Partnership Digest | Partnership

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  When partnership exists LEUNG v. IAC, YIU (1989)Facts: Sun Wah Panciteria (Sun Wah) was established and registered as a single proprietorship and its licensesand permits were issued in favor of petitioner Leung as the sole proprietor. Respondent Yiu adducedevidence to show that Sun Wah was actuall a proprietorship and that he was one of the partners havingcontributed P! ### to its initial establishment. Evidence adduced by Yiu: Yiu gave !$ as his contribution to the partnership (evidence b a receipt written in %hinese whereinLeung ac$nowledged his acceptance of the !$ b affixing his signature thereto). &he same was translatedto the court b 'lorence Yap. Yiu identified the signature on the receipt as that of Leung because it wasaffixed b the latter in his presence the same was corroborated b two other witnesses b presentinganother receipt wherein it was also signed b Leung. 'urthermore Yiu received from Leung the amount of P*+ covered b the latter,s chec$ from the profitsof the operation of the restaurant for the ear -!. &he %hief of the ban$ testified that the said chec$was deposited b and dul credited to Yiu,s savings account with the ban$ after it was cleared b thedrawee ban$ (/0uitable). Leung denied having received P!$ from Yiu contested and impugned the genuineness of the receipt. Evidence adduced by Leung: 1e did not receive an contribution. 1e used his savings from his salaries as an emploee at %ampStotsenberg. 2nd later as waiter at the &oho Restaurant amounting to a little more than P*$ as capitalestablishing Sun Wah. &o bolster his contention that he was the sole owner of the restaurant Leungpresented various govt licenses and permits showing Sun Wah was and still is a single proprietorshipsolel owned and operated b himself alone.&% ruled in favor of Yiu.Yiu file motion for new trial to include in the praer the net profit of the Sun Wah Panciteria which was notspecified in the decision 3 &% granted 45&.Leung appealed 3 modified and granted &%,s decision.Leung filed for 4R 3 denied. Issue: Whether or not there was a partnership. Ruling: Yes.6oth the trial court and the appellate court found that the private respondent is a partner of the petitioner in the setting up and operations of the panciteria. While the dispositive portions merel ordered thepament of the respondents share there is no 0uestion from the factual findings that the respondentinvested in the business as a partner. 1ence the two courts declared that the private petitioner is entitledto a share of the annual profits of the restaurant. &he petitioner however claims that this factual finding iserroneous. &hus the petitioner argues7 8&he complaint avers that private respondent extended 9financialassistance9 to herein petitioner at the time of the establishment of the Sun Wah Panciteria in return of   which private respondent allegedl will receive a share in the profits of the restaurant. &he samecomplaint did not claim that private respondent is a partner of the business. :t was therefore a seriouserror for the lower court and the 1on. :ntermediate 2ppellate %ourt to grant a relief not called for b thecomplaint. :t was also error for the 1on. :ntermediate 2ppellate %ourt to interpret or construe 9financialassistance9 to mean the contribution of capital b a partner to a partnership8 (p. ; Rollo):n essence the private respondent alleged that when Sun Wah Panciteria was established he gaveP! ###.## to the petitioner with the understanding that he would be entitled to twent<two percent (**=)of the annual profit derived from the operation of the said panciteria. &hese allegations which wereproved ma$e the private respondent and the petitioner partners in the establishment of Sun WahPanciteria because 2rticle > of the %ivil %ode provides that 86 the contract of partnership two or more persons bind themselves to contribute mone propert or industr to a common fund with theintention of dividing the profits among themselves8.&herefore the lower courts did not err in construing the complaint as one wherein the private respondentasserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria notwithstanding the use of the term financial assistance therein. We agree with the appellate court9sobservation to the effect that 8... given its ordinar meaning financial assistance is the giving out of mone to another without the expectation of an returns therefrom9. :t connotes an ex gratia dole out infavor of someone driven into a state of destitution. 6ut this circumstance under which the P! ###.## wasgiven to the petitioner does not obtain in this case.9 (p. -- Rollo) &he complaint explicitl stated that 8as areturn for such financial assistance plaintiff (private respondent) would be entitled to twent<twopercentum (**=) of the annual profit derived from the operation of the said panciteria.9 (p. # Rollo) &hewell<settled doctrine is that the 98... nature of the action filed in court is determined b the facts alleged inthe complaint as constituting the cause of action.81istorical bac$ground of partnership C! LE # C . v. !ERNAN$E% G YENEC!EAFacts: Scholes ? %o a partnership was engaged in the business of buing and selling cows woods bric$s andthe products of the countr. &he proofs show that it never attempted to compl with an of there0uirements of the %ode of %ommerce. :f it had complied with that %ode it would have been a @udicialperson. (2rticle >.) 2ssuming without deciding that civil partnerships are also @uridical persons didPrautch and Scholes not having complied with the %ode of %ommerce nevertheless become a civilpartnership and thus ac0uire a personalit of its ownA 2rticle B; of the %ivil %ode provides that the following are @uridical persons7.&he corporations associations and institutions of public interest recogniCed b law.&heir personalit begins from the ver instant in which in accordance with law the are validlestablished.*.&he associations of private interest be the civil commercial or industrial to which the law magrant proper personalit independent of each member thereof. 2rticle B> is as follows7&he associations referred to in 5o. * of the foregoing article shall be governed b the provisions of their articles of associations according to the nature of the latter.:t becomes necessar to $now what partnerships are civil and what ones are mercantile in order to $nowin a particular case b what provisions of law the partnership there in 0uestion is governed. :s a  commercial partnership distinguished from a civil one b the ob@ect to which it is devoted or b themachiner with which it is organiCedA We thin$ that the former distinction is the true one. &he %ode of %ommerce of D*- distinctl provided that those partnerships were mercantile which had for their ob@ectan operation of commerce. (2rt. *>!.) &he present %ode has not in our opinion made an radical changein this respect. 2rticle *B provides that mercantile partnerships ma be of an class provided that their agreements are lawful and their ob@ect industr or commerce. 2rticle  * declares that mercantile and industrial partnerships are merchants. :t does not sa that allpartnerships are merchants even if organiCed under this %ode. :t is true that article > provides that thecontract of partnership shall be mercantile whatever ma be its class provided it is organiCed in conformitwith the re0uirements of the %ode. Whatever this ma mean it can not be construed as indicating that apartnership organiCed for a purpose not connected at all with industr or commerce shall be a mercantilepartnerships thus rendering useless the whole of article *B and unnecessar the words 8mercantile andindustrial8 in article  *. &he present %ode does not therefore allow partnerships not included in article*B to organiCe under it. &hat permission is however given to them b article ># of the %ivil %ode.&his article ># is entirel inconsistent with the idea that civil and mercantile partnership aredistinguished onl b the methods of their organiCation. () :ts language is7 8%ivil partnerships on accountof the ob@ects to which the are devoted.8 (*) :f article > of the %ode of %ommerce is to be so construedthat all partnerships organiCed in conformit with that %ode are mercantile no matter to what ends theare devoted then this article of the %ivil %ode is unnecessar and useless. :f however the true distinctionis found as we believe in the ob@ects to which the partnerships are devoted this article can have effect.&he %ode of %ommerce declares the manner in which commercial partnerships can be organiCed. SuchorganiCation can be effected onl in certain well<defined was. &he provisions of this %ode were well<$nown when the %ivil %ode was adopted. &he author of that %ode when writing article >> having inmind the provisions of the %ode of %ommerce did not sa that a partnership ma be organiCed in anform which would have repealed the said provisions of the %ode of %ommerce but did sa instead that acivil partnership ma be organiCed in an form.:f that section includes commercial partnerships then such a partnership can be organiCed under itselecting from the %ode of %ommerce such of its provisions as are favorable to the partners and re@ectingsuch as are not and even including in its articles of agreement prohibited. Such a construction wouldallow a commercial partnership to use or dispense with the %ode of %ommerce as best suited its ownends.'or example a partnership is organiCed for commercial purposes. :t fails to state its agreements in apublic document. &he managers are sued b a third person with whom the partnership has contracted and it is claimed that each of such managers is liable for the whole debt the having violated article -of the %ode of %ommerce. &heir answer is that although the are organiCed for commercial purposes the have intentionall omitted to compl with said article - and conse0uentl the are a civilpartnership to the managers of which article *# declaring such liabilit does not appl. 2nother case ma be supposed. 2 partnership is organiCed for commercial purposes. :t fails to complwith the re0uirements of article -. 2 creditor sues the partnership for a debt contracted b it claiming tohold the partners severall. &he answer that their failure to compl with the %ode of %ommerce ma$esthem a civil partnership and that the are in accordance with article >-D of the %ivil %ode onl liable @ointl. &o allow such libert of action would be to permit the parties b a violation of the %ode to escape aliabilit which the law has seen fit to impose upon persons who organiCed commercial partnerships86ecause it would be contrar to all legal principles that the nonperformance of a dut should redound tothe benefit of the person in default either intentional or unintentional.8 (4ercantile Law /ixala fourth ed. p. !;.)En the commentators writing since the promulgation of the %ivil %ode 6lanco thus defines the differencebetween a civil and a mercantile partnership7 8:f we can define the contract of partnership in general bsaing that it is one b virtue of which several persons bring their propert or industr into a common fund  for the attainment of a common purpose b common means then a mercantile partnership will be one inwhich two or more persons put their propert or industr in common or both appling them to commercialtransaction for the purpose of obtaining some profit to be divided among them.8 (* 6lanco 4ercantileLaw BB*.)4anresa9s statement that if partnerships are not organiCed under the %ode of %ommerce the becomecivil partnerships clearl refers to industrial partnerships as distinguished from mercantile and his opinionthus agrees entirel with that of 2ramburo above stated. ( 4anresa Spanish %ivil %ode D!.):t is not necessar in this case to attempt to define an industrial partnership or to distinguish between itand a civil partnership on one hand and a commercial partnership on the other. &he partnership of Prautch Scholes ? %o. was a tpical commercial partnership buing personal propert with the purposeof reselling it in the same form at a profit. 2rticle >- of the :talian %ivil %ode is substantiall the same as article >>; of our %ivil %ode. Supino inhis commentaries on the %ommercial Law of :tal referring to article >- sas7 8&his definitions is ingeneral applicable even to mercantile partnerships which are those which are established with the view toeffecting one or more commercial operations. (2rt. >.) :t is therefore the purpose which determines thecharacter of a partnership as civil or mercantile. &he mercantile form assumed b a partnership whosepurposes are of a civil nature is not sufficient to give it the character of a mercantile partnership it will begoverned b the provisions of the %ode of %ommerce except with respect to ban$ruptc and @urisdiction.(2rt. **-.) (4ercantile Law p. >D).8We have found no opinion holding the contrar doctrine except a note (p. !!) b the translator of Supino9swor$ which is as follows7 8(a) Eur %ode provides that inscription in the 4ercantile Registr is obligatorupon companies and partnerships. (2rt. .) Fpon this inscription and the will of the partners depend thecharacter civil or mercantile as the %ivil %ode does not establish an essential difference (art. >>;)between the two classes and authoriCes civil partnership (art. >#) to organiCe with all the formalitiesprescribed b the %ode of %ommerce. (&.5.)8&he following note also occurs in the wor$ of Gon Ramon 4arti de /ixala (p. *;-)7 8(b) &ext writers havediscussed the 0uestion as to whether the division of the social capital into shares in peculiar tocommercial associations. &his is denied b &roplong (5o. !B of the %ommentaries of the %ontract of Partnership) who maintains that a compan of partnership is to be classified as civil or mercantileaccording to its ob@ect and not according to its mechanism. 6ut other writers support the contrar view.8We hold then on principle and authorit that the contract of partnership between Prautch and Scholes wasin its nature commercial that under article B> of %ivil %ode said partnership was governed b theprovisions of the %ode of %ommerce that its failure to compl with the re0uirements of that %ode did notma$e it a civil partnership and thus give it legal personalit which we have assumed such partnershipshave.1aving seen that the partnership in 0uestion is governed b the %ode of %ommerce it remains toascertain what are the conse0uences of the failure of the partners to compl with the re0uirements of the%ode. 2rticle > provides that the partnership shall have personalit if it is organiCed in accordance with the%ode. &his impliedl denies to it personalit unless it is so organiCed. &he partners are re0uired to statetheir agreement in a public writing and to record them in the 4ercantil Registr. (2rt. - .) 2rticle *! is as follows7 2rticles constituting associations not recorded shall be binding between the members who execute thesame but the shall not pre@udice third persons who however ma ma$e use thereof in so far asadvantageous.
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