partnership case digest

HEIRS OF TAN ENG KEE vs. COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY. FACTS: 

On February 19, 1990 , following the death of Tan Eng Kee on September 13, 1984, his heirs filed suit against the decedent’s brother TAN ENG LAY in the Regional Trial Court of Baguio City for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay.

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On March 18, 1991, the petitioners filed an amended complaint impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay and was admitted by the trial court in its Order dated May 3, 1991.

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After the second World War, Tan Eng Kee and Tan Eng Lay entered into a partnership, named “Benguet Lumber”, which was engaged in the business of selling lumber and hardware and construction supplies and jointly mannaged by them.

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Petitioners 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.”

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The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business.

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Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

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After trial, Regional Trial Court of Baguio City ruled in favor of the petitioners and declared that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in said assets. The court ordered the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated. Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision reversing the judgment of the trial court.

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ISSUE:  Whether or not there was a partnership between the late Tan Eng Kee and Tan Eng Lay. RULING: NO, there was no partnership. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kee’s death in 1984. It had no business book, no written account nor any memorandum for that matter and no license mentioning the existence of a partnership. There was only the establishment of sole proprietorship since co-defendant Lay was the only registered owner of the Benguet Lumber and Hardware. His application for registration, effective

1954, in fact mentioned that his business started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber Company, on the basis of his SSS coverage effective 1958. In the Payrolls, inclusive, for the years 1982 to 1983, Kee was similarly listed only as an employee; precisely, he was on the payroll listing. In the Termination Notice, Lay was mentioned also as the proprietor. Partnership presupposes the following elements *citation omitted+: 1) a contract, either oral or written. However, if it involves real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry contribution; 4) community of funds and interest, mentioning equality of the partners or one having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test of the partnership. The intention to join in the business venture for the purpose of obtaining profits thereafter to be divided, must be established. We cannot see these elements from the testimonial evidence of the appellees. Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect of petitioners’ witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein preponderance lies;*24+ the quality of their testimonies is to be considered which none of petitioners’ witnesses could suitably account for. The essence of a partnership is that the partners share in the profits and losses.*29+ Each has the right to demand an accounting as long as the partnership exists. A demand for periodic accounting is evidence of a partnership.*34+ During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay. There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail.

INOCENCIA DELUAO and FELIPE DELUAO vs. NICANOR CASTEEL and JUAN DEPRA FACTS: 

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In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No action was taken thereon by the authorities concerned. During the Japanese occupation, he filed another fishpond application for the same area, but because of the conditions then prevailing, it was not acted upon either. On December 12, 1945 he filed a third fishpond application for the same area, which, after a survey, was found to contain 178.76 hectares. Upon investigation conducted by a representative of the Bureau of Forestry, it was discovered that the area applied for was still needed for firewood production. Hence on May 13, 1946 this third application was

disapproved. 

He filed a motion for reconsideration. While this motion was pending resolution, he was advised by the district forester of Davao City that no further action would be taken on his motion, unless he filed a new application for the area concerned. So he filed on May 27, 1947 his fishpond application 1717.

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Meanwhile, Leoncio Aradillos, Victor D. Carpio and Alejandro Cacam filed their fishpond application on the land found inside the area applied for by Casteel and were later granted fishpond permit certified as available for fishpond purposes by the Bureau of Forestry.

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Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built.

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Casteel also immediately filed the corresponding protests. The Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the improvements which he had introduced on the land, and ordered that the land be leased through public auction.

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Casteel appealed to the Secretary of Agriculture and Natural Resources. On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the second part, executed a contract — denominated a "contract of service" for the construction and improvements of a fishpond at Barrio Malalag, Municipality of Padada, Province of Davao, Philippines

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Inocencia Deluao executed a special power of attorney in favor of Jesus Donesa, extending to the latter the authority to represent her in the administration of the fishpond.

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On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in favor of Nicanor Casteel that he should be reinstated and given due course for the area indicated in his application. The prior fishpond perrmits issued are hereby cancelled and revoked and he is required to pay the improvements introduced thereon by said permittees. Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises.

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Alleging violation of the contract of service entered into between Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for specific performance and damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his contract), praying inter alia, (a) that Casteel be ordered to respect and abide by the terms and conditions of said contract and that Inocencia Deluao be allowed to continue administering the said fishpond and collecting the proceeds from the sale of the fishes caught from time to time; and (b) that the defendants be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in damages.

ISSUE: Whether or not the parties can validly divide the said fishpond as agreed upon by them. RULINGS: No. Spouses Delauos’ statement that the beneficial right over the fish pond in question is the “ specific partnership property” contemplated by Article 1811 of the Civil Code is incorrect. A reading of the said provision that what is meant is tangible property, such as a car, truck, or a piece of land, but not an intangible thing such as the beneficial right to a fishpond. If what they have in mind is the fishpond itself, they are grossly in error. A fishpond of the public domain can never be considered a specific partnership property because only its use and enjoyment – never its title or ownership – is granted to specific person. Since we held as illegal the second part of the contract of partnership between the parties to divide the fishpond between them after the award, a fortiori, no rights or obligations could have arisen therefrom. Inescapably, no trust could have resulted because trust is founded on equity and can never result from an act in violation of the law. Article 1452 of the Civil Code does not support the apppellee’s stand because it contemplates an agreement between two or more persons to purchase property – capable of private ownership – the legal title of which is to be taken in the name of one of them for the benefits of all. In the case at bar, the parties did not agree to purchase the fishpond and even if they did, such is prohibited by law, a fishpond of the public domain not being susceptible of private ownership. It must be observed that, despite the decisions of the DANR Secretary in DANR cases 353 and 353-B awarding the area to Casteel, and despite the latter’s proposal that they divide the fishpond between them, Delauo unequivocally expressed in their aforequoted letter their decision not to share the fishpond with Casteel. This produced the dissolution of the entire contract of partnership ( to jointly administer and to divide the fishpond after the award) between the parties, not to mention its automatic dissolution for being contrary to law. Petitioner’s final proposition that only by giving effect to the confirmed intention of the parties may cause of equity and justice be served, we must state that since the contract of service is contrary to law and therefore null and void, it is not and can never be considered as the law between the parties.

PO YENG CHEO vs. LIM KA YAM FACTS: 

Po Yeng Cheo, alleged sole owner of a business formerly conducted in the City of Manila under the style of Kwong Cheong, as managing partner in said business and to recover from him its properties and assets.

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The defendant having died during the pendency of the cause in the court below and the death suggested of record, his administrator, one Lim Yock Tock, was required to appear and make defense.

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In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below, found that the plaintiff was entitled to an accounting from Lim Ka Yam, the original defendant, as manager of the business already reffered to, and he accordingly required Lim Yock Tock, as administrator, to present a liquidation of said business within a stated time.

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This order bore no substantial fruit, for the reason that Lim Yock Tock personally knew nothing about the aforesaid business (which had ceased operation more than ten years previously) and was apparently unable to find any books or documents that could shed any real light on its transaction.

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However, he did submit to the court a paper written by Lim Ka Yam in life purporting to give, with vague and uncertain details, a history of the formation of the Kwong Cheong Tay and some account of its disruption and cessation from business in 1910. To this narrative was appended a statement of assets and liabilities, purporting to show that after the business was liquidate, it was actually debtor to Lim Ka Yam to the extent of several thousand pesos.

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Appreciating the worthlessness of this so-called statement, and all parties apparently realizing that nothing more was likely to be discovered by further insisting on an accounting, the court proceeded, on December 27, 1921, to render final judgment in favor of the plaintiff.

ISSUE: Whether or not Lim Yock Tock has a right to interfere with the right the rights and deceased partner. RULINGS: No. In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of liquidating its affair devolves upon the surviving member, or members, of the firm, not upon

the legal representative of the deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same rule must be equally applicable to a civil partnership clothed with the form of a commercial association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it therefore became the duty of his surviving associates to take the proper steps to settle the affairs of the firm, and any claim against him, or his estate, for a sum of money due to the partnership by reason of any misappropriation of its funds by him, or for damages resulting from his wrongful acts as manager, should be prosecuted against his estate in administration in the manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it appears, as here, that the property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad and Light Company, are in the possession of the deceased partner, the proper step for the surviving associates to take would be to make application to the court having charge to the administration to require the administrator to surrender such property. But, in the second place, as already indicated, the proceedings in this cause, considered in the character of an action for an accounting, were futile; and the court, abandoning entirely the effort to obtain an accounting, gave judgment against the administrator upon the supposed liability of his intestate to respond for the plaintiff's proportionate share of the capital and assets. But of course the action was not maintainable in this aspect after the death of the defendant; and the motion to discontinue the action as against the administrator should have been granted.