HEIRS OF TAN ENG KEE, petitioners,
vs. COURT OF APPEALS and BENGUET LUMBER COMPANY
The facts
Following the death of Tan Eng Kee on September 13, 1984, Matilde
Abubo, the common-law spouse of the decedent, joined by their children
Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as
herein petitioners HEIRS OF TAN ENG KEE, filed suit against the
decedent's brother TAN ENG LAY on February 19, 1990. The complaint,3
docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio
City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng
Lay. On March 18, 1991, the petitioners filed an amended complaint4
impleading private respondent herein BENGUET LUMBER COMPANY,
as represented by Tan Eng Lay. The amended complaint was admitted by
the trial court in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the second World
War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed until Tan Eng
Kee's death. Petitioners herein 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, winding up and liquidation thereof, and the equal division of
the net assets of Benguet Lumber.
Issue:
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were
partners in Benguet Lumber. A contract of partnership is defined by law 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.
Two or more persons may also form a partnership for the exercise of a
profession.14
Thus, 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.15 The agreement need not be formally reduced into writing,
since statute allows the oral constitution of a partnership, save in two
instances: (1) when immovable property or real rights are contributed,16
and (2) when the partnership has a capital of three thousand pesos or
more.17 In both cases, a public instrument is required.18 An inventory to be
signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable
property is contributed to the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered
into a joint venture, which it said is akin to a particular partnership.20 A
particular partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is
a sort of informal partnership, with no firm name and no legal personality.
In a joint account, the participating merchants can transact business under
their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain kind.21
A joint venture "presupposes generally a parity of standing between the
joint co-ventures or partners, in which each party has an equal proprietary
interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business."22 Nonetheless, in
Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we
expressed the view that a joint venture may be likened to a particular
partnership, thus:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is hardly distinguishable from the partnership, since
their elements are similar community of interest in the business, sharing
of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242
[1955]). The main distinction cited by most opinions in common law
jurisdiction is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the (1) Except as provided by Article 1825, persons who are not partners as to
execution of a single transaction, and is thus of a temporary nature. (Tufts v. each other are not partners as to third persons;
Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill.
595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This (2) Co-ownership or co-possession does not of itself establish a
observation is not entirely accurate in this jurisdiction, since under the Civil partnership, whether such co-owners or co-possessors do or do not share
Code, a partnership may be particular or universal, and a particular any profits made by the use of the property;
partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint venture is
(3) The sharing of gross returns does not of itself establish a partnership,
a form of partnership and should thus be governed by the law of
whether or not the persons sharing them have a joint or common right or
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation interest in any property which the returns are derived;
cannot enter into a partnership contract, it may however engage in a joint
venture with others. (4) The receipt by a person of a share of the profits of a business is a prima
facie evidence that he is a partner in the business, but no such inference
Undoubtedly, the best evidence would have been the contract of partnership shall be drawn if such profits were received in payment:
itself, or the articles of partnership but there is none. The alleged
partnership, though, was never formally organized. In addition, petitioners (a) As a debt by installment or otherwise;
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 (b) As wages of an employee or rent to a landlord;
argued that nothing prevented the parties from complying with the
provisions of the New Civil Code when it took effect on August 30, 1950. (c) As an annuity to a widow or representative of a deceased partner;
But all that is in the past. The net effect, however, is that we are asked to
determine whether a partnership existed based purely on circumstantial (d) As interest on a loan, though the amount of payment vary with the
evidence. A review of the record persuades us that the Court of Appeals profits of the business;
correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a
(e) As the consideration for the sale of a goodwill of a business or other
partnership.
property by installments or otherwise.
Besides, 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 In the light of the aforequoted legal provision, we conclude that Tan Eng
accounting. The essence of a partnership is that the partners share in the Kee was only an employee, not a partner. Even if the payrolls as evidence
profits and losses.29 Each has the right to demand an accounting as long as were discarded, petitioners would still be back to square one, so to speak,
the partnership exists.30 We have allowed a scenario wherein "[i]f since they did not present and offer evidence that would show that Tan
excellent relations exist among the partners at the start of the business Eng Kee received amounts of money allegedly representing his share in the
and all the partners are more interested in seeing the firm grow rather profits of the enterprise. Petitioners failed to show how much their father,
than get immediate returns, a deferment of sharing in the profits is Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber
perfectly plausible." 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
Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as between themselves, which is one of the essential features of a
wages of an employee. In connection therewith, Article 1769 of the Civil partnership.
Code provides:
In determining whether a partnership exists, these rules shall apply:
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF
APPEALS and NENITA A. ANAY, respondents.
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.
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]
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
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:
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.[

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]
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS
The distinction between co-ownership and an unregistered partnership or
joint venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners 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 dated March 31, 1979 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 in a letter of June 26, 1979
asserting that they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, 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 Section 20(b) and its income was
subject to the taxes prescribed under Section 24, both of the National
Internal Revenue Code 1 that the unregistered partnership was subject to
corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners
relieved petitioners of their individual income tax liabilities but did not
relieve them from the tax liability of the unregistered partnership. Hence,
the petitioners were required to pay the deficiency income tax assessed.
The issue in this case is whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers' fixed tax. With
respect to the tax on corporations, the issue hinges on the meaning of the
terms corporation and partnership as used in sections 24 and 84 of said
Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized in,
or existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships
(companies collectives), a tax upon such income equal to the sum of the
following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participation), associations or insurance companies, but does not include
duly registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
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.
Pursuant to this article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent
in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to
engage in real estate transactions for monetary gain and then divide the
same among themselves,
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point. 5 the existence of a juridical personality different from that of the
In the present case, 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 Evangelists, there was a series of transactions where petitioners
purchased twenty-four (24) lots 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.
In the instant case, petitioners bought two (2) parcels of land in 1965. They
did not sell the same nor make any improvements thereon. In 1966, they
bought another three (3) parcels of land from one seller. It was only 1968
when they sold the two (2) parcels of land after which they did not make
any additional or new purchase. The remaining three (3) parcels were sold
by them in 1970. The transactions were isolated. The character of
habituality peculiar to business
I wish however to make the following observation Article 1769 of the new
Civil Code lays down the rule for determining when a transaction should
be deemed a partnership or a co-ownership. Said article paragraphs 2 and
3, provides;
(2) Co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or do not share
any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived;
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the
property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish
a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. This only means that, aside from
the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership,
individual partners, and the freedom to transfer or assign any interest in
the property by one with the consent of the others (Padilla, Civil Code of
the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of
other circumstances showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a common enterprise and
agree to share the gross returns of that enterprise in proportion to their
contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common
stock or capital, and no community of interest as principal proprietors in
the business itself which the proceeds derived. (Elements of the Law of
Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in
respect thereto; nor does an agreement to share the profits and losses on
the sale of land create a partnership; the parties are only tenants in
common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a
single tract of realty, holding as tenants in common, and to divide the
profits of disposing of it, the brother and the other not being entitled to
share in plaintiffs commission, no partnership existed as between the
three parties, whatever their relation may have been as to third parties.
(Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
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.-Municipal Paving Co. vs. Herring 150 P. 1067, 50
III 470.)
The common ownership of property does not itself create a partnership
between the owners, though they may use it for the purpose of making
gains; and they may, without becoming partners, agree among themselves
as to the management, and use of such property and the application of the
proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.)
6
The sharing of returns does not in itself establish a partnership whether
or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a
partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign
the whole property.

In the present case, there is clear evidence of co-ownership between the

petitioners. 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. They shared in the gross
profits as co- owners and paid their capital gains taxes on their net profits
and availed of the tax amnesty thereby. Under the circumstances, they
cannot be considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent commissioner
proposes.

And even assuming for the sake of argument that such unregistered
partnership appears to have been formed, since there is no such existing
unregistered partnership with a distinct personality nor with assets that
can be held liable for said deficiency corporate income tax, then
petitioners can be held individually liable as partners for this unpaid
obligation of the partnership p. 7 However, as petitioners have availed of
the benefits of tax amnesty as individual taxpayers in these transactions,
they are thereby relieved of any further tax liability arising therefrom.
ARSENIO T. MENDIOLA,
Petitioner, - versus - COURT OF APPEALS, NATIONAL LABOR
RELATIONS COMMISSION, PACIFIC FOREST RESOURCES,
PHILS., INC. and/or CELLMARK AB
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a
corporation organized and existing under the laws of California, USA. It is
a subsidiary of Cellulose Marketing International, a corporation duly
organized under the laws of Sweden, with principal office in Gothenburg,
Sweden.
Private respondent Pacfor entered into a Side Agreement on Representative
Office known as Pacific Forest Resources (Phils.), Inc.[5] with petitioner
Arsenio T. Mendiola (ATM), effective May 1, 1995, assuming that Pacfor-
Phils. is already approved by the Securities and Exchange Commission
[SEC] on the said date.[6] The Side Agreement outlines the business
relationship of the parties with regard to the Philippine operations of Pacfor.
Private respondent will establish a Pacfor representative office in the
Philippines, to be known as Pacfor Phils, and petitioner ATM will be its
President. Petitioners base salary and the overhead expenditures of the
company shall be borne by the representative office and funded by
Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by
ATM and Pacfor-USA.
On July 14, 1995, the SEC granted the application of private respondent
Pacfor for a license to transact business in the Philippines under the name of
Pacfor or Pacfor Phils.[7] In its application, private respondent Pacfor
proposed to establish its representative office in the Philippines with the
purpose of monitoring and coordinating the market activities for paper
products. It also designated petitioner as its resident agent in the
Philippines, authorized to accept summons and processes in all legal
proceedings, and all notices affecting the corporation.[8]
The first issue is whether an employer-employee relationship exists
between petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he
formed with private respondent Pacfor, and also an employee of the
partnership. Petitioner insists that an industrial partner may at the same
time be an employee of the partnership, provided there is such an
agreement, which, in this case, is the Side Agreement and the Revised
Operating and Profit Sharing Agreement. The Court of Appeals denied the
appeal of petitioner, holding that the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or independent
contractorship. Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and
that no partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed
to the firm capital and of all property that may be acquired thereby and
through the efforts of the members.[36] The property or stock of the
partnership forms a community of goods, a common fund, in which each
party has a proprietary interest.[37] In fact, the New Civil Code regards a
partner as a co-owner of specific partnership property.[38] Each partner
possesses a joint interest in the whole of partnership property. If the
relation does not have this feature, it is not one of partnership.[39] This
essential element, the community of interest, or co-ownership of, or joint
interest in partnership property is absent in the relations between
petitioner and private respondent Pacfor. Petitioner is not a part-owner of
Pacfor Phils. William Gleason, private respondent Pacfors President
established this fact when he said that Pacfor Phils. is simply a theoretical
company for the purpose of dividing the income 50-50. He stressed that
petitioner knew of this arrangement from the very start, having been the
one to propose to private respondent Pacfor the setting up of a
representative office, and not a branch office in the Philippines to save on
taxes. Thus, the parties in this case, merely shared profits. This alone does
not make a partnership.[40]
Besides, a corporation cannot become a member of a partnership in the
absence of express authorization by statute or charter.[41] This doctrine
is based on the following considerations: (1) that the mutual agency
between the partners, whereby the corporation would be bound by the
acts of persons who are not its duly appointed and authorized agents and
officers, would be inconsistent with the policy of the law that the
corporation shall manage its own affairs separately and exclusively; and,
(2) that such an arrangement would improperly allow corporate property
to become subject to risks not contemplated by the stockholders when
they originally invested in the corporation.[42] No such authorization has
been proved in the case at bar.
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and
CHARLES CHAMSAY, petitioners, vs. SANITARY WARES
MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
In 1961, Saniwares, a domestic corporation was incorporated for the
primary purpose of manufacturing and marketing sanitary wares. One of
the incorporators, Mr. Baldwin Young went abroad to look for foreign
partners, European or American who could help in its expansion plans. On
August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United
States entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to participate in
the ownership of an enterprise which would engage primarily in the
business of manufacturing in the Philippines and selling here and abroad
vitreous china and sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an incorporated
enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."
The chairman, Baldwin Young ruled the last two nominations out of order
on the basis of section 5 (a) of the Agreement, the consistent practice of
the parties during the past annual stockholders' meetings to nominate only
nine persons as nominees for the nine-member board of directors, and the
legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to the
body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of order
and no vote on the ruling was taken
The issues raised in the petitions are interrelated, hence, they are
discussed jointly.
The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting held
on March 8, 1983. To answer this question the following factors should
be determined: (1) the nature of the business established by the parties
whether it was a joint venture or a corporation and (2) whether or not
the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance
with the rules governing the interpretation and construction of contracts.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P
2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that
the actual intention of the parties should be viewed strictly on the
"Agreement" dated August 15,1962 wherein it is clearly stated that the
parties' intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions
which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of
the parties hereto partners or joint venturers in respect of any
transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that
the parties' agreement was to establish a joint venture presented by the
Lagdameo and Young Group on the ground that it contravenes the parol
evidence rule under section 7, Rule 130 of the Revised Rules of Court.
According to them, the Lagdameo and Young Group never pleaded in
their pleading that the "Agreement" failed to express the true intent of
the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have
been reduced to writing, it is to be considered as containing all such
terms, and therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties or the validity of the
agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded
in their Reply and Answer to Counterclaim in SEC Case No. 2417 that the
Agreement failed to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear
that the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and
does not preclude, the existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise,
and if some words in the Agreement appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former (Art.
1370, New Civil Code). The various stipulations of a contract shall be
interpreted together attributing to the doubtful ones that sense which
may result from all of them taken jointly (Art. 1374, New Civil Code).
Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
(Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)
In the instant cases, our examination of important provisions of the
Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish a
joint venture and not a corporation. The history of the organization of
Saniwares and the unusual arrangements which govern its policy making
body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint
venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint venture corporations
often contain provisions which do one or more of the following: (1)
require greater than majority vote for shareholder and director action;
(2) give certain shareholders or groups of shareholders power to select a
specified number of directors; (3) give to the shareholders control over
the selection and retention of employees; and (4) set up a procedure for
the settlement of disputes by arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing
Officer, P. 16)

It has been ruled:

In an action at law, where there is evidence tending to prove that the

parties joined their efforts in furtherance of an enterprise for their joint
profit, the question whether they intended by their agreement to create
a joint adventure, or to assume some other relation is a question of fact
for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P
96 33 C.J. p. 871)
BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION
Petitioner Benjamin Yu was formerly the Assistant General Manager of the
marble quarrying and export business operated by a registered partnership
with the firm name of "Jade Mountain Products Company Limited" ("Jade
Mountain"). The partnership was originally organized on 28 June 1984 with
Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng,
Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as
limited partners. The partnership business consisted of exploiting a marble
deposit found on land owned by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province, under a Memorandum Agreement dated 26
June 1984 with the Cruz spouses. 1 The partnership had its main office in
Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14
March 1985, as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu, however, he actually received only
half of his stipulated monthly salary, since he had accepted the promise of
the partners that the balance would be paid when the firm shall have
secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the 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.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their
interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and
transferred his interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired the
great bulk of the partnership interest. The partnership now constituted
solely by Willy Co and Emmanuel Zapanta continued to use the old firm
name of Jade Mountain, though they moved the firm's main office from
Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry
was entered into with the Cruz spouses in February of 1988. 2 The actual
operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to
the Mandaluyong office for work and there met private respondent Willy
Co for the first time. Petitioner was informed by Willy Co that the latter
had bought the business from the original partners and that it was for him
to decide whether or not he was responsible for the obligations of the old
partnership, including petitioner's unpaid salaries. Petitioner was in fact
not allowed to work anymore in the Jade Mountain business enterprise.
His unpaid salaries remained unpaid.
Two (2) main issues are thus posed for our consideration in the case at bar:
(1) whether the partnership which had hired petitioner Yu as Assistant
General Manager had been extinguished and replaced by a new
partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if
indeed a new partnership had come into existence, whether petitioner Yu
could nonetheless assert his rights under his employment contract as
against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC,
that is, that the legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co
and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite
unaware is found in the Civil Code provisions relating to partnerships.
Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be associated in
the carrying on as distinguished from the winding up of the business.
(Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx

(b) by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;
xxx xxx xxx
(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;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership
interests (amounting to 82% of the total partnership interest) to Mr. Willy
Co and Emmanuel Zapanta. The record does not show what happened to
the remaining 18% of the original partnership interest. The acquisition of
82% of the partnership interest by new partners, coupled with the
retirement or withdrawal of the partners who had originally owned such
82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership. Article 1829 of
the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing of
the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing
the procedures relating to dissolution and winding up of its business
affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding 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. There
were, no doubt, powerful tax considerations which underlay such an
informal approach to business on the part of the retiring and the incoming
partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.) but also
the new partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding partnership. In
Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts
very similar to those in the case at bar, a withdrawing partner remains
liable to a third party creditor of the old partnership. 9 The liability of the
new partnership, upon the other hand, in the set of circumstances
obtaining in the case at bar, is established in Article 1840 of the Civil Code
which reads as follows:
Art. 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership continuing the
business:
(1) When any new partner is admitted into an existing partnership, or
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or more
of the partners, or to one or more of the partners and one or more third
persons, if the business is continued without liquidation of the partnership
affairs;
(2) When all but one partner retire and assign (or the representative
of a deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article, with the
consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights
in partnership property to one or more third persons who promise to pay
the debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining his claim for unpaid salaries, as well as other claims relating to his
partners continue the business under the provisions of article 1837, employment with the previous partnership, against the new Jade
second paragraph, No. 2, either alone or with others, and without Mountain.
liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue

the business either alone or with others without liquidation of the
partnership affairs;

The liability of a third person becoming a partner in the partnership

continuing the business, under this article, to the creditors of the dissolved
partnership shall be satisfied out of the partnership property only, unless
there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under

any conditions set forth in this article the creditors of the retiring or
deceased partner or the representative of the deceased partner, have a
prior right to any claim of the retired partner or the representative of the
deceased partner against the person or partnership continuing the
business on account of the retired or deceased partner's interest in the
dissolved partnership or on account of any consideration promised for
such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set
assignment on the ground of fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also
creditors of the new Jade Mountain which continued the business of the
old one without liquidation of the partnership affairs. Indeed, a creditor of
the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim
for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or
previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. It is not necessary for the Court to determine
under which one or mare of the above six (6) paragraphs, the case at bar
would fall, if only because the facts on record are not detailed with
sufficient precision to permit such determination. It is, however, clear to
the Court that under Article 1840 above, Benjamin Yu is entitled to enforce

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,
Defendant-Appellee.
On January 14, 1955, Maglana and Rojas executed their Articles of Co-
Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE)
with only the two of them as partners. The partnership EDE with an
indefinite term of existence was duly registered on January 21, 1955 with
the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or
secure timber and/or minor forests products licenses and concessions over
public and/or private forest lands and to operate, develop and promote
such forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an
application for a timber concession covering the area located at Cateel and
Baganga, Davao with the Bureau of Forestry which was approved and
Timber License No. 35-56 was duly issued and became the basis of
subsequent renewals made for and in behalf of the duly registered
partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage
the business affairs of the partnership, including marketing and handling of
cash and is authorized to sign all papers and instruments relating to the
partnership, while appellant Rojas shall be the logging superintendent and
shall manage the logging operations of the partnership. It is also provided
in the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no
operation of said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to
avail of the services of Pahamotang as industrial partner.
On October 25, 1956, Pahamotang, Maglana and Rojas executed a
document entitled "CONDITIONAL SALE OF INTEREST IN THE
PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and
"D") agreeing among themselves that Maglana and Rojas shall purchase
the interest, share and participation in the Partnership of Pahamotang
assessed in the amount of P31,501.12. It was also agreed in the said
instrument that after payment of the sum of P31,501.12 to Pahamotang
including the amount of loan secured by Pahamotang in favor of the
partnership, the two (Maglana and Rojas) shall become the owners of all
equipment contributed by Pahamotang and the EASTCOAST
DEVELOPMENT ENTERPRISES, the name also given to the second
partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957.
No other rights and obligations accrued in the name of the second
partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by
Maglana and Rojas without the benefit of any written agreement or
reconstitution of their written Articles of Partnership (Decision, R.A. 948).
Two weeks after March 17, 1957, Rojas told Maglana that he will not be
able to comply with the promised contributions and he will not work as
logging superintendent. Maglana then told Rojas that the latter's share will
just be 20% of the net profits. Such was the sharing from 1957 to 1959
without complaint or dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his
contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10")
Maglana notified Rojas that he dissolved the partnership (R.A. 949).
The main issue in this case is the nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang retired from the
second partnership.
Rojas and Maglana, it appears evident that it was not the intention of the
partners to dissolve the first partnership, upon the constitution of the
second one, which they unmistakably called an "Additional Agreement"
(Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the
fact that they took in one industrial partner; gave him an equal share in the
profits and fixed the term of the second partnership to thirty (30) years,
everything else was the same. Thus, they adopted the same name,
EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes
and the capital contributions of Rojas and Maglana as stipulated in both
partnerships call for the same amounts. Just as important is the fact that
all subsequent renewals of Timber License No. 35-36 were secured in favor
of the First Partnership, the original licensee. To all intents and purposes Under Article 1830, par. 2 of the Civil Code, even if there is a specified
therefore, the First Articles of Partnership were only amended, in the form term, one partner can cause its dissolution by expressly withdrawing
of Supplementary Articles of Co-Partnership (Exhibit "C") which was never even before the expiration of the period, with or without justifiable
registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even cause. Of course, if the cause is not justified or no cause was given, the
during the existence of the second partnership, all business transactions withdrawing partner is liable for damages but in no case can he be
were carried out under the duly registered articles. As found by the trial compelled to remain in the firm. With his withdrawal, the number of
court, it is an admitted fact that even up to now, there are still subsisting members is decreased, hence, the dissolution. And in whatever way he
obligations and contracts of the latter (Decision, R.A. pp. 950-957). No may view the situation, the conclusion is inevitable that Rojas and
rights and obligations accrued in the name of the second partnership Maglana shall be guided in the liquidation of the partnership by the
except in favor of Pahamotang which was fully paid by the duly registered provisions of its duly registered Articles of Co-Partnership; that is, all
partnership (Decision, R.A., pp. 919-921). profits and losses of the partnership shall be divided "share and share
alike" between the partners.
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. Even
more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas,
reminding the latter of his obligation to contribute either in cash or in
equipment, to the capital investment of the 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. As earlier stated, Rojas replied that he will not
be able to comply with the promised contributions and he will not work as
logging superintendent. By such statements, it is obvious that Roxas
understood what Maglana was referring to and left no room for doubt that
both considered themselves governed by the articles of the duly registered
partnership.

Under the circumstances, the relationship of Rojas and Maglana after the
withdrawal of Pahamotang can neither be considered as a De Facto
Partnership, nor a Partnership at Will, for as stressed, there is an existing
partnership, duly registered.

As to the question of whether or not Maglana can unilaterally dissolve the

partnership in the case at bar, the answer is in the affirmative.

Hence, as there are only two parties when Maglana notified Rojas that he
dissolved the partnership, it is in effect a notice of withdrawal.