MIGUEL C. TAN, PLAINTIFF-APPELLEE, VS. SPOUSES JIMMINEE TAN AND MA. CORAZON V. TAN, DEFENDANTS-APPELLANTS,

Tan versus Spouses Tan

The Case

This is a simple but instructive case about a verbal partnership between an uncle and his nephew that ended in a dispute over a two million peso raffle prize. Miguel Tan sued his nephew Jimminee Tan and Jimminee's wife Ma. Corazon Tan for dissolution and liquidation of their bakery partnership, accounting and partition, damages, and attorney's fees. The case matters because it shows how a partnership may be formed by mere verbal agreement, how it is dissolved by the express will of a partner, and why a winning raffle prize collected by a partner's wife does not automatically become partnership property.

Procedural History

Miguel Tan filed a complaint for dissolution and liquidation of partnership, accounting and partition, damages and attorney's fees before the Regional Trial Court of Davao City. After trial, the Regional Trial Court rendered its decision declaring the partnership dissolved, ordering Jimminee Tan to render an inventory and accounting of partnership assets as of September 1999 and to partition the remaining assets, and declaring that the two million peso winnings belonged personally to Ma. Corazon Tan and not to the partnership. The trial court denied Miguel's claims for attorney's fees and damages, and dismissed the defendants' counterclaim.

The defendants filed a motion for reconsideration, which the trial court denied. The trial court stressed that Miguel actually won the case because all the reliefs he prayed for were granted except the exclusion of the two million peso winnings from the partnership assets, and that the defendants, being the defeated party, had no legal basis to claim damages. The defendants then appealed to the Supreme Court.

Facts

Sometime in February 1999, Miguel Tan and his nephew Jimminee Tan verbally agreed to form a partnership on a fifty-fifty basis to engage in a bakery and pastry business. They established a common fund, with Miguel contributing capital, and agreed to divide the profits or losses equally. The business was named JMJ Foodhouse or JMJ Bakeshop and was located at Sasa, Davao City. The partnership was never reduced to writing.

The business suffered losses. By August 1999, the cash flow showed a negative balance of 99,000 pesos, and Jimminee had used his own money amounting to 21,000 pesos to keep the business running. Jimminee asked Miguel to infuse an additional 21,000 pesos to maintain their fifty-fifty partnership, but Miguel refused. In September 1999, the two met at a McDonald's restaurant along J.P. Laurel Street in Davao City, where Miguel communicated his intention to withdraw from the partnership because of its failure to generate profits. He said he was out of the business and that his investment of 43,000 pesos would be a loan to Jimminee, payable when able and without interest.

In December 1999, Ma. Corazon Tan, Jimminee's wife, won two million pesos in a Coca-Cola marketing promotion. Miguel claimed that the winning crowns or caps were collected from the partnership store and that the prize therefore belonged to the partnership. The spouses denied this, insisting that the crowns were Ma. Corazon's personal collection gathered not only from the partnership store but also from other stores. The trial court found that the winnings belonged personally to Ma. Corazon Tan.

Issues

• Whether or not the Regional Trial Court correctly ruled that the partnership between the parties was dissolved as of September 1999, with the obligation to account and liquidate the partnership affairs arising from that date.
• Whether or not Miguel filed an unfounded civil action that justifies an award of damages to the appellants.

Applicable Provisions

Article 1830 of the New Civil Code provides for the manner of dissolution of a partnership:

(1) Without violation of the agreement between the partners: (a) By the termination of the definite term or particular undertaking specified in the agreement; (b) By the express will of any partner, who must act in good faith, when no definite term or particular is specified; (c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking; (d) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners; (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; (3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; (4) When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof; (5) By the death of any partner; (6) By the insolvency of any partner or of the partnership; (7) By the civil interdiction of any partner; (8) By decree of court under the following article.

This provision governs how the partnership in this case was dissolved, specifically through the express will of a partner acting in good faith when no definite term was specified.

Ruling

On the first issue, the Court held that the Regional Trial Court correctly ruled that the partnership was dissolved as of September 1999. A partnership exists when two or more persons consensually bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. A partnership is a consensual contract perfected upon mere consent, and it may be constituted in any form, whether written, oral, express, or implied from the acts and declarations of the parties. The Court found that the parties entered into a verbal partnership agreement in February 1999, with a fifty-fifty sharing of profits and losses, and that this was confirmed by the testimonies of both parties.

The Court noted that the parties created an open-ended partnership that had neither term nor particulars as to when their agreement would end. The business losses, without proof of fraud, mismanagement, or imprudence, did not constitute a violation of the partnership agreement, because business profits are never guaranteed and sharing in the risk of business losses is intrinsic in a partnership. The demand for additional fund contribution was likewise not a violation, as the need for capital over and above the initial contribution is dictated by the fortunes of the business. The Court found no sufficient evidence that the appellants withheld important information from Miguel or that he had demanded to inspect the partnership books.

Since there was no clear violation of any term of the verbal partnership agreement, any partner could in good faith terminate the partnership pursuant to Article 1830(1)(b) of the Civil Code. The evidence showed that in September 1999, Miguel communicated his intention to withdraw from the partnership because of its failure to generate profits and his refusal to contribute more funds. There being no proof that Miguel acted in bad faith, this communication effectuated a voluntary dissolution of the partnership through his express will to discontinue a losing partnership.

On the second issue, the Court held that Miguel did not file an unfounded civil action. The action was based on a valid cause of action, and one who makes use of his own legal right does no injury. The Court found no basis to award damages to the appellants.

Doctrine

A partnership may be created by oral agreement as long as the parties comply with the requisites of a 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. A partnership is a consensual contract perfected upon mere consent and may be constituted in any form, whether written, oral, express, or implied. The failure to register the partnership does not prevent its formation or affect its liability to third persons.

A partnership with no definite term or particular undertaking may be dissolved by the express will of any partner, provided the withdrawing partner acts in good faith, as provided in Article 1830(1)(b) of the New Civil Code. Business losses, without proof of fraud, mismanagement, or imprudence, do not constitute a violation of the partnership agreement, and neither does a demand for additional capital contribution. A partner who exercises his own legal right does no injury and cannot be held liable for damages for filing a valid action.

Disposition

The Supreme Court denied the appeal and affirmed the decision of the Regional Trial Court, holding that the partnership was dissolved as of September 1999 and that Miguel did not file an unfounded civil action.

Remember This

An oral partnership is as valid as a written one, and a partner may dissolve it in good faith by his express will when no definite term is specified. Examiners use this case to test the requisites of a partnership, the effect of business losses on the partnership agreement, and the requisites for dissolution under Article 1830 of the New Civil Code.