BUSORG1 Case Digest Ist Set

The foregoing tax rate shall apply to the net
income received by every taxable corporation,

joint-stock company, partnership, joint account
(cuenta en participacion), association, or
insurance company in the calendar year
nineteen hundred and twenty and in each year
thereafter.
PARTNERSHIP IN GENERAL
EN BANC
G.R. No. L-45425
April 29, 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs.
THE COLLECTOR OF INTERNAL
REVENUE, defendant-appellee
Issue:
Facts:
Plaintiffs purchased, in the ordinary course
of business, from one of the duly authorized agents of
the National Charity Sweepstakes Office one ticket for
the sum of two pesos (Php 2). The said ticket was
registered in the name of Jose Gatchalian & Company.
The ticket won third prize in the draw. Gatchalian was
required
by
income
tax
examiner
to
file
the corresponding income tax return, and made
an assessment against Jose Gatchalian & Company
requesting the sum of Php 1,499.94 to the deputy
provincial treasurer of Bulacan. They requested an
exemption, but the Collector denied plaintiffs request,
and also reiterated his demand.
The Collector of Internal Revenue collected the tax
under section 10 of Act No. 2833, as last amended by
section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed,
collected, and paid annually upon the total net
income received in the preceding calendar year
from all sources by every corporation, jointstock company, partnership, joint account
(cuenta en participacion), association or
insurance company, organized in the Philippine
Islands, no matter how created or organized,
but not including duly registered general
copartnership (compaias colectivas), a tax of
three per centum upon such income; and a like
tax shall be levied, assessed, collected, and
paid annually upon the total net income
received in the preceding calendar year from
all sources within the Philippine Islands by
every
corporation,
joint-stock
company,
partnership,
joint
account
(cuenta
en
participacion),
association,
or
insurance
company organized, authorized, or existing
under the laws of any foreign country,
including interest on bonds, notes, or other
interest-bearing
obligations
of
residents,
corporate
or
otherwise: Provided,
however, That nothing in this section shall be
construed as permitting the taxation of the
income derived from dividends or net profits on
which the normal tax has been paid.
The gain derived or loss sustained from the
sale or other disposition by a corporation, jointstock company, partnership, joint account
(cuenta en participacion), association, or
insurance company, or property, real, personal,
or mixed, shall be ascertained in accordance
with subsections (c) and (d) of section two of
Act Numbered Two thousand eight hundred and
thirty-three, as amended by Act Numbered
Twenty-nine hundred and twenty-six.
Whether the plaintiffs formed a partnership, or merely

a community of property without a personality of its
own; in the first case it is admitted that the partnership
thus formed is liable for the payment of income tax,
whereas if there was merely a community of property,
they are exempt from such payment.
Held:
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 & 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.
Obillos Vs. CIR
G.R. No. L-68118 October 29, 1985
Facts:
On March 2, 1973 Jose Obillos, Sr. bought two
lots with areas of 1,124 and 963 square meters of
located at Greenhills, San Juan, Rizal. The next day he
transferred his rights to his four children, the
petitioners, to enable them to build their residences.
The Torrens titles issued to them showed that they
were co-owners of the two lots.
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
Canada for the total sum of P313,050. They derived
from the sale a total profit of P134, 341.88 or P33,584
for each of them. They treated the profit as a capital
gain and paid an income tax on one-half thereof or of
P16,792.
In April, 1980, the Commissioner of Internal
Revenue required the four petitioners to pay corporate
income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof. The
petitioners are being held liable for deficiency income
PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 1

BUS ORG I
taxes and penalties totaling P127,781.76 on their profit

of
P134,336, in addition to the tax on capital gains
already paid by them.
The Commissioner acted on the theory that the
four
petitioners
had
formed
an unregistered
partnership or joint venture. The petitioners contested
the assessments. Two Judges of the Tax Court
sustained the same. Hence, the instant appeal.
Issue:
Whether or not the petitioners had indeed formed a
partnership or joint venture and thus liable for
corporate tax.
Held:
The Supreme Court held that the petitioners
should not be considered to have formed a partnership
just because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit
among themselves. To regard so would result in
oppressive taxation and confirm the dictum that the
power to tax involves the power to destroy. That
eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no
such intention. They were co-owners pure and simple.
To consider them as partners would obliterate the
distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture
by reason of that isolated transaction.
*Article 1769(3) of the Civil Code provides that
"the sharing of gross returns does not of itself establish
a partnership, whether or not the persons sharing 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.*
Their original purpose was to divide the lots for
residential purposes. If later on they found it not
feasible to build their residences on the lots because of
the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership.
The division of the profit was merely incidental to the
dissolution of the co-ownership which was in the nature
of things a temporary state. It had to be terminated
sooner or later.
They did not contribute or invest additional ' capital to
increase or expand the properties, nor was there
an unmistakable intention to form partnership or joint
venture.
WHEREFORE, the judgment of the Tax Court is reversed
and set aside. The assessments are cancelled.
No costs.
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON,
petitioners, vs. THE COMMISSIONER OF INTERNAL
REVENUE and COURT OF TAX APPEALS,
respondents.
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. Later, they sold the said parcels of
land. Petitioners realized a net profit in the sale and
paid the corresponding capital gains taxes by availing
of the tax amnesties.
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 in which the
petitioners protested.
(COMMISIONER S RULING)
In a reply of August 22, 1979, 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.
Hence, the petitioners were required to pay the
deficiency income tax assessed.
(COURT OF TAX APPEALSS RULING)
Petitioners filed a petition for review with the
respondent Court of Tax Appeals but it affirmed the
decision and action taken by respondent commissioner.
It ruled that on the basis of the principle enunciated in
Evangelista 3 an unregistered partnership was in fact
formed by petitioners which like a corporation was
subject to corporate income tax distinct from that
imposed on the partners.
In a separate dissenting opinion, Associate Judge
Constante Roaquin stated that considering the
circumstances of this case, although there might in
fact be a co-ownership between the petitioners, there
was no adequate basis for the conclusion that they
thereby formed an unregistered partnership which
made them liable for corporate income tax under the
Tax Code.
Hence, this petition.
ISSUE:
Whether petitioners
corporations.
are
subject
to
the
tax
on
RULING:
The petition is meritorious. The basis of the subject
decision of the respondent court is the ruling of this
Court in Evangelista. 4Article 1767 of the Civil Code
of the Philippines provides: 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.
Pursuant to this article, the essential elements of a
partnership are two, namely: (a) an agreement to
contribute money, property or industry to a
common fund; and (b) intent to divide the profits
among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money

BUS ORG I
and property to a common fund. Hence, the issue

narrows down to their intent in acting as they did.
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, because:
of tax amnesty as individual taxpayers in these

transactions, they are thereby relieved of any further
tax liability arising therefrom.
1. Said common fund was not something they found

already in existence.
2. They invested the same, not merely in one
transaction, but in a series of transactions.
3. The aforesaid lots were not devoted to residential
purposes or to other personal uses, of petitioners
herein.
4. The affairs relative to said properties have been
handled as if the same belonged to a corporation or
business enterprise operated for profit.
5. The foregoing conditions have existed for more than
ten (10) years
Private respondent, Sanitary Wares, is a domestic

corporation engaged in manufacturing sanitary wares.
American Standards Inc (ASI), a foreign corporation,
entered into an agreement with Saniwares and some
Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise
which would engage in the business of manufacturing
in the Philippines and selling here and abroad sanitary
wares. The parties agreed that the business operations
in the Philippines.
PRESENT CASE
there is no evidence that petitioners entered into
an agreement to contribute money, property or
industry to a common fund, and that they
intended to divide the profits among themselves.
Respondent
commissioner
and/
or
his
representative just assumed these conditions to
be present on the basis of the fact that
petitioners purchased certain parcels of land and
became co-owners thereof.
petitioners bought two (2) parcels of land in
1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought
another three (3) parcels of land from one seller.
It was only 1968 when they sold the two (2)
parcels of land after which they did not make any
additional or new purchase. The remaining three
(3) parcels were sold by them in 1970. The
transactions were isolated. The character of
habituality peculiar to business transactions for
the purpose of gain was not present.
Aurbach vs Sanitary Wares

Facts:
In their agreement, it contained a provision whereby

ASI shall own at least 30% of the outstanding stock of
the corporation and also, three of the nine board of
directors shall be designated by ASI. The agreement
contained provisions designed to protect it as a
minority group, including the grant of veto powers over
of corporate
acts and where
the right to designate
there wasa number
a series
of transactions
certain officers, such as a member of the Executive
petitioners purchased twenty-four (24) lots
Committee whose vote was required for important
showing that
the purpose
was not limited to the
corporate
transactions.
conservation or preservation of the common fund
or even the
properties acquired
by them.
Unfortunately,
there came
a disagreement between
Filipino and foreign
due to their desire to
character the
of habituality
peculiarinvestors
to business
the in
export
operations
company to which
transactionsexpand
engaged
for the
purposeofofthe
gain
ASI
objected
as
it
apparently
had
other
subsidiaries of
was present
joint joint venture groups in the countries where
Philippine exports were contemplated. Stockholders
then proceeded to the election of the members of the
the properties
leased ASI
out nominated
to tenants
for
boardwere
of directors.
3 members,
whom in
several years.
The business
was under and
the the philippine
this case
are the petitioners
management
of one
the partners.
Such dispute ensued
investors
also of
nominated
six. However,
amongfor
the
filipino
and(15)
foreign
investors
which led to
condition existed
over
fifteen
years.
None
the
filing
of
separate
petitions
regarding
the
decision of
of the circumstances are present in the case at
the chairman, Baldwin Young, during their election to
bar. The co-ownership started only in 1965 and
allow the nomination of 4 foreign directors since ASIs
ended in 1970.
stocks were increased to 40%.
Issue:
WON the nature of the business established by the
parties are a joint venture or a corporation
In the present case, there is clear evidence of coownership 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.
And even assuming for the sake of argument that such
unregistered partnership appears to have been formed,
since there is no such existing unregistered partnership
with a distinct personality nor with assets that can be
held liable for said deficiency corporate income tax,
then petitioners can be held individually liable as
partners for this unpaid obligation of the partnership p.
7
However, as petitioners have availed of the benefits
Ruling
Yes. In the instant case, our examination of important
provisions of the Agreement as well as the testimonial
evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint
venture and not a corporation. The history of the
organization
of
Saniwares
and
the
unusual
arrangements which govern its policy making body are
all consistent with a joint venture and not with an
ordinary corporation.
The joint venture character of the enterprise must
always be taken into account, so long as the company
exists under its original agreement. Cumulative voting
may not be used as a device to enable ASI to achieve
stealthily or indirectly what they cannot accomplish
openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain
the minority status of the foreign investors group as
earlier discussed. They should be maintained.
It is said that participants in a joint venture, in
organizing the joint venture deviate from the
traditional pattern of corporation management. A
noted authority has pointed out that just as in close

BUS ORG I
corporations, shareholders' agreements in joint venture

corporations often contain provisions which do one or
more of the following: (1) require greater than majority
vote for shareholder and director action; (2) give
certain shareholders or groups of shareholders power
to select a specified number of directors; (3) give to
the shareholders control over the selection and
retention of employees; and (4) set up a procedure for
the settlement of disputes by arbitration
Quite often, Filipino entrepreneurs in their desire to
develop the industrial and manufacturing capacities of
a local firm are constrained to seek the technology and
marketing
assistance
of
huge
multinational
corporations of the developed world. Arrangements are
formalized where a foreign group becomes a minority
owner of a firm in exchange for its manufacturing
expertise, use of its brand names, and other such
assistance. However, there is always a danger from
such arrangements. The foreign group may, from the
start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture
arrangement to gain a foothold or test the Philippine
waters, so to speak. Or the covetousness may come
later. As the Philippine firm enlarges its operations and
becomes profitable, the foreign group undermines the
local majority ownership and actively tries to
completely or predominantly take over the entire
company. This undermining of joint ventures is not
consistent with fair dealing to say the least. To the
extent that such subversive actions can be lawfully
prevented, the courts should extend protection
especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino
citizens.
Issue # 2:
WON ASI may vote their additional equity during the
election of board of directors.
... ASI, however, should not be allowed

to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to
designate more than the three directors it is
allowed to designate under the Agreement,
and may even be able to get a majority of the
board seats, a result which is clearly contrary
to the contractual intent of the parties.
Such a ruling will give effect to both the
allocation of the board seats and the
stockholder's right to cumulative voting.
Moreover, this ruling will also give due
consideration to the issue raised by the
appellees
on
possible
violation
or
circumvention of the Anti-Dummy Law (Com.
Act No. 108, as amended) and the
nationalization
requirements
of
the
Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39,
Rollo, 75875)
The insinuation that the ASI Group may be able to
control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of
the cumulative voting procedure is dependent on the
directors thus elected being genuine members of the
Filipino group, not voters whose interest is to increase
the ASI share in the management of Saniwares. The
joint venture character of the enterprise must always
be taken into account, so long as the company exists
under its original agreement. Cumulative voting may
not be used as a device to enable ASI to achieve
stealthily or indirectly what they cannot accomplish
openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain
the minority status of the foreign investors group as
earlier discussed. They should be maintained.
TOCAO VS CA, G.R. No. 127405, September 20,
2001
Ruling:
No. As in other joint venture companies, the extent of
ASI's participation in the management of the
corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall
be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders. This
allocation of board seats is obviously in consonance
with the minority position of ASI.
Having entered into a well-defined contractual
relationship, it is imperative that the parties should
honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend
that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such
may interfere with the stockholder's rights to
cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to
hold that any agreement which curtails in any way
cumulative voting should be struck down, even if such
agreement has been freely entered into by
experienced businessmen and do not prejudice those
who are not parties thereto. It may well be that it
would be more cogent to hold, as the Securities and
Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be
voluntarily waived by stockholders who enter into
special relationships with each other to pursue and
implement specific purposes, as in joint venture
relationships between foreign and local stockholders,
so long as such agreements do not adversely affect
third parties.
To allow the ASI Group to vote their additional equity to
help elect even a Filipino director who would be
beholden to them would obliterate their minority status
as agreed upon by the parties. As aptly stated by the
appellate court:
FACTS OF THE CASE: Petitioners Marjorie Tocao and

William T. Belo filed a Motion for Reconsideration of the
Decision dated October 4, 2000. They maintain that
there was no partnership between petitioner Belo, on
the one hand, and respondent Nenita A. Anay, on the
other hand; and that the latter being merely an
employee of petitioner Tocao.
After a careful review of the evidence presented, the
court was convinced that, indeed, petitioner Belo acted
merely as guarantor of Geminesse Enterprise. This was
categorically affirmed by respondent's own witness,
Elizabeth Bantilan, during her cross-examination.
Furthermore, Bantilan testified that it was Peter Lo who
was the company's financier.
The foregoing was neither refuted nor contradicted by
respondent's evidence. It should be recalled that the
business relationship created between petitioner Tocao
and respondent Anay was an informal partnership,
which was not even recorded with the Securities and
Exchange Commission. As such, it was understandable
that Belo, who was after all petitioner Tocao's good
friend and confidante, would occasionally participate in
the affairs of the business, although never in a formal
or official capacity. Again, respondent's witness,
Elizabeth Bantilan, confirmed that petitioner Belo's
presence in Geminesse Enterprise's meetings was
merely as guarantor of the company and to help
petitioner Tocao.

BUS ORG I
ISSUE: Whether or not a partnership exists between

petitioner Belo and respondent Anay. NO
RULING: No evidence was presented to show that
petitioner Belo participated in the profits of the
business enterprise. Respondent herself professed lack
of knowledge that petitioner Belo received any share in
the net income of the partnership. On the other hand,
petitioner Tocao declared that petitioner Belo was not
entitled to any share in the profits of Geminesse
Enterprise. With no participation in the profits,
petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in
the profits and losses.
Consequently, inasmuch as petitioner Belo was not a
partner in Geminesse Enterprise, respondent had no
cause of action against him and her complaint against
him should accordingly be dismissed. Hence, the
Motion for Reconsideration of petitioners is partially
granted. The RTC of Makati was ordered to DISMISS the
complaint against petitioner William T. Belo only. The
sum of P208,250.00 shall be deducted from whatever
amount petitioner Marjorie Tocao shall be held liable to
pay respondent after the normal accounting of the
partnership affairs.
FERNANDO SANTOS, petitioner vs. Spouses
ARSENIO and NIEVES REYES, respondents.
GR NO: 135813
October 25, 2001
FACTS:
In June 1986, Fernando Santos and Nieves Reyes
were introduced to each other by Meliton Zabat
regarding a lending business venture proposed by
Nieves. They orally instituted a partnership with
them as partners and agreed that they will have a 7015-15 share for Fernando Santos, Nieves Reyes,
and Melton Zabat respectively. They agreed that
Santos shall be financier and that Nieves and
Zabat shall contribute their industry by taking
charge of solicitation of members and collection of loan
payments.
Later, in July 1986, Nieves introduced Cesar
Gragera to Santos. Gragera was the chairman of
Monte Maria Development Corporation. Gragera
sought short-term loans for members of the
corporation. It was agreed that the partnership shall
provide loans to the employees of Grageras
corporation and Gragera shall earn commission
from loan payments.
In August 1986, the three partners put into writing
their verbal agreement to form the partnership.
As earlier agreed, Santos shall finance and Nieves shall
do the daily cash flow more particularly from their
dealings with Gragera, Zabat on the other hand shall
be a loan investigator. However, Zabat was expelled
from the partnership for engaging in another
lending business which competes with their business.
The two continued with the partnership and they
took with them Nieves husband, Arsenio, who
became their loan investigator. Later, Santos accused
the
spouses
of
not
remitting
Grageras
commissions to the latter. He sued them for collection

of sum of money. The spouses countered that Santos
merely filed the complaint because he did not want the
spouses to get their shares in the profits amounting to
P3M. Santos argued that the spouses, insofar as
the dealing with Gragera is concerned, are merely his
employees. Santos alleged that there is a
distinct partnership between him and Gragera
which is separate from the partnership formed
between him, Zabat and Nieves.
The Trial court held that respondents were partners,
and not merely employees of the petitioner. It ruled
that Gragera was only a commission agent of
petitioner, not his partner.
The CA upheld the decision of the lower court.
The CA ruled that the following circumstances
indicated the existence of a partnership among
the parties (1) it was Nieves who broached to
petitioner the idea of starting a money-lending
business and introduced him to Gragera (2)
Arsenio received dividends or profit-shares
covering the period of July 15 to August 7, 1986
(3) the partnership contract was executed after
the Agreement with Gragera and petitioner and
thus showed the parties intention to consider it
as a transaction of the partnership. In their
common venture, petitioner invested capital
while respondents contributed industry or
services with the intention of sharing in the
profits of the business.
The defendants were industrial partners of the
petitioner. Nieves herself provided the initiative in the
lending activities with Monte Maria. And as agreed,
Nieves and Zabat (later replaced by Arsenio)
contributed industry to the common fund with the
intention of sharing in the profits of the partnership.
The spouses provided services without which the
partnership would not have had the ability to carry on
the purpose for which it was organized and as such
were considered industrial partners. The partnership
between Santos, Nieves and Zabat was technically
dissolved by the expulsion of Zabat. The remaining
partners simply continued the business of the
partnership without undergoing the procedure
relative to dissolution. Instead, they invited Arsenio
to participate as a partner in their operations. There
was therefore, no intent to dissolve the earlier
partnership. The partnership between Santos, Nieves
and Arsenio simply took over and continued the
business of the former partnership with Zabat, one of
the incidents of which was the lending operations with
Monte Maria.
Moreover, Gragera and Santos were not partners.
The money-lending activities undertaken with Monte
Maria were done in pursuit of the business for which
the partnership between Santos, Nieves and Zabat
(later
Arsenio)
was
organized.
Gragera
who
represented Monte Maria was merely paid commissions
in exchange for the collection of loans. The
commissions were fixed on gross returns, regardless of
the expenses incurred in the operation of the business.
The sharing of gross returns does not in itself
establish a partnership.
ISSUE/S:

BUS ORG I
Whether or not the Santos and Spouses Reyes are

partners
therefrom and the proceeds from the sales thereof in

real properties and securities.
HELD:
8. Petitioners' properties and investments gradually

increased from P105,450.00 in 1949 to P480,005.20 in
1956.
Yes, the court upheld the decisions of the Trial Court

and CA that there was a partnership created between
Santos and Spouses Reyes. By the contract of
partnership, two or more persons bind themselves to
contribute money, property or industry to a common
themselves. 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 biggest share. This stipulation clearly proved the
establishment of a partnership.
Though it is true that the original partnership between
Zabat, Santos and Nieves was terminated when Zabat
was expelled, the said partnership was however
considered continued when Nieves and Santos
continued engaging as usual in the lending business
even getting Nieves husband, who resigned from the
Asian Development Bank, to be their loan investigator
who, in effect, substituted Zabat. There is no
separate partnership between Santos and Gragera. The
latter being merely a commission agent of the
partnership. This is even though the partnership was
formalized shortly after Gragera met with Santos. Note
that Nieves was even the one who introduced Gragera
to Santos exactly for the purpose of setting up a
lending agreement between the corporation and the
partnership.
G.R. No. L-19342 May 25, 1972
LORENZO T. OA and HEIRS OF JULIA BUALES,
namely: RODOLFO B. OA, MARIANO B. OA, LUZ
B. OA, VIRGINIA B. OA and LORENZO B. OA,
JR., vs.
THE COMMISSIONER OF INTERNAL REVENUE
FACTS:
1. Julia Buales died on March 23, 1944, leaving as
heirs her surviving spouse, Lorenzo T. Oa and her five
children.
2. In 1948, a suit was instituted in the Court of First
Instance of Manila for the settlement of her estate.
3. Lorenzo T. Oa, the surviving spouse, was appointed
administrator of the estate of said deceased.
4. On April 14, 1949, the administrator submitted the
project of partition, which was approved by the Court
on May 16, 1949.
9. 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.
10. 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.
11. 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 invested them
in real properties and securities.
12. 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.
13. He assessed against the petitioners the amounts of
P8,092.00 and P13,899.00 as corporate income taxes
for 1955 and 1956, respectively.
14. Petitioners protested against the assessment and
asked for reconsideration of the ruling of respondent
that they have formed an unregistered partnership.
15. Finding no merit in petitioners' request, respondent
denied it.
16. Court of Tax Appeals held that petitioners have
constituted an unregistered partnership and are
subject to the payment of the deficiency corporate
income taxes assessed against them for the years
1955 and 1956.
17. Petitioners' motion for reconsideration was denied
by the said court.
18. Hence, this petition.
ISSUE:
Whether or not petitioners should be deemed to have
formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal
Revenue Code.
5. No attempt was made to divide the properties

therein listed.
HELD:
6. The properties remained under the management of

Lorenzo T. Oa.
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
7. He used said properties in business by leasing or

selling them and investing the income derived
YES.

BUS ORG I
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
tantamount 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.
For tax purposes, the co-ownership of inherited
properties is automatically converted into an
unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits
for the heirs in proportion to their respective shares in
the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or
intestate proceeding. From the moment of such
partition, the heirs are entitled already to their
respective definite shares of the estate and the
incomes thereof, for each of them to manage and
dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly he
becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to
be held in common with his co-heirs under a single
management to be used with the intent of making
profit thereby in proportion to his share, there can be
no doubt that, even if no document or instrument were
executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed.
petitioner for "Delivery of Personal Properties with

Damages and with an Application for a Writ of
Replevin".
Private respondents' application for a writ of replevin
was later granted by the TC.
For her defense, petitioner argue that she and private
respondent actually formed a verbal partnership which
was to engage in the business of Air Freight Service
Agency. She contended that the decision of sustaining
the writ of replevin is void since the properties
belonging to the partnership do nbot actuall belong to
any of the parties until the final disposition and winding
up of the partnership.
On appeal, CA outrightly dismissed the Petition for
Annulment of Judgment filed by the spouses petitioner
(due to absence of extrinsic or collateral fraud). Hence
this Petition for Review.
ISSUE:
WON there was a partnership that existed betweent
the parties?
RULING:
Verily, petitioners keeps on pressing that the idea of a
partnership
exists
on
account
of
the
so-called
admissions in judicio. But the factual premises of the

trial court were more than enough to suppress and
negate petitioners submissions.
Article 1767 of the New Civil Code quoted as:
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
NAVARRO VS CA
dividing the proceeds among themselves. xxx xxx

FACTS:
In consideration of the above, it is undeniable that both
Olivia V. Yanson (private respondent / plaintiff) and
the plaintiff and the defendant-wife made admission to
Lourdes Navarro (petitioner / defendant) were engaged
have entered into an agreement of operating this Allied
in the business of Air Freight Service Agency. Pursuant
Air Freight Agency of which the plaintiff personally
to the Agreement which they entered, they agreed to
constituted the Manila Office in a sense that the
operate the said Agency.
plaintiff did supply the necessary equipments and
It is the private respondent who supplies the necessary

equipment and money used in the operation of the
agency. Her brother in the person of Atty. Rodolfo
Villaflores was the manager thereof, while petitioner
was the cashier.
In compliance to her obligation as stated in their
agreement, private respondent brought into their
business certain chattels or movables or personal
properties. However, those personal properties remain
to be registered in her name.
Among the provisions stipulated in their agreement is
the equal sharing of whatever proceeds realized from
their business. However, sometime on July 23, 1976,
private respondent in order for her to recover the
above
mentioned
personal
properties
which
she
brought into their business, filed a complaint against
money while her brother Atty. Rodolfo Villaflores was

the Manager and the defendant the Cashier. It was also
admitted that part of this agreement was an equal
sharing of whatever proceeds realized. Consequently,
the plaintiff brought into this transaction certain
chattels in compliance with her obligation. The same
has been done by the herein brother and the herein
defendant who started to work in the business.
A cursory examination of the evidences presented no
proof that a partnership, whether oral or written had
been constituted at the inception of this transaction. In
fact,
those
movables
brought
by
the
private
respondent / plaintiff Olivia Yanson for the use in the

operation of the business remain registered in her
name.
While there may have been co-ownership or copossession of some items and/or any sharing of

BUS ORG I
proceeds by way of advances received by both plaintiff
No. The evidence is insufficient to prove that a
and the defendant, these are not indicative and
partnership existed between the private parties. On the
supportive of the existence of any partnership between
face of the promissory notes, nothing appears to be
them.
vague or ambiguous. It was clearly the intent of the
Article 1769 of the New Civil Code is explicit.
parties to enter into a contract of loan. The CA
xxx xxx "Co-ownership or co-possession does not itself
correctly held that even if evidence aliunde other than
establish a partnership, whether such co-owners or co-
the promissory notes may be admitted to alter the
possessors do or do not share any profits made by the
meaning conveyed thereby, still the evidence is
use of the property."
insufficient to prove that a partnership existed between
Even
the
books
and
records
retrieved
by
the
Acojedo and Sardane.

Sardane, as manager of the basnig business of
Commissioner appointed by the Court did not show

proof
as
Acojedo, naturally had some degree of control over the
conceptualized by law. Such that if assuming that there
of
the
existence
of
partnership
operations and maintenance thereof. However, the fact
were profits realized in 1975 after the two-year deficits
that he had received 50% of the net profits does not
were compensated, this could only be subject to an
conclusively establish that he was a partner of the
equal sharing consonant to the agreement to equally

divide any profit realized. However, this Court cannot
overlook the fact that the Audit Report of the appointed
Commissioner was not highly reliable in the sense that
it was more of his personal estimate of what is
private
respondent. Article
1769(4) of the
Civil
Code is explicit that while the receipt by a

person of a
share of the
profits of a
business
is prima facie evidence that he is a partner in the
available on hand. Besides, the alleged profit was a
business, no such inference shall be drawn if
difference found after valuating the assets and not
such
arising from the real operation of the business. In
wages of an employee. Further, the use by the
accounting procedures, stricty, this could not be profit,
parties of the pronoun "our" in referring to "our basnig,
but a net worth.
our catch", "our deposit", or "our boseros" was merely
WHEREFORE, the petition is DISMISSED. The Resolution
indicative of the camaraderie and not evidentiary of a
of the Court of Appeals dated June 20, 1991 is
partnership, between them.
profits
were
received
in
payment
as
AFFIRMED in all respects. SO ORDERED.

Florencio Reyes and Angel Reyes vs CIR and CTA
SARDANE VS CA
Facts:
FACTS:
Romeo Acojedo brought an action in the City
Court of Dipolog for collection of a sum of P5,217.25
based on promissory notes executed by Nobio Sardane
in favor of him. After the trial on the merits, the City
Court rendered its decision in favor of Acojedo. Sardane
appealed to the Court of First Instance of Zamboanga
del Norte which reversed the decision of the lower
court by dismissing the complaint.
The CFI held that the said amount taken by
Sardane from Acojedo is or was not his personal debt,
but expenses of the partnership that existed between
them. The promissory notes involved were merely
receipts for the contributions to said partnership and
upheld the claim that there was ambiguity in the

promissory notes hence; parol evidence was allowable
to contradict the terms of the represented loan
contract.
ISSUE: Whether a partnership exists between the
parties.
RULING:
On October 31, 1950, petitioners, father and

son, purchased a lot and building (Gibbs
Building) in Dasmarinas Street, Manila for
P835,000.00 of which they paid the sum of
P375,000.00,
leaving
a
balance
of
P460,000.00, representing the mortgage
obligation of the vendors with the China
Banking
Corporation,
which
mortgage
obligations were assumed by the vendees. The
petitioners shared the initial payment of
P375,000.00. At the time they purchased the
building, it was leased to various tenants. An
administrator was entrusted to collect the
rents, make repairs, and other functions
necessary
for
the
conservation
and
preservation of the building. Petitioners divided
equally the income of operation and
maintenance. The gross income from rentals of
the building amounted to about P90,000.00
annually.
They were then assessed by respondent, CIR,
the sum of P46,647.00 as income tax,
surcharge and compromise for the years 1951
to 1954, which was later reduced to
P37,528.00, as well as for the back income
taxes plus surcharge and compromise in the
total sum of P25,973.75, covering the years
1955 and 1956.
The CTA sustained the action of respondent but
reduced the tax liability of petitioners.
According to the CTA, the provisions of the
National Internal Revenue Code (NIRC) impose
income tax on corporations that includes
partnership.

BUS ORG I
Case for the Petitioner:
partnerships within the purview of the term

"corporation." It is, therefore, clear that
petitioners herein constitute a partnership,
insofar as said Code is concerned, and are
subject to the income tax for corporations."
EVANGELISTA VS CIR
According to the petitioner, the CTA erred in

holding that petitioners, by acquiring the said
building, established a partnership subject to
income tax under the (NIRC). They stressed
that their relation was as co-owners and not
partners.
Issue: Whether or not petitioners are partners so as to

subject their acquisition of property to income tax
imposed
on
corporations.
SEVILLA v. CA
Ruling:
Yes, petitioners are partners and the alleged

error committed by the CTA is untenable.
In the opinion penned by the then Chief Justice,
After referring to another section of the
National Internal Revenue Code, which
explicitly provides that the term corporation
"includes partnerships" and then to Article
1767 of the Civil Code of the Philippines,
defining what a contract of partnership is, the
opinion goes on to state that "the essential
elements of a partnership are two, namely: (a)
an agreement to contribute money, property or
industry to a common fund; and (b) intent to
divide the profits among the contracting
parties. The first element is undoubtedly
present in the case at bar, for, admittedly,
petitioners have agreed to and did, contribute
money and property to a common fund. Hence,
the issue narrows down to their intent in acting
as they did. 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.
The Court referred to circumstances that
surround the present case, to wit: 1) the
common fund being created purposely not
something already found in existence; 2) the
investment of the same not merely in one
transaction but in a series of transactions; 3)
the lots thus acquired not being devoted to
residential purposes or to other personal uses
of petitioners in that case; 4) such properties
having been under the management of one
person with full power to lease, to collect rents,
to issue receipts, to bring suits, to sign letters
and contracts and to endorse notes and
checks; 5) the above conditions having existed
for more than 10 years since the acquisition of
the above properties; and 6) no testimony
having been introduced as to the purpose "in
creating the set up already adverted to, or on
the causes for its continued existence."
The Court once again noted that although,
taken singly, they might not suffice to establish
the
intent
necessary
to
constitute
a
partnership, the collective effect of these
circumstances is such as to leave no room for
doubt on the existence of said intent in
petitioners herein.
Moreover, as defined in section 84(b) of said
Code,
"the
term
corporation
includes
partnerships, no matter how created or
organized." This qualifying expression clearly
indicates that a joint venture need not be
undertaken in any of the standard forms, or in
conformity with the usual requirements of the
law on partnerships, in order that one could be
deemed constituted for purposes of the tax on
corporations. For purposes of the tax on
corporations, our National Internal Revenue
Code, include these partnerships with the
exception only of duly registered general co-
G.R. Nos. L-41182-3; April 15, 1988

Ponente: J. Sarmiento
Facts:
On Oct. 19, 1960, the Tourist World Service, Inc. leased
an office at Mabini St., Manila for the former's use as a
branch office. When the branch office was opened, the
same was run by the herein appellant Lina O. Sevilla
payable to Tourist World Service Inc. by any airline for
any fare brought in on the efforts of Mrs. Lina Sevilla,
4% was to go to Lina Sevilla and 3% was to be withheld
by the Tourist World Service, Inc.
On or about November 24, 1961, the Tourist World
Service, Inc. appears to have been informed that Lina
Sevilla was connected with a rival firm, the Philippine
Travel Bureau, and, since the branch office was anyhow
losing, the Tourist World Service considered closing
down its office.
This was firmed up by two resolutions of the board of
directors of Tourist World Service, Inc. dated Dec. 2,
1961, the first abolishing the office of the manager and
vice-president of the Tourist World Service, Inc., Ermita
Branch, and the second, authorizing the corporate
secretary to receive the properties of the Tourist World
Service then located at the said branch office. It further
appears that on Jan. 3, 1962, the contract with the
appellees for the use of the Branch Office premises
was terminated and while the effectivity thereof was
Jan. 31, 1962, the appellees no longer used it. As a
matter of fact appellants used it since Nov. 1961.
Because of this, and to comply with the mandate of the
Tourist World Service, the corporate secretary Gabino
Canilao went over to the branch office, and, finding the
premises locked, and, being unable to contact Lina
Sevilla, he padlocked the premises on June 4, 1962 to
protect the interests of the Tourist World Service.
When neither the appellant Lina Sevilla nor any of her
employees could enter the locked premises, a
complaint was filed by the herein appellants against
the appellees with a prayer for the issuance of
mandatory preliminary injunction. Both appellees
answered with counterclaims. For apparent lack of
interest of the parties therein, the trial court ordered
the dismissal of the case without prejudice.
Issue:
Whether the act of Tourist World Service in abolishing
its Ermita branch proper. No.

BUS ORG I
Ruling:
The act of Tourist World Service in abolishing its Ermita
branch is not proper.
The Supreme Court held that when the petitioner, Lina
Sevilla, agreed to manage Tourist World Service, Inc.'s
Ermita office, she must have done so pursuant to a
contract of agency.
In the case at bar, Sevilla solicited airline fares, but
she did so for and on behalf of her principal, Tourist
World Service, Inc. As compensation, she received 4%
of the proceeds in the concept of commissions. And as
we said, Sevilla herself, based on her letter of
November 28, 1961, presumed her principal's authority
as owner of the business undertaking. We are
convinced, considering the circumstances and from the
respondent Court's recital of facts, that the parties had
contemplated a principal-agent relationship, rather
than a joint management or a partnership.
But unlike simple grants of a power of attorney, the
agency that we hereby declare to be compatible with
the intent of the parties, cannot be revoked at will. The
reason is that it is one coupled with an interest, the
agency having been created for the mutual interest of
the agent and the principal. Accordingly, the revocation
complained of should entitle the petitioner, Lina
Sevilla, to damages.
G.R. No. 143340
Upon Jacinto's death in the later part of 1989, his

surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations,
control, custody, disposition and management of
Shellite without respondent's consent.
ISSUE:
Whether or not a partnership existed between

respondent and Jacinto from 1977 until Jacinto's death.
HELD:
A partnership existed between respondent and Jacinto.
A partnership may be constituted in any form, except

where immovable property of real rights are
contributed thereto, in which case a public instrument
shall necessary. A verbal contract of partnership may
arise.
August 15, 2001
LILIBETH SUNGA-CHAN and CECILIA

SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.
The essential profits that must be proven to that a

partnership was agreed upon are (1) mutual
contribution to a common stock, and (2) a joint interest
in the profits.
FACTS:
Lamberto T. Chua verbally entered into a partnership

with Jacinto L. Sunga in the distribution of Shellane
Liquefied Petroleum Gas (LPG) in Manila.
For business convenience, respondent and Jacinto

allegedly agreed to register the business name of their
partnership, SHELLITE GAS APPLIANCE CENTER
(hereafter Shellite), under the name of Jacinto as a sole
proprietorship.
Article 1772 of the Civil Code requires that partnerships

with a capital of P3,000.00 or more must register with
the SEC, however, registration requirement is not
mandatory. Article 1768 of the Civil Code 25 explicitly
provides that the partnership retains its juridical
personality even if it fails to register. The failure to
register the contract of partnership does not invalidate
the same as among the partners, so long as the
contract has the essential requisites, because the main
purpose of registration is to give notice to third parties,
and it can be assumed that the members themselves
knew of the contents of their contract.
Re: laches and/or prescription
Respondent allegedly delivered his initial capital

contribution of P100,000.00 to Jacinto while the latter
in turn produced P100,000.00 as his counterpart
contribution, with the intention that the profits would
be equally divided between them.
The Civil Code provides that an action to enforce an

oral contract prescribes in six (6) years, while the right
to demand an accounting for a partner's interest as
against the person continuing the business accrues at
the date of dissolution, in the absence of any contrary
agreement.

BUS ORG I
It was Jacinto's death that respondent as the surviving

partner had the right to an account of his interest as
against petitioners.
The
Civil
Code expressly
provides
that
upon
dissolution, the partnership continues and its legal
personality is retained until the complete winding up of
its business, culminating in its termination.
that the HLURB Board committed no grave abuse of

discretion in rendering the appealed decision. MR was
also denied.
Petitioner filed before the CA a motion for
extension within which to file its petition for review,
claiming heavy workload of its counsel. This was
denied by the CA. MR was denied for lack of merit.
Issue:
W/N the petitioner should be held solidarily liable
together with PPGI.
Ruling:
J. Tiosejo Investment Corporation
Yes. The petitioner is solidarily liable together with

PPGI.
vs.
Sps. Benjamin and Eleanor Ang
Facts:
This is a petition for review seeking the
reversal of the CAs Resolution declaring the petitioner
solidary liable with Primetown Property Group, Inc.
(PPGI) to pay Spouses Ang.
The petitioner herein entered into a Joint
Venture Agreement with PPGI for the development of a
residential condominium project known as Meditel in
Mandaluyong City. Petitioner contributed the lot while
PPGI undertook to develop the condominium. The
parties further agreed to a 17%-83% sharing as to
developed units. PPGI further undertook to use all
proceeds from the pre-selling of its saleable units for
the completion of the Condominium Project.
In 1996, PPGI executed a Contract to
Sell
with
Spouses
Ang
on
a
certain
condominium unit and parking slot for P2,077,334.25
and P313,500.00, respectively.
However, on July 1999, respondent Spouses
filed before the Housing and Land Use Regulatory
Board (HLURB) a complaint for the rescission of the
Contract to Sell, against J. Tiosejo and PPGI due to
delay in the turnover of their purchased unit.
Spouses Ang instructed petitioner and PPGI to
stop depositing the post-dated checks they issued and
to cancel said Contracts to Sell. Despite several
demands, petitioner and PPGI have failed and refused
to refund the P611,519.52 they already paid under the
circumstances.
As defense, PPGI claim that the delay was
attributable to the economic crisis and Force Majeure.
On a separate answer, petitioner claims that
its
prestation
under
the
JVA
consisted
of
contributing the property on which the condominium
was to be contributed.
Not being privy to the
Contracts to Sell executed by PPGI and respondents, it
did not receive any portion of the payments made by
the latter; and, that without any contributory fault and
negligence on its part, PPGI (and not the petitioner)
breached its undertakings under the JVA by failing to
complete the condominium project.
The Housing and Land Use (HLU) ruled in favor
of respondents, rescinding the contract and ordering
petitioner and PPGI to pay refund, interest, damages,
attorneys fees and administrative fines.
The HLURB Board of Commissioners affirmed
the HLUs order. Motion for Reconsideration (MR) was
denied. The case was subsequently raised to the Office
of the President (OP) which rendered a decision
dismissing petitioners appeal on the ground that the
latters appeal memorandum was filed out of time and
By express terms of the JVA, it appears that

petitioner not only retained ownership of the property
pending completion of the condominium project but
had also bound itself to answer liabilities proceeding
from contracts entered into by PPGI with third parties.
Article VIII, Section 1 of the JVA distinctly provides as
follows:
Section 1: Rescission and damages:
xxx
In any case, the Owner shall respect and strictly
comply with any covenant entered into by the
Developer and third parties with respect to any of its
units in the Condominium Project. To enable the owner
to comply with this contingent liability, the Developer
shall furnish the Owner with a copy of its contracts with
the said buyers on a month-to-month basis.
Xxx
Viewed in the light of the foregoing provision of
the JVA, petitioner cannot avoid liability by claiming
that it was not in any way privy to the Contracts to Sell
executed by PPGI and respondents. Moreover, a joint
venture is considered in this jurisdiction as a form of
partnership and is, accordingly, governed by the law of
partnerships.
Under Article 1824 of the Civil Code of the
Philippines, all partners are solidarily liable with the
partnership for everything chargeable to the
partnership, including loss or injury caused to a third
person or penalties incurred due to any wrongful act or
omission of any partner acting in the ordinary course of
the business of the partnership or with the authority of
his co- partners. Whether innocent or guilty, all the
partners are solidarily liable with the partnership itself.
FEDERICO LOPEZ, ET AL, plaintiffs-appellees, vs YU
SEFAO and BEHN, MEYER & CO., defendants. YU
SEFAO, defendant- appellant
FACTS:
The herein plaintiff filed an action before the
CFI to recover from the defendants a boat or lanchon,
or its value, alleged to be P1,000, together with
damages in the sum of P4,680. The defendant, Yu
Sefao, at first presented a demurrer, which was
subsequently overruled. Later, he presented a general
and special defense. Still later, he asked permission to
withdraw his counterclaim and instead thereof to
present the defense that the plaintiffs were without

BUS ORG I
legal capacity to sue. The defendants, Behn, Meyer &

Co., presented a general denial. Later, Behn, Meyer &
Co., was absolved from all liability under the complaint.
After hearing the evidence adduced during the trial of
the case, the court rendered a judgment in favor of the
plaintiffs and against the defendant, Yu Sefao.
The defendant appealed the said judgment
alleging that the lower court committed an error in
deciding that the plaintiffs had legal capacity to sue.
The defendant and appellant argues that the plaintiffs
had been doing business under the name of Lopez
Hermanos; that they had not been organized as a
society, in accordance with the provisions of the
Commercial Code, and that, therefore, they were not
authorized to sue and cited decisions of this court in
support of that conclusion.
ISSUE:
Whether or not the herein plaintiffs have legal capacity
to sue.
HELD:
Yes. The SC affirmed the decision of the lower
court holding that the defendant and appellant had not
examined the complaint presented by the plaintiffs. An
examination of the complaint would have shown the
defendant that the present action was not commenced
in the name of Lopez Hermanos, but in the individual
names of the persons constituting the alleged society
or mercantile association. The SC further held that
nothing in the procedure in the present case which is in
conflict with the decisions cited by the appellant. The
plaintiffs in the present case, even granting that the
society called Lopez Hermanos was not authorized to
sue in the name of said society for the reason that it
had not been properly organized, yet, nevertheless,
in the bodegas of Menzi. Prior to the expiration of the

contract (April 27, 1927), the manager of Menzi
notified the plaintiff that the contract for his services
would not be renewed. Subsequently, when the
contract expired, Menzi proceeded to liquidate the
fertilizer business in question. The plaintiff refused to
agree to this. It argued, among others, that the written
contract entered into by the parties is a contract of
general regular commercial partnership, wherein Menzi
was the capitalist and the plaintiff the industrial
partner.
Issue: Is the relationship between the petitioner and
Menzi that of partners?
Held: The relationship established between the
parties was not that of partners, but that of employer
and employee, whereby the plaintiff was to receive
35% of the net profits of the fertilizer business of Menzi
in compensation for his services for 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 written contract
was, in fact, a continuation of the verbal agreement
between the parties, whereby the plaintiff worked for
the defendant corporation for onehalf of the net profits
derived by the corporation form certain fertilizer
contracts. According to Art. 116 of the Code of
Commerce, 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 it class may be, provided it has been
established in accordance with the provisions of the
Code. However in this case, there was no common
fund. The business belonged to Menzi & Co. The
plaintiff was working for Menzi, and instead of receiving
a fixed salary, he was to receive 35% of the net profits
as compensation for his services. The phrase in the
written contract en sociedad con, which is used as a
basis of the plaintiff to prove partnership in this case,
merely means en reunion con or in association with.
It is also important to note that although Menzi agreed
to furnish the necessary financial aid for the fertilizer
business, it did not obligate itself to contribute any
fixed sum as capital or to defray at its own expense the
cost of securing the necessary credit.
they were permitted to sue in their individual names.
MAGALONA, vs PESAYCO
BASTIDA vs MENZI
Facts:
Facts:
Bastida offered to assign to Menzi & Co. his contract
with Phil Sugar Centrals Agency and to supervise the
mixing of the fertilizer and to obtain other orders for 50
% of the net profit that Menzi & Co., Inc., might derive
therefrom. J. M. Menzi (gen. manager of Menzi & Co.)
accepted the offer. The agreement between the parties
was verbal and was confirmed by the letter of Menzi to
the plaintiff on January 10, 1922. Pursuant to the verbal
agreement, the defendant corporation on April 27,
1922 entered into a written contract with the plaintiff,
marked Exhibit A, which is the basis of the present
action. Still, the fertilizer business as carried on in the
same manner as it was prior to the written contract,
but the net profit that the plaintiff herein shall get
would only be 35%. The intervention of the plaintiff
was limited to supervising the mixing of the fertilizers
The plaintiffs, Magalona, Sermeno, and the defendant,

Pesayco, formed a partnership for the purpose of
catching "semillas de bagus o aua", It was agreed
that the defendant should put in a bid for this privilege
and that the partners should each supply one third of
the capital in case the defendant was awarded the
desired privilege. The defendant, having had
experience in this line, was to be the manager in case
his bid was accepted. As a deposit of one-fourth of the
amount of the bid was required, each of the partners
put up one third of this amount. The bid was awarded
to the defendant. The latter entered upon his duties
under the contract and gave an account of two sales of
"semillas de bagus", to Tiburcio Lutero as
representative of the plaintiff Magalona. As the
defendant had on hand only P410 he wired Lutero for
sufficient money to complete the payment of the first

BUS ORG I
quarter which was to be paid within the first twenty

days of the second quarter of the year 1931. The
defendant managed the business and never gave any
account of his catches or sales to his partners. In view
of this, complaint was filed.
Receiver took over the management and took
possession of all the devices and implements used in
the catching of "semillas de bagus".
Defendant denies that there was a partnership and
depends principally upon the fact that the partnership
agreement was not in writing.
Issue: Whether or not a partnership was created
between Magalona and Pesayco?
Issue: WON immovable property or real rights have been

contributed to the alleged partnership, thus allowing the
application of Art. 1773.
Held:
Held:
The partnership was conclusively proven by the oral
testimony of the plaintiffs and other witnesses.This
court has held that if a party permits a contract, which
the law provides shall be in writing, to be proved,
without objection as to the form of the proof, it is just
as binding as if the statute had been complied with.
The court did not agree with the appellant that one of
the requisites of a partnership agreement such as the
one under consideration, is that it should be in writing.
Article 1667 of the Civil Code provides that "Civil
partnerships may be established in any form whatever,
unless real property or real rights are contributed to
the same, in which case a public instrument shall be
necessary."
Articles of partnership are not required to be in writing

except in the cases mentioned in article 1667, Civil
Code, which controls article 1280 of the same Code.
A verbal partnership agreement is valid between the
parties even though more than 1,500 pesetas are
involved and can be enforced without bringing action
under article 1279, Civil Code, to compel execution of a
written instrument.
FACTS:
A land on which a theatre was constructed was

leased by plaintiff Mrs. Yulo from Emilia Carrion
Santa Marina and Maria Carrion Santa Marina.
In the contract of lease it was stipulated that
the lease shall continue for an indefinite period
of time, but that after one year the lease may
be cancelled by either party by written notice
to the other party at least 90 days before the
date of cancellation.
On June 17, 1945, defendant Yang Chiao Seng

wrote a letter to the plaintiff Mrs. Rosario U.
Yulo, proposing the formation of a partnership
between them to run and operate a theatre on
the premises occupied by former Cine Oro at
Plaza Sta. Cruz, Manila. The principal conditions
of the offer are (1) that Yang Chiao Seng
guarantees Mrs. Yulo a monthly participation of
P3,000 payable quarterly in advance within the
first 15 days of each quarter, (2) that the
partnership shall be for a period of two years
and six months, starting from July 1, 1945 to
December 31, 1947, with the condition that if
the land is
expropriated or rendered
impracticable for the business, or if the owner
constructs a permanent building thereon, or
Mrs. Yulo's right of lease is terminated by the
owner, then the partnership shall be
Facts:
Agad alleged in his complaint that he and

Mabato were partners in a fishpond business
pursuant to a public instrument dated Aug. 29, 1952,
o That he contributed P1k to its capital, with the
right to receive 50% of the profits
o That Mabato, who handled the partnership
funds, had yearly rendered accounts of its
operations from 1952-1956
o That
despite
repeated
demands,
Mabato failed and refused to render
account for the years 1957-1963
o That he prayed that Mabato be ordered
to give him his share of the profits from
the partnership amounting to P14k plus
P1k attorneys fees, as well as
the dissolution of the partnership, as
well as the winding up of its affairs by a
receiver to be appointed therefor
Mabato denied the existence of the partnership on the
ground that the contract therefore had not been
perfected because Agad failed to give his P1k
contribution to the capital
No immovable property or real rights have been

contributed in the alleged partnership.
Art. 1771: A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary.
Art. 1773: A contract of partnership is void, whenever
immovable property is contributed thereto, if inventory
of said property is not made, signed by the parties and
attached to the public instrument.
The public instrument presented showed that it was the
operation of a fishpond and not the engagement
in a fishpond business that was the purpose
established between Agad and Mabato.
o Neither contributed a fishpond nor a
real right to any fishpond
o Their contributions were limited to the sum of
P1k each
The operation of the fishpond 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.
YULO VS. YANG CHIAO SENG
Agad v. Mabato G.R. No. L-24193 June 28, 1968
He filed a motion to dismiss on the

ground of lack of cause of action
TC: motion to dismiss granted public instrument
declared null and void
o No inventory of the fishpond has been
attached to the public instrument pursuant to
Art. 1773
o

BUS ORG I
terminated even if the period for which the

partnership was agreed to be established has
not yet expired; (3) that Mrs. Yulo is authorized
personally to conduct such business in the
lobby of the building as is ordinarily carried on
in lobbies of theatres in operation, provided the
said business may not obstruct the free ingress
and agrees of patrons of the theatre; (4) that
after December 31, 1947, all improvements
placed by the partnership shall belong to Mrs.
Yulo, but if the partnership agreement is
terminated before the lapse of one and a half
years period under any of the causes
mentioned in paragraph (2), then Yang Chiao
Seng shall have the right to remove and take
away all improvements that the partnership
may place in the premises.
Pursuant to the above offer, which plaintiff

evidently accepted, the parties executed a
partnership agreement establishing the "Yang
& Company, Limited," which was to exist from
July 1, 1945 to December 31, 1947. It states
that it will conduct and carry on the business of
operating a theatre for the exhibition of motion
and talking pictures. The capital is fixed at
P100,000, P80,000 of which is to be furnished
by Yang Chiao Seng and P20,000, by Mrs. Yulo.
All gains and profits are to be distributed
among the partners in the same proportion as
their capital contribution and the liability of
Mrs. Yulo, in case of loss, shall be limited to her
capital contribution.
In June, 1946, they executed a supplementary

agreement, extending the partnership for a
period of three years beginning January 1,
1948 to December 31, 1950. The benefits are
to be divided between them at the rate of 5050 and after December 31, 1950, the
showhouse building shall belong exclusively to
the second party, Mrs. Yulo.
But on April 12, 1949, the attorney for the

owners notified Mrs. Yulo of the owner's desire
to cancel the contract of lease on July 31, 1949.
On October 27, 1950, Mrs. Yulo demanded from

Yang Chiao Seng her share in the profits of the
business. Yang answered the letter saying that
upon the advice of his counsel he had to
suspend the payment (of the rentals) because
of the pendency of the ejectment suit by the
owners of the land against Mrs. Yulo. In this
letter Yang alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo has not
paid to the lessors the rentals from August,
1949, he was retaining the rentals to make
good to the landowners the rentals due from
Mrs. Yulo in arrears.
In answer to the complaint, defendant alleges

that the real agreement between the plaintiff
and the defendant was one of lease and not of
partnership; that the partnership was adopted
as a subterfuge to get around the prohibition
contained in the contract of lease between the
owners and the plaintiff against the sublease of
the said property
ISSUE:
Whether or not there was a partnership
between petitioner and defendant.
HELD:
We have gone over the evidence and we fully
agree with the conclusion of the trial court that the
agreement was a sublease, not a partnership. The
following are the requisites of partnership: (1) two or
more persons who bind themselves to contribute
money, property, or industry to a common fund; (2)
intention on the part of the partners to divide the
profits among themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the
supposed P20,000 capital. In the second place, she did
not furnish any help or intervention in the management
of the theatre. In the third place, it does not appear
that she has ever demanded from defendant any
accounting of the expenses and earnings of the
business. Were she really a partner, her first concern
should have been to find out how the business was
progressing, whether the expenses were legitimate,
whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a
partner should have done; all that she did was to
receive her share of P3,000 a month, which can not be
interpreted in any manner than a payment for the use
of the premises which she had leased from the owners.
Clearly, plaintiff had always acted in accordance with
the original letter of defendant of June 17, 1945, which
shows that both parties considered this offer as the
real contract between them.
TUAZON vs. BOLANOS
In view of the refusal of Yang to pay her the

amount agreed upon, Mrs. Yulo instituted this
action on May 26, 1954, alleging the existence
of a partnership between them and that the
defendant Yang Chiao Seng has refused to pay
her share from December, 1949 to December,
1950.
INOCENCIA and FELIPE DELUAO vs. NICANOR

CASTEEL and JUAN DEPRA
G.R. No. L-21906
December 24, 1968,

SCRA 475
26
CASTRO, J.:
FACTS:
The basic action is for specific performance, and
damages resulting from an alleged breach of contract.
Nicanor Casteel repeatedly filed a fishpond

application for a big tract of swampy land in the
Municipality of Padada, Davao. His third application
was disapproved.
Despite the said rejection, Casteel did not lose

interest. He filed a motion for reconsideration.
Meanwhile, several applications were submitted
(and granted permits) by other persons for portions
of the area covered by Casteel's application.

BUS ORG I
Upon learning that portions of the area applied for

by him were already occupied by rival applicants,
Casteel immediately filed the corresponding protests.
Consequently, two administrative cases ensued
involving the area in question.
The Director of Fisheries rejected Casteel's

application on October 25, 1949, required him to
remove all the improvements which he had
introduced on the land, and ordered that the land be
leased through public auction.
Casteel appealed to the Secretary of Agriculture and

Natural Resources.
On November 25, 1949 Inocencia Deluao (wife of
Felipe Deluao) and Nicanor Casteel executed a
contract denominated a "contract of service",
stating that the former hires and employs the latter
and that Deluao will finance the construction and
improvements of the fishpond and Casteel will be the
Manager and sole buyer of all the produce of the fish
that will be produced from said fishpond. On the
same date, Inocencia Deluao executed a special
power of attorney in favor of Jesus Donesa, extending
to the latter the authority "To represent me in the
administration
of
the
fishpond
at
Malalag,
Municipality of Padada, Province of Davao,
Philippines.."
On November 29, 1949 the Director of Fisheries
rejected the application filed by Felipe Deluao.
On September 15, 1950 the Secretary of Agriculture
and Natural Resources issued a decision reinstating
Nicanor Casteel for the area of Victorio D. Carpio, of
Leoncio Aradillos and of Alejandro Cacam.
Sometime in January 1951 Nicanor Casteel forbade
Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative
(encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service entered
into between Inocencia Deluao and Nicanor Casteel,
Felipe Deluao and Inocencia Deluao on filed an action
in the Court of First Instance of Davao for specific
performance and damages against Nicanor Casteel
and Juan Depra (who, they alleged, instigated
Casteel to violate his contract).
ISSUE:
WON a contract of partnership was created between
Deluao and Casteel based on the so-called "contract of
service."
HELD: YES
appellant's fishpond application brought to the fore

several provisions of law which made the
continuation of the partnership unlawful and
therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the
holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to
him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources.
Since the partnership had for its object the division
into two equal parts of the fishpond between the
appellees and the appellant after it shall have been
awarded to the latter, and therefore it envisaged the
unauthorized transfer of one-half thereof to parties
other than the applicant Casteel, it was dissolved by
the approval of his application and the award to him
of the fishpond. The approval was an event which
made it unlawful for the business of the partnership
to be carried on or for the members to carry it on in
partnership.
CLASSES OF PARTNERSHIPS AND PARTNERS

Gregorio Ortega, Tomas del Castillo, Jr. and
Benjamin Bacorro v. CA, SEC and Joaquin Misa
G.R. No. 109248 July 3, 1995
Facts:
Ortega, then a senior partner in the law firm Bito, Misa,
and Lozada withdrew in said firm.
He filed with SEC a petition for dissolution and
liquidation
of
partnership.
SEC en banc ruled that withdrawal of Misa from the

firm had dissolved the partnership.
Reason: since it is partnership at will, the law firm
could be dissolved by any partner at anytime, such as
by withdrawal therefrom, regardless of good faith or
bad faith, since no partner can be forced to continue in
the partnership against his will.
Issue:
1.
The evidence preponderates in favor of the view

that the initial intention of the parties was not to
form a co-ownership but to establish a partnership
Inocencia Deluao as capitalist partner and Casteel as
industrial partner the ultimate undertaking of
which was to divide into two equal parts such portion
of the fishpond as might have been developed by the
amount extended by the plaintiffs-appellees, with the
further provision that Casteel should reimburse the
expenses incurred by the appellees over one-half of
the fishpond that would pertain to him.
We shall therefore construe the contract as one of
partnership, divided into two parts namely, a
contract of partnership to exploit the fishpond
pending its award to either Felipe Deluao or Nicanor
Casteel, and a contract of partnership to divide the
fishpond between them after such award. The first is
valid, the second illegal.
Art. 1830(3) of the Civil Code enumerates, as one of
the causes for the dissolution of a partnership, "...
any event which makes it unlawful for the business of
the partnership to be carried on or for the members
to carry it on in partnership." The approval of the
WON the partnership of Bito, Misa & Lozada

(now Bito, Lozada, Ortega & Castillo)
is a partnership at will;
2. 2. WON the withdrawal of Misa dissolved the
partnership
regardless
of his good or bad faith.
Held:
1. Yes. The partnership agreement of the firm provides
that [t]he partnership shall continue so long as
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by
the surviving partners.
2. Yes. Any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will
(e.g. by way of withdrawal of a partner).
He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of
the partnership but that it can result in a liability for
damages

BUS ORG I
ROJAS VS. MAGLANA [G.R. No. 30616 :

December 10, 1990.] 192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs.
CONSTANCIO B. MAGLANA, Defendant-Appellee.
FACTS: Maglana and Rojas executed their Articles of

Co-partnershipcalled
Eastcoast
Development
Enterpises which had an indefinite term of existence
and was registered with the SEC and had a Timber
License. One of the EDEs purposes was to apply or
secure timber and/or private forest lands and to
operate, develop and promote such forests rights and
concessions. M shall manage the business affairs while
R shall be the logging superintendent. All profits and
losses shall be divided share and share alike between
them. Later on, the two availed the services of
Pahamotang as industrial partner and executed
another articles of co-partnership with the latter. The
purpose of this second partnership was to hold and
secure renewal of timber license and the term of which
was fixed to 30 years. Still later on, the
three executed a conditional sale of interest in the
partnership wherein M and R shall
purchase the
interest, share and participation in the partnership of P.
It was also agreed that after payment of such including
amount of loan secured by P in favor of the
partnership, the two shall become owners of all
equipment contributed by P. After this, the
two
continued the partnership without any written
agreement
or reconstitution of their articles of
partnership.
Subsequently,
R
entered
into
a
management contract with CMS Estate Inc. M wrote
him re: his contribution to the capital investments as
well as his duties as logging superintendent. R replied
that he will not be able to comply with both. M then
told R that the latters share will just be 20% of the net
profits. Such was the sharing from 1957 to 1959
without complaint or dispute. R took funds from the
partnership more than his contribution. M notified R
that he dissolved the partnership. R filed an action
against M for the recovery of
properties and
accounting of the partnership and damages. CFI:
the partnership of M and R is after P retired is one of de
facto and at will; the sharing of profits and
losses is on the basis of actual contributions;
there is no evidence these properties were acquired by
the partnership funds thus it should not belong to it;
neither is entitled to damages; the letter of M in effect
dissolved the partnership; sale of forest concession is
valid and binding and should be considered
as Ms contribution; R must pay or turn over to the
partnership the profits he received from CMS and pay
his personal account to the partnership; M must be
paid 85k which he shouldve received but was not paid
to him and must be considered as his contribution.
ISSUE: what is the nature of the partnership and legal
relationship of M-Rafter P retired from the second
partnership? May M unilaterally dissolve the
partnership?
Held: SC. There was no intention to dissolve the first
partnership upon the constitution of the second as
everything else was the same except for the fact that
they took in an industrial partner: they pursued the
same purposes, the capital contributions call for
the
same
amount all
subsequent renewals of
Timber License were secured in favor of the first

partnership,all businesses were carried out under the
registered articles.M and R agreed to purchase the
interest, share and participation of P andafter, they
became owners of the equipment contributed
by P. Bothconsidered themselves as partners as per
their letters. It is not a partnershipde facto or at will as
it was existing and duly registered. The letter of
Mdissolving the partnership is in effect a notice of
withdrawal and may bedone by expressly withdrawing
even before expiration of the period withor without
justifiable cause. As to the liquidation of the
partnership it shallbe divided share and share alike
after an accounting has been made.R is not entitled to
any profits as he failed to give the amount he
hadundertaken to contribute thus, had become a
debtor
of
the
partnership.
M cannot be liable for damages as R abandoned the

partnership thru his acts and also took funds in an
amount
more
than
his
contribution.
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 CoPartnership; 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 19561961 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.
Consequently, except as to the legal relationship of the
partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered
partnership and the sharing of profits and losses which

BUS ORG I
should be on the basis of share and share alike as

provided for in the duly registered Articles of CoPartnership, no plausible reason could be found to
disturb the findings and conclusions of the trial court.:
nad
As to whether Maglana is liable for damages because
of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a
management contract with another logging enterprise,
the CMS Estate, Inc., a company engaged in the same
business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in
equipment to the capital investment and to perform his
duties as logging superintendent, as stipulated in their
partnership agreement. The records also show that
Rojas not only abandoned the partnership but also took
funds in an amount more than his contribution
(Decision,
R.A.,
p.
949).
McDonald. Paul Mcdonald later on transferred the same

to Benjamin Gonzales.
The respondent, upon learning the transfer,
opposed and filed an action to recover its credits and
to foreclose the chattel mortgage. McDonalds and
Gonzales, on the other hand, claimed better right over
the said properties. The CFI of Manila rendered decision
in favor of the respondent. The same was affirmed by
the CA. Hence, this petition.
ISSUE:
Whether or not an unregistered commercial copartnership which has no independent juridical
personality can have a domicile so that a chattel
mortgage registered in that domicile would bind third
persons who are innocent purchasers for value.
RULING:
In the given situation Maglana cannot be said to be in

bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the
Court of First Instance of Davao, Branch III, is hereby
MODIFIED in the sense that the duly registered
partnership of Eastcoast Development Enterprises
continued to exist until liquidated and that the sharing
basis of the partners should be on share and share
alike as provided for in its Articles of Partnership, in
accordance
with
the
computation
of
the
commissioners. We also hereby AFFIRM the decision of
the trial court in all other respects.: nad
SO ORDERED.
Paul McDonald, et.al. vs. The National City Bank
of New York
[G.R. No. L-7991, May 21, 1956]
FACTS:
Stakinocery is a partnership doing business at
No. 58, Aurora, Boulevard, San Juan, Rizal, and formed
by Alan Gorcey, Louis da Costa, Jr., William Kusik, and
Emma Gavino. This partnership was denied registration
in the Securities and Exchange Commission,
considering that Gorcey and Da Costa are considered
general partners in a copartnership under the name of
Cardinal Rattan.
Prior to June 3, 1949, Stasikinocery had an
overdraft account with the National City of New York, a
foreign banking association duly licensed to do
business in the Philippines. On June 3, 1949, the
overdraft showed a balance of P6,134.92 against
Stasikinocery or Cardinal Rattan, which account, due to
the failure of the partnership to make the required
payment, was converted into an ordinary loan for
which a promissory note was executed by Da Costa in
the name of Cardinal Rattan. The promissory note was
secured by a chattel mortgage of some motor vehicles.
On June 7, 1949, the same day of the execution
of the chattel mortgage, Gorcey and Da Costa
executed an agreement to transfer right, title and
participation to Shaeffer. Also, while the said loan was
still unpaid, Da Costa and Gorcey transferred the Fargo
Truck (one of the vehicles mortgaged) to Paul
Yes.
RATIO:
While an unregistered commercial partnership
has no juridical personality, nevertheless, where two or
more persons attempt to create a partnership failing to
comply with all the legal formalities, the law considers
them as partners and the association is a partnership
in so far as it is favorable to third persons, by reason of
equitable principle of estoppel. In Jo Chung Chang vs.
Pacific Commercial Co., it was held that although the
partnership with the firm name of Teck Seing and Co.,
Ltd., could not be regarded as a partnership de jure,
yet with respect to third persons, it will be considered a
partnership with all the consequent obligations for the
purpose of enforcing the rights of such third person.
In the case at bar, Da Costa and Gorcey cannot
deny that they are partners of the partnership
Stasikinocery because in all their transactions with the
respondent, they represented themselves as such.
Petitioner McDonald cannot disclaim knowledge of the
partnership Stasikinocery because he dealt with said
entity in purchasing two vehicles in question through
Gorcey and Da Costa.
As was held in Behn Meyer & Co., vs. Rosatzin,
where a partnership not duly organized has been
recognized as such in its dealings with certain persons,
it shall be considered as partnership by estoppel and
the persons dealing with it are estopped from denying
its partnership existence.
It results that if the law recognizes a
defectively organized partnership as de facto as far as
third persons are concerned, for purposes of its de
facto existence, should have such attribute of a
partnership as domicile. In Hung- Man Yuc vs. KeingChiong Cheng, it was held that although it has no legal
standing, it is partnership de facto and the general
provisions of the Code applicable to all partnerships
apply to it.
G.R. No. L-25532
February 28, 1969

BUS ORG I
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs.
acquisition of Carlson's interests in the partnership in

1948 is not a ground for dissolution of the partnership,
either in the Code of Commerce or in the New Civil
Code, and that since its juridical personality had not
been affected and since, as a limited partnership, as
contra distinguished from a duly registered general
partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his
individual return the income of the limited partnership.
WILLIAM J. SUTER and THE COURT OF TAX

APPEALS, respondents.
REYES, J.B.L., J.:
FACTS:
A limited partnership, named "William J. Suter 'Morcoin'
Co., Ltd.," was formed on 30 September 1947 by herein
respondent William J. Suter as the general partner, and
Julia Spirig and Gustav Carlson, as the limited partners.
The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership. On 1
October 1947, the limited partnership was registered
with the SEC. The firm engaged in the importation,
marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement
machines, their parts and accessories. It had an office
and held itself out as a limited partnership.
In 1948, however, general partner Suter and limited
partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share
in the partnership to Suter and his wife. The sale was
duly recorded with the SEC.
The limited partnership had been filing its income tax
returns as a corporation, without objection by the
herein petitioner, until in 1959 when the latter, in an
assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Suter
and Spirig resulting in a determination of a deficiency
income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and
requested its cancellation and withdrawal, but his
request was denied. he appealed to the Court of Tax
Appeals, which reversed that of the Commissioner of
Internal Revenue.
The theory of the petitioner, is that the marriage of
Suter and Spirig and their subsequent acquisition of
the interests of remaining partner Carlson in the
partnership dissolved the limited partnership, and if
they did not, the fiction of juridical personality of the
partnership should be disregarded for income tax
purposes because the spouses have exclusive
ownership and control of the business; consequently
the income tax return of respondent Suter for the years
in question should have included his and his wife's
individual incomes and that of the limited partnership,
in accordance with Section 45 (d) of the National
Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married
persons, whether citizens, residents or nonresidents, only one consolidated return for the
taxable year shall be filed by either spouse to
cover the income of both spouses; ....
ISSUE: Whether or not the limited partnership has

been dissolved after the marriageof Suter and Spirig
and buying the interest of limited partner Carlson We
find the Commissioner's appeal unmeritorious.
HELD: No.
A husband and a wife may not enter into a
contract
of general copartnership,
because
under the Civil Code, which applies in the
absence of express provision in the Code of
Commerce, persons prohibited from making
donations to each other are prohibited from
entering
into universal partnerships.
(2
Echaverri 196) It follows that the marriage of
partners
necessarily
brings
about
the
dissolution of a pre-existing partnership.
The petitioner-appellant has evidently failed to observe
the fact that William J. Suter "Morcoin" Co., Ltd.
was not a universal partnership, but a particular one.
As appears from Articles 1674 and 1675 of the Spanish
Civil Code, of 1889 (which was the law in force when
the
subject
firm
was
organized
in
1947),
a universal partnership requires either that the object
of the association be all the present property of the
partners, as contributed by them to the common fund,
or else "all that the partners may acquire by
their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the
contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00
by Julia Spirig and neither one of them was an
industrial partner. It follows that William J. Suter
"Morcoin" Co., Ltd. was not a partnership that spouses
were forbidden to enter by Article 1677 of the Civil
Code of 1889.
Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of
the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both
partners the company became a single proprietorship,
is equally erroneous. The capital contributions of
partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their
marriage; and after they were joined in wedlock, such
contributions remained their respective separate
property under the Spanish Civil Code (Article 1396).
LYONS VS ROSENSTOCK
Suter maintains, as the Court of Tax Appeals held, that

his marriage with limited partner Spirig and their

BUS ORG I
LIM vs PHILIPPINE FISHING GEAR INDUSTRIES,

INC.
FACTS: On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao entered into
a Contract 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 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. The
trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent. Chua
admitted his liability while Lim Tong Lim refused such
liability alleging that Chua and Yao acted without his
knowledge and consent in representing themselves as
a corporation.
ISSUE: Whether Lim Tong Lim is liable as a partner
RULING: The facts as found by the two lower courts
clearly showed that there existed a partnership among
Chua, Yao and him, pursuant to Article 1767 of the Civil
Code which provides: Article 1767 - By the contract of
partnership, two or more persons bind themselves to
contribute money, property, or industry to a common
themselves. Specifically, both lower courts ruled that a
partnership among the three existed based on the
following factual findings:[15] 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
petitioners 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. 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.
G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA,

JR., CONCHITA B. NAVARRO and LEONARDA
ATIENZA ABAD SABTOS, petitioners, vs.
ESTRELLA ABAD SANTOS, respondent.
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. 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; 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 or not the Articles of Co-partnership shall be
considered as a conclusive evidence of respondents
status as a limited partner?
HOLDING:
The Court held that despite the genuineness of the
Articles of Co-partnership the same did not express the
true intent and agreement of the parties, however, as
the subsequent events and testimonial evidences
indicate otherwise, the Court upheld that respondent is
an industrial partner of the company.
Article 1789 provides 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. Since 1954 and until after

BUS ORG I
the promulgation of the decision of the appellate court,

Abad Santos has served as a judge of the City Court of
Manila and had been paid for services rendered
allegedly contributed by her to the partnership. Though
being a judge of the City Court of Manila cannot be
characterized a business and/or may be considered an
antagonistic business to the partnership, the
petitioners, subsequent of petitioners answer to the
complaint, petitioners reached the decision that
respondent be excluded from and deprived of her
alleged share in the interest or participation as an
alleged industrial partner in the net profits or income of
the partnership.
petitioners so many years before excluding her from

said company? Furthermore, the act of exclusion is
premised on the ground that respondent has always
been a partner, an industrial partner. In addition, the
Court further held that with the consideration of Article
1767 that By 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 profits among themselves, the
services rendered by respondent may legitimately be
considered the respondents contribution to the
common fund.
Having always known the respondent is a City Judge

even before she joined the partnership, why did it take

BUS ORG I

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The foregoing tax rate shall apply to the net

income received by every taxable corporation,

April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

Whether the plaintiffs formed a partnership, or merely

PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 1

taxes and penalties totaling P127,781.76 on their profit

P107,101.70 as alleged deficiency corporate income

PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 2

and property to a common fund. Hence, the issue

of tax amnesty as individual taxpayers in these

1. Said common fund was not something they found

Private respondent, Sanitary Wares, is a domestic

Aurbach vs Sanitary Wares

In their agreement, it contained a provision whereby

PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 3

corporations, shareholders' agreements in joint venture

... ASI, however, should not be allowed

FACTS OF THE CASE: Petitioners Marjorie Tocao and

PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 4

ISSUE: Whether or not a partnership exists between

commissions to the latter. He sued them for collection

PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 5

Whether or not the Santos and Spouses Reyes are

therefrom and the proceeds from the sales thereof in

8. Petitioners' properties and investments gradually

Yes, the court upheld the decisions of the Trial Court

9. From said investments and properties, petitioners

5. No attempt was made to divide the properties

6. The properties remained under the management of

Indeed, it is admitted that during the material

7. He used said properties in business by leasing or

PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 6

petitioner for "Delivery of Personal Properties with

admissions in judicio. But the factual premises of the

dividing the proceeds among themselves. xxx xxx

In consideration of the above, it is undeniable that both

Olivia V. Yanson (private respondent / plaintiff) and

the plaintiff and the defendant-wife made admission to

Lourdes Navarro (petitioner / defendant) were engaged

have entered into an agreement of operating this Allied

in the business of Air Freight Service Agency. Pursuant

Air Freight Agency of which the plaintiff personally

to the Agreement which they entered, they agreed to

constituted the Manila Office in a sense that the

operate the said Agency.

plaintiff did supply the necessary equipments and

It is the private respondent who supplies the necessary

brought into their business, filed a complaint against

money while her brother Atty. Rodolfo Villaflores was

respondent / plaintiff Olivia Yanson for the use in the

PART I. PARTNERSHIP/Case Digests/LE107 (2016-2017) | 7

proceeds by way of advances received by both plaintiff

No. The evidence is insufficient to prove that a

and the defendant, these are not indicative and

partnership existed between the private parties. On the

supportive of the existence of any partnership between

face of the promissory notes, nothing appears to be

vague or ambiguous. It was clearly the intent of the

Article 1769 of the New Civil Code is explicit.

parties to enter into a contract of loan. The CA

xxx xxx "Co-ownership or co-possession does not itself

correctly held that even if evidence aliunde other than