Heirs of Tan Eng Kee vs.

Court of Appeals
Facts: -Before and during the war, Tan Eng Kee was not a part of the Benguet Lumber. But because the Japanese confiscated or burned the stocks of Benguet Lumber, there was no more capital to pursue the lumber and hardware business. Thus, brothers, Tan Eng Kee and Tan Eng Lay pooled their industries and resources together to establish the Benguet Lumber. Both of them conducted the affairs of the business, including supervising and giving orders to the employees, determining the prices of the stocks to be sold to the public and preparing orders from the suppliers. Also, their families stayed together at the Benguet Lumber compound and their children were employed in the business in different capacities. -In 1981, Tan Eng Lay and his children converted the Benguet Lumber into a corporation and called it Benguet Lumber Company. -When Tan Eng Kee died on September 1984, his common-law spouse and children (heirs of Tan Eng Kee) collectively filed a complaint. They claimed that their father was a partner of Benguet Lumber and that they were deprived of their rightful participation in the profits of the business. They prayed for the accounting of the division off the partnership assets and the dissolution, winding up and liquidation and equal division of the net assets of the Benguet Lumber. -Tan Eng Lay however claimed that his brother Tan Eng Kee was not a partner but an employee of Benguet Lumber. His claim was supported with documents that stated that the establishment was a proprietorship and that he was the only registered owner of it. -RTC ruled that the brothers formed a joint venture and that they were joint adventurers and/or partners in a business venture or particular partnership and as such, they should share in profits and losses. -CA however reversed the ruling stating that there was no partnership between the brothers. It ruled that Benguet Lumber is a sole proprietorship owned by Tan Eng Lay and that Tan Eng Kee is just an employee. Also, it ruled that there was no partnership between the late Tan Eng Kee and Tan Eng Lay because the present capital or assets of Benguet Lumber is definitely more than p3,000.00 and as such the execution of a public instrument creating a partnership should have been made and no such public instrument was established. Issue: 1. won Benguet Lumber is a partnership 2. won Tan Eng Kee was a partner Ruling:

1.

There was no partnership.

Partnership presupposes the following elements: 1) a contract, either oral or written. However, if it involves real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry contribution; 4) community of funds and interest, mentioning equality of the partners or one having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test of the partnership. It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kee's death in 1984/. It had no business book, no written account nor any memorandum for that matter and no license mentioning the existence of a partnership. Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though, was never formally organized. The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership. A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay. 2. Tan Eng Kee was only an employee, not a partner.

Petitioners did not present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the profits of the enterprise. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the essential features of a partnership. As a member of the family, Tan Eng Kee occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a business organized and run as informally as Benguet Lumber Company.

The nature of a joint venture: (partnership vs. simple contract) Joint venture, within the concept of Philippine law, is organized or established only for some transient or temporary business objective. It is often characterized as being similar to a partnership in the sense that there exists among the joint venturers, commonality of interest and mutual right of control, not to mention the mode by which profits or losses are shared. Joint ventures are usually resorted to by corporations - domestic or foreignbased - which are not allowed to form partnerships or become partners in a partnership. Only individual, natural persons are permitted to form partnerships. (http://www.chanrobles.com/legal5cc1d.htm#.UDxt57k1bHk)

In the case of Tan Eng Kee, it stated that 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])

Partnership is an artificial being created by operation of law with a legal personality separate and distinct from the partners thereof. It proceeds from the concept that persons may be allowed to pool their resources and funds to engage in the pursuit of a common business objective without necessarily organizing themselves into a corporation, upon which the law imposes a much higher form of regulation, limitation and standards. (http://www.chanrobles.com/legal5cc1c.htm#.UDxucrk1bHk)

In the case of Tan Eng Kee, partnership is defined by law as 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.

Simple Contract is an agreement between two or more parties that creates in each party a duty to do or not do something and a right to performance of the other's duty or a remedy for the breach of the other's duty.

The elements of a joint venture (including its qualifications & restrictions, if any) A joint venture may be recognized to exist when the following general characteristics become evident:

a. An association of persons or companies is established to undertake jointly some commercial enterprise or to achieve a common purpose or objective. b. These persons or companies contribute money, property, industry, knowledge, skill or some other identifiable asset. c. These parties have (1) a community of interest in the performance of the subject matter; (2) a right to direct and govern management; and (3) an agreement, express or implied, to share in the profits, risks and losses. There are no formalities required before individuals and/or entities can and establish a joint relationship among them. The existence of a joint venture may be established either by direct evidence of an agreement, express or implied, between the parties or a showing of facts and circumstances which prove that such a relationship was indeed into. The main idea is: between parties, a contract, express or implied, is essential to create a joint venture relationship. There is no specific or formal agreement required. What is required is an intent to form a joint

venture. Thus, whether or not an agreement between the parties constitutes one of joint venture depends largely upon the terms of the particular agreement, upon the construction which the parties have given it, as indicated by the manner in which they acted under it, upon the nature of the undertaking, and upon the facts. The rule is different as far as third persons are concerned. As against these persons, parties may be estopped from denying the existence of a joint venture although there was no intention to constitute one between them, if the undertakings intended indeed constitutes a joint venture. (See Am Jur, supra, pp. 29-32.) In the case of Tan Eng Kee, it stated that the elements of joint venture and partnership are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. In joint venture, the intention to join in the business venture for the purpose of obtaining profits thereafter to be divided, must be established.

Its distinction from a partnership or simple contractual arrangement Joint ventures differ from partnerships in the following ways:

A.

A joint venture does not have a legal personality distinct and separate from the parties composing it, while a partnership does.

B.

A joint venture usually has for its object an undertaking of a single or ad hoc nature, although it may entail a series of transactions and may last for a considerable period of time; a partnership usually has for its object a general business of a particular kind, although there may be a partnership for a single transaction.

C.

Corporations may enter into joint ventures; corporations are not eligible for membership in a partnership. (See 46 Am Jur 2d 26.)

In the case of Tan Eng Kee, it stated that the main distinctions cited are: (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. Under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) Types and forms of joint ventures