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Unformatted text preview: Page |1 Business Organization 1 P a r t n e r s h i p , A g e n c y, a n d Tr u s t Atty. Charlotte F. Gallego AR LAW Davao del Sur 2F Abadilla Building, Lapu-lapu St., Digos City Mobile: +63946 762 7910/ email: [email protected] Course Outline with List of Cases Part I- Partnership I. Partnership- General Provisions A. Three Levels of Existence of Partnership Yu vs NLRC 224 Scra 75 (1993) Benjamin Yu vs. National Labor Relations Commission (NLRC) FACTS: Petitioner Yu was hired as the Assistant General Manager of Jade Mountain Products Company Limited primarily responsible for the overall operations of marble quarrying and export business of said partnership. He was hired by a virtue of a Partnership Resolution in 1985 with a monthly salary of P4,000.00. Initially he received only half of his stipulated monthly salary and was promised by the partners that the balance would be paid upon securing additional operating funds from abroad. However, in 1988 without his knowledge the general partners as well as one of the limited partners sold and transferred their interest to Willy Co and Emmanuel Zapanta. Thus the new major partners decided to transfer the firm’s main office but opted to continue the operation of the old partnership under its old firm name and with all its employees and workers except for the petitioner. Upon knowing of the changes in the partnership, petitioner went to the new main office to meet the new partners and demand the payment of his unpaid salaries, but the latter refused to pay him and instead informed him that since he bought the business from the original partners, it was for him to decide whether or not he was responsible for the obligations of the old partnership including petitioners unpaid salaries. Hence, petitioner was dismissed from said partnership. ISSUES: 1. Whether the partnership which had hired the petitioner as Asst. General Manager had been extinguished and replaced by a new partnership composed of Willy Co and Emmanuel Zapanta. 2. Whether petitioner could assert his rights under his employment contract as against the new partnership HELD: 1. Yes. The legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired the petitioner in 1984 and the emergence of the new firm composed of Willy Co and Emmanuel Zapanta in 1988. This is based on the following provisions: Art. 1828. The dissolution of partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as a distinguished from the winding up of the business. Page |2 Art. 1830. Dissolution is caused: 1. without violation of the agreement between the partners; b. by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified. 2. in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; However, the legal consequence of dissolution of a partnership do not automatically result in the termination of the legal personality of the old partnership as according to Art. 1829, “ on dissolution of the partnership is not terminated, but continues until the winding up of the partnership affairs is completed. The new partnership simply continued the operations of the old partnership under its old firm name without winding up the business affairs of the old partnership. 2. Yes. Under Art. 1840, creditors of the old partnership are also creditors of the new partnership which continued the business of former without liquidation of the partnership affairs. Thus, creditor of the old Jade Mountain, such as the petitioner is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the old partnership against the new Jade Mountain. B. What is a Contract of Partnership?- Art 1767 C. Elements of a Partnership1. Consent a. Consent to Pursue Business-Art 1769 b. Legal Capacity to Contract- Art 1782, Art 87 c. Admission of New Partner- Art 1804 2. Subject Matter: Pursuit of a Business Enterprise 1) Santos vs Reyes 368 SCRA 261 (2000) Business Organization – Partnership, Agency, Trust – Shares in Liquidation – Net Profit vs Gross Income In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally instituted a partnership with them as partners. Their venture is to set up a lending business where it was agreed that Santos shall be financier and that Nieves and Zabat shall contribute their industry. **The percentages after their names denote their share in the profit. Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a corporation. It was agreed that the partnership shall provide loans to the employees of Gragera’s corporation and Gragera shall earn commission from loan payments. In August 1986, the three partners put into writing their verbal agreement to form the partnership. As earlier agreed, Santos shall finance and Nieves shall do the daily cash flow more particularly from their dealings with Gragera, Zabat on the other hand shall be a loan investigator. But then later, Nieves and Santos found out that Zabat was engaged in another lending business which competes with their partnership hence Zabat was expelled. The two continued with the partnership and they took with them Nieves’ husband, Arsenio, who became their loan investigator. Page |3 Later, Santos accused the spouses of not remitting Gragera’s commissions to the latter. He sued them for collection of sum of money. The spouses countered that Santos merely filed the complaint because he did not want the spouses to get their shares in the profits. Santos argued that the spouses, insofar as the dealing with Gragera is concerned, are merely his employees. Santos alleged that there is a distinct partnership between him and Gragera which is separate from the partnership formed between him, Zabat and Nieves. The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to pay the shares of the spouses. ISSUE: Whether or not the spouses are partners. HELD: Yes. Though it is true that the original partnership between Zabat, Santos and Nieves was terminated when Zabat was expelled, the said partnership was however considered continued when Nieves and Santos continued engaging as usual in the lending business even getting Nieves’ husband, who resigned from the Asian Development Bank, to be their loan investigator – who, in effect, substituted Zabat. There is no separate partnership between Santos and Gragera. The latter being merely a commission agent of the partnership. This is even though the partnership was formalized shortly after Gragera met with Santos (Note that Nieves was even the one who introduced Gragera to Santos exactly for the purpose of setting up a lending agreement between the corporation and the partnership). HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their shares in the profit is premature. The accounting made by the trial court is based on the “total income” of the partnership. Such total income calculated by the trial court did not consider the expenses sustained by the partnership. All expenses incurred by the moneylending enterprise of the parties must first be deducted from the “total income” in order to arrive at the “net profit” of the partnership. The share of each one of them should be based on this “net profit” and not from the “gross income” or “total income”. 2) Tocaovs Court of Appeals, 365 Scra 463 (2001) TOCAO V. CA G.R. No. 127405; October 4, 2000 Ponente: J. Ynares-Santiago FACTS: 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 Page |4 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 The parties agreed that Belo's name should not appear in any documents relating to their transactions with West Bend Company. 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 Tocao's name. 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 Belo's assurances that he was sincere, dependable and honest when it came to financial commitments. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letteraddressed to the Cubao sales office to the effect that she was no longer the vice-president of Geminesse Enterprise. Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. 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 P 13,300,360.00. On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140 The trial court held that there was indeed an "oral partnership agreement between the plaintiff and the defendants. The Court of Appeals affirmed the lower court’s decision. Page |5 ISSUE: Whether the parties formed a partnership HELD: Yes, the parties involved in this case formed a partnership The Supreme Court held that to be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. In the case at hand, Belo acted as capitalist while Tocao as president and general manager, and Anay as head of the marketing department and later, vice-president for sales. Furthermore, Anay was entitled to a percentage of the net profits of the business. Therefore, the parties formed a partnership. 3) Moran vs Court of Appeals, 133 Scra 88 (1984) Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-59956 October 31, 1984 Page |6 ISABELO MORAN, JR., petitioner, vs. THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents. GUTIERREZ, JR., J.: ñé+.£ªwph!1 This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson. As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqw⣠xxx xxx xxx ... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment on the date due, complete with the costs of collection. Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees. After the trial, the Court of First Instance held that: têñ.£îhqw⣠From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement entered into by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the defendant was able to print 2,000 copies only authorized of which, however, were sold at P5.00 each. Nothing more was done after this and it can be said that the venture did not really get off the ground. On the other hand, the plaintiff failed to give his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract which right is implied in reciprocal obligations under Article 1385 of the Civil Code whereunder 'rescission creates the obligation to return the things which were the object of the contract ... WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the complaint on June 19, 1972, and the costs of the suit. For insufficiency of evidence, the counterclaim is hereby dismissed. From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise rendered a decision against the petitioner. The dispositive portion of the decision reads: têñ.£îhqw⣠PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson: Page |7 (a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under their agreement); (b) Eight thousand (P8,000), (the commission for eight months); (c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project); (d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is made) The petitioner contends that the respondent Court of Appeals decided questions of substance in a way not in accord with law and with Supreme Court decisions when it committed the following errors: I THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM. II THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT. III THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE. IV ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN. V THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES. The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership. The petitioner contends that the award is highly speculative. The petitioner maintains that the respondent court did not take into account the great risks involved in the business undertaking. We agree with the petitioner that the award of speculative damages has no basis in fact and law. There is no dispute over the nature of the agreement between the petitioner and the private respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by the petitioner to enter into a partnership with him under the following terms and conditions: têñ.£îhqw⣠1. That the partnership will print colored posters of the delegates to the Constitutional Convention; 2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each; 3. That they will print Ninety Five Thousand (95,000) copies of the said posters; Page |8 4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15, 1971 up to December 15, 1971; 5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account pertaining to the distribution and printing of the said 95,000 posters shall be made. The petitioner on the other hand admitted in his answer the existence of the partnership. The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because the appellant therein was remiss in his obligations as a partner and as prime contractor of the construction projects in question. This case was decided on a particular set of facts. We awarded compensatory damages in the Uy case because there was a finding that the constructing business is a profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private respondent. Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much more than what was expected of him. In this case, however, there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies. Article 1797 of the Civil Code provides: têñ.£îhqw⣠The losse...
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