ETRIII
Civil Law Review Lecture Series
OUTLINE/ LECTURE ON
PARTNERSHIP
By: Atty. Eduardo T.
Reyes, III
(Prepared for Law
4-C,
Univ. of San Agustin Law School,
Civil Law Review II, SY 2016-2017)
I.
PARTNERSHIP. Partnership is a contract whereby 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 [1].
1.1.
Perfection. By mere consent. “A de jure partnership exists by mere
consent as to the elements of the contractof partnership. On the other hand, if
there is no intent to enter into a partnership, then there can be no
partnership whether de jure or de facto”.[2]
1.2.
How INTENT to form a Partnership Ascertained.
In the case
of Marjorie
Tocao v. CA[3],
the legal tell-tale signs that point to a partnership having been
formed and not mere hiring of an
employee was taught in this manner, viz:
“Fresh from her
stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the
vice-president for operations of Ultra Clean Water Purifier, through her former
employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao,
who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cookwares. Belo volunteered
to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the
joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president
for sales. Anay organized the administrative staff and sales force while
Tocao hired and fired employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The parties agreed that
Belos name should not appear in any documents relating to their transactions
with West Bend Company. Instead, they agreed to use Anays name in securing
distributorship of cookware from that company. The parties agreed further
that Anay would be entitled to: (1) ten percent (10%) of the annual net profits
of the business; (2) overriding commission of six percent (6%) of the overall
weekly production; (3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not
reduced to writing on the strength of Belos assurances that he was sincere,
dependable and honest when it came to financial commitments.
Anay having
secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business
took off successfully. They operated under the name of Geminesse
Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office
at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend
Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in
Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the
invitation with the consent of Marjorie Tocao who, as president and general
manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the
U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
Ms.
Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our company,
will attend in response to the invitation. (Italics supplied.)[3]
Anay arrived
from the U.S.A. in mid-August 1987, and immediately undertook the task of
saving the business on account of the unsatisfactory sales record in the Makati
and Cubao offices. On August 31, 1987, she received a plaque of appreciation
from the administrative and sales people through Marjorie Tocao[4] for
her excellent job performance. On October 7, 1987, in the presence of Anay,
Belo signed a memo[5] entitling
her to a thirty-seven percent (37%) commission for her personal sales "up
Dec 31/87. Belo explained to her that said commission was apart from her ten
percent (10%) share in the profits. On October 9, 1987, Anay learned that
Marjorie Tocao had signed a letter[6] addressed
to the Cubao sales office to the effect that she was no longer the
vice-president of Geminesse Enterprise. The following day, October 10, she
received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had
barred her from holding office and conducting demonstrations in both Makati and
Cubao offices.[7] Anay
attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit
of the company to determine her share in the net profits. When her letters were
not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter.
Still, that letter was not answered.
Anay still
received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission
although the company netted a gross sales of P13,300,360.00.
On April 5,
1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money
with damages[8] against
Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.
In her
complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from
January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception of its business operation
until she was illegally dismissed to determine her ten percent (10%) share in
the net profits. She further prayed that she be paid the five percent (5%)
overriding commission on the remaining 150 West Bend cookware sets before her
dismissal.
In their
answer,[9] Marjorie
Tocao and Belo asserted that the alleged agreement with Anay that was neither
reduced in writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to introduce Anay
to Marjorie Tocao. There could not have been a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie
Tocao. Because Anay merely acted as marketing demonstrator of Geminesse
Enterprise for an agreed remuneration, and her complaint referred to either her
compensation or dismissal, such complaint should have been lodged with the
Department of Labor and not with the regular court.
Petitioners
(defendants therein) further alleged that Anay filed the complaint on account
of ill-will and resentment because Marjorie Tocao did not allow her to lord it
over in the Geminesse Enterprise. Anay had acted like she owned the
enterprise because of her experience and expertise. Hence, petitioners were the
ones who suffered actual damages including unreturned and unaccounted stocks of
Geminesse Enterprise, and serious anxiety, besmirched reputation in the
business world, and various damages not less than P500,000.00. They also
alleged that, to vindicate their names, they had to hire counsel for a fee of
P23,000.00.
At the
pre-trial conference, the issues were limited to: (a) whether or not the
plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b)
whether or not the parties are entitled to damages.[10]
In their
defense, Belo denied that Anay was supposed to receive a share in the profit of
the business. He, however, admitted that the two had agreed that Anay
would receive a three to four percent (3-4%) share in the gross sales of the
cookware. He denied contributing capital to the business or receiving a share
in its profits as he merely served as a guarantor of Marjorie Tocao, who was
new in the business. He attended and/or presided over business meetings of the
venture in his capacity as a guarantor but he never participated in
decision-making. He claimed that he wrote the memo granting the plaintiff
thirty-seven percent (37%) commission upon her dismissal from the business
venture at the request of Tocao, because Anay had no other income.
For her part,
Marjorie Tocao denied having entered into an oral partnership agreement with
Anay. However, she admitted that Anay was an expert in the cookware
business and hence, they agreed to grant her the following commissions:
thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales;
two percent (2%) on product demonstrations, and two percent (2%) for
recruitment of personnel. Marjorie denied that they agreed on a ten percent
(10%) commission on the net profits. Marjorie claimed that she got the capital
for the business out of the sale of the sewing machines used in her garments
business and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her co-equal, Marjorie
received the same amounts of commissions as her. However, Anay failed to
account for stocks valued at P200,000.00.
On April 22,
1993, the trial court rendered a decision the dispositive part of which is as
follows:
WHEREFORE,
in view of the foregoing, judgment is hereby rendered:
1. Ordering
defendants to submit to the Court a formal account as to the partnership
affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in
order to determine the ten percent (10%) share of plaintiff in the net profits
of the cookware business;
2. Ordering
defendants to pay five percent (5%) overriding commission for the one hundred
and fifty (150) cookware sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering
defendants to pay plaintiff overriding commission on the total production which
for the period covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00;
4. Ordering
defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary
damages, and
5. Ordering
defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO
ORDERED.
The trial court
held that there was indeed an oral partnership agreement between the plaintiff
and the defendants, based on the following: (a) there was an intention to
create a partnership; (b) a common fund was established through contributions
consisting of money and industry, and (c) there was a joint interest in the
profits. The testimony of Elizabeth Bantilan, Anays cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986 until it
was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of
West Bend Company stating that he awarded the distributorship to Anay and
Marjorie Tocao because he was convinced that with Marjories financial contribution
and Anays experience, the combination of the two would be invaluable to the
partnership, also supported that conclusion. Belos claim that he was merely a
guarantor has no basis since there was no written evidence thereof as required
by Article 2055 of the Civil Code. Moreover, his acts of attending and/or
presiding over meetings of Geminesse Enterprise plus his issuance of a memo
giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court
further held that the payment of commissions did not preclude the existence of
the partnership inasmuch as such practice is often resorted to in business
circles as an impetus to bigger sales volume. It did not matter that the agreement
was not in writing because Article 1771 of the Civil Code provides that a
partnership may be constituted in any form. The fact that Geminesse Enterprise
was registered in Marjorie Tocaos name is not determinative of whether or not
the business was managed and operated by a sole proprietor or a partnership.
What was registered with the Bureau of Domestic Trade was merely the business
name or style of Geminesse Enterprise.
The trial court
finally held that a partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his due upon the
dissolution of the partnership as well as damages or share in the profits
realized from the appropriation of the partnership business and goodwill. An
innocent partner thus possesses pecuniary interest in every existing contract
that was incomplete and in the trade name of the co-partnership and assets at
the time he was wrongfully expelled.
Petitioners
appeal to the Court of Appeals[11] was
dismissed, but the amount of damages awarded by the trial court were reduced to
P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their
Motion for Reconsideration was denied by the Court of Appeals for lack of
merit.[12] Petitioners
Belo and Marjorie Tocao are now before this Court on a petition for review
on certiorari, asserting
that there was no business partnership between them and herein private
respondent Nenita A. Anay who is, therefore, not entitled to the damages
awarded to her by the Court of Appeals.
Petitioners
Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise came into being exactly a year before the alleged partnership was
formed, and that it was very unlikely that petitioner Belo would invest the sum
of P2,500,000.00 with petitioner Tocao contributing nothing, without any
memorandum whatsoever regarding the alleged partnership.[13]
The issue of
whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set
aside factual findings of such courts absent any showing that there is no
evidence to support the conclusion drawn by the court a quo.[14] In
this case, both the trial court and the Court of Appeals are one in ruling that
petitioners and private respondent established a business partnership. This
Court finds no reason to rule otherwise.
To be
considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves.[15] It
may be constituted in any form; a public instrument is necessary only where
immovable property or real rights are contributed thereto.[16] This
implies that since a contract of partnership is consensual, an oral contract of
partnership is as good as a written one. Where no immovable property or real
rights are involved, what matters is that the parties have complied with the
requisites of a partnership. The fact that there appears to be no record
in the Securities and Exchange Commission of a public instrument embodying the
partnership agreement pursuant to Article 1772 of the Civil Code[17] did
not cause the nullification of the partnership. The pertinent provision of
the Civil Code on the matter states:
Art.
1768. The partnership has a juridical personality separate and distinct
from that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Petitioners
admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to
the partnership and hence, under the law, she was the industrial or managing
partner. It was through her reputation with the West Bend Company that the
partnership was able to open the business of distributorship of that companys
cookware products; it was through the same efforts that the business was propelled
to financial success. Petitioner Tocao herself admitted private respondents
indispensable role in putting up the business when, upon being asked if private
respondent held the positions of marketing manager and vice-president for
sales, she testified thus:
A: No, sir
at the start she was the marketing manager because there were no one to sell
yet, its only me there then her and then two (2) people, so about four (4).
Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz
these two (2) people were given the designation of marketing managers of which
definitely Nita as superior to them would be the Vice President.[18]
By the set-up of the business, third
persons were made to believe that a partnership had indeed been forged between
petitioners and private respondents. Thus, the communication dated June 4, 1986
of Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:
Marge
Tocao is president of Geminesse Enterprises. Geminesse will finance the
operations. Marge does not have cookware experience. Nita Anay has started to
gather former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue
to gather other key people and build up the organization. All they need is the
finance and the products to sell.[19]
On the other
hand, petitioner Belos denial that he financed the partnership rings hollow in
the face of the established fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover, his having
authorized in writing on October 7, 1987, on a stationery of his own business
firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in the business.
His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of
future debts of petitioner Tocao under Article 2053 of the Civil Code,[20] he
should have presented documentary evidence therefor. While Article 2055 of the
Civil Code simply provides that guaranty must be express, Article 1403, the
Statute of Frauds, requires that a special promise to answer for the debt,
default or miscarriage of another be in writing.[21]
Petitioner Tocao,
a former ramp model,[22] was
also a capitalist in the partnership. She claimed that she herself
financed the business. Her and petitioner Belos roles as both capitalists
to the partnership with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the partnership was
not their only business venture together. They also established a firm that
they called Wiji, the combination of petitioner Belos first name, William, and
her nickname, Jiji.[23] The
special relationship between them dovetails with petitioner Belos claim that he
was acting in behalf of petitioner Tocao. Significantly, in the early stage of
the business operation, petitioners requested West Bend Company to allow them
to utilize their banking and trading facilities in Singapore in the matter of
importation and payment of the cookware products.[24] The
inevitable conclusion, therefore, was that petitioners merged their respective
capital and infused the amount into the partnership of distributing cookware
with private respondent as the managing partner.
The business
venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent.
While it is true that the receipt of a percentage of net profits constitutes
only prima facie evidence that the recipient is a partner
in the business,[25] the
evidence in the case at bar controverts an employer-employee relationship
between the parties. In the first place, private respondent had a voice in
the management of the affairs of the cookware distributorship,[26] including
selection of people who would constitute the administrative staff and the sales
force. Secondly, petitioner Tocaos admissions militate against an
employer-employee relationship. She admitted that, like her who owned Geminesse
Enterprise,[27]private
respondent received only commissions and transportation and representation
allowances[28] and
not a fixed salary.[29] Petitioner
Tocao testified:
Q: Of
course. Now, I am showing to you certain documents already marked as Exhs. X
and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with
ending August 21, 1987, will you please go over this and tell the Honorable
Court whether you ever came across this document and know of your own knowledge
the amount ---
A: Yes,
sir this is what I am talking about earlier. Thats the one I am telling you
earlier a certain percentage for promotions, advertising, incentive.
Q: I see.
Now, this promotion, advertising, incentive, there is a figure here and words
which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have
received this amount?
A: Oh yes,
sir.
Q: I see.
And, by way of amplification this is what you are saying as one representing
commission, representation, advertising and promotion?
A: Yes,
sir.
Q: I see.
Below your name is the words and figure and I quote Nita D. Anay P21,410.50,
what is this?
A: Thats
her overriding commission.
Q: Overriding
commission, I see. Of course, you are telling this Honorable Court that there
being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were
equal because the way I look at her kasi, you know in a sense because of her expertise in the business she is
vital to my business. So, as part of the incentive I offer her the same thing.
Q: So, in
short you are saying that this you have shared together, I mean having gotten
from the company P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an
equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am
calling again your attention to Exh. Y Overrides Makati the other one is ---
A: That is
the same thing, sir.
Q: With
ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the
amount there you will acknowledge you have received that?
A: Yes,
sir.
Q: Again
in concept of commission, representation, promotion, etc.?
A: Yes,
sir.
Q: Okey.
Below your name is the name of Nita Anay P15,314.25 that is also an indication
that she received the same amount?
A: Yes,
sir.
Q: And, as
in your previous statement it is not by coincidence that these two (2) are the
same?
A: No,
sir.
Q: It is
again in concept of you treating Miss Anay as your equal?
A: Yes,
sir. (Italics supplied.)[30]
If indeed
petitioner Tocao was private respondents employer, it is difficult to believe
that they shall receive the same income in the business. In a partnership,
each partner must share in the profits and losses of the venture, except that
the industrial partner shall not be liable for the losses.[31] As
an industrial partner, private respondent had the right to demand for a formal
accounting of the business and to receive her share in the net profit.[32]
The fact that
the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered
with the Bureau of Domestic Trade on August 19, 1987 was merely the name of
that enterprise.[33] While
it is true that in her undated application for renewal of registration of that
firm name, petitioner Tocao indicated that it would be engaged in retail of
kitchenwares, cookwares, utensils, skillet,[34] she
also admitted that the enterprise was only 60% to 70% for the cookware business,
while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.[35] Indubitably
then, the business name Geminesse Enterprise was used only for practical
reasons - it was utilized as the common name for petitioner Tocaos various
business activities, which included the distributorship of cookware.
Petitioners
underscore the fact that the Court of Appeals did not return the unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00.[36] Obviously
a ploy to offset the damages awarded to private respondent, that claim, more
than anything else, proves the existence of a partnership between them.
In Idos v. Court of
Appeals, this Court said:
The
best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has
not been terminated, the petitioner and private complainant remained as
co-partners. x x x.[37]
It is not surprising then that, even
after private respondent had been unceremoniously booted out of the partnership
in October 1987, she still received her overriding commission until December
1987.
Undoubtedly,
petitioner Tocao unilaterally excluded private respondent from the partnership
to reap for herself and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a success. Thus,
as petitioner Tocao became adept in the business operation, she started to
assert herself to the extent that she would even shout at private respondent in
front of other people.[38] Her
instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely
spoke of her perception that private respondent was no longer necessary in the
business operation,[39] and
resulted in a falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the partnership into a sham
organization.[40] The
partnership exists until dissolved under the law. Since the partnership
created by petitioners and private respondent has no fixed term and is
therefore a partnership at will predicated on their mutual desire and consent,
it may be dissolved by the will of a partner. Thus:
x x
x. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership. Its continued existence
is, in turn, dependent on the constancy of that mutual resolve, along with each
partners capability to give it, and the absence of cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will. He must, however,
act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages.[41]
An unjustified dissolution by a partner
can subject him to action for damages because by the mutual agency that arises
in a partnership, the doctrine of delectus
personae allows the partners to have the power, although not necessarily
the right to dissolve
the partnership.[42]
In this case,
petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that
private respondent was, as of October 9, 1987, no longer the vice-president for
sales of Geminesse Enterprise.[43] By
that memo, petitioner Tocao effected her own withdrawal from the partnership
and considered herself as having ceased to be associated with the partnership
in the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business.[44]
The winding up
of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had
been entrusted to private respondent in the pursuit of the partnership
business.
The
determination of the amount of damages commensurate with the factual findings
upon which it is based is primarily the task of the trial court.[45] The
Court of Appeals may modify that amount only when its factual findings are
diametrically opposed to that of the lower court,[46] or
the award is palpably or scandalously and unreasonably excessive.[47] However,
exemplary damages that are awarded by way of example or correction for the
public good,[48] should
be reduced to P50,000.00, the amount correctly awarded by the Court of
Appeals. Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly, attorneys
fees that should be granted on account of the award of exemplary damages and
petitioners evident bad faith in refusing to satisfy private respondents
plainly valid, just and demandable claims,[49] appear
to have been excessively granted by the trial court and should therefore be
reduced to P25,000.00.
WHEREFORE, the instant petition for review
on certiorari is
DENIED. The partnership among petitioners and private respondent is
ordered dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of the
Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the
Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS,
as follows ---
1. Petitioners
are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of
the Civil Code, in order to determine private respondents ten percent (10%)
share in the net profits of the partnership;
2. Petitioners
are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets
available for disposition since the time private respondent was wrongfully
excluded from the partnership by petitioners;
3. Petitioners
are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8,
1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners
are ordered, jointly and severally, to pay private respondent moral damages in
the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and
attorneys fees in the amount of P25,000.00.
SO ORDERED”.
1.3.
Entity Theory. From the time of perfection, the partnership
has a personality separate and distinct from the partner .[4]
1.4.
Elements of Partnership.
a)
Two or
more persons bound themselves to contribute money, property, or industry to a
common fund; and
b)
They
intend to divide the profits among themselves.[5]
1.5.
Formalities.
1.5.1. General
Rule: No formalities required.
1.5.2. Exceptions:
a) When immovable property or real rights are
contributed- the agreement must be in a public instrument and an inventory
signed by the parties must be attached to the instrument otherwise the
partnership is invalid, the rule is primarily intended to protect third
persons.[6]
b) When the partnership capital is P3,000 or
more. The partnership agreement must also be in public instrument but failure
to comply does not affect the existence of the juridical entity.[7]
c) In addition to para. b, the Securities and
Exchange Commission (SEC) further requires that it must be registered by the
SEC. However, the juridical personality is still not affected by failure of
registration[8].
But the “partnership” will just be deprived of proof of registration for
compliance with regulatory body’s requirements.
Tax benefits inuring to partnerships for instance, may not be availed of
in the absence of registration.
1.6.
Parties
1.6.1. Doctrine
of Delectus Personae.
“The parties likewise agreed to arm
themselves with protective mechanisms to preserve their respective interests in
the partnership in the event that (a) one party decides to sell its shares to
third parties; and (b) new Philseco shares are issued. Anent the first
situation, the non-selling party is given the right of first refusal under
section 1.4 to have a preferential right to buy or to refuse the selling partys
shares. The right of first refusal is meant to protect the original or
remaining joint venturer(s) or shareholder(s) from the entry of third persons
who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture between the Philippine Government
and KAWASAKI is in the nature of a partnership[36] which, unlike an ordinary corporation, is
based on delectus personae.[37] No one can become a member of the partnership
association without the consent of all the other associates. The right of first
refusal thus ensures that the parties are given control over who may become a
new partner in substitution of or in addition to the original partners. Should the selling partner decide to dispose all its shares, the
non-selling partner may acquire all these shares and terminate the partnership.
No person or corporation can be compelled to remain or to continue the
partnership. Of course, this presupposes that there are no other restrictions
in the maximum allowable share that the non-selling partner may acquire such as
the constitutional restriction on foreign ownership in public utility. The
theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECOs shares is
correct only if a shipyard is a public utility. In such instance, the
non-selling partner who is an alien can acquire only a maximum of 40% of the
total capitalization of a public utility despite the grant of first
refusal. The partners cannot, by mere agreement, avoid the constitutional
proscription. X x x”[9].
1.7.
Distinctions
1.7.1. Partnership
v. Corporation.
a) Partnership
is created by mere consent; corporation by franchise granted by the State
through the SEC.
b) Two
persons enough to form a partnership; corporation requires minimum of five
incorporators.
c) There is
mutual agency in partnership but in corporation, none.
d) Interest
in partnership can only be transferred with consent of all other partners; in
corporation, shares of stock is property right of the shareholder.
e) There is
no right of succession in partnership as death dissolves it.
1.7.2. Joint
Accounts
a) A joint
account has no juridical personality
b) No
commercial name may be adopted for joint accounts
1.7.3. Co-Ownership
a) There is
no juridical personality in co-ownership
b) Partnership
cannot be created by law but only by agreement while co-ownership may be
created by law or agreement.
c) Partnership
is created for business while co-ownership for common enjoyment of a thing.
d) Mutual
agency rule applies in partnership but in co-ownership the management devolves
upon either the financial or numerical majority
e) As to
sharing in profits, in partnership, it depends on the stipulation of the
parties but in co-ownership, the co-owner’s share in the benefits as well as in
the charges shall be in proportion to his interest and any stipulation to the
contrary is void.
1.7.4. Joint-
Ventures- Differs from partnership in that a joint-venture is for a
fleeting or “temporary purpose”, usually for a particular business venture
unlike a partnership which is usually meant to last longer and for a series of
transactions of the nature agreed upon by the partners.
Josefina
P. Realubit v. Prosenico D. Jaso and Eden G. Jaso[10],
instructs
in this wise:
“Generally
understood to mean an organization formed for some temporary purpose,
a joint venture is likened to a particular partnership or one which has for its
object determinate things, their use or fruits, or a specific undertaking, or
the exercise of a profession or vocation.[27] The
rule is settled that joint ventures are governed by the law on partnerships[28] which
are, in turn, based on mutual agency or delectus personae.[29] Insofar
as a partners conveyance of the entirety of his interest in the partnership is
concerned, Article 1813 of the Civil Code provides as follows:
Art.
1813. A conveyance by a partner of his whole interest in the partnership
does not itself dissolve the partnership, or, as against the other partners in
the absence of agreement, entitle the assignee, during the continuance of the
partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books; but it merely
entitles the assignee to receive in accordance with his contracts the profits
to which the assigning partners would otherwise be entitled. However, in
case of fraud in the management of the partnership, the assignee may avail
himself of the usual remedies.
In
the case of a dissolution of the partnership, the assignee is entitled to
receive his assignors interest and may require an account from the date only of
the last account agreed to by all the partners.
From the
foregoing provision, it is evident that (t)he transfer by a partner of his
partnership interest does not make the assignee of such interest a partner of
the firm, nor entitle the assignee to interfere in the management of the
partnership business or to receive anything except the assignees
profits. The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of the ultimate
residue as the assignor may become entitled to receive by virtue of his
proportionate interest in the capital.[30]Since
a partners interest in the partnership includes his share in the profits,[31] we
find that the CA committed no reversible error in ruling that the Spouses Jaso
are entitled to Biondos share in the profits, despite Juanitas lack
of consent to the assignment of said Frenchmans interest in the joint
venture. Although Eden did not, moreover, become a partner as a
consequence of the assignment and/or acquire the right to require an accounting
of the partnership business, the CA correctly granted her prayer for
dissolution of the joint venture conformably with the right granted to the
purchaser of a partners interest under Article 1831 of the Civil Code.[32]
Considering
that they involve questions of fact, neither are we inclined to hospitably
entertain the Spouses Realubits insistence on the supposed fact that Josefinas
joint venture with Biondo had already been dissolved and that the ice
manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City was merely a continuation of the same business they previously
operated under a single proprietorship. It is well-entrenched
doctrine that questions of fact are not proper subjects of appeal by certiorari under
Rule 45 of the Rules of Court as this mode of appeal is confined to questions
of law.[33] Upon
the principle that this Court is not a trier of facts, we are not duty bound to
examine the evidence introduced by the parties below to determine if the trial
and the appellate courts correctly assessed and evaluated the evidence on
record.[34] Absent
showing that the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension of
facts, the Court will limit itself to reviewing only errors of law.[35]
1.8.
Kinds of Partnership. As to its object, a partnership is either
universal or particular. As regards the liability of the partners, a
partnership may be general or limited. A universal partnership may refer to all
the present property or to all the profits[11].
1.8.1.Universal
partnership of all present property. –
The partners contribute all the properties that actually belong to them at the
time of perfection to a common fund or shall become part of partnership
property.[12]
1.8.2.Universal
partnership of profits. –comprises
all that the partners may acquire by their industry or work during the
existence of the partnership.
1.8.3. Particular
partnership. – It has for its object determinate things, their use or
fruits, or specific undertaking, or the exercise of a profession or vocation.
1.9.
Kinds of Partners
a) Capitalist
partner- one who contributes money or
property
(Note:
Capitalist partner cannot engage in SAME LINE OF BUSINESS)
b) Industrial
Partner- one who contributes industry.
(Note: He is not liable for losses; and he cannot engage in ANY business unless
expressly provided in the partnership agreement).
c) General
Partner- one who controls and manages the
partnership and is liable for partnership obligations.
d) Limited
Partner- he is not personally liable for
partnership obligations but is not involved in the management of the
partnership.
- Note: Under Article 1845, NCC, “The
contributions of a limited partner may be cash or other property, but not
services.” Therefore, no partner can be both industrial and limited
at the same time.
e) Managing
Partner- one who is designated as the
person who will administer the affairs of the partnership.
f) Liquidating
Partner- one who winds- up the affairs of a dissolved partnership.
g)
Associate or Sub-Partner- He is not a real partner but he is the one
with who a partner shares his profits in a partnership. The associate may only
be admitted as partner with the consent of ALL the other partners.[13]
o
May a CORPORATION be a partner?
-A corporation cannot become a member of a
partnership in the absence of express authorization by statute or charter.
-Reasons:
i.
Mutual agency between partners would be
inconsistent with the policy of law
ii.
Such arrangement would improperly allow
corporate property to become subject to risks not contemplated by the
stockholders (Note: Limited liability doctrine).
Exception:
SEC Rules allow corporations to enter into a LIMITED PARTNERSHIP only and
corporation is the limited partner.
1.10. Obligations
& Rights of Partners
Fiduciary
duties. In general, fiduciary
duty requires that the partners act in good faith and with fairness. The
fiduciary duties of the partners cannot be eliminated by contract. In Meinhard v. Salmon[14]
it was held that “many forms of conduct permissible in a workday world for
those acting at arms length, are forbidden to those bound by fiduciary ties. A
(partner) is held to something stricter than the morals of the market place.
Not honesty alone, but punctilio of an honor the most sensitive, is then the
standard of behavior”.
The FIDUCIARY DUTIES include:
1)
Loyalty
2)
Obedience
3)
Diligence
4)
Duty to
Inform.- Partner owes a duty to inform other partners of all information
regarding partnership affairs.
1.11.
Liabilities of Partners
1.11.1.
Note: Mutual
Agency Rule
1.11.2.
Kinds of Authority: Express, Implied and
Apparent Authority (see doctrine in Agency).
1.11.3.
Partner by Estoppel. A person who is not a partner but who
represents himself as a partner (or who consented to such representation being
made public) is liable to third persons who relied on his representations.[15]
- There could be a partner by estoppel even if
there is no partnership.
1.12. Dissolution:
Dissolution,
Winding-Up and Termination of Partnership.
1.12.1. Extra-Judicial
Dissolution-
a)
By the act
of one or more partners without violation of the agreement between the partners
b)
In
contravention of the agreement between partners
c)
Dissolution
by operation of law (see Article 1803, NCC)- illegality of business; specific
thing promised to be contributed to partnership perishes BEFORE DELIVERY, death
of partner, Insolvency of any partner, civil interdiction of any partner.
1.12.2. Judicial
Dissolution-
1.12.3. Wrongful
Dissolution[16] - A partner who wrongfully terminates the
partnership in contravention of the agreement may be held liable for damages by
the innocent parties.
[2] Pioneer Insurance and Surety Corp. v. CA, 175 SCRA 668 (1989)
[3] G.R. No. 127405, October 4, 2000
[4] p. 623, Reviewer on Civil Law, Timoteo B. Aquino
[5] Id.
[6] See Articles 1771 and 1773, NCC
[7] See Articles 1772 and 1769, NCC
[8] Angeles v. Secretary of Justice, 265 SCRA 106 (2005)
[9] JG Summit Holdings v. Court of Appeals, G.R. No. 124293, September
24, 2003
[10] G.R. No. 178782, September 21, 2011
[11] Articles 1776 and 1777, NCC
[12] See Article 1778 and 1779, NCC
[13] Article 1804, NCC
[14] 249 N.Y. 458, 464, 164 N.E. 545, 565 (1928)
[15] Article 1825, NCC
[16] See Marjorie Tocao v. Court of Appeals, et al., Ibid.
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