Fortis vs. Gutierrez Hermanos

An employee compensated by a percentage of the employer's net profits is not thereby made a partner, where the employee has no voice or vote in the management of the business and the profit-sharing arrangement does not alter the partnership's internal distribution of profits among its members.

John Fortis was employed by the defendant partnership Gutierrez Hermanos during the years 1900, 1901, and 1902. The partnership's articles of partnership designated Miguel Alonzo Gutierrez as one of its managers, vested with full power to transact all of the company's business. Fortis's compensation was allegedly set at five per cent of the net profits of the business. After leaving the partnership's employ in March 1903, Fortis sought to recover his unpaid salary and reimbursement of expenses incurred on the partnership's behalf.

John Fortis was employed by the defendant partnership Gutierrez Hermanos during the years 1900, 1901, and 1902. His contract of employment was made on behalf of the defendants by Miguel Alonzo Gutierrez, who was designated by the articles of partnership as one of the managers of the company, with full power to transact all of its business. Under this arrangement, Fortis was to receive as compensation five per cent of the net profits of the business for the year 1902. During the year 1900, Fortis had been paid part of his salary out of the profits of the business, which served to corroborate the existence of the compensation arrangement for subsequent years.

For the year 1902, the defendants' own ledger contained an entry dated December 31, 1902, recording "utilidades liquidas obtenidas durante el año" (net profits obtained during the year) in the amount of Ps. 527,573.66, to be credited according to the proportion established in the partnership agreement. Five per cent of these net profits amounted to 26,378.68 pesos, Mexican currency. Fortis had received 12,811.75 pesos, Mexican currency, on account of his salary, leaving a balance of 13,566.93 pesos, Mexican currency. The defendants presented as a witness Miguel Gutierrez, one of the partners, who testified that there were no profits during 1902 but that the company suffered considerable loss. This testimony was not sufficiently definite or certain to overcome the positive evidence furnished by the defendants' own books.

Fortis left the employ of the defendants on March 19, 1903. At their request, he traveled to Hong Kong, where he spent approximately two months looking after the defendants' business concerning the repair of a certain steamship. In the course of this assignment, Fortis incurred expenses of 600 pesos on behalf of the defendants. He subsequently brought the present action to recover the balance of his unpaid salary for 1902 and reimbursement of these expenses.

The lower court found that the contract had been made as claimed by the plaintiff, computed the unpaid salary, and rendered judgment for the total amount of P13,025.40 in Philippine currency, with interest. The defendants moved for a new trial, which was denied, and they appealed by bill of exceptions.

• Partnership by Profit-Sharing: Appellants contended that the contract made the plaintiff a copartner in the business, because his compensation was determined with reference to the profits of the partnership.
• Dead Man's Statute: Appellants claimed that under section 383, paragraph 7, of the Code of Civil Procedure, the plaintiff could not testify at trial because Miguel Alonzo Gutierrez, with whom the contract had been made, had died prior to the action.
• Motion to Make More Definite and Certain: Appellants assigned as error the lower court's denial of their pre-answer motion to make the complaint more definite and certain.
• Admissibility of Prior Salary Evidence: Appellants objected to the plaintiff's testimony that he had been paid part of the profits as salary for the year 1900.
• Admissibility of Letter Contents: Appellants objected to the plaintiff's testimony regarding the contents of a letter from Miguel Gutierrez to Miguel Alonzo Gutierrez, which had been read to the plaintiff.
• Gratuitous Agency Presumption: Appellants argued that under article 1711 of the Civil Code, the contract of agency is presumed gratuitous in the absence of an agreement to the contrary, so the plaintiff was entitled to no compensation for his Hong Kong services.
• Absence of Profits: Through witness Miguel Gutierrez, appellants asserted that the company suffered losses, not profits, during the year 1902.

• Authority to Bind the Partnership: Whether Miguel Alonzo Gutierrez, as manager of the defendant partnership, had authority to enter into the employment contract with the plaintiff on behalf of the defendants.
• Partnership vs. Employment: Whether the profit-sharing compensation arrangement made the plaintiff a copartner in the business.
• Dead Man's Statute: Whether section 383, paragraph 7, of the Code of Civil Procedure disqualified the plaintiff from testifying due to the death of Miguel Alonzo Gutierrez.
• Evidentiary Errors: Whether the lower court committed reversible error in denying the motion to make the complaint more definite and certain, and in admitting the plaintiff's testimony regarding his 1900 salary and the contents of the letter.
• Nature of the 600-Peso Claim: Whether the 600 pesos sought by the plaintiff constituted compensation for services governed by the gratuitous agency presumption under article 1711 of the Civil Code, or reimbursement for money expended under article 1728.
• Sufficiency of Evidence on Profits: Whether the defendants' witness testimony of losses overcame the ledger entries showing net profits for 1902.

• Authority to Bind the Partnership: Yes. Miguel Alonzo Gutierrez, as manager with full power to transact all business under the articles of partnership, possessed authority to make the contract of employment.
• Partnership vs. Employment: No. The arrangement was a mere contract of employment; the plaintiff had no voice or vote in management, and profit-based compensation did not make him a partner.
• Dead Man's Statute: No. The action was brought against an existing partnership, not against the estate of the deceased, so the statutory disqualification did not apply.
• Evidentiary Errors: No. Even if the lower court erred, the rulings were not prejudicial under section 503 of the Code of Civil Procedure and did not warrant reversal.
• Nature of the 600-Peso Claim: The 600 pesos was reimbursement for money expended, not compensation for services; article 1711 (gratuitous agency presumption) was inapplicable, and article 1728 governed.
• Sufficiency of Evidence on Profits: No. The defendants' own ledger entries positively established the 1902 profits and prevailed over the vague and indefinite testimony of their witness.

• Authority to Bind the Partnership: The evidence was sufficient to support the lower court's finding that the plaintiff worked under a contract entitling him to five per cent of net profits. The contract was made by Miguel Alonzo Gutierrez, who under the articles of partnership was one of the managers with full power to transact all of the company's business. As such manager, he possessed authority to enter into a contract of employment on behalf of the partnership. No writing was required for the contract's validity, as established in Thunga Chui vs. Que Bentec.

• Partnership vs. Employment: The contention that profit-sharing made the plaintiff a partner could not be sustained. The plaintiff had no voice or vote in the management of the company's affairs. The fact that his compensation was determined with reference to the profits did not make him a partner. The articles of partnership provided that profits were to be divided among the named partners in a certain proportion, and the employment contract did not vary or modify that provision. The plaintiff's salary was itself an expense that had to be deducted before the net profits divisible among the partners could be ascertained. Determining the profits for the purpose of fixing the plaintiff's compensation was not the final determination of net profits for partnership distribution.

• Dead Man's Statute: Section 383, paragraph 7, of the Code of Civil Procedure disqualifies parties from testifying as to matters occurring before the death of a deceased person only in actions against an executor or administrator upon a claim against the estate. This action was not brought against the administrator of Miguel Alonzo's estate, nor upon a claim against his estate. It was brought against a partnership that was in existence at the time of trial and was a juridical person. The fact that Miguel Alonzo had been a partner whose interest might be affected by the suit was insufficient to bring the case within the statute.

• Evidentiary Errors: The denial of the motion to make the complaint more definite and certain, even if erroneous, was error without prejudice, as nothing in the record showed the defendants were prejudiced. The plaintiff's testimony regarding his 1900 salary was competent to corroborate his testimony as to the existence of the contract. The admission of testimony regarding the letter's contents, even if erroneous, was not prejudicial because the plaintiff's case was already sufficient to prove the contract without reference to the letter. Under section 503 of the Code of Civil Procedure, non-prejudicial error is not ground for reversal.

• Nature of the 600-Peso Claim: Appellants invoked article 1711 of the Civil Code, which presumes a contract of agency to be gratuitous absent an agreement to the contrary. That article was inapplicable because the 600 pesos was not claimed as compensation for services but as reimbursement for money expended by the plaintiff in the business of the defendants. The applicable provision was article 1728 of the Civil Code.

• Sufficiency of Evidence on Profits: The defendants' own ledger contained a December 31, 1902 entry recording net profits of Ps. 527,573.66. The defendants' witness, Miguel Gutierrez, testified that the company suffered losses rather than profits, but his testimony was not sufficiently definite and certain to overcome the positive evidence furnished by the defendants' own books. The book entries accordingly controlled.

• Profit-sharing does not create partnership — Compensation determined by reference to the profits of a business does not, by itself, make the recipient a partner. The critical indicia are whether the employee has a voice or vote in management and whether the arrangement modifies the partners' internal profit distribution. An employee's salary computed as a percentage of net profits is itself an expense that must be deducted before partnership profits can be ascertained; the calculation of profits for the purpose of fixing the employee's compensation is not the final determination of net profits divisible among partners.

• Manager's authority to bind the partnership — A partner designated as manager in the articles of partnership, with full power to transact all of the company's business, possesses authority to enter into contracts of employment on behalf of the partnership, including contracts fixing compensation by reference to profits.

• Dead Man's Statute — applicability limited to claims against estates — The disqualification under section 383, paragraph 7, of the Code of Civil Procedure applies only to actions against an executor or administrator upon a claim against the estate of a deceased person. It does not extend to actions against an existing partnership merely because a deceased partner's interest may be affected by the result.

• Non-prejudicial error is not ground for reversal — Under section 503 of the Code of Civil Procedure, erroneous rulings that do not prejudice the opposing party do not warrant reversal of a judgment.

• "The fact that the compensation received by him was to be determined with reference to the profits made by the defendants in their business did not in any sense make [him] a partner therein." — This passage articulates the ratio decidendi on the partnership-versus-employment issue, establishing that profit-based compensation alone does not confer partner status.

• "This action was not brought against the administrator of Miguel Alonzo, nor was it brought upon a claim against his estate. It was brought against a partnership which was in existence at the time of the trial of the action, and which was juridical person." — This defines the scope of the dead man's statute, confining its application to claims against estates and excluding actions against existing partnerships.

• "We do not think the evidence of this witness sufficiently definite and certain to overcome the positive evidence furnished by the books of the defendants themselves." — This establishes the evidentiary principle that a party's own books prevail over vague contrary testimony from its own witness.

• Thunga Chui vs. Que Bentec, 1 Off. Gaz. 818 (October 8, 1903); 2 Phil. Rep. 561 — Cited as authority for the proposition that a contract of employment need not be in writing to be valid. The Court applied this precedent to uphold the oral employment contract between Fortis and the partnership.

• Section 383, paragraph 7, Code of Civil Procedure — Provides that parties to an action against an executor or administrator upon a claim against the estate of a deceased person cannot testify as to any matter of fact occurring before the death of such deceased person. The Court held this provision inapplicable because the action was against an existing partnership, not against an estate.

• Section 503, Code of Civil Procedure — Provides that error without prejudice is not ground for reversal. The Court applied this provision to reject the appellants' challenges to the denial of the motion to make the complaint more definite and certain and to the admission of testimony regarding the letter's contents.

• Article 1711, Civil Code — Presumes a contract of agency to be gratuitous in the absence of an agreement to the contrary. The Court held this article inapplicable because the 600 pesos was claimed as reimbursement for money expended, not as compensation for services.

• Article 1728, Civil Code — Governs reimbursement of expenses incurred by an agent in the business of the principal. The Court identified this as the applicable provision for the 600-peso claim.

Arellano, C.J., Torres, Mapa, Johnson, and Carson, JJ., concurred.