SC Rules Partnership in Reyes Barbecue Franchise

January 29, 2020

The Supreme Court held that a partnership was created between the brothers-owners in the franchising business of Reyes Barbecue despite its non-registration with the Securities and Exchange Commission (SEC) and non-compliance with Article 1773 of the Civil Code. The Court noted and considered that numerous franchises were opened through the contributions of the brothers.

In an eight-page resolution, the Court’s Third Division reinstated the civil case and remanded it to the Regional Trial Court of Quezon City, Branch 216, which was directed to schedule the conduct of an accounting of the profits of the franchising business of Reyes Barbecue to determine the (1) portion of the profits derived from the franchising business of Reyes Barbecue that may be attributed to the contributions, tangible or otherwise, made by the respondents Adolfo Reyes, Ramon Reyes, and Carlos Reyes; and (2) the portion of the profits derived from the franchising business of Reyes Barbecue that may be attributed to petitioner Francisco Reyes’ contribution only.

Moreover, the Court held that based on the results of the accounting, Francisco, as trustee of the assets of the partnership, shall pay respondents their rightful share in the profits of the partnership, based on their contribution. Should the RTC find the award of damages and interest proper, the monetary award shall conform to the guidelines on the imposition of damages and interest established in its earlier ruling.

In 1992, petitioner Francisco, after working in one of Manila’s well-known restaurants, Aristocrat Restaurant, thought of putting up his own restaurant and franchising business.  In 2002, he established Reyes Barbecue when he registered it as a sole proprietorship with the Department of Trade and Industry. In 2005, he filed an application for registration of the trademark “Reyes Barbecue” written in stylized form with the Intellectual Property Office (IPO).

In 2005, he purportedly offered his brothers to form a partnership for the franchising arm of Reyes Barbecue as he needed capital for business expansion. Adolfo and Carlos each contributed P100k in exchange for a 24% and 15% share, while Ramon contributed a desktop computer valued at P39k for a 25%. For Francisco, it was agreed that his contribution will be the Reyes Barbecue trademark registered in his name.

However, Francisco denied having proposed a business partnership with his brothers and insisted that he and his wife Carolina Inez Angela Reyes, his co-petitioner, conceptualized the business on their own; and that the intent, from the start, was to form a franchising corporation with his brothers and not a partnership. Francisco further alleged that the contributions of his brothers were really subscription payments to the franchising corporation.

Francisco further claimed that he abandoned the plan to form a franchising corporation when he discovered that the Reyes Barbecue trademark had been fraudulently transferred to an employee of his nephew Atty. Adolfo Reyes II. In 2008, petitioner’s siblings, through counsel, sent a demand letter calling for an accounting of the business to determine any share in the profits that may be due them. They filed a Complaint for damages with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction.

On November 9, 2015, the QC RTC, Branch 216 dismissed the Complaint, agreeing with petitioners that no partnership was formed due to the absence of any written document to prove such. It also held that the participation of respondents in the operation of the business was very limited as they did not participate in the actual management of the business. It added that it took respondents more than two years from the time that the partnership was allegedly formed to demand for an accounting of the finances of the supposed partnership.

On appeal, the Court of Appeals (CA) granted the same by reversing the dismissal of the complaint, reinstating the civil case and remanding the case to QC RTC, tasked to schedule an accounting of the profits of the Reyes Barbecue. The CA held that even if no partnership agreement was formalized, nor any corporation registered, once Frank received the material contributions of his siblings and allowed them to actively participate in the business, a contract for a joint venture was perfected and actually executed.

The SC ruled otherwise. It held that the parties, although the structure of the business was not formalized and registered, entered into a partnership. It noted that each of the Reyeses contributed money, property, and/or industry to a common fund with the intention of dividing the profits among themselves. It added that though there is no written agreement between the parties, the conduct of the parties supports the conclusion that a partnership was formed. The moment the contributions of Adolfo, Ramon, and Carlos were received by Frank and the fact that each carried out their respective tasks in the management of the business leads Us to believe that a partnership was indeed created.

“Although the registration of the franchising arm of Reyes Barbecue did not materialize, numerous franchises were opened through the contributions of all the Reyes brothers. Thus, a partnership for the franchising business of Reyes Barbecue was created,” the Court held.

(G.R. No. 248414, Reyes v. Reyes, November 13, 2019)

Full text: http://sc.judiciary.gov.ph/10085/