LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR., petitioners, vs. THE COMMISSIONER OF INTERNAL REVENUEs: FACTS: Julia Buales died leaving as heirs her surviving spouse, Lorenzo Oa and her five children. A civil case was instituted for the settlement of her state, in which Oa was appointed administrator and later on the guardian of the three heirs who were still minors when the project for partition was approved. This shows that the heirs have undivided interest in 10 parcels of land, 6 houses and money from the War Damage Commission. Although the project of partition was approved by the Court, no attempt was made to divide the properties and they remained under the management of Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners properties and investments gradually increased. Petitioners returned for income tax purposes their shares in the net income but they did not actually receive their shares because this left with Oa who invested them. Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners asked for reconsideration, which was denied hence this petition for review from CTAs decision. Issue: W/N there was a co-ownership or an unregistered partnership W/N the petitioners are liable for the deficiency corporate income tax Held: Unregistered partnership. The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition, the heirs allowed their properties to remain under the management of Oa and let him use their shares as part of the common fund for their ventures, even as they paid corresponding income taxes on their respective shares. Yes. For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed, for the purpose, for tax purposes, at least, an unregistered partnership is formed. For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships The term partnership includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on (8 Mertens Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.) with the exception only of duly registered general co partnerships within the purview of the term corporation. It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations. Judgment affirmed.
Tai Tong Chuache & Co. v. Insurance Commission Facts:
Complainants acquired a parcel of land and a building they assumed the mortgage of the latter in favor of S S S , w h i c h w a s i n s u r e d w i t h r e s p o n d e n t S S S A c c r e d i t e d G r o u p o f I n s u r e r s . O n A p r i l 1 9 , 1 9 7 5 , Azucena Palomo obtained a loan from petitioner TaiTong Chuache Inc. securing it with a mortgage was executed over the land and the building in favor of p e t i t i o n e r . O n A p r i l 2 5 , 1 9 7 5 , A r s e n i o Chua, petitioner s representative insured the latter' sinterest with Tra vellers Multi - Indemnity Corporation. O n J u n e 1 1 , 1 9 7 5 , P e d r o P a l o m o s e c u r e d f i r e insurance covering the building with respondent Zenith Insurance Corporation and on July 16, 1975, another fire insurance was procured from respondent Philippine B r i t i s h A s s u r a n c e C o mp a n y , c o v e r i n g t h e s a me building and the contents thereof. However, on July31, 1975, the building and the contents were totally razed by fire. Respondents, Zenith Insurance, Phil. British Assurancea n d SSS Ac c r e di t e d Gr o up o f I n s u r e r s , p a i d t h e i r correspon ding shares of the loss. Demand was made f r o m r e s p o n d e n t Tr a ve l l e r s Mul t i - I n d e mn i t y f o r i t s share in the loss but the same was refused. Hence, c o m p l a i n a n t s d e m a n d e d f r o m t h e o t h e r t h r e e respondents the balance of each share in the loss but t h e s a me wa s a l s o r e f us e d. Pe t i t i o ne r t he n f i l e d a complaint in intervention claiming the proceeds of the fire insurance policy issued by respondent TravellersMu l t i - I n d e mn i t y b u t t h e l a t t e r a l l e ge d t ha t i t i s n o t e n t i t l e d t o i nd e mn i t y f or l a c k o f i ns ur a bl e i nt e r e s t before the loss of the insured premises.
Issue:
Whether or not petitioner has an insurable interest.
Ruling: Re s p o nd e n t i n s ur a nc e c o mp a ny d i d no t a s s a i l t h e validity of the insurance policy taken out by petitioner over the mortgaged property. Neither did it deny that the said property was totally razed by fire within the period covered by the insurance. Respondent advanced an affirmative defense of lack of insurable interest on the part of the petitioner that before the occurrence of the peril insured against the Palomos had already paid t h e i r c r e d i t d ue t he pe t i t i o ne r . Re s po nde n t ha v i n g admitted the material allegations in the complaint has t h e b ur de n o f p r o o f t o s how t ha t pe t i t i o ne r h a s n o insurable interest over the insured property at the time the contingency took place. Upon that point, there is fa i l ur e o f p r o o f . Re s po nde nt e xe r t e d n o e f f o r t t o present any evidence to substantiate its claim, while p e t i t i o n e r d i d . F o r s a i d r e s p o n d e n t ' s f a i l u r e , t h e decision must be adverse to it. However, respondent Insurance Commission absolved respondent insurance company from liability on the basis of the certification issued by the then Court of First Instance of Davao, Branch II, that in a certain civil action against the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong Chuache. From said evidence respondent commission inferred that the credit extended by herein petitioner to the Palomos secured by the insured property must have b e e n p a i d . Su c h i s a gl a r i ng e r r or wh i c h c a n no t b e sanctioned. Respondent Commission' s findings arebas ed upon a mere inference.The record of the case shows that the petitioner to support its claim for the insurance proceeds offered as evidence the contract of mortgage which has not been cancelled nor released. It has been held in a long lineof cases that when the creditor is in possession of the document of credit, he need not prove non- paymentfor it is presumed. The validity of the insurance policy t a k e n b y p e t i t i o n e r w a s n o t a s s a i l e d b y p r i v a t e respondent. Moreover, petitioner's claim that the loan extended to the Palomos has not yet been paid was corroborated by Azucena Palomo who testified that t h e y a r e s t i l l i n d e b t e d t o h e r e i n p e t i t i o n e r . Pu b l i c respondent argues however, that if the civil case really stemmed from the loan granted to Azucena Palomo by petitioner the same should have been brought by TaiTo ng Ch u a c h e o r b y i t s r e p r e s e n t a t i v e i n i t s o wn behalf. From the above premise respondent concluded that the obligation secured by the insured property must have been paid. The premise i s correct but the conclusion is wrong. Citing Rule 3, Sec. 2 respondent pointed out that the action must be brought in the name of the real party in interest. Correct! However, it should be borne in mind that petitioner being a partnership may sue and be s u e d i n i t s n a m e o r b y i t s d u l y a u t h o r i z e d representative. The fact that Arsenio Lopez Chua is the r e p r e s e n t a t i v e o f p e t i t i o n e r i s n o t q u e s t i o n e d . Petitioners declaration that Arsenio Lopez Chua acts as t h e m a n a g i n g p a r t n e r o f t h e p a r t n e r s h i p w a s corroborated by respondent insurance company. Thus Chua as the managing partner of the partnership may execute all acts of administration including the right to sue debtors of the partnership in case of their failure top a y t h e i r o b l i g a t i o n s w h e n i t b e c a m e d u e a n d d e ma n d a b l e . O r a t t h e v e r y l e a s t , C h u a b e i n g a partner of petitioner Tai Tong Chuache & Company is a n a g e nt o f t h e p a r t ne r s h i p . Be i n g a n a g e n t , i t i s u n d e r s t o o d t h a t h e a c t e d f o r a n d i n b e h a l f o f t h e firm.
Public respondent' s allegation that the civil case filed by Arsenio Chua was in his capacity as personal creditor of spouses Palomo has no basis. The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal force and effect at the time of the fire, it is bound by its terms and conditions. Upon its failure to prove the allegation of lack of insurable interest on the part of the petitioner, respondent insurance company is and must be held liable.
TOCAO vs. COURT OF APPEALS and NENITA A. ANAY, G.R. No. 127405 October 4, 2000MARJORIE TOCAO and WILLIAM T. BELO, petitioners,vs.COURT OF APPEALS and NENITA A. ANAY, respondents. DECISIONYNARES-SANTIAGO, J.:
FACTS: 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 cook wares. 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 Belos name should not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to use Anays 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 Belos assurances that he was sincere ,dependable and honest when it came to financial c ommitments . Any having secured the distributorship of cookware products from the West Bend Company andorganized 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 Tocaos name, with office at 712 Rufino Building, Ayala Avenue, MakatiCity. 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.On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter[vi][6] 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.
ISSUE: the issues were limited to: (a) whether or not the plaintiff was an employee or partner of Marjorie Tocao and Belo.
HELD: 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, Anays 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 Marjories financial contribution and Anays experience, the combination of the two would be invaluable to the partnership, also supported that conclusion. Belos claim that he was merely a guarantor has no basis since there was no written evidence thereof as required by Article 2055of 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 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. 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.[xv][15] It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto.[xvi][16] 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[xvii][17] 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 respondent 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 companys cookware products; it was through the same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting up the business. Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for petitioner Belo financial gains resulting from private respondents 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 respondent in front of other people.[xxxviii][38] 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,[xxxix][39] 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.[xl][40] 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 partners 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.[xli][41] 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.[xlii][42]In this case, petitioner Tocaos 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.[xliii][43] By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself ashaving 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.[xliv][44]The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in petitioners claim for stocks that had been entrusted to private respondent in the pursuit of the partnership business.
Patagoc vs csc 185 scra 411 1990
Facts: Patagoc was appointed City Engineer by Zamboanga City Mayor to take the place of the deceased city engineer. The appointment was in the nature of a reinstatement. He was previously employed by the city government, assigned with the Bureau of Public Works Engineering District and with the City Engineer's Office when the Ministry of Public Works was reorganized and he was phased out. He rose from Civil Engineering Aide II to Supervising City Engineer 11. Thereafter, for six (6) years before his appointment as City Engineer, he was a consultant with the Department of Public Works and Highways and then with a private construction firm. The incumbent Assistant City Engineer, filed a protest against petitioner's appointment with the Civil Service Regional Office on the ground that he was next-in-rank. The Civil Service Regional Director, in a decision finds the protest meritorious hereby revoking Patagocs appointment
Issue: what is the extent of the City Mayors authority to appoint the City Engineer as when the appointee and the protestant are both qualified for the position, may the Civil Service Commission disapprove the appointment of the former and order the appointment of the protestant?
Ruling: No according to the supreme court Appointment is an essentially dictionary power and must be performed by the officer in which it is vested according to his best lights, the only condition being that the appointee should the cannot be faulted on the ground that there are others better qualified qualifications required by law. If he does, then the appointment who should have been preferred. This is a political question involving considerations of wisdom which only the appointing authority can decide. It may be, as alleged by the Commission, that Civil Service Circular No. 5, s. 1983 provides as a condition for appointment by reinstatement that "the vacancy cannot be filled by promotion of qualified officers and employees in the agency concerned, by transfer of qualified officers or employees from other government agencies, or there are no eligibles in the appropriate register of the Commission available for certification to the vacancy." However, this circular cannot be construed so as to effectively eliminate the appointing power's discretion. At best, the circular can be considered as a guide for the appointing power's exercise of discretion. Moreover, we note that the condition stated in the circular is not even imposed in P.D. No. 807. Should he choose not to fill the vacant position by promotion, the decree, as stated earlier, gives the appointing power several alternatives: ., the vacancy may be filled by transfer, by reinstatement, by re-employment, or by an original appointment.
Phililex Mining vs CIR
Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former to manage the latters mining claim know as the Sto. Mine. The parties agreement was denominated as Power of Attorney. The mine suffered continuing losses over the years, which resulted in petitioners withdrawal as manager of the mine. The parties executed a Compromise Dation in Payment, wherein the debt of Baguio amounted to Php. 112,136,000.00. Petitioner deducted said amount from its gross income in its annual tax income return as loss on the settlement of receivables from Baguio Gold against reserves and allowances. BIR disallowed the amount as deduction for bad debt. Petitioner claims that it entered a contract of agency evidenced by the power of attorney executed by them and the advances made by petitioners is in the nature of a loan and thus can be deducted from its gross income. Court of Tax Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. CA affirmed CTA .
Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the Power of Attorney (PA) is the instrument material that is material in determining the true nature of the business relationship between petitioner and Baguio. An examination of the said PA reveals that a partnership or joint venture was indeed intended by the parties. While a corporation like the petitioner cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a joint venture, which is akin to a particular partnership. The PA indicates that the parties had intended to create a PAT and establish a common fund for the purpose. They also had a joint interest in the profits of the business as shown by the 50- 50 sharing of income of the mine.
Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it or the mutual interest of both principal and agent. In this case the non-revocation or non-withdrawal under the PA applies to the advances made by the petitioner who is the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that it is an agency.
G.R. No. L-68118 October 29, 1985JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,brothers and sisters, petitionersvs.COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.AQUINO, J .: Facts: On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and 963 square meters of located at Greenhills. San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The Torrens titles issued to them showed that they were co-owners of the two lots .I n 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canada for the total sum of P313,050. They derived from the sale a total profit of P134, 341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one- half thereof or of P16,792.In April, 1980, the Commissioner of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof. The petitioners are being held liable for deficiency income taxes and penalties totaling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains already paid by them. The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Hence, the instant appeal.
Issue: Whether or not the petitioners had indeed formed a partnership or joint venture and thus liable for corporate tax.
Held: The Supreme Court held that the petitioners should not be considered to have formed a partnership just because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves. To regard so would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated. As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. * Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing t hem have a joint or common right or interest in any property from which the returns are derived". There must be an unm istakable intention to form a partnership or joint venture.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. They did not contribute or invest additional ' capital to increase or expand the properties, nor was there an unmistakable intention to form partnership or joint venture.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs. All co-ownerships are not deemed unregistered partnership.
Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of All Co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation. As compared to other cases: Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the inheritance or the incomes derived there from as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership. This case is different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building, entrusted the administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentalstherefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership.
Deluao vs. Casteel [ 26 SCRA 475]
Facts: Nicanor Casteel filed a fishpond application for a big tract of swampy land in the sitio of Malalagin Davao City three times. All the applications were disapproved for a variety of reasons. Casteel filed a motion for reconsideration and while the motion was pending resolution, he was advised by the district forester of Davao that no further action would be taken unless he filed a new application for the areaconcerned. So he filed a new fishpond application. Meanwhile, several applications were submitted by other persons of the area covered by Casteels application. Leoncio Aradillos filed his fishpond application covering 10 hectares of land and was later granted a fishpond permit. Victor Carpio also filed his fishpond application. Alejandro Cacams application was given due course and a fishpond permit was also issued to him. Felipe Deluao filed his own fishpond application for the area covered by Casteels application. Because of the threat poised upon his position by the above applicants, Casteel realized the urgent necessity of expanding his occupation by constructing dikes and cultivating marketable fishes, in order to prevent squatters from usurping the land. But lacking financial resources, he sought financial aid from his uncle Felipe Deluao who extended loans to him. Casteel also filed corresponding protests. Despite the finding in the investigation that Casteel had already introduced improvements on portions applied by him, the Director of Fisheries rejected Casteels application requiring him to remove all the improvements which he had introduced in the land. In 1949, Inocencia Deluao and Nicanor Casteel executed a contract denominated as a contract of service Whereby Deluao hires and employees Casteel. Inocencia Deluao also executed an SPA in favour of Jessica Donesa to represent her in the administration of the fishponds. The Director of Fisheries rejected the application by Deluao but the latter reiterated his claim by filing two administrative cases. Subsequently, Casteels application was given due course and the latter forbade Inocencia Deluao from further administering the fishpond and ejected Jessica Donesa in the premises. Alleging violation of the contract of service, spouses Deluao filed an action for specific performance and damages against Casteel.
Issue: WON the contract of service created a contract of co- ownership and partnership betweenDeluao and Casteel over the fishpond.
Held: Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to know the law. It must be assumed, conformably to such rule, that the parties entered into the so-called "contract of service" cognizant of the mandatory and prohibitory laws governing the filing of applications for fishpond permits. And since they were aware of the said laws, it must likewise be assumed in fairness to the parties that they did not intend to violate them. This view must necessarily negate the appellees' allegation that exhibit A created a contract of co-ownership betweenthe parties over the disputed fishpond. We shall therefore construe the contract as one of partnership, divided into two parts - namely, a contract of partnership, to exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide the fishpond between them after such award. The first is valid, the second illegal. It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called "contract of service", there were two pending applications over the fishpond. One was Casteel's which was appealed by him to the Secretary of Agriculture and Natural Resources after it was disallowed by the Director of Fisheries. The other wasFelipe Deluao's application over the same area which was likewise rejected by the Director of Fisheries.The evidence preponderates in favor of the view that the initial intention of the parties was not to form a co-ownership but to establish a partnership. Inocencia Deluao as capitalist partner and Casteel asindustrial partner. the ultimate undertaking of which was to divide into two equal parts such portion of the fishpond as might have been developed by the amount extended by the plaintiffs-appellees, with the further provision that Casteel should reimburse the expenses incurred by the appellees over one-half of the fishpond that would pertain to him. The arrangement under the so-called "contract of service" continued until the decisions were issued by the Secretary of Agriculture and Natural Resourcesin DANR Cases 353 and 353-B. This development, by itself, brought about the dissolution of the partnership. Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, ". . . 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." The approval of the appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which made the continuation of the partnership unlawful and therefore caused its ipso facto dissolution. Act 4003,known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from transferring or subletting the fishpond granted to him, without the previous consent or approval of the Secretary of Agriculture and Natural Resources. The Public Land Act also provides that "The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of Agriculture and Commerce, and the violation of this condition shall avoid the contract. Finally, section 37 of Administrative Order No. 14of the Secretary of Agriculture and Natural Resources issued in August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands and under such terms and conditions as he may prescribe. Since the partnership had for its object the division into two equal parts of the fishpond between the appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond. The approval was an event which made it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership.