2.) Mendiola-vs-CA

G.R. No.
159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST
RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.
THERE WAS NO INTENTION TO FORM A PARTNERSHIP, only a theoretical one, to save

on taxes. This was known by Mendiola at the outset, but there was an agreement to share in
the profits. – but that is not enough to constitute a partnership.
Having a share in the profits, does not automatically mean, there is a partnership.
A corporation cannot enter into partnerships, as 1.) the corporations charter does not allow
any stockholder to bind the corporation in the name of its usual business, the corporation
needs the approval of its board before it can make any act. 2.) as to the sharing of the profits
and losses, where each partner is liable for partnership debts to the extent of their property,
while in the corporation, liability of the stockholders is only up to their contribution. 3.) in a
partnership, every partner is an agent of the partnership for the conduct of its affairs.
PUNO, J.:
Facts:
Petitioner Mendiola (ATM) entered into a Side Agreement with Pacfor (USA) who will set up a
representative office in the Philippines. They named said office as Pacfor Phils in which
petitioner is president. In the agreement, petitioner’s base salary and the company’s overhead
expenditures shall be borne by the representative office and shall be funded by Pacfor/ATM
being equally owned on 50-50 equity by ATM and Pacfor-USA.
The Side Agreement was later amended through a Revised Operating and Profit Sharing
Agreement where petitioner’s salary was increased. However, both agreements show that the
operational expenses will be borne by the representative office and funded by all parties “as
equal partners,” while the profits and commissions will be shared among them.
Years later, petitioner wrote Pacfor’s VP for Asia seeking confirmation of his 50% equity of
Pacfor Phils to which Pacfor’s President replied that petitioner is not a part-owner, his office
being just a representative office, a “theoretical company with the purpose of dividing the
income 50-50.” He even stressed that the petitioner knew of this arrangement from
beginning, having been the one to propose to them the setting up of a representative office,
instead of a branch office, to save on taxes.
Issue:
Whether or not a partnership or co-ownership exists between the parties?
Held:
Petitioner is an employee of Pacfor and no partnership or co-ownership exists between the

parties.
In a partnership, the members become co-owners of what is contributed to the firm capital and
of all property that may be acquired thereby and through the efforts of the members. The
property or stock of the partnership forms a community of goods, a common fund, in which
each party has a proprietary interest. In fact, the New Civil Code regards a partner as a co-
owner of specific partnership property. Each partner possesses a joint interest in the whole of
partnership property. If the relation does not have this feature, it is not one of partnership.
Right of the partners.
1.) Right to specific partnership property
2.) Interest in the partnersship
3.) Right to the management
This essential element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private respondent
Pacfor. Petitioner is not a part-owner of Pacfor Phils. Pacfor's President established this fact
when he said that Pacfor Phils. is simply a "theoretical company" for the purpose of
dividing the income 50-50. He stressed that petitioner knew of this arrangement from the very
start, having been the one to propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the Philippines to save on taxes. Thus, the
parties in this case, merely shared profits. This alone does not make a partnership.
Sharing in the profits does not make a partnership.
Besides, a corporation cannot become a member of a partnership in the absence of express

authorization by statute or charter. This doctrine is based on the following considerations: (1)
that the mutual agency between the partners, whereby the corporation would be bound by the
acts of persons who are not its duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall manage its own affairs
separately and exclusively; and, (2) that such an arrangement would improperly allow
corporate property to become subject to risks not contemplated by the stockholders when they
originally invested in the corporation. No such authorization has been proved in the case at bar.

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G.R. No.

159333 July 31, 2006

THERE WAS NO INTENTION TO FORM A PARTNERSHIP, only a theoretical one, to save

Petitioner is an employee of Pacfor and no partnership or co-ownership exists between the

Right of the partners.

1.) Right to specific partnership property

2.) Interest in the partnersship

3.) Right to the management

Sharing in the profits does not make a partnership.

Besides, a corporation cannot become a member of a partnership in the absence of express

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