01 Tocao vs CA [G.R. No. 127405.

October 4, 2000]

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 cookwares. 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 Belo's name
should not appear in any documents relating to their transactions with West Bend Company. Instead,
they agreed to use Anay's 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 Belo's assurances that he was
sincere, dependable and honest when it came to financial commitments. Anay having secured the
distributorship of cookware products from the West Bend Company and organized the administrative
staff and the sales force, the cookware business took off successfully. Roger Muencheberg of West
Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A Anay
arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31,
1987, she received a plaque of appreciation from the administrative and sales people through
Marjorie Tocao[4] for her excellent job performance. On October 7, 1987, in the presence of Anay,
Belo signed a memo entitling her to a thirty-seven percent (37%) commission for her personal sales
"up Dec 31/87. Belo explained to her that said commission was apart from her ten percent (10%)
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter[6]
addressed to the Cubao sales office to the effect that she was no longer the vice-president of
Geminesse Enterprise.

Issue: Whether or not a partnership exists

Ruling: Yes. Both the trial court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court finds no reason to rule otherwise.
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.[15] It may be constituted
in any form; a public instrument is necessary only where immovable property or real rights are
contributed thereto.[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[17] did not cause
the nullification of the partnership.

The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business,[25] the evidence in the case at bar controverts an employer-employee relationship between
the parties. In the first place, private respondent had a voice in the management of the affairs of the
cookware distributorship,[26] including selection of people who would constitute the administrative
staff and the sales force. Secondly, petitioner Tocao's admissions militate against an employer-
employee relationship. She admitted that, like her who owned Geminesse Enterprise,[27] private
respondent received only commissions and transportation and representation allowances[28] and
not a fixed salary. A mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization.[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. 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.


02 J.M. Tuazon and Co vs Bolanos [G.R. No. L-4935 May 28, 1954]

Facts: This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch,
to recover possesion of registered land situated in barrio Tatalon, Quezon City. Defendant, in his
answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and
notorious possession (of land in dispute) under claim of ownership, adverse to the entire world by
defendant and his predecessor in interest" from "time in-memorial". The answer further alleges that
registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud
or error and without knowledge (of) or interest either personal or thru publication to defendant
and/or predecessors in interest." The answer therefore prays that the complaint be dismissed with
costs and plaintiff required to reconvey the land to defendant or pay its value. After trial, the lower
court rendered judgment for plaintiff, declaring defendant to be without any right to the land in
question and ordering him to restore possession thereof to plaintiff and to pay the latter a monthly
rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs. Defendant
move for dismissal of the case on the ground that the case was not brought by the real property in
interest.

Issue: Whether or not there was no real property in interest.

Ruling: No. As to the first assigned error, there is nothing to the contention that the present action is
not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court
require is that an action be brought in the name of, but not necessarily by, the real party in interest.
(Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff. That practice appears to have been followed in this case, since
the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its undersigned counsel." It is true that the
complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio
Araneta, Inc.", another corporation, but there is nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter
into a partnership is without merit, for the true rule is that "though a corporation has no power to
enter into a partnership, it may nevertheless enter into a joint venture with another where the nature
of that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to
indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of them.

03 Aguila Jr. Vs CA [G.R. No. 127347. November 25, 1999]

Facts: Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities.
Private respondent and her late husband, Ruben M. Abrogar, were the registered owners of a house
and lot, covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18,
1991, private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner, entered into a Memorandum of Agreement. On the same day, April 18,
1991, the parties likewise executed a deed of absolute sale,[3] dated June 11, 1991, wherein private
respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons, Co.,
represented by petitioner, for P200,000.00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the cancellation of TCT No. 195101 and
the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the event she failed
to redeem the subject property as provided in the Memorandum of Agreement. Private respondent
failed to redeem the property within the 90-day period as provided in the Memorandum of
Agreement. Hence, pursuant to the special power of attorney mentioned above, petitioner caused the
cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co. Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her. Private respondent then filed a petition for declaration
of nullity of a deed of sale. On appeal, the Court of Appeals reversed on the ground that the
transaction between plaintiff-appellant and defendant-appellee is indubitably an equitable mortgage.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against
which this case should have been brought

Issue: Whether or not petitioner is not the real party in interest.

Ruling: Yes. Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and
distinct from that of each of the partners. The partners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a different juridical personality is being used for
fraudulent, unfair, or illegal purposes.[10] In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private respondent, with the consent of her late
husband, and A. C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its
officers or agents, which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint.

04 Heirs of Tan Eng Kee vs CA [G.R. No. 126881. October 3, 2000]

Facts: Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990 for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
petitioners filed an amended complaint[4] impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint principally alleged that after the
second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together,
entered into a partnership engaged in the business of selling lumber and hardware and construction
supplies. They named their enterprise Benguet Lumber which they jointly managed until Tan Eng
Kee's death. Petitioners herein averred that the business prospered due to the hard work and thrift of
the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership Benguet Lumber into a corporation called Benguet Lumber
Company.

Issue: Whether or not Tan Eng Kee and Tan Eng Lay were partners.

Ruling: No. A review of the record persuades us that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof
required to establish a partnership. Besides, it is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The
essence of a partnership is that the partners share in the profits and losses.[29] Each has the right to
demand an accounting as long as the partnership exists.[30] We have allowed a scenario wherein [i]f
excellent relations exist among the partners at the start of the business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible.[31] But in the situation in the case at bar, the deferment, if any, had
gone on too long to be plausible. A person is presumed to take ordinary care of his concerns. A
demand for periodic accounting is evidence of a partnership.[34] During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

05 Pascual vs CIR [G.R. No. 78133 October 18, 1988]

Facts: On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al.
and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two
parcels of land were sold by petitioners in 1968 toMarenir Development Corporation, while the three
parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970.
Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they
realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes
were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970. Respondent Commissioner informed petitioners that in
the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income
was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1
that the unregistered partnership was subject to corporate income tax as distinguished from profits
derived from the partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them from the tax liability of the unregistered
partnership.

Issue: Whether or not an unregistered partnership existed.

Ruling: No. The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property. There must be a
clear intent to form a partnership, the existence of a juridical personality different from the individual
partners, and the freedom of each party to transfer or assign the whole property. In the present case,
there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support
the proposition that they thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter did not thereby make
them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on
their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby liable for corporate income
tax, as the respondent commissioner proposes.

06 Ona vs CIR [G.R. No. L-19342 May 25, 1972]

Facts: Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa
and her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of
Manila for the settlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed
administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the
administrator submitted the project of partition, which was approved by the Court on May 16, 1949
(See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa,
were still minors when the project of partition was approved, Lorenzo T. Oa, their father and
administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of
Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him
guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.). Although the
project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the
properties therein listed. Instead, the properties remained under the management of Lorenzo T. 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. From said
investments and properties petitioners derived such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends, rentals and interests. The said incomes are
recorded in the books of account kept by Lorenzo T. Oa where the corresponding shares of the
petitioners in the net income for the year are also known. Every year, petitioners returned for income
tax purposes their shares in the net income derived from said properties and securities and/or from
transactions involving them. However, petitioners did not actually receive their shares in the yearly
income. The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out,
invested them in real properties and securities. On the basis of the foregoing facts, respondent
(Commissioner of Internal Revenue) decided that petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, pursuant to Section 24, in relation to Section 84(b), of
the Tax Code.

Issue: Whether or not an unregistered partnership occurred.

Ruling: Yes. The Tax Court found that instead of actually distributing the estate of the deceased
among themselves pursuant to the project of partition approved in 1949, "the properties remained
under the management of Lorenzo T. Oa who used said properties in business by leasing or selling
them and investing the income derived therefrom and the proceed from the sales thereof in real
properties and securities," as a result of which said properties and investments steadily increased
yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to
P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building
account" in 1956. And all these became possible because, admittedly, petitioners never actually
received any share of the income or profits from Lorenzo T. Oa and instead, they allowed him to
continue using said shares as part of the common fund for their ventures, even as they paid the
corresponding income taxes on the basis of their respective shares of the profits of their common
business as reported by the said Lorenzo T. Oa. It is thus incontrovertible that petitioners did not,
contrary to their contention, merely limit themselves to holding the properties inherited by them.
Indeed, it is admitted that during the material years herein involved, some of the said properties were
sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the
purchase and sale of corporate securities. It is likewise admitted that all the profits from these
ventures were divided among petitioners proportionately in accordance with their respective shares
in the inheritance. In these circumstances, it is Our considered view that from the moment petitioners
allowed not only the incomes from their respective shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several
transactions or in business, with the intention of deriving profit to be shared by them proportionally,
such act was tantamonut to actually contributing such incomes to a common fund and, in effect, they
thereby formed an unregistered partnership within the purview of the above-mentioned provisions of
the Tax Code.


07 Gatchalian vs CIR [G.R. No. L-45425, April 29, 1939]

Facts: Prior to December 15, 1934 plaintiffs, in order to enable them to purchase one sweepstakes
ticket valued at two pesos (P2), subscribed and paid therefor the said amount. One ticket bearing No.
178637 for the sum of two pesos (P2) and that the said ticket was registered in the name of Jose
Gatchalian and Company. As a result of the drawing of the sweepstakes on December 15, 1934, the
above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000 and
that the corresponding check covering the above-mentioned prize of P50,000 was drawn by the
National Charity Sweepstakes Office in favor of Jose Gatchalian & Company against the Philippine
National Bank, which check was cashed during the latter part of December, 1934 by Jose Gatchalian &
Company. On December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo
David to file the corresponding income tax return covering the prize won by Jose Gatchalian &
Company and that on December 29, 1934, the said return was signed by Jose Gatchalian.

Issue: Whether the plaintiffs formed a partnership, or merely a community of property without a
personality of its own.

Ruling: Yes. There is no doubt that if the plaintiffs merely formed a community of property the latter
is exempt from the payment of income tax under the law. But according to the stipulation facts the
plaintiffs organized a partnership of a civil nature because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did
in fact in the amount of P50,000 (article 1665, Civil Code). The partnership was not only formed, but
upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the
office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the
prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said
partner, in the same capacity, collected the said check. All these circumstances repel the idea that the
plaintiffs organized and formed a community of property only. Having organized and constituted a
partnership of a civil nature, the said entity is the one bound to pay the income tax which the
defendant collected under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act
No. 3761. There is no merit in plaintiff's contention that the tax should be prorated among them and
paid individually, resulting in their exemption from the tax.


08 Obillos vs CIR [G.R. No. L-68118, October 29, 1985]

Facts: On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with
areas of 1,124 and 963 square meters 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 company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo).
Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots.
In 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 Canda for the total sum of P313,050 (Exh. C and D).
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, or one
day before the expiration of the five-year prescriptive period, 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 He assessed P37,018 as corporate income tax, P18,509
as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56. Not
only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable
in full (not a mere capital gain of which is taxable) and required them to pay deficiency income
taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest. Thus,
the petitioners are being held liable for deficiency income taxes and penalties totalling 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 within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil. 822). The petitioners contested the assessments.

Issue: Whether or not an unregistered partnership occurred.

Ruling: No. It is error to consider the petitioners as having formed a partnership under article 1767
of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the
same and divided the profit among themselves. 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. The division of the profit was merely incidental to the
dissolution of the co-ownership. 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 them have a joint
or common right or interest in any property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.

09 Evangelista vs CIR [G.R. No. L-9996, October 15, 1957]

Facts: The petitioners borrowed from their father the sum of P59,1400.00 which amount together
with their personal monies was used by them for the purpose of buying real properties. They
appointed their brother Simeon Evangelista to 'manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against
the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and
deposit all notes and checks for them. After having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants. Collector of Internal Revenue demanded
the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949

Issue: Whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to
the residence tax for corporations and the real estate dealers fixed tax.

Ruling: Yes. Upon consideration of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves
Said common fund was not something they found already in existence. It was not property inherited
by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund. They invested the same, not merely not
merely in one transaction, but in a series of transactions.


10 AFISCO Insurance Corp vs CA [G.R. No. 112675. January 25, 1999]

Facts: The petitioners are 41 non-life insurance corporations, organized and existing under the laws
of the Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and
Contractors' All Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share
Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-
Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation. The
reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool composed of the
petitioners was formed on the same day. On April 14, 1976, the pool of machinery insurers submitted
a financial statement and filed an Information Return of Organization Exempt from Income Tax for
the year ending in 1975, on the basis of which it was assessed by the Commissioner of Internal
Revenue deficiency corporate taxes in the amount of P1,843,273.60, and withholding taxes in the
amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners,
respectively. These assessments were protested by the petitioners through its auditors Sycip, Gorres,
Velayo and Co. On January 27, 1986, the Commissioner of Internal Revenue denied the protest and
ordered the petitioners, assessed as Pool of Machinery Insurers, to pay deficiency income tax,
interest, and with[h]olding tax. The CA ruled in the main that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latter's collection of premiums on behalf of its
members, the ceding companies, was taxable income.

Issue: Whether or not the Clearing House, acting as a mere agent and performing strictly
administrative functions, and which did not insure or assume any risk in its own name, was a
partnership or association subject to tax as a corporation.

Ruling: Yes. We sustain the ruling of the Court of Appeals that the pool is taxable as a corporation,
and that the government's right to assess and collect the taxes had not prescribed. Article 1767 of the
Civil Code recognizes the creation of a contract of partnership when 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.[25] Its requisites are: (1) mutual contribution to a common
stock, and (2) a joint interest in the profits.[26] In other words, a partnership is formed when
persons contract to devote to a common purpose either money, property, or labor with the intention
of dividing the profits between themselves.[27] Meanwhile, an association implies associates who
enter into a joint enterprise x x x for the transaction of business. In the case before us, the ceding
companies entered into a Pool Agreement[29] or an association[30] that would handle all the
insurance businesses covered under their quota-share reinsurance treaty[31] and surplus
reinsurance treaty[32]with Munich. The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC: (1) The pool has a common fund, consisting of money
and other valuables that are deposited in the name and credit of the pool.[33] This common fund pays
for the administration and operation expenses of the pool; (2) The pool functions through an
executive board, which resembles the board of directors of a corporation, composed of one
representative for each of the ceding companies; (3) True, the pool itself is not a reinsurer and does
not issue any insurance policy; however, its work is indispensable, beneficial and economically useful
to the business of the ceding companies and Munich, because without it they would not have received
their premiums.

11 Torres vs CA [G.R. No. 134559. December 9, 1999]

Facts: Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in
favor of respondent, who then had it registered in his name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be
used for the development of the subdivision.[4] All three of them also agreed to share the proceeds
from the sale of the subdivided lots. The project did not push through, and the land was subsequently
foreclosed by the bank. In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the subdivision. Thus, they must bear
the loss suffered by the partnership in the same proportion as their share in the profits stipulated in
the contract. Petitioners deny having formed a partnership with respondent. They contend that the
Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate
court's finding of a partnership, were void.

Issue: Whether or not a partnership exists.

Ruling: Yes. A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767. Under the Agreement, petitioners would contribute property to
the partnership in the form of land which was to be developed into a subdivision; while respondent
would give, in addition to his industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to form a partnership. It
should be stressed that the parties implemented the contract. Thus, petitioners transferred the title
to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused
the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision
of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the property. Respondent's actions
clearly belie petitioners' contention that he made no contribution to the partnership. Under Article
1767 of the Civil Code, a partner may contribute not only money or property, but also industry. They
contend that since the parties did not make, sign or attach to the public instrument an inventory of the
real property contributed, the partnership is void. Article 1773 was intended primarily to protect
third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which
is a complement of Article 1771,[12] the execution of a public instrument would be useless if there is
no inventory of the property contributed, because without its designation and description, they
cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the partnership in the belief [in] the
efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by
the law when no such inventory is made. The case at bar does not involve third parties who may be
prejudiced.

12 Lim Tong Lim vs Philippine Fishing Gear [G.R. No. 136448. November 3, 1999]

Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total
price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold
to the Corporation. The buyers, however, failed to pay for the fishing nets and the floats; hence,
private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought against the three in their capacities as
general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission.

Issue: Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

Ruling: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of
the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term common fund under
Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible
like credit or industry. That the parties agreed that any loss or profit from the sale and operation of
the boats would be divided equally among them also shows that they had indeed formed a
partnership. Moreover, it is clear that the partnership extended not only to the purchase of the boat,
but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded. Given the preceding facts, it is clear that there
was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased
the boats, which constituted the main assets of the partnership, and they agreed that the proceeds
from the sales and operations thereof would be divided among them.

13 Agad and Mabato [G.R. No. L-24193, June 28, 1968]

Facts: Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated
August 29, 1952, copy of which is attached to the complaint as Annex "A" partners in a fishpond
business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the profits;
that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato
had failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his complaint
against Mabato and Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered
sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the partnership
for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the
dissolution of the partnership, as well as the winding up of its affairs by a receiver to be appointed
therefor. In his answer, Mabato admitted the formal allegations of the complaint and denied the
existence of said partnership, upon the ground that the contract therefor had not been perfected,
despite the execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution
to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A"
be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as
well as attorney's fees.

Issue: Whether or not "immovable property or real rights" have been contributed to the partnership
under consideration.

Ruling: No. As stated in Annex "A" the partnership was established "to operate a fishpond", not to
"engage in a fishpond business". Moreover, none of the partners contributed either a fishpond or a
real right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed,
Paragraph 4 of Annex "A" provides that the capital of the said partnership is Two Thousand
(P2,000.00) Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos has been
contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed by
Mauricio Agad. The operation of the fishpond mentioned in Annex "A" was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the partnership or
became part of the capital thereof, even if a fishpond or a real right thereto could become part of its
assets.

14 Yu vs NLRC [G.R. No. 97212 June 30, 1993]

Facts: Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying
and export business operated by a registered partnership with the firm name of "Jade Mountain
Products Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June
1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and
Yu Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business
consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. The partnership had its main office in Makati, Metropolitan Manila. Benjamin Yu was hired
by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a
monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the partners that the balance would
be paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu
actually managed the operations and finances of the business; he had overall supervision of the
workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and
Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co
and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest
in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy
Co acquired the great bulk of the partnership interest. The partnership now constituted solely by
Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they
moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into with the
Cruz spouses in February of 1988. 2 The actual operations of the business enterprise continued as
before. All the employees of the partnership continued working in the business, all, save petitioner
Benjamin Yu as it turned out. On 16 November 1987, having learned of the transfer of the firm's main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for
work and there met private respondent Willy Co for the first time. Petitioner was informed by Willy
Co that the latter had bought the business from the original partners and that it was for him to decide
whether or not he was responsible for the obligations of the old partnership, including petitioner's
unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business
enterprise. His unpaid salaries remained unpaid


Issue/s:
(1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and
(2) if indeed a new partnership had come into existence, whether petitioner Yu could nonetheless
assert his rights under his employment contract as against the new partnership.

Ruling:
(1) Yes. The legal effect of the changes in the membership of the partnership was the dissolution
of the old partnership which had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to dissolution and
winding up of its business affairs. In other words, the new partnership simply took over the
business enterprise owned by the preceeding partnership, and continued using the old name of
Jade Mountain Products Company Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and distributing its net assets, and then re-
assembling the said assets or most of them and opening a new business enterprise. Under the
above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the
new partnership itself which continued the business of the old, dissolved, one, are liable for the
debts of the preceding partnership.

(2) Yes. Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the
new Jade Mountain which continued the business of the old one without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in
respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or
previous partner insofar as such retired partner's interest in the dissolved partnership is
concerned. It is not necessary for the Court to determine under which one or mare of the above
six (6) paragraphs, the case at bar would fall, if only because the facts on record are not
detailed with sufficient precision to permit such determination. It is, however, clear to the
Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid
salaries, as well as other claims relating to his employment with the previous partnership,
against the new Jade Mountain. The old partnership certainly benefitted from the services of
Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and
exporting enterprise. His work constituted value-added to the business itself and therefore, the
new partnership similarly benefitted from the labors of Benjamin Yu. The treatment (including
the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager
Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for
which the new Jade Mountain may legitimately be required to respond by paying moral
damages.

15 Rojas vs Maglana [G.R. No. 30616 : December 10, 1990.]

Facts: On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A")
called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The
partnership EDE with an indefinite term of existence was duly registered on January 21, 1955 with
the Securities and Exchange Commission. One of the purposes of the duly-registered partnership was
to "apply or secure timber and/or minor forests products licenses and concessions over public and/or
private forest lands and to operate, develop and promote such forests rights and concessions. Under
the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the
partnership, including marketing and handling of cash and is authorized to sign all papers and
instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and
shall manage the logging operations of the partnership. It is also provided in the said articles of co-
partnership that all profits and losses of the partnership shall be divided share and share alike
between the partners. Because of the difficulties encountered, Rojas and Maglana decided to avail of
the services of Pahamotang as industrial partner. On March 4, 1956, Maglana, Rojas and Agustin
Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm
name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the
purpose of the second partnership everything else is the same. The partnership formed by Maglana,
Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realize profits.
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without
the benefit of any written agreement or reconstitution of their written Articles of Partnership. On
January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc. He left and abandoned the partnership. Meanwhile, Rojas took funds from the partnership
more than his contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10") Maglana notified
Rojas that he dissolved the partnership (R.A. 949).

On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for
the recovery of properties, accounting, receivership and damages nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang retired from the second partnership.

Issue/s:
(1) Whether or not a partnership exists.
(2) Whether or not Maglana can unilaterally dissolve the partnership.

Ruling:
(1) Yes. After a careful study of the records as against the conflicting claims of Rojas and Maglana,
it appears evident that it was not the intention of the partners to dissolve the first partnership,
upon the constitution of the second one, which they unmistakably called an "Additional
Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact that
they took in one industrial partner; gave him an equal share in the profits and fixed the term of
the second partnership to thirty (30) years, everything else was the same. Thus, they adopted
the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes
and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for
the same amounts. Just as important is the fact that all subsequent renewals of Timber License
No. 35-36 were secured in favor of the First Partnership, the original licensee. To all intents
and purposes therefore, the First Articles of Partnership were only amended, in the form of
Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for
Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under the duly registered articles. As
found by the trial court, it is an admitted fact that even up to now, there are still subsisting
obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations
accrued in the name of the second partnership except in favor of Pahamotang which was fully
paid by the duly registered partnership. Under the circumstances, the relationship of Rojas
and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto
Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly
registered.

(2) Yes. Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner
can cause its dissolution by expressly withdrawing even before the expiration of the period,
with or without justifiable cause. Of course, if the cause is not justified or no cause was given,
the withdrawing partner is liable for damages but in no case can he be compelled to remain in
the firm. With his withdrawal, the number of members is decreased, hence, the dissolution.
And in whatever way he may view the situation, the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the partnership by the provisions of its duly
registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be
divided "share and share alike" between the partners. On the basis of the Commissioners'
Report, the corresponding contribution of the partners from 1956-1961 are as follows:
Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while
Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p.
976). It is a settled rule that when a partner who has undertaken to contribute a sum of money
fails to do so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Article 1786, Civil Code) and for interests and damages from the time he should
have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133
SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits and
losses of the venture. That is the essence of a partnership (Ibid., p. 95). Thus, as reported in the
Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which
was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the
amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of
actual capital contribution, he will be liable for P52,040.31

17 Santos vs Reyes [G.R. No. 135813. October 25, 2001]

Facts: Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were
introduced to each other by one Meliton Zabat regarding a lending business venture proposed by
Nieves. It was verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat
[would] take charge of solicitation of members and collection of loan payments. The venture was
launched on June 13, 1986, with the understanding that [petitioner] would receive 70% of the profits
while x x x Nieves and Zabat would earn 15% each. In July, 1986, x x x Nieves introduced Cesar
Gragera to [petitioner]. Gragera, as chairman of the Monte Maria Development Corporation[6] (Monte
Maria, for brevity), sought short-term loans for members of the corporation. [Petitioner] and Gragera
executed an agreement providing funds for Monte Maria's members. Under the agreement, Monte
Maria, represented by Gragera, was entitled to P1.31 commission per thousand paid daily to
[petitioner] (Exh. A'). x x x Nieves kept the books as representative of [petitioner] while
[Respondent] Arsenio, husband of Nieves, acted as credit investigator. On August 6, 1986, [petitioner],
x x x [Nieves] and Zabat executed the Article of Agreement' which formalized their earlier verbal
arrangement. [Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same
lending business in competition with their partnership[.] Zabat was thereby expelled from the
partnership. The operations with Monte Maria continued. On June 5, 1987, [petitioner] filed a
complaint for recovery of sum of money and damages. [Petitioner] charged [respondents], allegedly in
their capacities as employees of [petitioner], with having misappropriated funds intended for Gragera
for the period July 8, 1986 up to March 31, 1987. He found that of the total amount of P4,623,201.90
entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby leaving the balance
of P1,555,065.70 unaccounted for. In their answer, [respondents] asserted that they were partners
and not mere employees of [petitioner]. The complaint, they alleged, was filed to preempt and
prevent them from claiming their rightful share to the profits of the partnership.

Issue/s:
(1) Whether the parties' relationship was one of partnership or of employer-employee
(2) Whether respondents were entitled to the partnership profits as determined by the trial court.

Ruling:
(1) No. Respondents] were industrial partners of [petitioner]. x x x Nieves herself provided the
initiative in the lending activities with Monte Maria. In consonance with the agreement
between appellant, Nieves and Zabat (later replaced by Arsenio), [respondents] contributed
industry to the common fund with the intention of sharing in the profits of the partnership.
[Respondents] provided services without which the partnership would not have [had] the
wherewithal to carry on the purpose for which it was organized and as such [were] considered
industrial partners. By the contract of 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.[12] The Articles of Agreement stipulated that the signatories shall
share the profits of the business in a 70-15-15 manner, with petitioner getting the lion's
share.[13] This stipulation clearly proved the establishment of a partnership. The partnership
continued lending money to the members of the Monte Maria Community Development Group,
Inc., which later on changed its business name to Private Association for Community
Development, Inc. (PACDI). Nieves was not merely petitioner's employee. She discharged her
bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement. The Second
Party named in the Agreement was none other than Nieves Reyes. On the other hand,
Arsenio's duties as credit investigator are subsumed under the phrase screening of
prospective borrowers. Indeed, the partnership was established to engage in a money-lending
business, despite the fact that it was formalized only after the Memorandum of Agreement had
been signed by petitioner and Gragera.

(3) Yes. For the purpose of determining the profit that should go to an industrial partner (who
shares in the profits but is not liable for the losses), the gross income from all the transactions
carried on by the firm must be added together, and from this sum must be subtracted the
expenses or the losses sustained in the business. Only in the difference representing the net
profits does the industrial partner share. But if, on the contrary, the losses exceed the income,
the industrial partner does not share in the losses


18 Moran Jr vs CA [G.R. No. L-59956 October 31, 1984]

Facts: On February 22, 1971 Pecson and Moran entered into an agreement whereby both would
contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the
1971 Constitutional Convention), with Moran actually supervising the work; that Pecson would
receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on
December 15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters
would be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory
note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June
15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default
in the payment of the first installment on the date due, complete with the costs of collection. Private
respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum
of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the
profits that the partnership would have earned, and, payment of unpaid commission; (2) on the
alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages
and attorney's fees. After the trial, the Court of First Instance renders judgment ordering defendant
Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00 Court of Appeals
rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E.
Pecson (P47,500) (the amount that could have accrued to Pecson under their agreement). The
petitioner contends that the respondent Court of Appeals decided questions of substance in a way not
in accord with law and with Supreme Court decisions

Issue: Whether or not erred in holding Moran liable to Pecson in the sum of P47,500.

Ruling: No. The rule is, when a partner who has undertaken to contribute a sum of money fails to do
so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Art.
1786, Civil Code) and for interests and damages from the time he should have complied with his
obligation (Art. 1788, Civil Code). In the instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent would have been a profitable venture.
In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative
damages in favor of the private respondent. In this case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed
to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000
copies. Being a contract of partnership, each partner must share in the profits and losses of the
venture. That is the essence of a partnership. And even with an assurance made by one of the partners
that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim
a right to recover the highly speculative profits. There are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing partner alone, specially if the
latter exercised his best business judgment, which seems to be true in this case.


19 Bastida vs Menzi [G.R. No. L-35840 March 31, 1933]

Facts: The defendants corporation was organized in 1921 for purpose of importing and selling
general merchandise, including fertilizers and fertilizer ingredients. The business of Menzi & Co., Inc.,
was divided into several different departments, each of which was in charge of a manager, who
received a fixed salary and a percentage of the profits. The fertilizer business of Menzi & Co., Inc., was
carried on in accordance with this practice under the "Sundries Department" until July, 1923, and
after that as a separate department. In November, 1921, the plaintiff, who had had some experience
in mixing and selling fertilizer, went to see Toehl, the manager of the sundries department of Menzi &
Co., Inc., and told him that he had a written contract with the Philippine Sugar Centrals Agency for
1,250 tons of mixed fertilizers, and that he could obtain other contracts, including one from the
Calamba Sugar Estates for 450 tons, but the he did not have the money to buy the ingredients to fill
the order and carry on the on the business. He offered to assign to Menzi & Co., Inc., his contract with
the Philippine Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain other
orders for fifty per cent of the net profits that Menzi & Co., might derive therefrom. J.M. Menzi, the
general manager of Menzi & Co., accepted plaintiff's offer. Menzi & Co., Inc., continued to carry on its
fertilizer business under this arrangement with the plaintiff. It ordered ingredients from the United
States and other countries, and the interest on the drafts for the purchase of these materials was
changed to the business as a part of the cost of the materials. The mixed fertilizers were sold by Menzi
& Co., Inc., between January 19 and April 1, 1922 under its "CORONA" brand. Menzi & Co., Inc., had
only one bank account for its whole business. On or about April 24, 1922 the net profits of the
business carried on under the oral agreement were determined by Menzi & Co., Inc., after deducting
interest charges, proportional part of warehouse rent and salaries and wages, and the other expenses
of said business, and the plaintiff was paid some twenty thousand pesos in full satisfaction of his share
of the profits. Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B,
the defendant corporation April 27, 1922 entered a written contract with the plaintiff. White, Page &
Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and at the end of
each year they prepared a balance sheet and a profit and loss statement of the fertilizer business.
These statements were delivered to the plaintiff for examination, and after he had had an opportunity
of verifying them he approved them without objection and returned them to Menzi & Co., Inc.

Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff
that the contract for his services would not be renewed. When plaintiff's contract expired on April 27,
1927, the fertilizer department of Menzi & Co., Inc., had on hand materials and ingredients and two
Ford trucks of the book value of approximately P75,000, and accounts receivable amounting to
P103,000. There were claims outstanding and bills to pay. Menzi & Co., Inc., then proceeded to
liquidate fertilizer business in question. In October, 1927 it proposed to the plaintiff that the old and
damaged stocks on hand having a book value of P40,000, which the defendant corporation had been
unable to dispose of, be sold at public or private sale, or divided between the parties. The plaintiff
refused to agree to this. The defendant corporation then applied to the trial court for an order for the
sale of the remaining property at public auction, but apparently the court did not act on the petition.
During the liquidation the books of Menzi & Co., Inc., for the whole period of the contract in question
were reaudited by White, Page & Co.., certain errors of bookkeeping were discovered by them. After
making the corrections they found the balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and
vouchers of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and
that Menzi & Co., Inc., was obliged to furnish free of charge all the capital the partnership should need.
He naturally reached very different conclusions from those of the auditors of Menzi Co., Inc.

Issue; Whether or not a partnership exists.

Ruling: No. Under the facts of this case the relationship established between Menzi & Co. and by the
plaintiff was to receive 35 per cent of the net profits of the fertilizer business of Menzi & Co., Inc. , in
compensation for his services of supervising the mixing of the fertilizers. Neither the provisions of the
contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it
was a contract of copartnership. The trial court relied on article 116 of the Code of Commerce, which
provides that articles of association by which two or more persons obligate themselves to place in a
common fund any property, industry, or any of these things, in order to obtain profit, shall be
commercial, no matter what its class may be, provided it has been established in accordance with the
provisions of this Code; but in the case at bar there was no common fund, that is, a fund belonging to
the parties as joint owners or partners. The business belonged to Menzi & Co., Inc. The plaintiff was
working for Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small
percentage of the net profits, he was to receive 35 per cent of the net profits as compensation for his
services. Menzi & Co., Inc., was to advanced him P300 a month on account of his participation in the
profits. The phrase "en sociedad con" is used in providing that defendant corporation not engage in
the business of prepared fertilizers except in association with the plaintiff (en sociedad con). The fact
is that en sociedad con as there used merely means en reunion con or in association with, and does
not carry the meaning of "in partnership with". Although the word "associated" may be related
etymologically to the Spanish word "socio", meaning partner, it does not in its common acceptation
imply any partnership relation.


21 Estanislao Jr. Vs CA [G.R. No. L-49982 April 27, 1988]

Facts: The Court is asked to determine if a partnership exists between members of the same family
arising from their joint ownership of certain properties. Petitioner and private respondents are
brothers and sisters who are co-owners of certain lots at the corner of Annapolis and Aurora Blvd.,
QuezonCity which were then being leased to the Shell Company of the Philippines Limited (SHELL).
They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service Station
with an initial investment of P 15,000.00 to be taken from the advance rentals due to them from
SHELL for the occupancy of the said lots owned in common by them. A joint affidavit was executed by
them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They agreed to help their
brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the
family. They negotiated with SHELL. For practical purposes and in order not to run counter to the
company's policy of appointing only one dealer, it was agreed that petitioner would apply for the
dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3, 1966
up to February 16, 1967. On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental shall be
deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that said
agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the co-
owners." For sometime, the petitioner submitted financial statements regarding the operation of the
business to private respondents, but therafter petitioner failed to render subsequent accounting.
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal
against petitioner praying among others that the latter be ordered to execute a public document
embodying all the provisions of the partnership agreement entered into between plaintiffs and
defendant as provided in Article 1771 of the New Civil Code. Petitioner contends that because of the
said stipulation cancelling and superseding that previous Joint Affidavit, whatever partnership
agreement there was in said previous agreement had thereby been abrogated.

Issue: Whether or not partnership has been abrogated by the subsequent agreement.

Ruling: No. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit
that the P 15,000.00 represents the "capital investment" of the parties in the gasoline station business
and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter document
SHELL was a signatory and it would be against its policy if in the agreement it should be stated that
the business is a partnership with private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such partnership agreement
between the parties. This is attested by the testimonies of private respondent Remedies Estanislao
and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the business. 4
Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine
and audit the books of their "common business' aming negosyo). 5 Respondent Remedios assisted in
the running of the business. There is no doubt that the parties hereto formed a partnership when they
bound themselves to contribute money to a common fund with the intention of dividing the profits
among themselves. 6 The sole dealership by the petitioner and the issuance of all government permits
and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products. Further, the findings of
facts of the respondent court are conclusive in this proceeding, and its conclusion based on the said
facts are in accordancewith the applicable law.


22 Vicente Sy vs CA [G.R. No. 142293 February 27, 2003

Facts: Sometime in 1958, private respondent Jaime Sahot5 started working as a truck helper for
petitioners' family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck
driver of the same family business, renamed T. Paulino Trucking Service, later 6B's Trucking
Corporation in 1985, and thereafter known as SBT Trucking Corporation since 1994. Throughout all
these changes in names and for 36 years, private respondent continuously served the trucking
business of petitioners. In April 1994, Sahot was already 59 years old. He had been incurring
absences as he was suffering from various ailments. Particularly causing him pain was his left thigh,
which greatly affected the performance of his task as a driver. He inquired about his medical and
retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered that his
premium payments had not been remitted by his employer. Sahot had filed a week-long leave
sometime in May 1994. On May 27th, he was medically examined and treated for EOR, presleyopia,
hypertensive retinopathy G II (Annexes "G-5" and "G-3", pp. 48, 104, respectively),6 HPM, UTI,
Osteoarthritis (Annex "G-4", p. 105),7 and heart enlargement (Annex G, p. 107).8 On said grounds,
Belen Paulino of the SBT Trucking Service management told him to file a formal request for extension
of his leave. At the end of his week-long absence, Sahot applied for extension of his leave for the whole
month of June, 1994. It was at this time when petitioners allegedly threatened to terminate his
employment should he refuse to go back to work. At this point, Sahot found himself in a dilemma. He
was facing dismissal if he refused to work, But he could not retire on pension because petitioners
never paid his correct SSS premiums. The fact remained he could no longer work as his left thigh hurt
abominably. Petitioners ended his dilemma. They carried out their threat and dismissed him from
work, effective June 30, 1994. He ended up sick, jobless and penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal
dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation
pay and attorneys. For their part, petitioners admitted they had a trucking business in the 1950s but
denied employing helpers and drivers. They contend that private respondent was not illegally
dismissed as a driver because he was in fact petitioner's industrial partner. They add that it was not
until the year 1994, when SBT Trucking Corporation was established, and only then did respondent
Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time
of his separation.


Issue: Whether or not an employer-employee relationship existed between petitioners and
respondent Sahot.

Ruling: Yes. The elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and
(d) the employer's power to control the employee's conduct. The most important element is the
employer's control of the employee's conduct, not only as to the result of the work to be done, but also
as to the means and methods to accomplish it. As found by the appellate court, petitioners owned and
operated a trucking business since the 1950s and by their own allegations, they determined private
respondent's wages and rest day.20 Records of the case show that private respondent actually
engaged in work as an employee. During the entire course of his employment he did not have the
freedom to determine where he would go, what he would do, and how he would do it. He merely
followed instructions of petitioners and was content to do so, as long as he was paid his wages.
Indeed, said the CA, private respondent had worked as a truck helper and driver of petitioners not for
his own pleasure but under the latter's control. Article 176721 of the Civil Code states that in a
contract of 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.22 Not one of
these circumstances is present in this case. No written agreement exists to prove the partnership
between the parties. Private respondent did not contribute money, property or industry for the
purpose of engaging in the supposed business. There is no proof that he was receiving a share in the
profits as a matter of course, during the period when the trucking business was under operation.
Neither is there any proof that he had actively participated in the management, administration and
adoption of policies of the business. Thus, the NLRC and the CA did not err in reversing the finding of
the Labor Arbiter that private respondent was an industrial partner from 1958 to 1994. Private
respondent Jaime Sahot was not an industrial partner but an employee of petitioners from 1958 to
1994. The existence of an employer-employee relationship is ultimately a question of fact23 and the
findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only respect but
finality when supported by substantial evidence. Substantial evidence is such amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion


23 Heirs of Jose Lim vs Lim [G.R. No. 172690, March 3, 2010]

Facts: Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim
(petitioners), represented by Elenito Lim (Elenito). They filed a Complaint[4] for Partition,
Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo
Lim (Elfledo), who was the eldest son of Jose and Cresencia. Sometime in 1980, Jose, together with his
friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the
trucking business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be used
in the hauling and transport of lumber of the sawmill. Jose managed the operations of this trucking
business until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners
agreed to continue the business under the management of Elfledo. The shares in the partnership
profits and income that formed part of the estate of Jose were held in trust by Elfledo, with
petitioners' authority for Elfledo to use, purchase or acquire properties using said funds. Petitioners
also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his father's driver in
the trucking business. He was never a partner or an investor in the business and merely supervised
the purchase of additional trucks using the income from the trucking business of the partners. By the
time the partnership ceased, it had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledo's management of the partnership that he was
able to purchase numerous real properties by using the profits derived therefrom, all of which were
registered in his name and that of respondent. In addition to the nine trucks, Elfledo also acquired five
other motor vehicles. On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir.
Petitioners claimed that respondent took over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their consent and approval. Claiming that they are co-
owners of the properties, petitioners required respondent to submit an accounting of all income,
profits and rentals received from the estate of Elfledo, and to surrender the administration thereof.
Respondent refused; thus, the filing of this case.

Issue: Whether or not a partnership exists.

Ruling: No. A partnership exists when two or more persons agree to place their money, effects, labor,
and skill in lawful commerce or business, with the understanding that there shall be a proportionate
sharing of the profits and losses among them. A contract of partnership is defined by the Civil Code as
one where 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. Undoubtedly, the best
evidence would have been the contract of partnership or the articles of partnership. Unfortunately,
there is none in this case, because the alleged partnership was never formally organized. The
evidence presented by petitioners falls short of the quantum of proof required to establish that: (1)
Jose was the partner and not Elfledo; and (2) all the properties acquired by Elfledo and respondent
form part of the estate of Jose, having been derived from the alleged partnership. At this juncture, our
ruling in Heirs of Tan Eng Kee v. Court of Appeals[14] is enlightening. Therein, we cited Article 1769
of the Civil Code. Applying the legal provision to the facts of this case, the following circumstances
tend to prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that
Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of
the initial capital in the partnership;[15] (2) Elfledo ran the affairs of the partnership, wielding
absolute control, power and authority, without any intervention or opposition whatsoever from any
of petitioners herein;[16] (3) all of the properties, particularly the nine trucks of the partnership, were
registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries
from the partnership, indicating that what he actually received were shares of the profits of the
business;[17] and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18] a
demand for periodic accounting is evidence of a partnership.


24 Arbes vs Polistico [G.R. No. 31057, September 7, 1929]

Facts: This is an action to bring about liquidation of the funds and property of the association called
"Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were
designated as president-treasurer, directors and secretary of said association. The case having been
remanded to the court of origin, both parties amend, respectively, their complaint and their answer,
and by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's
Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.,"
and to receive whatever evidence the parties might desire to present. The defendants objected to the
commissioner's report, but the trial court, having examined the reasons for the objection, found the
same sufficiently explained in the report and the evidence, and accepting it, rendered judgment,
holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants
jointly and severally to return the amount of P24,607.80, as well as the documents showing the
uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of
the said association represented by said plaintiffs, with costs against the defendants.

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39
Phil., 962), but the appellants allege that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be included, as a party defendant. The
appellants refer to article 1666 of the Civil Code, which provides that a partnership must have a lawful
object, and must be established for the common benefit of the partners. When the dissolution of an
unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of
the partnership, or, in default of such, to those of the province.

Issue: Whether or not a charitable institution is required as a party to the case.

Ruling: No. Appellant's contention on this point is untenable. According to said article, no charitable
institution is a necessary party in the present case of determination of the rights of the parties. The
action which may arise from said article, in the case of unlawful partnership, is that for the recovery of
the amounts paid by the member from those in charge of the administration of said partnership, and it
is not necessary for the said parties to base their action to the existence of the partnership, but on the
fact that of having contributed some money to the partnership capital. And hence, the charitable
institution of the domicile of the partnership, and in the default thereof, those of the province are not
necessary parties in this case. The article cited above permits no action for the purpose of obtaining
the earnings made by the unlawful partnership, during its existence as result of the business in which
it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action
upon the partnership contract, which is to annul and without legal existence by reason of its unlawful
object; and it is self evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of
the same article provides that when the dissolution of the unlawful partnership is decreed, the profits
cannot inure to the benefit of the partners, but must be given to some charitable institution. If the
partnership has no valid existence, if it is considered juridically non-existent, the contract entered into
can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to
judicially demand from the manager or the administrator of the partnership capital, each one's
contribution? Wherefore considering this contract as non-existent, by reason of its illicit object, it
cannot give rise to the necessary action, which must be the basis of the judicial complaint.
Furthermore, it would be immoral and unjust for the law to permit a profit from an industry
prohibited by it. Hence the distinction made in the second paragraph of this article of this Code,
providing that the profits obtained by unlawful means shall not enrich the partners, but shall upon the
dissolution of the partnership, be given to the charitable institutions of the domicile of the
partnership, or, in default of such, to those of the province.


25 Woodhouse vs Halili [G.R. No. L-4811, July 31, 1953]

Facts: On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the
defendant, the most important provisions of which are (1) that they shall organize a partnership for
the bottling and distribution of Mision soft drinks, plaintiff to act as industrial partner or manager,
and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the defendant was
to decide matters of general policy regarding the business, while the plaintiff was to attend to the
operation and development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft
Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive
30 per cent of the net profits of the business. The above agreement was arrived at after various
conferences and consultations by and between them, with the assistance of their respective attorneys.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing its
name, that he had interested a prominent financier (defendant herein) in the business, who was
willing to invest half a million dollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to bottle and distribute be
granted him for a limited time under the condition that it will finally be transferred to the corporation
(Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive bottling
and distribution rights for the Philippines" (Exhibit J). Formal negotiations between plaintiff and
defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their lawyers
attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or
OO, but this was not satisfactory because a partnership, instead of a corporation, was desired. The
contract was finally signed by plaintiff on December 3, 1947. On December 10, 1947, a franchise
agreement (Exhibit V) was entered into the Mission Dry Corporation and Fortunato F. Halili and/or
Charles F. Woodhouse, granted defendant the exclusive right, license, and authority to produce, bottle,
distribute, and sell Mision beverages in the Philippines. When the bottling plant was already on
operation, plaintiff demanded of defendant that the partnership papers be executed. At first defendant
executed himself, saying there was no hurry. Then he promised to do so after the sales of the product
had been increased to P50,000. As nothing definite was forthcoming, after this condition was attained,
and as defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take
up the matter with the defendant with a view to a possible settlement. as none could be arrived at, the
present action was instituted. In his complaint plaintiff asks for the execution of the contract of
partnership, an accounting of the profits, and a share thereof of 30 per cent, as well as damages in the
amount of P200,000. In his answer defendant alleges by way of defense (1) that defendant's consent
to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or
was about to become owner of an exclusive bottling franchise, which representation was false, and
plaintiff did not secure the franchise, but was given to defendant himself; (2) that defendant did not
fail to carry out his undertakings, but that it was plaintiff who failed; (3) that plaintiff agreed to
contribute the exclusive franchise to the partnership, but plaintiff failed to do so.

Issue: Whether defendant had falsely represented that he had an exclusive franchise to bottle Mission
beverages, and whether this false representation or fraud, if it existed, annuls the agreement to form
the partnership.

Ruling: Yes. Plaintiff did actually represent to defendant that he was the holder of the exclusive
franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive
franchise. The record abounds with circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership agreement with
plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the
defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect
that plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same
original draft, but the change is made not as to the said obligation but as to the grantee. In the
corrected draft the word "capitalist" (grantee) is changed to "partnership." The contract in its final
form retains the substituted term "partnership." The defendant was, therefore, led to the belief that
plaintiff had the exclusive franchise, but that the same was to be secured for or transferred to the
partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the
contract was perfected. But while he had already lost his option thereto (when the contract was
entered into), the principal obligation that he assumed or undertook was to secure said franchise for
the partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore,
that if he was guilty of a false representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement. While the representation that
plaintiff had the exclusive franchise did not vitiate defendant's consent to the contract, it was used by
plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, by pretending
that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent
of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in
article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big
share in the profits, an incidental matter in the agreement.

We find no merit in the claim of plaintiff that the partnership was already a fait accompli from the
time of the operation of the plant, as it is evident from the very language of the agreement that the
parties intended that the execution of the agreement to form a partnership was to be carried out at a
later date. They expressly agreed that they shall form a partnership. The defendant may not be
compelled against his will to carry out the agreement nor execute the partnership papers. Under the
Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the
individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls
within what Spanish commentators call a very personal act (acto personalismo), of which courts may
not compel compliance, as it is considered an act of violence to do so. Under article 1106 of the
Spanish Civil Code the measure of damages is the actual loss suffered and the profits reasonably
expected to be received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled
under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount
of damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he
had obtained a very high percentage of share in the profits. We can do no better than follow the
appraisal that the parties themselves had adopted.


26 Litonjua vs Litonjua [G.R. NOS. 166299-300, Decembern13, 2005]

Facts: Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr.
(Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002, in the
Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein
respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting.
Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru investment in Cineplex, Inc.,
LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue
Realty, Inc., owner of lands and buildings, among other corporations. Yang is described in the
complaint as petitioner's and Eduardo's partner in their Odeon Theater investment. This joint
venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his
siblings, parents and other relatives. On December 20, 2002, Eduardo and the corporate respondents,
as defendants a quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the
material allegations of the complaint, more particularly that portion thereof depicting petitioner and
Eduardo as having entered into a contract of partnership. As affirmative defenses, Eduardo, et al.,
apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no
cause of action may be derived from the actionable document, i.e., Annex A-1, being void under the
terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that
whatever undertaking Eduardo agreed to do, if any, under Annex A-1, are unenforceable under the
provisions of the Statute of Frauds.

Issue: Whether or not a partnership was created by the unsigned and unpublished document.

Ruling: No. A partnership exists when two or more persons agree to place their money, effects, labor,
and skill in lawful commerce or business, with the understanding that there shall be a proportionate
sharing of the profits and losses between them. A contract of partnership is defined by the Civil Code
as one where two or more persons bound themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves. A joint venture, on the
other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements
are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form
of partnership, a joint venture is generally governed by the law on partnership. Annex A-1, on its
face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned
document, there can be no quibbling that Annex A-1 does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or property, Annex A-1 cannot
be presented for notarization, let alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the nature of petitioner's
contribution, if any, to the supposed partnership. Considering that the allegations in the complaint
showed that [petitioner] contributed immovable properties to the alleged partnership, the
Memorandum (Annex A of the complaint) which purports to establish the said partnership/joint
venture is NOT a public instrument and there was NO inventory of the immovable property duly
signed by the parties. As such, the said Memorandum is null and void for purposes of establishing
the existence of a valid contract of partnership. Indeed, because of the failure to comply with the
essential formalities of a valid contract, the purported partnership/joint venture is legally inexistent
and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the
source of any contractual or legal right. Accordingly, the allegations in the complaint, including the
actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual
or legal right which could be violated by the [individual respondents] herein. As a consequence,
[petitioner's] complaint does NOT state a valid cause of action because NOT all the essential elements
of a cause of action are present.


27 Evangelista and Co vs Abad Santos [G.R. No. L-31684 June 28, 1973]

Facts: On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On
June 7, 1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella
Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo
Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that
capacity, with a contribution of P17,500 each. The amended Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the
profits and losses "shall be divided and distributed among the partners ... in the proportion of 70% for
the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad
Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos." On
December 17, 1963 herein respondent filed suit against the three other partners in the Court of First
Instance of Manila, alleging that the partnership, which was also made a party-defendant, had been
paying dividends to the partners except to her; and that notwithstanding her demands the defendants
had refused and continued to refuse and let her examine the partnership books or to give her
information regarding the partnership affairs to pay her any share in the dividends declared by the
partnership. She therefore prayed that the defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs. The defendants, in their answer, denied ever having
declared dividends or distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and byway of affirmative defense
alleged that the amended Articles of Co-partnership did not express the true agreement of the parties,
which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry
to the partnership; and that her share of 30% was to be based on the profits which might be realized
by the partnership only until full payment of the loan which it had obtained in December, 1955 from
the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a
promisory note as co-maker and mortgaged her property as security.

Issue: Whether the plaintiff-appellee (respondent here) is an industrial partner.

Ruling: Yes. One cannot read appellee's testimony just quoted without gaining the very definite
impression that, even as she was and still is a Judge of the City Court of Manila, she has rendered
services for appellants without which they would not have had the wherewithal to operate the
business for which appellant company was organized. Article 1767 of the New Civil Code which
provides that "By contract of 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,
'does not specify the kind of industry that a partner may thus contribute, hence the said services may
legitimately be considered as appellee's contribution to the common fund. Another article of the
same Code relied upon appellants reads that an industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case (Art. 1789). It is not
disputed that the provision against the industrial partner engaging in business for himself seeks to
prevent any conflict of interest between the industrial partner and the partnership, and to insure
faithful compliance by said partner with this prestation. There is no pretense, however, even on the
part of the appellee is engaged in any business antagonistic to that of appellant company, since being a
Judge of one of the branches of the City Court of Manila can hardly be characterized as a business.
Having always knows as a appellee as a City judge even before she joined appellant company on June
7, 1955 as an industrial partner, why did it take appellants many yearn before excluding her from said
company as aforequoted allegations? And how can they reconcile such exclusive with their main
theory that appellee has never been such a partner because "The real agreement evidenced by Exhibit
"A" was to grant the appellee a share of 30% of the net profits which the appellant partnership may
realize from June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance
Corporal shall have been fully paid. Appellee is an industrial partner of appellant company, with the
right to demand for a formal accounting and to receive her share in the net profit that may result from
such an accounting, which right appellants take exception under their second assigned error.


28 Fue Leung vs IAC [G.R. No. 70926 January 31, 1989]

Facts: The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria
was actually a partnership and that he was one of the partners having contributed P4,000.00 to its
initial establishment. About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a
receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the P4,000.00
by affixing his signature thereto. Furthermore, the private respondent received from the petitioner
the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check No.
13389470-B from the profits of the operation of the restaurant for the year 1974. The petitioner
denied having received from the private respondent the amount of P4,000.00. He contested and
impugned the genuineness of the receipt. The petitioner did not receive any contribution at the time
he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he was the sole
owner of the restaurant, the petitioner presented various government licenses and permits showing
the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit G) and
the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00

Issue: Whether or not the private respondent is a partner of the petitioner in the establishment of Sun
Wah Panciteria

Ruling: Yes. The private respondent is a partner of the petitioner in Sun Wah Panciteria. The
requisites of a partnership which are 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 (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have
been established. As stated by the respondent, a partner shares not only in profits but also in the
losses of the firm. If excellent relations exist among the partners at the start of business and all the
partners are more interested in seeing the firm grow rather than get immediate returns, a deferment
of sharing in the profits is perfectly plausible. It would be incorrect to state that if a partner does not
assert his rights anytime within ten years from the start of operations, such rights are irretrievably
lost. The private respondent's cause of action is premised upon the failure of the petitioner to give him
the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking
for an accounting of his interests in the partnership. It is Article 1842 of the Civil Code in conjunction
with Articles 1144 and 1155 which is applicable. Article 1842 states that the right to an account of his
interest shall accrue to any partner, or his legal representative as against the winding up partners or
the surviving partners or the person or partnership continuing the business, at the date of dissolution,
in the absence or any agreement to the contrary. Regarding the prescriptive period within which the
private respondent may demand an accounting, Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the partnership exists. Prescription begins to run only upon
the dissolution of the partnership when the final accounting is done.


29 Lim Tanhu vs Ramolete [G.R. No. L-40098 August 29, 1975]

Facts: This litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against
the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended complaint
dated September 26, 1972, their son Lim Teck Chuan and the other spouses-petitioners Alfonso
Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she "is the widow of Tee Hoon Lim Po Chuan, who
was a partner in the commercial partnership, Glory Commercial Company ... with Antonio Lim Tanhu
and Alfonso Ng Sua that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan,
and Eng Chong Leonardo, through fraud and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company,
defendants managed to use the funds of the partnership to purchase lands and building's in the cities
of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla.

Issue:
(1) Whether or not Tan Put can recover from the partnership.
(2) Whether or not a partnership exists.

Ruling:
(1) No. Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been
satisfactorily established and that, on the contrary, the evidence on record convincingly shows
that her relation with said deceased was that of a common-law wife and furthermore, that all
her claims against the company and its surviving partners as well as those against the estate of
the deceased have already been settled and paid. We take judicial notice of the fact that the
respective counsel who assisted the parties in the quitclaim, Attys. H. Hermosisima and Natalio
Castillo, are members in good standing of the Philippine Bar, with the particularity that the
latter has been a member of the Cabinet and of the House of Representatives of the Philippines,
hence, absent any credible proof that they had allowed themselves to be parties to a fraudulent
document His Honor did right in recognizing its existence, albeit erring in not giving due legal
significance to its contents.


(2) Yes. That the late Po Chuan was the one who actively managed the business of the partnership
Glory Commercial Co. he was the one who made the final decisions and approved the
appointments of new Personnel who were taken in by the partnership; that the late Po Chuan
and defendants Lim Tanhu and Ng Sua are brothers, the latter to (2) being the elder brothers of
the former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens
whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner of
the partnership having the controlling interest; that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere employees of Po Chuan. According to the very tax
declarations and land titles listed in the decision, most if not all of the properties supposed to
have been acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership
appear to have been transferred to their names only in 1969 or later, that is, long after the
partnership had been automatically dissolved as a result of the death of Po Chuan. Accordingly,
defendants have no obligation to account to anyone for such acquisitions in the absence of
clear proof that they had violated the trust of Po Chuan during the existence of the partnership.



30 Ramnani vs CA [G.R. No. 85494 May 7, 1991]

Facts: Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full blood.
Ishwar and his spouse Sonya had their main business based in New York. Realizing the difficulty of
managing their investments in the Philippines they executed a general power of attorney on January
24, 1966 appointing Navalrai and Choithram as attorneys-in-fact, empowering them to manage and
conduct their business concern in the Philippines. On February 1, 1966 and on May 16, 1966,
Choithram, in his capacity as aforesaid attorney-in-fact of Ishwar, entered into two agreements for the
purchase of two parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
Partnership (Ortigas for short) with a total area of approximately 10,048 square meters. Per
agreement, Choithram paid the down payment and installments on the lot with his personal checks. A
building was constructed thereon by Choithram in 1966 and this was occupied and rented by Jethmal
Industries and a wardrobe shop called Eppie's Creation. Three other buildings were built thereon by
Choithram through a loan of P100,000.00 obtained from the Merchants Bank as well as the income
derived from the first building. The buildings were leased out by Choithram as attorney-in-fact of
Ishwar. Two of these buildings were later burned. Sometime in 1970 Ishwar asked Choithram to
account for the income and expenses relative to these properties during the period 1967 to 1970.
Choithram failed and refused to render such accounting. As a consequence, on February 4, 1971,
Ishwar revoked the general power of attorney. Choithram and Ortigas were duly notified of such
revocation on April 1, 1971 and May 24, 1971, respectively. 3 Said notice was also registered with the
Securities and Exchange Commission on March 29, 1971 4 and was published in the April 2, 1971
issue of The Manila Times for the information of the general public. Nevertheless, Choithram as such
attorney-in-fact of Ishwar, transferred all rights and interests of Ishwar and Sonya in favor of his
daughter-in-law, Nirmla Ramnani, on February 19, 1973. Her husband is Moti, son of Choithram.
Upon complete payment of the lots, Ortigas executed the corresponding deeds of sale in favor of
Nirmla. 6 Transfer Certificates of Title Nos. 403150 and 403152 of the Register of Deeds of Rizal were
issued in her favor.

Issue: Whether or not a partnership exists.

Ruling: Yes. We have a situation where two brothers engaged in a business venture. One furnished
the capital, the other contributed his industry and talent. Justice and equity dictate that the two share
equally the fruit of their joint investment and efforts. Perhaps this Solomonic solution may pave the
way towards their reconciliation. Both would stand to gain. No one would end up the loser. After all,
blood is thicker than water. However, the Court cannot just close its eyes to the devious machinations
and schemes that Choithram employed in attempting to dispose of, if not dissipate, the properties to
deprive spouses Ishwar of any possible means to recover any award the Court may grant in their
favor. Since Choithram, et al. acted with evident bad faith and malice, they should pay moral and
exemplary damages as well as attorney's fees to spouses Ishwar.