Perpetual Help College of

Pangasinan
Montemayor St., Malasiqui
Pangasinan, 2421
A.Y 2022-2023

ARTICLE 1772
OF
CIVIL CODE OF THE
PHILIPPINES

Submitted by:
Kristelle Mae A. De Vera
(BSMA 2-1)

Submitted to:
Ma`am Vivian Mejia

EXECUTIVE SUMMARY
 A partnership that has a capital of three thousand
pesos or more, either in cash or in property, is required by
Philippine Civil Code Article 1772 to be in a public
instrument and to be registered with the Office of the
Securities and Exchange Commission. Contractual parties
have the authority to demand that one another put their
agreements in writing, according to Article 1357. Only for
convenience, and with no bearing on the legitimacy or
ability of the law to be enforced, is Article 1358 included.
As with the acts and contracts listed in the following article
(Article 1358), if the law requires a document or other
special form, the contracting parties may oblige one
another to follow that form after the agreement has been
finalized. This option may be used in conjunction with the
contract. Article 1772's significance and goal are
discussed in this essay. Here, the significance of
partnerships and their true meaning will be discussed.
 INTRODUCTION

A partnership is an union of two or more people who

make common cause to conduct business with one
another with similar goals and purposes. Furthermore,
partnership businesses are composed of two or more
individuals who pool their resources to start a company
and agree to split the risks, rewards, and losses. A deal or
a contract gives rise to a partnership.In the partnership, a
partner has specific rights. As a result, he is entitled to a
particular partnership capital as well as a proportion of the
partnership's profits. He has the authority to inspect the
partnership records, actually participate in management
decisions, and even demand a formal accounting as a
partner. But, there are equivalent responsibilities that go
along with rights. As a result, each partner is required to
contribute and participate in the losses. The partnership
between the partners is established on the basis of the
agreement. A written form of such an agreement exists.
Unambiguously, an oral agreement is legal. It's always a
good idea to give the partners a copy of the written
agreement in order to prevent disputes.

Brown & Charbonneau, LLP. (2016) said that a

business partnership is a particularly unique kind of
connection. Your futures are bound together the moment
you join forces with other similarly minded business
partners. The legal characteristics of your partnership will
be important when deciding whether your business
succeeds or the partnership dissolved. Legally speaking,
a partnership is an organization of two or more people that
function as co-owners and split earnings. An individual
might contribute his or her services, invest starting capital,
or do both in order to become a partner.

According to Entrepreneur Small Business

Encyclopedia. (2023) If you choose to set up the
organization as a partnership, keep in mind that you must
create a partnership agreement that specifies how the
partners will make choices regarding the business, how
arguments will be resolved, and how an acquisition would
be managed. You'll be grateful if you have this agreement
if you ever encounter difficulties with a partner or if a
partner decides to end the relationship. The purpose of
the business, as well as the rights and obligations of each
partner, should be addressed in the said agreement. An
attorney who has experience working with small firms
should indeed be consulted for expertise in constructing
the agreement.

BODY

Art. 1772. Every contract of partnership having a capital of

three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in
the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the

preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons. (n)

A public instrument is one that is recognized by the

person who performed it before a notary public or other
authority authorized to administer an oath. A public
instrument is necessary since it will serve as proof in the
event of an unanticipated difficulty in the specified
partnership.The law gives each partner the ability to
compel the other to perform the contract in a public
instrument.The partnership's capital must be in a public
document and recorded with the SEC if it is P3,000 or
more (in whatever form). It should be noted that the
property being discussed here is MOVABLE since
immovable property is protected under Article 1771. The
partnership's responsibility to third parties will not be
affected if the provisions of Article 1772 are not followed.
Registration is required as a precursor for the necessity of
public instrument, and registration is required as "a
condition for the granting permits to do business or
commerce.

The present objective has been accomplished from the

date when the partnership papers are submitted to and
left with the Commission for records.Due to this, when the
instrument's certificate of recording is issued on a date
different from the day it was presented, as of the latter
date, its efficacy retroactively acts.In other words, the
effective date of registration of the articles of partnership
is the date the partnership papers are given to and placed
for record in the Commission. This is in accordance with
the general rule of law. "Generally, an instrument is
considered to be recorded when it is deposited with the
appropriate office for the purpose of being recorded,"

Tañoso, H. (20140) said that the result of failing to

register a partnership is that it continues to exist and
retains its legal identity. Any of the partners in a valid
partnership may demand that the others sign the
necessary public document before causing the
partnership to be registered, should registration be
necessary or requested.

Garcia, A. (n.d.) explained the purpose of Article 1772.

He said that Article 1772 will not contradict Article 1358
and he also explained the relationship between Article
1358 and 1357.

This contradicts Article 1358, doesn't it?

No, keep in mind that Article 1358 requires
contracts with terms greater than P500.00 to be in
writing. This is just done for convenience, not to
ensure the law's legitimacy or implementation. The
partnership will still be valid and have a
legal existence, as stated by Article 1768.

What relationship does this have to Articles 1358 and

1357?
Article 1357 indicates that contractual parties have
the power to require one another to put the contract
in writing.
Article 1358 is for convenience only and does not
affect the law's validity or capacity to be enforced.

EXAMPLE:

A and B promise to contribute to their partnership

money worth P50,000.00 each within one year from their
agreement. A contributes early but when the time comes
for B to contribute his share, he refuses to do so.

In this case, A cannot compel B to pay his

contribution to the said partnership. Because the
agreement that was made was only an oral agreement
and never a written agreement and their agreement to the
conditions of their contract was made one year ago.

FIRST DIVISION
[ G.R. No.193138. August 20,2018]

ANICETO G. SALUDO, JR., PETITIONER, VS.

PHILIPPINE NATIONAL BANK, RESPONDENT.

DECISION
JARDELEZA, J.:

In this petition, we emphasize that a partnership for the

practice of law, constituted in accordance with the Civil
Code provisions on partnership, acquires juridical
personality by operation of law. Having a juridical
personality distinct and separate from its partners, such
partnership is the real party-in-interest in a suit brought in
connection with a contract entered into in its name and by
a person authorized to act on its behalf.

Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this

petition for review on certiorari assailing the February 8,
2010 Decision and August 2, 2010 Resolution issued by
the Court of Appeals (CA) in CA-G.R. SP No. 98898. The
CA affirmed with modification the January 11, 2007
Omnibus Order issued by Branch 58 of the Regional Trial
Court (RTC) of Makati City in Civil Case No. 06-678, and
ruled that respondent Philippine National Bank's (PNB)
counterclaims against Saludo and the Saludo Agpalo
Fernandez and Aquino Law Office (SAFA Law Office)
should be reinstated in its answer.

Records show that on June 11, 1998, SAFA Law Office

entered into a Contract of Lease with PNB, whereby the
latter agreed to lease 632 square meters of the second
floor of the PNB Financial Center Building in Quezon City
for a period of three years and for a monthly rental fee of
P189,600.00. The rental fee is subject to a yearly
escalation rate of 10%. SAFA Law Office then occupied
the leased premises and paid advance rental fees and
security deposit in the total amount of P1,137,600.00.

On August 1, 2001, the Contract of Lease expired.

According to PNB, SAFA Law Office continued to occupy
the leased premises until February 2005, but discontinued
paying its monthly rental obligations after December 2002.
Consequently, PNB sent a demand letter ] dated July 17,
2003 for SAFA Law Office to pay its outstanding unpaid
rents in the amount of P4,648,086.34. PNB sent another
letter demanding the payment of unpaid rents in the
amount of P5,856,803.53 which was received by SAFA
Law Office on November 10, 2003.

In a letter to PNB dated June 9, 2004, SAFA Law Office

expressed its intention to negotiate. It claimed that it was
enticed by the former management of PNB into renting the
leased premises by promising to: (1) give it a special rate
due to the large area of the place; (2) endorse PNB's
cases to the firm with rents to be paid out of attorney's
fees; and (3) retain the firm as one of PNB's external
counsels. When new management took over, it allegedly
agreed to uphold this agreement to facilitate rental
payments. However, not a single case of significance was
referred to the firm. SAFA Law Office then asked PNB to
review and discuss its billings, evaluate the improvements
in the area and agree on a compensatory sum to be
applied to the unpaid rents, make good its commitment to
endorse or refer cases to SAFA Law Office under the
intended terms and conditions, and book the rental
payments due as receivables payable every time
attorney's fees are due from the bank on the cases it
referred. The firm also asked PNB to give a 50% discount
on its unpaid rents, noting that while it was waiting for
case referrals, it had paid a total amount of
P13,457,622.56 from January 1999 to December 2002,
which included the accelerated rates of 10% per annum
beginning August 1999 until July 2003.

In February 2005, SAFA Law Office vacated the leased

premises.] PNB sent a demand letter] dated July 7, 2005
requiring the firm to pay its rental arrears in the total
amount of P10,951,948.32. In response, SAFA Law Office
sent a letter dated June 8, 2006, proposing a settlement
by providing a range of suggested computations of its
outstanding rental obligations, with deductions for the
value of improvements it introduced in the premises,
professional fees due from Macroasia Corporation, and
the 50% discount allegedly promised by Dr. Lucio Tan.]
PNB, however, declined the settlement proposal in a letter
dated July 17, 2006, stating that it was not amenable to
the settlement's terms. Besides, PNB also claimed that it
cannot assume the liabilities of Macroasia Corporation to
SAFA Law Office as Macroasia Corporation has a
personality distinct and separate from the bank. PNB then
made a final demand for SAFA Law Office to pay its
outstanding rental obligations in the amount of
P25,587,838.09.

On September 1, 2006, Saludo, in his capacity as

managing partner of SAFA Law Office, filed an amended
complaint for accounting and/or recomputation of unpaid
rentals and damages against PNB in relation to the
Contract of Lease.

On October 4, 2006, PNB filed a motion to include an

indispensable party as plaintiff, praying that Saludo be
ordered to amend his complaint to include SAFA Law
Office as principal plaintiff. PNB argued that the lessee in
the Contract of Lease is not Saludo but SAFA Law Office,
and that Saludo merely signed the Contract of Lease as
the managing partner of the law firm. Thus, SAFA Law
Office must be joined as a plaintiff in the complaint
because it is considered an indispensable party under
Section 7, Rule 3 of the Rules of Court.

On October 13, 2006, PNB filed its answer. By way of

compulsory counterclaim, it sought payment from SAFA
Law Office in the sum of P25,587,838.09, representing
overdue rentals. PNB argued that as a matter of right and
equity, it can claim that amount from SAFA Law Office in
solidum with Saludo.
 On October 23, 2006, Saludo filed his motion to dismiss
counterclaims, mainly arguing that SAFA Law Office is
neither a legal entity nor party litigant. As it is only a
relationship or association of lawyers in the practice of law
and a single proprietorship which may only be sued
through its owner or proprietor, no valid counterclaims
may be asserted against it.

On January 11, 2007, the RTC issued an Omnibus

Order denying PNB's motion to include an indispensable
party as plaintiff and granting Saludo's motion to dismiss
counterclaims in this wise:

The Court DENIES the motion of PNB to include the

SAFA Law Offices. Plaintiff has shown by documents
attached to his pleadings that indeed SAFA Law Offices is
a mere single proprietorship and not a commercial and
business partnership. More importantly, the plaintiff has
admitted and shown sole responsibility in the affairs
entered into by the SAFA Law Office. PNB has even
admitted that the SAFA Law Office, being a partnership in
the practice of law, is a non-legal entity. Being a non-legal
entity, it cannot be a proper party, and therefore, it cannot
sue or be sued.

Consequently, plaintiff's Motion to Dismiss

Counterclaims (claimed by defendant PNB) should be
GRANTED. The counterclaims prayed for the effect that
the SAFA Law Offices be made to pay in solidum with the
plaintiff the amounts stated in defendant's Answer is
disallowed since no counterclaims can be raised against a
non-legal entity. PNB filed its motion for reconsideration
dated February 5, 2007, alleging that SAFA Law Office
should be included as a co-plaintiff because it is the
principal party to the contract of lease, the one that
occupied the leased premises, and paid the monthly
rentals and security deposit. In other words, it was the
main actor and direct beneficiary of the contract. Hence, it
is the real party-in-interest. The RTC, however, denied the
motion for reconsideration in an Order dated March 8,
2007.
 Consequently, PNB filed a petition for certiorari with
the CA. On February 8, 2010, the CA rendered its
assailed Decision, the dispositive portion of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED.
The assailed Omnibus Order dated 11 January 2007 and
Order dated 8 March 2007, issued by respondent Court in
Civil Case No. 06-678, respectively, are AFFIRMED with
MODIFICATION in that petitioner's counterclaims should
be reinstated in its Answer.

SO ORDERED.
The CA ruled that an order granting Saludo`s motion
to dismiss counterclaim, being interlocutory in nature, is
not appealable until after judgment shall have been
rendered on Saludo's complaint. Since the Omnibus Order
is interlocutory, and there was an allegation of grave
abuse of discretion, a petition for certiorari is the proper
remedy.

On the merits, the CA held that Saludo is estoppel

from claiming that SAFA Law Office is his single
proprietorship. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved
as against the person relying thereon. Here, SAFA Law
Office was the one that entered into the lease contract
and not Saludo. In fact, the latter signed the contract as
the firm's managing partner. The alleged Memorandum of
Understanding] (MOU) executed by the partners of SAFA
Law Office, .which states, among others, that Saludo
alone would be liable for the firm's losses and liabilities,
and the letter of Saludo to PNB confirming that SAFA Law
Office is his single proprietorship did not convert the firm
to a single proprietorship. Moreover, SAFA Law Office
sent a letter to PNB regarding its unpaid rentals which
Saludo signed as a managing partner. The firm is also
registered as a partnership with the Securities and
Exchange Commission (SEC).

On the question of whether SAFA Law Office is an

indispensable party, the CA held that it is not. As a
partnership, it may sue or be sued in its name or by its
duly authorized representative. Saludo, as managing
partner, may execute all acts of administration, including
the right to sue. Furthermore, the CA found that SAFA
Law Office is not a legal entity. A partnership for the
practice of law is not a legal entity but a mere relationship
or association for a particular purpose. Thus, the SAFA
Law Office cannot file an action in court. Based on these
premises, the CA held that the RTC did not gravely abuse
its discretion in denying PNB's motion to include an
indispensable party as plaintiff.

Nonetheless, the CA ruled that PNB's counterclaims

against SAFA Law Office should not be dismissed. While
SAFA Law Office is not a legal entity, it can still be sued
under Section 15, Rule 3 of the Rules of Court considering
that it entered into the Contract of Lease with PNB.

The CA further ruled that while it is true that SAFA

Law Office's liability is not in solidum with Saludo as PNB
asserts, it does not necessarily follow that both of them
cannot be made parties to PNB's counterclaims. Neither
should the counterclaims be dismissed on the ground that
the nature of the alleged liability is solidary. According to
the CA, the presence ofSAFA Law Office is required for
the granting of complete relief in the determination of
PNB's counterclaim. The court must, therefore, order it to
be brought in as defendant since jurisdiction over it can be
obtained pursuant to Section 12, Rule 6 of the Rules of
Court.

Finally, the CA emphasized that PNB's counterclaims

are compulsory, as they arose from the filing of Saludo's
complaint. It cannot be made subject of a separate action
but should be asserted in the same suit involving the
same transaction. Thus, the Presiding Judge of the RTC
gravely abused his discretion in dismissing PNB's
counterclaims as the latter may forever be barred from
collecting overdue rental fees if its counterclaims were not
allowed.

Saludo and PNB filed their respective motions for

partial reconsideration dated February 25, 2010 and
February 26, 2010. In a Resolution dated August 2, 2010,
the CA denied both motions on the ground that no new or
substantial matters had been raised therein. Nonetheless,
the CA addressed the issue of the joining of SAFA Law
Office as a defendant in PNB's compulsory counterclaim.
Pertinent portions of the CA Resolution read: The Private
Respondent claims that a compulsory counterclaim is one
directed against an opposing party. The SAFA Law Office
is not a party to the case below and to require it to be
brought in as a defendant to the compulsory counterclaim
would entail making it a co-plaintiff. Otherwise, the
compulsory counterclaim would be changed into a third-
party complaint. The Private Respondent also argues that
Section 15, Rule 3 of the Rules of Court (on entities
without juridical personality) is only applicable to initiatory
pleadings and not to compulsory counterclaims. Lastly, it
is claimed that since the alleged obligations of the SAFA
Law Office is solidary with the Private Respondent, there
is no need to make the former a defendant to the
counterclaim.

We disagree with the reasoning of the Private

Respondent. That a compulsory counterclaim can only be
brought against an opposing party is belied by considering
one of the requisites of a compulsory counterclaim: it does
not require for its adjudication the presence of third parties
of whom the court cannot acquire jurisdiction. This shows
that non-parties to a suit may be brought in as defendants
to such a counterclaim. x x x

xxxx

In the case at bench, the trial court below can

acquire jurisdiction over the SAFA Law Office considering
the amount and the nature of the counterclaim.
Furthermore, the inclusion of the, SAFA Law Office as a
defendant to the counterclaim will enable the granting of
complete relief in view [of] the liability of a partner to the
partnership's creditors under the law.
Hence, this petition, where Saludo raises the following
issues for our resolution:

(1) Whether the CA erred in including SAFA Law Office

 as defendant to PNB's counterclaim despite its
holding that SAFA Law Office is neither an
indispensable party nor a legal entity;

(2) Whether the CA went beyond the issues in the

petition for certiorari and prematurely dealt with the
merits of PNB's counterclaim; and

(3) Whether the CA erred when it gave due course to

PNB's petition for certiorari to annul and set aside
the RTC's Omnibus Order dated January 11, 2007.
The petition is bereft of merit.

We hold that SAFA Law Office is a juridical entity and

the real party-in-interest in the suit filed with the RTC by
Saludo against PNB. Hence, it should be joined as plaintiff
in that case.

I.

Contrary to Saludo's submission, SAFA Law Office is

a partnership and not a single proprietorship.

Article 1767 of the Civil Code provides that by a

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. Two or more persons may also form
a partnership for the exercise of a profession. Under
Article 1771, a partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary. Article 1784, on the other hand,
provides that a partnership begins from the moment of the
execution of the contract, unless it is otherwise stipulated.

Here, absent evidence of an earlier agreement, SAFA

Law Office was constituted as a partnership at the time its
partners signed the Articles of Partnership [45] wherein they
bound themselves to establish a partnership for the
practice of law, contribute capital and industry for the
purpose, and receive compensation and benefits in the
course of its operation. The opening paragraph of the
Articles of Partnership reveals the unequivocal intention of
its signatories to form a partnership, to wit:

WE, the undersigned ANICETO G. SALUDO, JR.,

RUBEN E. AGPALO, FILEMON L. FERNANDEZ, AND
AMADO D. AQUINO, all of legal age, Filipino citizens and
members of the Philippine Bar, have this day voluntarily
associated ourselves for the purpose of forming a
partnership engaged in the practice of law, effective this
date, under the terms and conditions hereafter set forth,
and subject to the provisions of existing laws[.]

The subsequent registration of the Articles of

Partnership with the SEC, on the other hand, was made
in compliance with Article 1772 of the Civil Code, since
the initial capital of the partnership was P500,000.00. ]
Said provision states:

Art. 1772. Every contract of partnership having a

capital ofThree thousand pesos or more, in money or
property, shall appear in a public instrument, which must
be recorded in the Office of the Securities and Exchange
Commission.

G.R. No. 127405 October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY,
respondents.

DECISION

YNARES-SANTIAGO, J.:
 This is a petition for review of the Decision of the
Court of Appeals in CA-G.R. CV No. 41616, affirming the
Decision of the Regional Trial Court of Makati, Branch
140, in Civil Case No. 88-509.

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 Belo’s name should not appear in any documents
relating to their transactions with West Bend Company.
Instead, they agreed to use Anay’s 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 Belo’s 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 Tocao’s name, with office at 712
Rufino Building, Ayala Avenue, Makati City. Belo made
good his monetary commitments to Anay. Thereafter,
Roger Muencheberg of West Bend Company invited Anay
to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern
regional convention in Pismo Beach, California, U.S.A.,
from July 25-26, 1987. Anay accepted the invitation with
the consent of Marjorie Tocao who, as president and
general manager of Geminesse Enterprise, even wrote a
letter to the Visa Section of the U.S. Embassy in Manila
on July 13, 1987. A portion of the letter reads:

"Ms. Nenita D. Anay (sic), who has been patronizing

and supporting West Bend Co. for twenty (20) years now,
acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales
Marketing and a business partner of our company, will
attend in response to the invitation." (Italics supplied.)

Anay arrived from the U.S.A. in mid-August 1987,

and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in
the Makati and Cubao offices. On August 31, 1987, she
received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao for her excellent
job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo entitling her to a thirty-seven
percent (37%) commission for her personal sales " up Dec
31/87." Belo explained to her that said commission was
apart from her ten percent (10%) share in the profits. On
October 9, 1987, Anay learned that Marjorie Tocao had
signed a letter addressed to the Cubao sales office to the
effect that she was no longer the vice-president of
Geminesse Enterprise. The following day, October 10,
she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding
office and conducting demonstrations in both Makati and
Cubao offices. Anay attempted to contact Belo. She wrote
to him twice to demand her overriding commission for the
period of January 8, 1988 to February 5, 1988 and the
audit of the company to determine her share in the net
profits. When her letters were not answered, Anay
consulted her lawyer, who, in turn, wrote Belo a letter.
Still, that letter was not answered.

Anay still received her five percent (5%) overriding

commission up to December 1987. The following year,
1988, she did not receive the same commission although
the company netted a gross sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No.

88-509, a complaint for sum of money with damages
against Marjorie D. Tocao and William Belo before the
Regional Trial Court of Makati, Branch 140.
 In her complaint, Anay prayed that defendants be
ordered to pay her, jointly and severally, the following: (1)
P32,00.00 as unpaid overriding commission from January
8, 1988 to February 5, 1988; (2) P100,000.00 as moral
damages, and (3) P100,000.00 as exemplary damages.
The plaintiff also prayed for an audit of the finances of
Geminesse Enterprise from the inception of its business
operation until she was "illegally dismissed" to determine
her ten percent (10%) share in the net profits. She further
prayed that she be paid the five percent (5%) "overriding
commission" on the remaining 150 West Bend cookware
sets before her "dismissal."

In their answer, Marjorie Tocao and Belo asserted

that the "alleged agreement" with Anay that was "neither
reduced in writing, nor ratified," was "either unenforceable
or void or inexistent." As far as Belo was concerned, his
only role was to introduce Anay to Marjorie Tocao. There
could not have been a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole
proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse
Enterprise for an agreed remuneration, and her complaint
referred to either her compensation or dismissal, such
complaint should have been lodged with the Department
of Labor and not with the regular court.

Petitioners (defendants therein) further alleged that

Anay filed the complaint on account of "ill-will and
resentment" because Marjorie Tocao did not allow her to
"lord it over in the Geminesse Enterprise." Anay had acted
like she owned the enterprise because of her experience
and expertise. Hence, petitioners were the ones who
suffered actual damages "including unreturned and
unaccounted stocks of Geminesse Enterprise," and
"serious anxiety, besmirched reputation in the business
world, and various damages not less than P500,000.00."
They also alleged that, to "vindicate their names," they
had to hire counsel for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to:

(a) whether or not the plaintiff was an employee or partner
of Marjorie Tocao and Belo, and (b) whether or not the
parties are entitled to damages.

In their defense, Belo denied that Anay was supposed

to receive a share in the profit of the business. He,
however, admitted that the two had agreed that Anay
would receive a three to four percent (3-4%) share in the
gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as
he merely served as a guarantor of Marjorie Tocao, who
was new in the business. He attended and/or presided
over business meetings of the venture in his capacity as a
guarantor but he never participated in decision-making.
He claimed that he wrote the memo granting the plaintiff
thirty-seven percent (37%) commission upon her
dismissal from the business venture at the request of
Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered

into an oral partnership agreement with Anay. However,
she admitted that Anay was an expert in the cookware
business and hence, they agreed to grant her the
following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two
percent (2%) on product demonstrations, and two percent
(2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the
net profits. Marjorie claimed that she got the capital for the
business out of the sale of the sewing machines used in
her garments business and from Peter Lo, a Singaporean
friend-financier who loaned her the funds with interest.
Because she treated Anay as her "co-equal," Marjorie
received the same amounts of commissions as her.
However, Anay failed to account for stocks valued at
P200,000.00.

On April 22, 1993, the trial court rendered a decision

the dispositive part of which is as follows:

"WHEREFORE, in view of the foregoing, judgment is

hereby rendered:

1. Ordering defendants to submit to the Court a formal

account as to the partnership affairs for the years 1987
and 1988 pursuant to Art. 1809 of the Civil Code in order
to determine the ten percent (10%) share of plaintiff in the
net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding

commission for the one hundred and fifty (150) cookware
sets available for disposition when plaintiff was wrongfully
excluded from the partnership by defendants;

3. Ordering defendants to pay plaintiff overriding

commission on the total production which for the period
covering January 8, 1988 to February 5, 1988 amounted
to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral

damages and P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorney’s
fees and P20,000.00 as costs of suit.

SO ORDERED."

The trial court held that there was indeed an "oral

partnership agreement between the plaintiff and the
defendants," based on the following: (a) there was an
intention to create a partnership; (b) a common fund was
established through contributions consisting of money and
industry, and (c) there was a joint interest in the profits.
The testimony of Elizabeth Bantilan, Anay’s cousin and
the administrative officer of Geminesse Enterprise from
August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership
existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he
awarded the distributorship to Anay and Marjorie Tocao
because he was convinced that with Marjorie’s financial
contribution and Anay’s experience, the combination of
the two would be invaluable to the partnership, also
supported that conclusion. Belo’s claim that he was
merely a "guarantor" has no basis since there was no
written evidence thereof as required by Article 2055 of the
Civil Code. Moreover, his acts of attending and/or
presiding over meetings of Geminesse Enterprise plus his
issuance of a memo giving Anay 37% commission on
personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the
business.

The trial court further held that the payment of

commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to
in business circles as an impetus to bigger sales volume.
It did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a
partnership may be "constituted in any form." The fact that
Geminesse Enterprise was registered in Marjorie Tocao’s
name is not determinative of whether or not the business
was managed and operated by a sole proprietor or a
partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of
Geminesse Enterprise.

The trial court finally held that a partner who is

excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due
upon the dissolution of the partnership as well as
damages or share in the profits "realized from the
appropriation of the partnership business and goodwill."
An innocent partner thus possesses "pecuniary interest in
every existing contract that was incomplete and in the
trade name of the co-partnership and assets at the time
he was wrongfully expelled."

Petitioners’ appeal to the Court of Appeals was

dismissed, but the amount of damages awarded by the
trial court was reduced to P50,000.00 for moral damages
and P50,000.00 as exemplary damages. Their Motion for
Reconsideration was denied by the Court of Appeals for
lack of merit. Petitioners Belo and Marjorie Tocao are now
before this Court on a petition for review on certiorari,
asserting that there was no business partnership between
them and herein private respondent Nenita A. Anay who
is, therefore, not entitled to the damages awarded to her
by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of

Appeals erroneously held that a partnership existed
between them and private respondent Anay because
Geminesse Enterprise "came into being" exactly a year
before the "alleged partnership" was formed, and that it
was very unlikely that petitioner Belo would invest the sum
of P2,500,000.00 with petitioner Tocao contributing
nothing, without any "memorandum whatsoever regarding
the alleged partnership."

The issue of whether or not a partnership exists is a

factual matter which is within the exclusive domain of both
the trial and appellate courts. This Court cannot set aside
factual findings of such courts absent any showing that
there is no evidence to support the conclusion drawn by
the court a quo. In this case, both the trial court and the
Court of Appeals are one in ruling that petitioners and
private respondents established a business partnership.
This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership

must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners
to divide the profits among themselves. 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. 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 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 respondents 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 company’s cookware products; it
was through the same efforts that the business was
propelled to financial success. Petitioner Tocao herself
admitted private respondent’s indispensable role in putting
up the business when, upon being asked if private
respondent held the positions of marketing manager and
vice-president for sales, she testified thus:

"A: No, sir, at the start she was the marketing manager
because there was no one to sell yet, it’s only me there
then her and then two (2) people, so about four (4). Now,
after that when she recruited Oscar Abella and Lina
Torda-Cruz these two (2) people were given the
designation of marketing managers of which definitely Nita
as superior to them would be the Vice President."

By the set-up of the business, third persons were

made to believe that a partnership had indeed been
forged between petitioners and private respondents. Thus,
the communication dated June 4, 1986 of Missy Jagler of
West Bend Company to Roger Muencheberg of the same
company states:

"Marge Tocao is president of Geminesse Enterprises.

Geminesse will finance the operations. Marge does not
have cookware experience. Nita Anay has started to
gather former managers, Lina Torda and Dory Vista. She
has also gathered former demonstrators, Betty Bantilan,
Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All
they need is the finance and the products to sell."
 On the other hand, petitioner Belo’s denial that he
financed the partnership rings hollow in the face of the
established fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover,
his having authorized in writing on October 7, 1987, on a
stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirty-
seven (37%) of the proceeds of her personal sales, could
not be interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a
guarantor is belied by that personal act of proprietorship in
the business. Moreover, if he was indeed a guarantor of
future debts of petitioner Tocao under Article 2053 of the
Civil Code, he should have presented documentary
evidence therefore. While Article 2055 of the Civil Code
simply provides that guarantee must be "express," Article
1403, the Statute of Frauds, requires that "a special
promise to answer for the debt, default or miscarriage of
another" be in writing.

Petitioner Tocao, a former ramp model, was also a

capitalist in the partnership. She claimed that she herself
financed the business. Her and petitioner Belo’s roles as
both capitalists to the partnership with private respondent
are buttressed by petitioner Tocao’s admissions that
petitioner Belo was her boyfriend and that the partnership
was not their only business venture together. They also
established a firm that they called "Wiji," the combination
of petitioner Belo’s first name, William, and her nickname,
Jiji.The special relationship between them dovetails with
petitioner Belo’s claim that he was acting on behalf of
petitioner Tocao. Significantly, in the early stage of the
business operation, petitioners requested West Bend
Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation
and payment of the cookware products. The inevitable
conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the
partnership of distributing cookware with a private
respondent as the managing partner.

The business venture operated under Geminesse

Enterprise did not result in an employer-employee
relationship between petitioners and private respondents.
While it is true that the receipt of a percentage of net
profits constitutes only prima facie evidence that the
recipient is a partner in the business, the evidence in the
case at bar controverts an employer-employee
relationship between the parties. In the first place, private
respondents had a voice in the management of the affairs
of the cookware distributorship, including selection of
people who would constitute the administrative staff and
the sales force. Secondly, petitioner Tocao’s admissions
militate against an employer-employee relationship. She
admitted that, like her who owned Geminesse Enterprise,
private respondents received only commissions and
transportation and representation allowances and not a
fixed salary. Petitioner Tocao testified:

"Q: Of course. Now, I am showing to you certain

documents already marked as Exhs. ‘X’ and ‘Y.’ Please
go over this. Exh. ‘Y’ is denominated `Cubao overrides’ 8-
21-87 with ending August 21, 1987, will you please go
over this and tell the Honorable Court whether you ever
came across this document and know of your own
knowledge the amount ---

A: Yes, sir this is what I am talking about earlier. That’s

the one I am telling you earlier about a certain percentage
for promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there

is a figure here and words which I quote: ‘Overrides
Marjorie Ann Tocao P21,410.50’ this means that you have
received this amount?

A: Oh yes, sir.

Q: I see. And, by way of amplification this is what you are

saying as one representing commission, representation,
advertising and promotion?

A: Yes, sir.

Q: I see. Below your name are the words and figure and I
quote ‘Nita D. Anay P21,410.50’, what is this?

A: That’s her overriding commission.

Q: Overriding commission, I see. Of course, you are telling

this Honorable Court that there being the same
P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because

the way I look at her kasi, you know in a sense because
of her expertise in the business she is vital to my
business. So, as part of the incentive I offer her the same
thing.

Q: So, in short you are saying that this you have shared
together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating
her as an equal?

A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.

Q: I am calling your attention again to Exh. ‘Y’ ‘Overrides

Makati the other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure ‘Overrides

Marjorie Ann Tocao P15,314.25’ the amount there you will
acknowledge you have received that?

A: Yes, sir.

Q: Again in concept of commission, representation,

promotion, etc.?

A: Yes, sir.

Q: Okay. Below your name is the name of Nita Anay

P15,314.25 that is also an indication that she received the
same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by

coincidence that these two (2) are the same?

A: No, sir.

Q: Is it again the concept of you treating Miss Anay as

your equal?

A: Yes, sir." (Italics supplied.)

If indeed petitioner Tocao was the private respondent’s

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. As an industrial partner, the private respondent
had the right to demand for a formal accounting of the
business and to receive her share in the net profit.

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.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," 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. Indubitably then, the business
name Geminesse Enterprise was used only for practical
reasons - it was utilized as the common name for
petitioner Tocao’s various business activities, which
included the distributorship of cookware.

Petitioners underscore the fact that the Court of

Appeals did not return the "unaccounted and unremitted
stocks of Geminesse Enterprise amounting to
P208,250.00." Obviously a ploy to offset the damages
awarded to private respondent, that claim, more than
anything else, proves the existence of a partnership
between them. In Idos v. Court of Appeals, this Court said:

"The best evidence of the existence of the partnership,

which was not yet terminated (though in the winding up
stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since
the partnership has not been terminated, the petitioner
and private complainant remained as co-partners. x x x."

It is not surprising then that, even after private

respondent had been unceremoniously booted out of the
partnership in October 1987, she still received her
overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded

private respondent from the partnership to reap for herself
and/or for petitioner Belo financial gains resulting from
private respondent’s efforts to make the business venture
a success. Thus, as petitioner Tocao became adept in the
business operation, she started to assert herself to the
extent that she would even shout at private respondents in
front of other people. Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to
hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent
was no longer necessary in the business operation, and
resulted in a falling out between the two. However, a mere
falling out or misunderstanding between partners does not
convert the partnership into a sham organization.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 partner’s 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."

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.

In this case, petitioner Tocao’s unilateral exclusion of

private respondent from the partnership is shown by her
memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise. By that
memo, petitioner Tocao affected her own withdrawal from
the partnership and considered herself as having ceased
to be associated with the partnership in the carrying on of
the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the
business.

The winding up of partnership affairs has not yet been

undertaken by the partnership.1âwphi1 This is manifest in
petitioners’ claim for stocks that had been entrusted to
private respondents in the pursuit of the partnership
business.

The determination of the amount of damages

commensurate with the factual findings upon which it is
based is primarily the task of the trial court.The Court of
Appeals may modify that amount only when its factual
findings are diametrically opposed to that of the lower
court, or the award is palpably or scandalously and
unreasonably excessive.However, exemplary damages
that are awarded "by way of example or correction for the
public good," should be reduced to P50,000.00, the
amount correctly awarded by the Court of Appeals.
Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise
reduced to P50,000.00. Similarly, attorney’s fees that
should be granted on account of the award of exemplary
damages and petitioners’ evident bad faith in refusing to
satisfy private respondent’s plainly valid, just and
demandable claims,appear to have been excessively
granted by the trial court and should therefore be reduced
to P25,000.00.

WHEREFORE, the instant petition for review on

certiorari is DENIED. The partnership among petitioners
and private respondent is ordered dissolved, and the
parties are ordered to effect the winding up and liquidation
of the partnership pursuant to the pertinent provisions of
the Civil Code. This case is remanded to the Regional
Trial Court for proper proceedings relative to said
dissolution. The appealed decisions of the Regional Trial
Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial

Court a formal account of the partnership affairs for the
years 1987 and 1988, pursuant to Article 1809 of the Civil
Code, in order to determine private respondent’s ten
percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay

private respondent five percent (5%) overriding
commission for the one hundred and fifty (150) cookware
sets available for disposition since the time private
respondent was wrongfully excluded from the partnership
by petitioners;

3. Petitioners are ordered, jointly and severally, to pay

private respondent overriding commission on the total
production which, for the period covering January 8, 1988
to February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay

private respondent moral damages in the amount of
P50,000.00, exemplary damages in the amount of
P50,000.00 and attorney’s fees in the amount of
P25,000.00.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo,

JJ., concur.
 CONCLUSION

As a result, I come to the conclusion that it is crucial

to register the partnership with the Securities and
Exchange Commission. Establishing a business
enterprise through a legally binding agreement between
two or more people or other legal entities is the goal of a
partnership agreement (or partnership contract). A
partnership is an agreement between two or more people
that commits them to investing money, assets, or labor
into an accumulated fund with the goal of sharing the
proceeds. A partnership must be established for the
mutual benefit or interest of the partners, have a legal
object or purpose, and be in their best interests. This
makes it clear that partners in a partnership may
contribute money, property, or other assets to the so-
called common fund. As a result, not all partners need to
contribute financial resources to the partnership because
they can agree on what each partner should or could
contribute. Therefore, it is still legal if a partner only
contributes his industry.Each partner or entity is given
specific rights and obligations under this partnership
agreement. Registrations to perform business must be
registered before they can be issued. This way, the public
can more accurately ascertain the membership and
capital of large partnerships before doing business with
them and the tax obligations of large partnerships cannot
be avoided. The law aims to open up the recorded
document to the public and to notify interested parties of
its existence.

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