principal relationship, the personality of the principal is extended through the facility of 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 a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The Agreement itself between the parties states that "either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable." We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales agent of American Air.

SC AFFIRMS CA

G.R. No. L-32320 July 16, 1979 NATIONAL RICE & CORN CORPORATION (NOW RICE & CORN ADMINISTRATION), petitioner, BUSORG CASE DIGESTS Atty. Charlie Mendoza

vs. THE HONORABLE COURT OF APPEALS, DAVAO MERCHANDISING CORPORATION, FIELDMEN'S INSURANCE COMPANY INC., CESAR B. CEBALLOS, JESUS C. MARQUEZ and BARTOLOME CABANGBANG,respondents. 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 offered for 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, which is after its arrival. The first half of the collateral goods was 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 price of the corn and as guaranty that DAMERCO will purchase the corresponding collateral 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. DAMERCO alleged that its juridical relationship with the NARIC is governed by a contract, wherein it was agreed that DAMERCO would "act as agent" of NARIC "in exporting the quantity and kind of corn and rice", "as well as in importing the collateral goods that will be imported thru barter on a back to back letter of credit or no-dollar remittance basis"; that DAMERCO had agreed "to buy the aforementioned collateral goods", not the corn grains that were exported; that, therefore, it had no obligation to NARIC until after such collateral goods had been imported. It also alleged that it should not be made to pay NARIC, since the collateral goods worth more than US$480,000.00 had not been imported as a consequence of the suspension of barter transactions and non-renewal of barter permits by the new 29

administration; and that the promissory notes sued upon by NARIC do not reflect the true intent and relationship of the parties and is wanting of consideration. 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 or not DAMERCO acted as agent of NARIC? HELD: YES. 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, but said 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 NARIC and 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, 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 sought by 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 BUSORG CASE DIGESTS Atty. Charlie Mendoza

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.

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs. COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR, respondents FACTS: - Bienvenido Medrano was the Vice-Chairman of Ibaan Rural Bank owned by Medrano family - 1986, Medrana asked his cousin-in law, Estela Flor, to look for a buyer of a foreclosed asset of the bank - Property was a 17 hectare mango plantation priced at 2,200,000.00 - Pacita Borbon was a licensed real estate broker; Estela Flor and Josefina Antonio are her associates; - Borbon informed Estela Flor that she has a ready buyer for a mango orchard - Borbon told Flor to confer with Medrano and to give them a written authority to negotiate the sale of the plantation - Medrano then issued a letter of authority for Borbon and Flor - Borbon and Flor were given a commission of 5% of the total price to be agreed upon - Dominador Lee, a businessman from Makati was the ready buyer of the plantation - Lee met Borbon when the former responded thru an ad in a newspaper put up by Borbon for an 8 hectare property in Batangas, planted with atis trees - Borbon and Flor arranged for an ocular inspection of the property together with Lee - However, the same never materialized; the first was due to inclement weather; the next time, no car was available for the tripping to Batangas - Lee called up Borbon that he would take a look at the property Borbon was offering since he was on his way to Batangas - Since Borbon cannot accompany him, Lee was instructed to get in touch with Medrano’s daughter, Teresa Ganzon - 2 days after the visit, Lee was asked by respondent Josefina Antonio about the result of his ocular inspection - Lee said that the mango trees looked sick so he would bring an agriculturist to the property - 3 weeks after, Antonio called Lee again to make a follow-up of the latter’s visit to the mango plantation - Lee said that he already purchased the property and made a down payment of 1 million; the balance will be paid upon the approval of the incorporation papers of the corporation he was organizing by the SEC (KGB Farms, Inc.) - -However, Antonio had not received their commission yet 30

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-When the sale was consummated between the Ibaan Rural Bank and Lee, Borbon, Antonio and Flor asked for their 5% commissions -Medrano refused to pay and offered a measly sum of 5,000 each -Borbon, Antonio and Flor then filed an action against Medrano and Ibaan Rural Bank before the RTC of Makati -Arguments of Medrano and Ibaan Rural Bank: 1. They refused to give commission since the respondent did not perform any act to consummate the sale 2. the letter of authority signed by Medrano was not binding against the bank because Medrano had a personality separate from the bank Medrano died; no substitution of party was made

RTC : Ordered the petitioners to pay the 5% commission of respondents o the letter of authority was valid and binding; Medrano signed the letter of authority for and in behalf of the bank, and as owner of o the property with a promise to pay the respondents a 5% commission o the sale of the property could not have been possible without the intervention of the respondents -

Ibaan Rural Bank filed its notice of appeal The heirs of Medrano also filed their notice of appeal

Under the contract, the role of respondents is to procure a purchaser 2. A broker will be regarded as the procuring cause of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun o The record shows that the respondents, as brokers, were instrumental in the consummation of the sale o Evidence: it was Lee who personally called Borbon and asked for directions to the property prove that it was only through the respondents that Lee learned about the property for sale; No other persons other than the respondents who inquired about the sale of the property to Lee; thus it can be inferred that the respondents were the only ones who knew that the property was for sale and were responsible in leading a buyer to it - The business of a real estate broker or agent is only to find a purchaser. - It is not a prerequisite to the right to compensation that the broker conduct the negotiations between the parties after they have been brought into contract with each other through his efforts o

a.

b.

BICOL SAVINGS AND LOAN ASSOCIATION, petitioner, vs. HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE DE JESUS, AND PABLO DE JESUS, respondents. FACTS:

Court of Appeals: affirmed the findings of the RTC o It applied the principle of agency and ruled that Medrano constituted the respondents as his agents in the sale of the plantation ISSUES: 1. Whether the letter of authority is binding and enforceable against the Bank; 2. Whether the respondents are entitled to any commission for the sale of the property.

Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less, situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorney-in-fact."

HELD: 1. The letter of authority is valid and enforceable against the Bank 2. The respondents are the procuring cause of the sale; hence they should be rewarded their commission pursuant to the letter of authority Procuring cause: 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

By virtue thereof, Jose de Jesus obtained a loan of twenty thousand pesos (P20,000.00) from petitioner bank on 13 April 1976. To secure payment, Jose de Jesus executed a deed of mortgage on the real property referred to in the Special Power of Attorney. By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed on 16 November 1978. In the subsequent public auction, the mortgaged property was sold to the bank as the highest bidder to whom a Provisional Certificate of Sale was issued and a Definite Certificate of Sale was subsequently issued.

Rationale: 1. The letter of authority serves as a contract between the parties. o As such, Medrano cannot renege on the promise to pay the commission because he is not the registered owner of the property

Private respondents herein filed a Complaint with the then Court of First Instance of Naga City for the annulment of the foreclosure sale or for the repurchase by them of the property. CFI ruled in favor of petitioner but was reversed by CA upon appeal. In so ruling, the Appellate Court applied Article 1879 of the Civil Code and stated that since the special power to mortgage granted to Jose de Jesus did not include the power to

BUSORG CASE DIGESTS Atty. Charlie Mendoza

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sell, it was error for the lower Court not to have declared the foreclosure proceedings and auction sale held in 1978 null and void because the Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely to mortgage his property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the said extrajudicial foreclosure. ISSUE: Whether the agent-son exceeded the scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could extrajudicially foreclose the mortgaged property HELD: No. Art, 1879 is inapplicable. The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The stipulation granting an authority to extrajudicially foreclose a mortgage is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential or inseparable part of that bilateral agreement. The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. In fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on the authorization in the deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency. Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property, merely availed of a right conferred by law. The auction sale that followed in the wake of that foreclosure was but a consequence thereof.

G.R. No. 160346

August 25, 2009

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by Mother and Attorney-in-Fact VIRGINIA CASTILLA), Petitioners, vs. COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTINMcCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA BUSORG CASE DIGESTS Atty. Charlie Mendoza

SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents. FACTS: During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-square meter parcel of land situated in Barangay Anos, Los Baños, Laguna. Both died intestate, survived by their eight (8) children: respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio. Sometime 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, and also for Milagros, Minerva, and Zenaida but without their apparent written authority. The deed of sale was also not notarized. On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baños Rural Bank where the subject property was mortgaged. The bank issued a release of mortgage and turned over the owner’s copy of the OCT to the Pahuds. Over the following months, the Pahuds made more payments to Eufemia and her siblings totaling toP350,000.00. They agreed to use the remaining P87,500.00 to defray the payment for taxes and the expenses in transferring the title of the property. When Eufemia and her co-heirs drafted an extrajudicial 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 of Calamba, Laguna. In the course of the proceedings for judicial partition, a Compromise Agreement was signed with seven (7) of the coheirs agreeing to sell their undivided shares to Virgilio forP700,000.00. The compromise agreement was, however, not approved by the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the agreement because he knew of the previous sale made to the Pahuds. Eufemia acknowledged having received P700,000.00 from Virgilio. Virgilio then sold the entire property to spouses Isagani Belarmino and Leticia Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a building on the subject property. Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds immediately confronted Eufemia who confirmed to them that Virgilio had sold the property to the Belarminos. Aggrieved, the 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. Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the sale made by Eufemia for 32

and on behalf of her other co-heirs to the Pahuds should have been declared void and inexistent for want of a written authority from her co-heirs. The CA yielded and set aside the findings of the trial court. ISSUE: Whether the sale of the subject property by Eufemia and her co-heirs to the Pahuds is valid and enforceable HELD: Yes, with respect to 7/8 portions of the land subject property. Pertinent provisions: Article 1874, Article 1878, and Article 1431. Sale of Eufemia, Ferdinand, Raul, and Isabelita’s share to the Pahuds - VALID The authority of an agent to execute a contract of sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. 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. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. In several cases, we have repeatedly held that the absence of a written authority to sell a piece of land is, ipso jure, void, precisely to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another. 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 with respect to the 4/8 portion of the subject property. Sale of Milagros, Minerva, and Zenaida’s share to the Pahuds - VALID While the sale with respect to the 3/8 portion (Milagros, Minerva, and Zenaida) is void by express provision of law and not susceptible to ratification, we nevertheless uphold its validity on the basis of the common law principle of estoppel. True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of attorney to dispose of the 3/8 portion of the property. Initially, in their answer to the complaint in intervention, Eufemia and her other co-heirs denied having sold their shares to the Pahuds. During the pretrial conference, 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. Moreover, in their Comment, the said co-heirs again admitted the sale made to petitioners. BUSORG CASE DIGESTS Atty. Charlie Mendoza

Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction made by Eufemia to the Pahuds on the basis of want of written authority to sell. They could have easily filed a case for annulment of the sale of their respective shares against Eufemia and the Pahuds. Instead, 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. They cannot be allowed to rely on Eufemia, their attorney-in-fact, to impugn the validity of the first transaction because to allow them to do so would be tantamount to giving premium to their sister’s dishonest and fraudulent deed. Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar them from making a contrary claim. It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another by the latter’s reliance upon a deceitful representation by an agent in the course of his employment (1) if the representation is authorized; (2) if it is within the implied authority of the agent to make for the principal; or (3) if it is apparently authorized, regardless of whether the agent was authorized by him or not to make the representation. By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that they have indeed clothed Eufemia with the authority to 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. Sale to Virgilio – VOID (with respect to the 7/8 portion) The subsequent sale made by the seven co-heirs to Virgilio was void because they no longer had any interest over the subject property which they could alienate at the time of the second transaction. Nemo dat quod non habet. Virgilio, however, could still alienate his 1/8 undivided share to the Belarminos. Belarminos – IN BAD FAITH The Belarminos, for their part, cannot argue that they purchased the property from Virgilio in good faith. As a general rule, a purchaser of a real property is not required to make any further inquiry beyond what the certificate of title indicates on its face. But the rule excludes those who purchase with knowledge of the defect in the title of the vendor or of facts sufficient to induce a reasonable and prudent person to inquire into the status of the property. Such purchaser cannot close his eyes to facts which should put a reasonable man on guard, and later claim that he acted in good faith on the belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect exists, or his obvious neglect by closing his eyes to the possibility of the existence of a defect in the vendor’s title, will not make him an innocent purchaser for value, if afterwards it turns out that the title was, in fact, defective. In such a case, he is deemed to have bought 33

the property at his own risk, and any injury or prejudice occasioned by such transaction must be borne by him. In the case at bar, the Belarminos were fully aware that the property was registered not in the name of the immediate transferor, Virgilio, but remained in the name of Pedro San Agustin and Agatona Genil. This fact alone is sufficient impetus to make further inquiry and, thus, negate their claim that they are purchasers for value in good faith. They knew that the property was still subject of partition proceedings before the trial court, and that the compromise agreement signed by the heirs was not approved by the RTC following the opposition of the counsel for Eufemia and her six other coheirs. The Belarminos, being transferees pendente lite, are deemed buyers in mala fide, and they stand exactly in the shoes of the transferor and are bound by any judgment or decree which may be rendered for or against the transferor. Furthermore, had they verified the status of the property by asking the neighboring residents, they would have been able to talk to the Pahuds who occupy an adjoining business establishment and would have known that a portion of the property had already been sold. All these existing and readily verifiable facts are sufficient to suggest that the Belarminos knew that they were buying the property at their own risk.

BUSORG CASE DIGESTS Atty. Charlie Mendoza

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