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Business Organization 1

Atty. Catherine Guerzo-Barrion


PART I: PARTNERSHIP
GENERAL PROVISIONS
MARIANO P. PASCUAL and RENATO P. DRAGON,
petitioners, vs. THE COMMISSIONER OF INTERNAL
REVENUE and COURT OF TAX APPEALS,
respondents.
Taxation Coownership Unregistered Partnership
Elements of Partnership Case at bar.In the 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 coowners thereof. In
Evangelista, there was a series of transactions where
petitioners purchased twentyfour (24) lots showing that
the purpose was not limited to the conservation or
preservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to
business transactions engaged in for the purpose of gain
was present.
Same Same Same Same The sharing of returns does
not in itself establish a partnership Reasons.In order
to constitute a partnership inter sese there must be: (a)
An intent to form the same (b) generally participating in
both profits and losses (c) and such a community of
interest, as far as third persons are concerned as enables
each party to make contract, manage the business, and
dispose of the whole property. (Municipal Paving Co.
vs. Herring, 150 P. 1067, 50 111 470.) The common
ownership of property does not itself create a partnership
between the owners, though they may use it for purpose
of making gains and they may, without becoming
partners, agree among themselves as to the management
and use of such property and the application of the
proceeds therefrom. (Spurlock vs. Wilson, 142 S. W.
363, 160 No. App. 14.) The sharing of returns does not
in itself establish a partnership whether or not the persons
sharing therein have a joint or common right of interest in
the property. There must be clear intent to form a
partnership, the existence of a juridical personality
different from the individual partners, and the freedom of
each party to transfer or assign the whole property.
Same Same Same Same Petitioners, not liable for
corporate income tax since they cannot be considered to
have formed an unregistered partnership but only a coownership Reasons.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
coowners 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.
Same Same Same Same As petitioners have availed
of the benefits of tax amnesty as individual taxpayers in
these transactions, they are thereby relieved of any
further tax liability arising therefrom.And even
assuming for the sake of argument that such unregistered

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FIRST EXAM: PARTNERSHIP


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. However, as petitioners
have availed of the benefits of tax amnesty as individual
taxpayers in these transactions, they are thereby relieved
of any further tax liability arising therefrom.
ELIGIO ESTANISLAO, JR., petitioner, vs. THE
HONORABLE COURT OF APPEALS, REMEDIOS
ESTANISLAO, EMILIO and LEOCADIO SANTIAGO,
respondents.
Civil Law Partnership No merit in the contention that
because of the stipulation cancelling and superseding the
previous joint af idavit, whatever partnership agreement
there was in said previous agreement had thereby been
abrogated.Petitioner contends that because of the said
stipulation cancelling and superseding that previous Joint
Affidavit, whatever partnership agreement there was in
said previous agreement had thereby been abrogated.
We find not merit in this argument. Said cancelling
provision was necessary for the Joint Aflfidavit speaks of
P15,QOO.OO advance rentals starting May 25, 1966
while the latter agreement also refers to advance rentals
of the same amount starting May 24,1966, There is,
therefore, a duplication of reference to the Pl 5,000.00
hence the need to provide in the subsequent document
that it cancels and supersedes the previous one. True it
is that in the latter document, it is silent as to the statement
in the Joint Affidavit that the P15,000.00 represents the
capital investment of the parties in the gasoline station
business and it speaks of petitioner as the sole dealer, but
this is as it should be for in the latter document SHELL
was a signatory and it would be against its policy if in the
agreement it should be stated that the business is a
partnership with private respondents and not a sole
proprietorship of petitioner.
Same Same Same Evidence showing that there was in
fact such partnership agreement between theparties.
Moreover other evidence in the record shows that there
was in fact such partnership agreement between the
parties. This is attested by the testimonies of private
respondent Remedios Estanislao and Atty. Angeles.
Petitioner submitted to private respondents periodic
accounting of the business. Petitioner gave a written
authority to private respondent Remedios Estanislao, his
sister, to examine and audit the books of their common
business (aming negosyo). Reapondent Remedios
assisted in the running of the business. There is no doubt
that the parties hereto formed a partnership when they
bound themselves to contribute money in a common fund
with the intention of dividing the profits among
themselves. The sole dealership by the petitioner and the
issuance of all government permits and licenses in the
name of petitioner was in compliance with the aforestated
policy of SHELL and the understanding of the parties of
having only one dealer of the SHELL products.
ANG PUE & COMPANY, ET AL., plaintiffsappellants,
vs. SECRETARY OF COMMERCE AND INDUSTRY,
defendantappellee.
Partnership To organize not absolute right.To organize
a corporation or partnership that could claim a juridical
personality of its own and transact business as such, is
not a matter of absolute right but a privilege which may be
enjoyed only under such terms as the state may deem
necessary to impose.

Business Organization 1
Atty. Catherine Guerzo-Barrion
Same Only Filipinos may engage in retail business Rep.
Act 1180 applicable to existing partnership.The State
through Congress had the right to enact Republic Act No.
1180 providing that only Filipinos may engage in the retail
business and such provision was intended to apply to
partnership owned by foreigners already existing at the
time of its enactment giving them the right to continue
engaging in their retail business until the expiration of their
term of life.
Same Amendment of articles of partnership to extend
term after enactment of the law.The agreement in the
articles of partnership to extend the term of its life is not a
property right and it must be deemed subject to the law
existing at the time when the partners came to agree
regarding the extension. In the case at bar, when the
partners amended the articles of partnership, the
provisions of Republic Act 1180 were already in force, and
there can be not the slightest doubt that the right claimed
by appellants to extend the original term of their
partnership to another five years would be in violation of
the clear intent and purpose of said Act.
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO
P. OBILLOS and REMEDIOS P. OBILLOS, brothers
and sisters, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Taxation The dictum that the power to tax involves the
power to destroy should be obviated.To regard the
petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and
confirm the dictum that the power to tax involves the
power to destroy. That eventuality should be obviated.
Same Partnership Coownership Where the father sold
his rights over two parcels of land to his four children so
they can build their residence, but the latter after one (1)
year sold them and paid the capital gains, they should not
be treated to have formed an unregistered partnership
and taxed corporate income tax on the sale and dividend
income tax on their shares of the profit's from the sale.
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 coownership. The division of the
profit was merely incidental to the dissolution of the
coownership which was in the nature of things a
temporary state. It had to be terminated sooner or later.
Same Same Same Mere sharing of gross income from
an isolated transaction does not establish a
partnership.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 j oint 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.
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING
GEAR INDUSTRIES, INC., respondent.
Partnerships A partnership may be deemed to exist
among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise
therefrom, even if it is shown that they have not
contributed any capital of their own to a common fund,

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FIRST EXAM: PARTNERSHIP


as their contribution to such fund could be an intangible
like credit or industry. 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.
Same Appeals Petitions for Review Pleadings and
Practice Under Rule 45, a petition for review should
involve only questions of law, and a petitioner, in assailing
the factual findings of the two lower courts, ef ectively
goes beyond the bounds of a petition for review.We
stress that under Rule 45, a petition for review like the
present case should involve only questions of law. Thus,
the foregoing factual findings of the RTC and the CA are
binding on this Court, absent any cogent proof that the
present action is embraced by one of the exceptions to
the rule. In assailing the factual findings of the two lower
courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Same Same Same A proper adjudication of claimants
rights mandates that courts must review and thoroughly
appraise all relevant facts. A proper adjudication of
claimants rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts
have done so and have found, correctly, a preexisting
partnership among the parties. In implying that the lower
courts have decided on the basis of one piece of
document alone, petitioner fails to appreciate that the CA
and the RTC delved into the history of the document and
explored all the possible consequential combinations in
harmony with law, logic and fairness. Verily, the two lower
courts factual findings mentioned above nullified
petitioners argument that the existence of a partnership
was based only on the Compromise Agreement.
Same Loans It is not uncommon to register the
properties acquired from a loan in the name of the person
the lender trusts.Verily, as found by the lower courts,
petitioner entered into a business agreement with Chua
and Yao, in which debts were undertaken in order to
finance the acquisition and the upgrading of the vessels
which would be used in their fishing business. The sale of
the boats, as well as the division among the three of the
balance remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes, though registered
in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender
trusts, who in this case is the petitioner himself. After all,
he is the brother of the creditor, Jesus Lim.
Same Corporation Law Estoppel Corporation by
Estoppel Doctrine Agency Those who act or purport to
act as the representatives or agents of an ostensible
corporate entity who is proven to be legally inexistent do
so without authority and at their own risk.Even if the

Business Organization 1
Atty. Catherine Guerzo-Barrion

FIRST EXAM: PARTNERSHIP

ostensible corporate entity is proven to be legally


nonexistent, a party may be estopped from denying its
corporate existence. The reason behind this doctrine is
obvious an unincorporated association has no
personality and would be incompetent to act and
appropriate for itself the power and attributes of a
corporation as provided by law it cannot create agents or
confer authority on another to act in its behalf thus, those
who act or purport to act as its representatives or agents
do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as
an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and
subject to all the liabilities of a principal, a person acting
or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and
obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent.

contract entered into by persons with whom he previously


had an existing relationship, he is deemed to be part of
said association and is covered by the scope of the
doctrine of corporation by estoppel. We reiterate the ruling
of the Court in Alonso v. Villamor: A litigation is not a
game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and
position, entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing
aside as wholly trivial and indecisive all imperfections of
form and technicalities of procedure, asks that justice be
done upon the merits. Lawsuits, unlike duels, are not to
be won by a rapiers thrust. Technicality, when it deserts
its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration
from courts. There should be no vested rights in
technicalities.

Same Same Same Same The doctrine of corporation


by estoppel may apply to the alleged corporation and to a
third party An unincorporated association, which
represents itself to be a corporation, will be estopped from
denying its corporate capacity in a suit against it by a third
person who relies in good faith on such representation.
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first
instance, an unincorporated association, which
represented itself to be a corporation, will be estopped
from denying its corporate capacity in a suit against it by
a third person who relied in good faith on such
representation. It cannot allege lack of personality to be
sued to evade its responsibility for a contract it entered
into and by virtue of which it received advantages and
benefits.

ALFREDO N. AGUILA, JR., petitioner, vs.


HONORABLE COURT OF APPEALS and FELICIDAD
S. VDA. DE ABROGAR, respondents.
Actions Parties Pleadings and Practice A complaint filed
against a party who is not a real party in interest should
be dismissed for failure to state a cause of action.Rule
3, 2 of the Rules of Court of 1964, under which the
complaint in this case was filed, provided that every
action must be prosecuted and defended in the name of
the real party in interest. A real party in interest is one
who would be benefited or injured by the judgment, or
who is entitled to the avails of the suit. This ruling is now
embodied in Rule 3, 2 of the 1997 Revised Rules of Civil
Procedure. Any decision rendered against a person who
is not a real party in interest in the case cannot be
executed. Hence, a complaint filed against such a person
should be dismissed for failure to state a cause of action.

Same Same Same Same A third party who, knowing


an association to be unincorporated, nonetheless treated
it as a corporation and received benefits from it, may be
barred from denying its corporate existence in a suit
brought against the alleged corporation.A third party
who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged
corporation. In such case, all those who benefited from
the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable
for contracts they impliedly assented to or took advantage
of.
Same Same Same Same Under the law on estoppel,
those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence,
are held liable as general partners.It is difficult to
disagree with the RTC and the CA that Lim, Chua and
Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does
not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid
existence, are held liable as general partners. Same
Same Same Same A person who has reaped the
benefits of a contract entered into by persons with whom
he previously had an existing relationship is deemed to be
part of said association and is covered by the scope of the
doctrine of corporation by estoppel. Technically, it is
true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the

3|TALION_PQV

Same Same Same Partnerships A partnership has a


juridical personality separate and distinct from that of
each of the partnersit is the partnership, not its of icers
or agents, which should be impleaded in any litigation
involving property registered in its name.Under Art.
1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the
partners. The partners cannot be held liable for the
obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used
for fraudulent, unfair, or illegal purposes. In this case,
private respondent has not shown that A.C. Aguila &
Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title
to the subject property is in the name of A.C. Aguila &
Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of
her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not
its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the
complaint. We cannot understand why both the Regional
Trial Court and the Court of Appeals sidestepped this
issue when it was squarely raised before them by
petitioner.
LORENZO T. OA,and HEIRS OF JULIA
BUNALES,namely: RODOLFO B. OA,MARIANO B.
OA,LUZ B. OA,VIRGINIA B. OA,and LORENZO
B. OA,JR., petitioners, vs. THE COMMISSIONER OF
INTERNAL REVENUE,respondent.

Business Organization 1
Atty. Catherine Guerzo-Barrion
Taxation Partnership When coownership converted to
copartnership.For tax purposes, the coownership of
inherited properties is automatically converted into an
unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used
as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the
inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the
court in the corresponding testate or intestate proceeding.
The reason is simple. From the moment of such partition,
the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of
them to manage and dispose of as exclusively his own
without the intervention of the other heirs, and,
accordingly, he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his
share to be held in common with his coheirs 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.
Same Same Corporation Partnerships considered
corporation for tax purposes.For purposes of the tax on
corporations, the National Internal Revenue Code,
includes partnershipswith the exception only of duly
registered general copartnershipswithin the purview of
the term corporation.
Same Same When income derived from inherited
properties deemed part of partnership income.The
income derived from inherited properties may be
considered as individual income of the respective heirs
only so long as the inheritance or estate is not distributed
or, at least, partitioned, but the moment their respective
known shares are used as part of the common assets of
the heirs to be used in making profits, it is but proper that
the income of such shares should be considered as part
of the taxable income of an unregistered partnership.
Same Same Ef ect on unregistered partnership profits of
individual income tax paid.The partnership profits
distributable to the partners should be reduced by the
amounts of income tax assessed against the partnership.
Consequently, each of the petioners in his individual
capacity overpaid his income tax for the years in question.
But as the individual income tax liabilities of petitioners
are not in issue in the instant proceeding, it is not proper
for the Court to pass upon the same. Same Same Where
right to refund of overpaid individual income tax has
prescribed.A taxpayer who did not pay the tax due on
the income from an unregistered partnership, of which he
is a partner, due to an erroneous belief that no
partnership, but only a coownership, existed between him
and his coheirs, and who due to the payment of the
individual income tax corresponding to his share in the
unregistered partnership profits, on the balance, overpaid
his income tax has the right to be reimbursed what he has
erroneously paid. However, the law is very clear that the
claim and action for such reimbursement are subject to
the bar of prescription.
NOBIO SARDANE, petitioner, vs. THE COURT OF
APPEALS and ROMEO J. ACOJEDO, respondents,
Remedial Law Evidence Parol Evidence Rule The
exceptions provided in Sec. 7, Rule 130 of the Rules of
Court do not apply in the case at bar as there is no
ambiguity in the writings in question.As correctly

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FIRST EXAM: PARTNERSHIP


pointed out by the respondent Court the exceptions to the
rule do not apply in this case as there is no ambiguity in
the writings in question, thus: "In the case at bar, Exhibits
B, C, and D are printed promissory notes containing a
promise to pay a sum certain in money, payable on
demand and the promise to bear the costs of litigation in
the event of the private respondent's failure to pay the
amount loaned when demanded extrajudicially. Likewise,
the vales denote that the private respondent is obliged to
return the sum loaned to him by the petitioner. On their
face, nothing appears to be vague or ambiguous, for the
terms of the promissory notes clearly show that it was
incumbent upon the private respondent to pay the amount
involved in the promissory notes if and when the petitioner
demands the same.
Same Same Civil Procedure Actionable Documents
Failure of the defendant to deny under oath in its answer
the authenticity and due execution of an actionable
document is an admission of its genuineness and due
execution.The record shows that herein petitioner did
not deny under oath in his answer the authenticity and
due execution of the promissory notes which had been
duly pleaded and attached to the complaint, thereby
admitting their genuineness and due execution. Even in
the trial court, he did not at all question the fact that he
signed said promissory notes and that the same were
genuine. Instead, he presented parol evidence to vary the
import of the promissory notes by alleging that they were
mere receipts of his contribution to the alleged
partnership.
Civil Law Partnership While receipt of a share in then
profits of the business is a prima facie evidence that the
person receiving the same is a partner, no such inference
shall be drawn if such profits were received in payment of
his wages as an employee.As manager of the basnig
Sardaco, naturally some degree of control over the
operations and maintenance thereof had to be exercised
by herein petitioner. The fact that he had received 50% of
the net profits does not conclusively establish that he was
a partner of the private respondent herein. 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 business, 110 such
inference shall be drawn if such profits were received in
payment as wages of an employee. Furthermore, herein
petitioner had no voice in the management of the affairs
of the basnig. Under similar facts, this Court in the early
case of Fortis vs. Gutierrez Hermanos, in denying the
claim of the plaintiff therein that he was a partner in the
business of the defendant, declared: "This contention
cannot be sustained. It was a mere contract of
employment. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that
the compensation received by him was to be determined
with reference to the profits made by the defendant in their
business did not in any sense make him a partner therein.
x x x."
Civil Procedure Implied Admission of Actionable
Documents, Waiver of Implied admission of an
actionable document may be waived by a party but only if
he acts in a manner indicative of either an express or tacit
waiver thereof.Petitioner's invocation of the doctrines in
Yu Chuck, et al. vs. Kong Li Po, which was reiterated in
Central Surety & Insurance Co. vs. C. N. Hodges, et al.
does not sustain his thesis that the herein private
respondent had "waived the mantle of protection given
him by Rule 8, Sec. 8". It is true that such implied

Business Organization 1
Atty. Catherine Guerzo-Barrion
admission of genuineness and due execution may be
waived by a party but only if he acts in a manner indicative
of either an express or tacit waiver thereof. Petitioner,
however, either over looked or ignored the fact that, as
held in Yu Chuck, and the same is true in other cases of
identical factual settings, such a finding of waiver is proper
where a case has been tried in complete disregard of the
rule and the plaintiff having pleaded a document by copy,
presents oral evidence to prove the due execution of the
document and no objections are made to the defendant's
evidence in refutation. This situation does not obtain in the
present case hence said doctrine is obviously
inapplicable.
Same Same Same Same Failure of private respondent
to crossexamine the petitioner in his surrebuttal testimony
does not constitute a waiver of the implied admission of
the actionable documents.Neither did the failure of
herein private respondent to crossexamine herein
petitioner on the latter's surrebuttal testimony constitute a
waiver of the aforesaid implied admission. As found by the
respondent Court, said surrebuttal testimony consisted
solely of the denial of the testimony of herein private
respondent and 110 new or additional matter was
introduced in that surrebuttal testimony to exonerate
herein petitioner from his obligations under the aforesaid
promissory notes.
Same Same Appeals Petition for Review The
requirement of af irmance in full of the inferior court's
decision as a condition sine qua non for a petition for
review to the Court of Appeals, as provided in RA 296,
was not adopted or reproduced in RA 6031.At any rate,
it will be noted that petitioner anchors his said objection
on the provisions of Section 29, Republic Act 296 as
amended by Republic Act 5433 effective September
9,1968. Subsequently, the procedure for appeal to the
Court of Appeals from decisions of the then courts of first
instance in the exercise of their appellate jurisdiction over
cases originating from the municipal courts was provided
for by Republic Act 6031, amending Section 45 of the
Judiciary Act effective August 4,1969. The requirement
for affirmance in full of the inferior court's decision was not
adopted or reproduced in Republic Act 6031. Also, since
Republic Act 6031 failed to provide for the procedure or
mode of appeal in the cases therein contemplated, the
Court of Appeals en banc provided therefor in its
Resolution of August 12, 1971, by requiring a petition for
review but which also did not require for its availability that
the judgment of the court of first instance had affirmed in
full that of the lower court. Said mode of appeal and the
procedural requirements thereof governed the appeal
taken in this case from the aforesaid Court of First
Instance to the Court of Appeals in 1977. Herein
petitioner's plaint on this issue is, therefore, devoid of
merit.
ADRIANO ARBES ET AL., plaintiffs and appellees,
vs. VICENTE POLISTICO ET AL., defendants and
appellants.
UNLAWFUL
PARTNERSHIPS

"TURNUHAN
POLISTICO & Co." CHARITABLE INSTITUTIONS.
The partnership "Turnuhan Polistico & Co." is an unlawful
partnership (U. S. vs. Baguio, 39 Phil., 962). According to
paragraph 2 of article 1666 of the Civil Code, when an
unlawful partnership is judicially dissolved, the earnings
shall not be disposed of as profits, but shall be given to
charitable institutions. But in a case like the one at bar,
whose object is to determine the rights of the parties, and

5|TALION_PQV

FIRST EXAM: PARTNERSHIP


to liquidate the unlawful partnership, no charitable
institution should be included as defendant, as the
appellants contend, because it is not a necessary party to
the case.
ID. ACTION TO OBTAIN PROFITS OF UNLAWFUL
PARTNERSHIP.Said article 1666 of the Civil Code
allows no action for the purpose of obtaining the earnings
made by the unlawful partnership, during its existence, as
a result of the business in which it was engaged because
for that purpose the partner will have to base his action on
the partnership contract which is null and without ilegal
existence by reason of its unlawful object, and it is selfevident that what does not exist cannot be a cause of
action.
LILIBETH SUNGACHAN and CECILIA SUNGA,
petitioners, vs. LAMBERTO T. CHUA, respondent.
Partnership Contracts 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.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. Hence, based on
the intention of the parties, as gathered from the facts and
ascertained from their language and conduct, a verbal
contract of partnership may arise. The essential points
that must be proven to show that a partnership was
agreed upon are (1) mutual contribution to a common
stock, and (2) a joint interest in the profits.
Understandably so, in view of the absence of a written
contract of partnership between respondent and Jacinto,
respondent resorted to the introduction of documentary
and testimonial evidence to prove said partnership. The
crucial issue to settle then is whether or not the Dead
Mans Statute applies to this case so as to render
inadmissible respondents testimony and that of his
witness, Josephine.
Same Evidence Dead Mans Statute Requirements
The Dead Mans Statute provides that if one party to the
alleged transaction is precluded from testifying by death,
insanity, or other mental disabilities, the surviving party is
not entitled to undue advantage of giving his own
uncontradicted and unexplained account of the
transaction.The Dead Mans Statute provides that if
one party to the alleged transaction is precluded from
testifying by death, insanity, or other mental disabilities,
the surviving party is not entitled to the undue advantage
of giving his own uncontradicted and unexplained account
of the transaction. But before this rule can be successfully
invoked to bar the introduction of testimonial evidence, it
is necessary that: 1. The witness is a party or assignor of
a party to a case or persons in whose behalf a case is
prosecuted. 2. The action is against an executor or
administrator or other representative of a deceased
person or a person of unsound mind 3. The subjectmatter
of the action is a claim or demand against the estate of
such deceased person or against person of unsound
mind 4. His testimony refers to any matter of fact which
occurred before the death of such deceased person or
before such person became of unsound mind.
Same Same Same Same When it is the executor or
administrator or representatives of the estate that sets up
the counterclaim, the plaintif , herein respondent, may
testify to occurrences before the death of the deceased to
defeat the counterclaim.Two reasons forestall the

Business Organization 1
Atty. Catherine Guerzo-Barrion
application of the Dead Mans Statute to this case. First,
petitioners filed a compulsory counterclaim against
respondent in their answer before the trial court, and with
the filing of their counterclaim, petitioners themselves
effectively removed this case from the ambit of the Dead
Mans Statute. Well entrenched is the rule that when it is
the executor or administrator or representatives of the
estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death
of the deceased to defeat the counterclaim. Moreover, as
defendant in the counterclaim, respondent is not
disqualified from testifying as to matters of fact occurring
before the death of the deceased, said action not having
been brought against but by the estate or representatives
of the deceased.
Same Same Words and Phrases Assignor of a party
means assignor of a cause of action which has arisen,
and not the assignor of a right assigned before any cause
of action has arisen.The testimony of Josephine is not
covered by the Dead Mans Statute for the simple
reason that she is not a party or assignor of a party to a
case or persons in whose behalf a case is prosecuted.
Records show that respondent offered the testimony of
Josephine to establish the existence of the partnership
between respondent and Jacinto. Petitioners insistence
that Josephine is the alter ego of respondent does not
make her an assignor because the term assignor of a
party means assignor of a cause of action which has
arisen, and not the assignor of a right assigned before any
cause of action has arisen. Plainly then, Josephine is
merely a witness of respondent, the latter being the party
plaintiff.
Same Dissolution 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. With regard to
petitioners insistence that laches and/or prescription
should have extinguished respondents claim, we agree
with the trial court and the Court of Appeals that the action
for accounting filed by respondent three (3) years after
Jacintos death was well within the prescribed period. 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 partners interest as against
the person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement.
Considering that the death of a partner results in the
dissolution of the partnership, in this case, it was after
Jacintos death that respondent as the surviving partner
had the right to an account of his interest as against
petitioners. It bears stressing that while Jacintos death
dissolved the partnership, the dissolution did not
immediately terminate the partnership. 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.

ANTONIA TORRES assisted by her husband,


ANGELO TORRES and EMETERIA BARING,
petitioners, vs. COURT OF APPEALS and MANUEL
TORRES, respondents.
Civil Law Contracts Partnership The contract
manifested the intention of the parties to form a
partnership.Under the abovequoted Agreement,
petitioners would contribute property to the partnership in
the form of land which was to be developed into a

6|TALION_PQV

FIRST EXAM: PARTNERSHIP


subdivision while respondent would give, in addition to
his industry, the amount needed for general expenses
and other costs. Furthermore, the income from the said
project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention
of the parties to form a partnership.
Same Same Same Courts are not authorized to
extricate parties from the necessary consequences of
their acts, and the fact that the contractual stipulations
may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations.Under Article
1315 of the Civil Code, contracts bind the parties not only
to what has been expressly stipulated, but also to all
necessary consequences thereof. x x x It is undisputed
that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily
signed. If it was not in consonance with their expectations,
they should have objected to it and insisted on the
provisions they wanted. Courts are not authorized to
extricate parties from the necessary consequences of
their acts, and the fact that the contractual stipulations
may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot
now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its
terms.
Same Same Same Parties cannot adopt inconsistent
positions in regard to a contract and courts will not
tolerate, much less approve, such practice.Petitioners
themselves invoke the allegedly void contract as basis for
their claim that respondent should pay them 60 percent of
the value of the property. They cannot in one breath deny
the contract and in another recognize it, depending on
what momentarily suits their purpose. Parties cannot
adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.
Same Same Sale Consideration, more properly
denominated as cause, can take dif erent forms, such as
the prestation or promise of a thing or service by
another.Petitioners also contend that the Joint Venture
Agreement is void under Article 1422 of the Civil Code,
because it is the direct result of an earlier illegal contract,
which was for the sale of the land without valid
consideration. This argument is puerile. The Joint Venture
Agreement clearly states that the consideration for the
sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not
actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated
as cause, can take different forms, such as the prestation
or promise of a thing or service by another.
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. WILLIAM J. SUTER and THE COURT
OF TAX APPEALS, respondents.
Partnership Where respondent company in the case at
bar is considered a particular partnership and not
universal.The respondent company was not a universal
partnership, but a particular one. As appears f rom
Articles 1674 and 1675 of the Spanish Civil Code of 1889
(law in force when firm 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. Respondent company

Business Organization 1
Atty. Catherine Guerzo-Barrion
was not such a universal partnership, since the
contributions of the partners were fixed sums of money
and neither one of them was an industrial partner. It
follows that respondent company 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.
Same Where marriage of partners does not make the
company a single
proprietorship.The capital
contributions of re spondentspartners 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.
Same Partnership has distinct and separate personality
from that of its partners Section 24 of Internal Revenue
Code is exception to the rule. The basic tenet of ,the
Spanish and Philippine law is that the partnership has a
juridical personality of its own, distinct and separate from
that of its partners, the bypassing of the existence of the
limited partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory mandates and
basic principles of our law. The limited partnerships
separate individuality makes it impossible to equate its
income with that of the component members. True,
section 24 of the Internal Revenue Code merges
registered general copartnerships with the personality of
the individual partners for income tax purposes. But this
rule is exceptional in its disregard of a cardinal tenet of
our partnership laws, and can not be extended by mere
implication to limited partnerships.
Same Taxation Change in membership does not remove
partnership from coverage of section 24.The limited
partnership is not a mere business conduit of the partnerspouses it was organized for legitimate business
purposes it conducted its own dealings with its customers
prior to appellees marriage, and had been filing its own
income tax returns as such independent entity. The
change in its membership, brought about by the marriage
of the partners and their subsequent acquisition of all
interest therein. is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax
code, requiring it to pay income tax. As far as the records
show, the partners did not enter into matrimony and
thereafter buy the interests of the remaining partner with
the premeditated scheme or design to use the partnership
as a business conduit to dodge the to laws. Regularity,
not otherwise, is presumed. The limited partnership is
taxable on its income and to require that income to be
included in the indiviual tax return of respondent is to
overstretch the letter and intent of the law.
Same Same Members and not firm are taxable in case
of compaias colectivas.In fact, it would even conflict
with what it specifically provides in its Section 24: for the
appellants stand results in equal treatment, taxwise, of a
general copartnership (compania colectiva) and a limited
partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the
former, because it is in the case of compaias colectivas
that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit
derived from the duly registered general partnership

7|TALION_PQV

FIRST EXAM: PARTNERSHIP


(Section 26, N.I.R.C. Araas, Anno. & Juris on the
N.I.R.C., As Amended, Vol. 1, pp. 8889).
Same Same Income of limited partnership forming part
of the conjugal partnership is not wholly correct.That
the income of the limited partnership is actually or
constructively the income of the spouses and forms part
of the conjugal partnership of gains is not wholly correct.
The fruits of the wifes paraphernal become conjugal only
when no longer needed to defray ,the expenses for the
administration and preservation of the paraphernal capital
of the wife. Then again, the appellants argument
erroneously conf ines itself to the question of the legal
personality of the limited partnership since the law taxes
the income of even joint accounts that have no
personality of their own. (Agapito v. Molo, 59 Phil. 779
Peoples Bank v. Register of Deeds of Manila, 60 Phil.
167 V. Evangelista v. Collector of Internal Revenue, 102
Phil. 140 Collector v. Batangas Transportation Co., 102
Phil. 822.)
Same Same What is taxable is income of both spouses,
not the conjugal partnership.Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership
of gains is a taxable unit, which it is not. What is taxable
is the income of both spouses (Section 45 [d]) in their
individual capacities. Though the amount of income
(income of the conjugal partnernership visavis the joint
income of husband and wife) may be the same for a given
taxable year, their consequences would ,be different, as
their contributions in the business partnership are not .the
same.
Same Same Revenue code does not authorize
consolidation of income of limited partnership and income
of spouses.The diff erence in tax rates between the
income of the limited partnership being consolidated with,
and when split from the income of the spouses, is not a
justification for requiring consolidation the revenue code,
as it presently stands, does not authorize it, and even bars
it by requiring the limited partnership .to pay tax on its own
income.
Aurbach vs. Sanitary Wares Manufacturing
Corporation Aurbach vs. Sanitary Wares
Manufacturing Corporation (Not Found)
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF
APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY,
respondents.
Appeals Evidence Findings of facts of the Court of
Appeals will not be disturbed on appeal if such are
supported by the evidence.As a premise, we reiterate
the oftrepeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are
supported by the evidence. Our jurisdiction, it must be
emphasized, does not include review of factual issues.
Same Same Exceptions.Admitted exceptions have
been recognized, though, and when present, may compel
us to analyze the evidentiary basis on which the lower
court rendered judgment. Review of factual issues is
therefore warranted: (1) when the factual findings of the
Court of Appeals and the trial court are contradictory (2)
when the findings are grounded entirely on speculation,
surmises, or conjectures (3) when the inference made by
the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible (4) when there is grave
abuse of discretion in the appreciation of facts (5) when
the appellate court, in making its findings, goes beyond

Business Organization 1
Atty. Catherine Guerzo-Barrion
the issues of the case, and such findings are contrary to
the admissions of both appellant and appellee (6) when
the judgment of the Court of Appeals is premised on a
misapprehension of facts (7) when the Court of Appeals
fails to notice certain relevant facts which, if properly
considered, will justify a different conclusion (8) when the
findings of fact are themselves conflicting (9) when the
findings of fact are conclusions without citation of the
specific evidence on which they are based and (10) when
the findings of fact of the Court of Appeals are premised
on the absence of evidence but such findings are
contradicted by the evidence on record.
Partnerships Words and Phrases In order to constitute a
partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property
or industry to a common fund, and (2) they intended to
divide the profits among themselves.The primordial
issue here is whether Tan Eng Kee and Tan Eng Lay were
partners in Benguet Lumber. A contract of partnership is
defined by law as one where: x x x 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. Two or more persons may
also form a partnership for the exercise of a profession.
Thus, in order to constitute a partnership, it must be
established that (1) two or more persons bound
themselves to contribute money, property, or industry to
a common fund, and (2) they intend to divide the profits
among themselves. The agreement need not be formally
reduced into writing, since statute allows the oral
constitution of a partnership, save in two instances: (1)
when immovable property or real rights are contributed,
and (2) when the partnership has a capital of three
thousand pesos or more. In both cases, a public
instrument is required. An inventory to be signed by the
parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership.
Same Same Joint Ventures Partnership and Joint
Venture, Distinguished.The trial court determined that
Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership. A
particular partnership is distinguished from a joint
adventure, to wit: (a) A joint adventure (an American
concept similar to our joint accounts ) is a sort of informal
partnership, with no firm name and no legal personality.
In a joint account, the participating merchants can
transact business under their own name, and can be
individually liable therefor, (b) Usually, but not necessarily
a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful
termination may continue for a number of years a
partnership generally relates to a continuing business of
various transactions of a certain kind. Same
Same Same Same A joint venture may be likened to a
particular partnership The legal concept of a joint venture
is of common law origin and has no precise legal
definition, but it has been generally understood to mean
an organization formed for some temporary purpose. A
joint venture presupposes generally a parity of standing
between the joint coventures or partners, in which each
party has an equal proprietary interest in the capital or
property contributed, and where each party exercises
equal rights in the conduct of the business. Nonetheless,
in Aurbach, et al. v. Sanitary Wares Manufacturing
Corporation, et al., we expressed the view that a joint
venture may be likened to a particular partnership, thus:

8|TALION_PQV

FIRST EXAM: PARTNERSHIP


The legal concept of a joint venture is of common law
origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed.
811 [1920]) It is hardly distinguishable from the
partnership, since their elements are similarcommunity
of interest in the business, sharing of profits and losses,
and a mutual right of control. (Blackner v. McDermott, 176
F. 2d. 498 [1949] Carboneau v. Peterson, 95 P.2d., 1043
[1939] Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d.
12 289 P.2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdiction is that the
partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann, 116 Cal. App. 170, 2
P.2d. 500 [1931] Harmon v. Martin, 395 111. 595, 71 NE
2d. 74 [1947] Gates v. Megargel, 266 Fed. 811 [1920]).
This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may
be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783,
Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should
thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction
between these two business forms, and has held that
although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954])
(Campos and LopezCampos Comments, Notes and
Selected Cases, Corporation Code 1981).
Same CoOwnership A coownership or copossession is
not an indicium of the existence of a partnership.None
of petitioners witnesses could suitably account for the
beginnings of Benguet Lumber Company, except perhaps
for Dionisio Peralta whose deceased wife was related to
Matilde Abubo. He stated that when he met Tan Eng Kee
after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets
supposedly owned by both brothers. Tan Eng Lay,
however, denied knowledge of this meeting or of the
conversation between Peralta and his brother. Tan Eng
Lay consistently testified that he had his business and his
brother had his, that it was only later on that his said
brother, Tan Eng Kee, came to work for him. Be that as it
may, coownership or copossession (specifically here, of
the G.I. sheets) is not an indicium of the existence of a
partnership.
Same The essence of a partnership is that the partners
share in the profits and losses A demand for periodic
accounting is evidence of a partnership.Besides, it is
indeed odd, if not unnatural, that despite the forty years
the partnership was allegedly in existence, Tan Eng Kee
never asked for an accounting. The essence of a
partnership is that the partners share in the profits and
losses. Each has the right to demand an accounting as
long as the partnership exists. We have allowed a
scenario wherein [i]f excellent relations exist among the
partners at the start of the business and all the partners
are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is
perfectly plausible. But in the situation in the case at bar,
the deferment, if any, had gone on too long to be
plausible. A person is presumed to take ordinary care of
his concerns, x x x A demand for periodic accounting is
evidence of a partnership. During his lifetime, Tan Eng

Business Organization 1
Atty. Catherine Guerzo-Barrion
Kee appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay.
Same Where circumstances taken singly may be
inadequate to prove the intent to form a partnership,
nevertheless, the collective ef ect of these circumstances
may be such as to support a finding of the existence of
the parties intent.In the instant case, we find private
respondents arguments to be welltaken. Where
circumstances taken singly may be inadequate to prove
the intent to form a partnership, nevertheless, the
collective effect of these circumstances may be such as
to support a finding of the existence of the parties intent.
Yet, in the case at bench, even the aforesaid
circumstances when taken together are not persuasive
indicia of a partnership. They only tend to show that Tan
Eng Kee was involved in the operations of Benguet
Lumber, but in what capacity is unclear. We cannot
discount the likelihood that as a member of the family, he
occupied a niche above the rankandfile employees. He
would have enjoyed liberties otherwise unavailable were
he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual,
superiority over his fellow employees, thereby entitling
him to exercise powers of supervision. It may even be that
among his duties is to place orders with suppliers. Again,
the circumstances proffered by petitioners do not provide
a logical nexus to the conclusion desired these are not
inconsistent with the powers and duties of a manager,
even in a business organized and run as informally as
Benguet Lumber Company.
Obligations of the Partners
A. Among themselves
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO,
JR., and BENJAMIN T. BACORRO, petitioners, vs.
HON. COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and JOAQUIN L. MISA,
respondents.
Commercial Law Partnership A partnership that does not
fix its term is a partnership at will.A partnership that
does not fix its term is a partnership at will. That the law
firm Bito, Misa & Lozada, and now Bito, Lozada, Ortega
and Castillo, is indeed such a partnership need not be
unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of
respondent SEC on this matter.
Same Same The birth and life of a partnership at will is
predicated on the mutual desire and consent of the
partners.The birth and life of a partnership at will is
predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes
to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along
with each partners capability to give it, and the absence
of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate
a dissolution of the partnership at will. He must, however,
act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that it can
result in a liability for damages.
Same Same Neither would the presence of a period for
its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.In passing,

9|TALION_PQV

FIRST EXAM: PARTNERSHIP


neither would the presence of a period for its specific
duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an
act or will of a partner. Among partners, mutual agency
arises and the doctrine of delectus personae allows them
to have the power, although not necessarily the right, to
dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
Same Same Upon its dissolution, the partnership
continues and its legal personality is retained until the
complete winding up of its business culminating in its
termination.The dissolution of a partnership is the
change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be
distinguished from the winding up of, the business. Upon
its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its
business culminating in its termination.
Same Same The liquidation of the assets of the
partnership following its dissolution is governed by
various provisions of the Civil Code.The liquidation of
the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code
however, an agreement of the partners, like any other
contract, is binding among them and normally takes
precedence to the extent applicable over the Codes
general provisions.
Same Same It would not be right to let any of the
partners remain in the partnership under such an
atmosphere of animosity.On the third and final issue,
we accord due respect to the appellate court and
respondent Commission on their common factual finding,
i.e., that Attorney Misa did not act in bad faith. Public
respondents viewed his withdrawal to have been spurred
by interpersonal conflict among the partners. It would
not be right, we agree, to let any of the partners remain in
the partnership under such an atmosphere of animosity
certainly, not against their will. Indeed, for as long as the
reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership,
bad faith cannot be said to characterize the act. Bad faith,
in the context here used, is no different from its normal
concept of a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity
WILLIAM UY, plaintiff appellee, vs.
BARTOLOME PUZON, substituted by FRANCO
PUZON, defendant appellant.
Evidence The appellate court accords respect to the
trial courts conclusions on credibility of witnesses.The
question of whom to believe being a matter largely
dependent on the triers discretion, the findings of the
trial court, who had the better opportunity to examine
and appraise the factual issue, certainly deserve
respect.
Partnerships Damages A partner in a construction
venture who failed to stand by his commitment to the
partnership will be ordered to reimburse to his copartner
whatever the latter invested and spent for the projects of
the venture.Since the defendantappellant was at fault,
the trial court properly ordered him to reimburse the
plaintiffappellee whatever amount the latter had invested
in or spent for the partnership on account of the
construction projects.

Business Organization 1
Atty. Catherine Guerzo-Barrion
Same Same Indemnification for damages includes
losses suf ered and profits obligee failed to obtain.
Regarding the award of P200,000.00 as his share in the
unrealized profits of the partnership, the appellant
contends that the findings of the trial court that the amount
of P400,000.00 as reasonable profits of the partnership
venture is without any basis and is not supported by the
evidence. The appellant maintains that the lower court, in
making its determination, did not take into consideration
the great risks involved in business operations involving
as it does the completion of the projects within a definite
period of time, in the face of adverse and often
unpredictable circumstances, as well as the fact that the
appellee, who was in charge of the projects in the field,
contributed in a large measure to the failure of the
partnership to realize such profits by his field
management. This argument must be overruled in the
light of the law and evidence on the matter. Under Article
2200 of the Civil Code, indemnification for damages shall
comprehend not only the value of the loss suffered, but
also that of the profits which the obligee failed to obtain.
In other words lucrum cessans is also a basis for
indemnification.
Same Same Award of compensatory damages being
reasonable and not speculative is upheld.Had the
appellant not been remiss in his obligations as partner
and as prime contractor of the construction projects in
question as he was bound to perform pursuant to the
partnership
and
subcontract
agreements,
and
considering the fact that the total contract amount of these
two projects is P2,327,335.76, it is reasonable to expect
that the partnership would have earned much more than
the P334,225.61 We have hereinabove indicated. The
award, therefore, made by the trial court of the amount of
P200,000.00, as compensatory damages, is not
speculative, but based on reasonable estimate.
ISABELO MORAN, JR., petitioner, vs. THE HON.
COURT OF APPEALS and MARIANO E. PECSON,
respondents.
Damages Partnership There is no factual or legal basis
for award of speculative damages for likely partnership
profits.The first question raised in this petition refers to
the award of P47,500.00 as the private respondents
share in the unrealized profits of the partnership. The
petitioner contends that the award is highly speculative.
The petitioner maintains that the respondent court did not
take into account the great risks involved in the business
undertaking. We agree with the petitioner that the award
of speculative damages has no basis in fact and law.
Same Same Partner who promises to contribute to
partnership becomes promissory debtor of latter.The
rule is, when a partner who has undertaken to contribute
a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and
damages from the time he should have complied with his
obligation (Art. 1788, Civil Code).
Same Same Essence of partnership is that partners
share in profits and losses.Being a contract of
partnership, each partner must share in the profits and
losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of
the partners that they would earn a huge amount of
profits, in the absence of fraud, the other partner cannot
claim a right to recover the highly speculative profits. It is

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a rare business venture guaranteed to give 100% profits.
In this case, on an investment of P15,000.00, the
respondent was supposed to earn a guaranteed
P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but
2,000 of which were sold at P5.00 each. The fantastic
nature of expected profits is obvious. We have to take
various factors into account. The failure of the
Commission on Elections to proclaim all the 320
candidates of the Constitutional Convention on time was
a major factor. The petitioner used his best business
judgment and felt that it would be a losing venture to go
on with the printing of the agreed 95,000 copies of the
posters. Hidden risks in any business venture have to be
considered.
Same Same Partner entitled to recover share of profits
actually realized by venture.It does not follow however
that the private respondent is not entitled to recover any
amount from the petitioner. The records show that the
private respondent gave P10,000.00 to the petitioner. The
latter used this amount for the printing of 2,000 posters at
a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000
copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of
P4,000.00 from the gross income of P10,000.00 and with
no evidence on the cost of distribution, the net profits
amount to only P6,000.00. This net profit of P6,000.00
should be divided between the petitioner and the private
respondent. And since only P4,000.00 was used by the
petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private
respondent.
Same Same Agency Where partnership venture is a
failure, a partner is not entitled to any commission
promised by copartner where agreement does not state
basis of commission.The partnership agreement
stipulated that the petitioner would give the private
respondent a monthly commission of P1,000.00 from April
15, 1971 to December 15, 1971 for a total of eight (8)
monthly commissions. The agreement does not state the
basis of the commission. The payment of the commission
could only have been predicated on relatively extravagant
profits. The parties could not have intended the giving of
a commission inspite of loss or failure of the venture.
Since the venture was a failure, the private respondent is
not entitled to the P8,000.00 commission.
Appeal When Supreme Court will review factual findings
of Court of Appeals.As a rule, the findings of facts of the
Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves, 96 Phil.
252), provided they are borne out by the record or are
based on substantial evidence (AlsuaBetts v. Court of
Appeals, 92 SCRA 332). However, this rule admits of
certain exceptions. Thus, in Carolina Industries Inc. v.
CMS Stock Brokerage, Inc., et al, (97 SCRA 734), we held
that this Court retains the power to review and rectify the
findings of fact of the Court of Appeals when (1) the
conclusion is a finding grounded entirely on speculation,
surmises and conjectures (2) when the inference made
is manifestly mistaken, absurd and impossible (3) where
there is grave abuse of discretion (4) when the judgment
is based on a misapprehension of facts and (5) when the
court, in making its findings, went beyond the issues of
the case and the same are contrary to the admissions of
both the appellant and the appellee.

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Same C.A. erred in its factual finding in the case at bar.
In this case, there is misapprehension of facts. The
evidence of the private respondent himself shows that his
investment in the Voice of Veterans project amounted to
only P3,000.00. The remaining P4,000.00 was the
amount of profit that the private respondent expected to
receive.
Same Partnership Damages Factual finding of C.A. that
venture never left the ground and on this basis decreed
full return of respondents investment is erroneous.The
respondent court erred when it concluded that the project
never left the ground because the project did take place.
Only it failed. It was the private respondent himself who
presented a copy of the book entitled Voice of the
Veterans in the lower court as Exhibit L. Therefore, it
would be error to state that the project never took place
and on this basis decree the return of the private
respondents investment.
EVANGELISTA & Co., DOMINGO C.
EVANGELISTA,JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SANTOS, petitioners,
vs. ESTRELLA ABAD SANTOS, respondent.
Remedial Law Appeals Supreme Court will not review
finding of facts of the Court of Appeals.It is not the
function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed
by the lower court. It should be observed, in this regard,
that the Court of Appeals did not hold that the Articles of
Co partnership, identified in the record as Exhibit "A", was
conclusive evidence that the respondent was an industrial
partner of the said company, but considered it together
with other factors, consisting of both testimonial and
documentary evidences, in arriving at the factual
conclusion expressed in the decision.
PEDRO MARTINEZ, plaintiff and appellee, vs.
ONG PONG Co and ONG LAY, defendants.ONG
PONG Co, appellant.
PARTNERSHIP
LIABILITY
OF
MANAGING
PARTNERS. Where two persons receive from another
a sum of money for the establishment of a business, and
agree to share with the latter the profits or losses that may
result therefrom, the said two persons, as the apparent
administrators of the partnership, acted as agents for the
capitalist partner under the provisions of article 1695, rule
1, of the Civil Code, and by virtue thereof are bound to
fulfill the contract which implies the management of the
business.
ID. ID. CONTRACT OF "MANDATUM."A contract of
mandatum requires that agents shall account to the
principal for all their transactions and pay him whatever
sum they received by virtue thereof. By not accounting for
it, or otherwise justifying the investment of the money
received and administered, the parties who received it
become debtors and are under obligation to make
restitution of the money to the person who entrusted it to
them.
ID. ID. ID.The above obligation is not in solidum,
neither by reason of the general rules governing the
obligations of two or more persons, nor by the special rule
governing contracts of partnership or of mandatum it is
simply a contract in severalty, each person being liable for
one half.

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JOS FORTIS, plaintiff and appellee, vs. GUTIERREZ
HERMANOS, defendants and appellants.
CIVIL
PROCEDURE
ERROR
JUDGMENT
REVERSAL. Error not prejudicial is no ground for the
reversal of a judgment. (Sec. 503, Code of Civil
Procedure.)
PARTNERSHIP
MANAGER
BOOKKEEPER
CONTRACT VALIDITY.The general manager of a
general partnership has authority to employ a
bookkeeper, and a contract thus made in 1900 was valid,
though not in writing.
CONTRACT BOOKKEEPER SALARY.By the terms
of the contract the salary of the bookkeeper was to be 5
per cent of the net profits of the business: Held, That this
contract did not make the bookkeeper a partner CIVIL
PROCEDURE ACTION PARTNERSHIP.In an action
against a partnership to recover a debt due from it to the
plaintiff, section 383, paragraph 7, of the Code of Civil
Procedure does not prohibit the plaintiff from testifying to
a conversation between himself and a then partner who
had died prior to the trial of the action.
AGENT DISBURSEMENTS.In an action by an agent
to recover the amount of certain disbursements and not
compensation for services, the article of the Civil Code
applicable to the case is article 1728, and not article 1711.
TAI TONG CHUACHE & CO., petitioner, vs. THE
INSURANCE COMMISSION and TRAVELLERS
MULTIINDEMNITY CORPORATION, respondents.
Insurance Evidence Each party must prove his own af
irmative allegations.It is a well known postulate that the
case of a party is constituted by his own affirmative
allegations. Under Section 1, Rule 131 each party must
prove his own affirmative allegations by the amount of
evidence required by law which in civil cases as in the
present case is preponderance of evidence. The party,
whether plaintiff or defendant, who asserts the affirmative
of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain a
favorable judgment. Thus, petitioner who is claiming a
right over the insurance must prove its case. Likewise.
respondent insurance company to avoid liability under the
policy by setting up an affirmative defense of lack of
insurable interest on the part of the petitioner must prove
its own affirmative allegations.
Same Same Same Respondent having admitted the
material allegations in the complaint has the burden of
proof to show that petitioner has no insurable interest over
the insured property at the time the contingency took
place.It will be recalled that respondent insurance
company did not assail the validity of the insurance policy
taken out by petitioner over the mortgaged property.
Neither did it deny that the said property was totally razed
by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an
affirmative defense of lack of insurance interest on the
part of the petitioner alleging that before the occurrence
of the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having
admitted the material allegations in the complaint, has the
burden of proof to show that petitioner has no insurable
interest over the insured property at the time the
contingency took place. Upon that point, there is a failure
of proof. Respondent, it will be noted, exerted no effort to

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Atty. Catherine Guerzo-Barrion
present any evidence to substantiate its claim, while
petitioner did. For said respondent's failure, the decision
must be adverse to it.
Same Same Court cannot sanction respondent
Commission's findings based upon a mere inference.
However, as adverted to earlier, respondent Insurance
Commission absolved respondent insurance company
from liability on the basis of the certification issued by the
then Court of First Instance of Davao, Branch II, that in a
certain civil action against the Palomos, Arsenio Lopez
Chua stands as the complainant and not Tai Tong
Chuache. From said evidence respondent commission
inferred that the credit extended by herein petitioner to the
Palomos secured by the insured property must have been
paid. Such is a glaring error which this Court cannot
sanction. Respondent Commission's findings are based
upon a mere inference.
Same Insurance company bound by the term s and
conditions of the policy which is of legal force and ef ect
at the time of the fire.The respondent insurance
company having issued a policy in favor of herein
petitioner which policy was of legal force and effect at the
time of the fire, it is bound by its terms and conditions.
Upon its failure to prove the allegation of lack of insurable
interest on the part of the petitioner, respondent insurance
company is and must be held liable.
Civil Law Loan Presumption of nonpayment when
creditor is in possession of the document of credit.The
record of the case shows that the petitioner to support its
claim for the insurance proceeds offered as evidence the
contract of mortgage (Exh. 1) which has not been
cancelled nor released. It has been held in a long line of
cases that when the creditor is in possession of the
document of credit, he need not prove nonpayment for it
is presumed. The validity of the insurance policy taken by
petitioner was not assailed by private respondent.
Moreover, petitioner's claim that the loan extended to the
Palomos has not yet been paid was corroborated by
Azucena Palomo who testified that they are still indebted
to herein petitioner.
Civil Procedure Party in interest Actions Partnership
Action must be brought in the name of the real party in
interest A partnership may sue and be sued in its name
or by its duly authorized representative Public
respondent argues however, that if the civil case really
stemmed from the loan granted to Azucena Palomo by
petitioner the same should have been brought by Tai
Tong Chuache or by its representative in its own behalf.
From the above premise respondent concluded that the
obligation secured by the insured property must have
been paid. The premise is correct but the conclusion is
wrong. Citing Rule 3, Sec. 2 respondent pointed out that
the action must be brought in the name of the real party
in interest. We agree. However, it should be borne in mind
that petitioner being a partnership may sue and be sued
in its name or by its duly authorized representative. The
fact that Arsenio Lopez Chua is the representative of
petitioner is not questioned. Petitioner s declaration that
Ar senio Lopez Chua acts as the managing partner of the
partnership was corroborated by respondent insurance
company. Thus Chua as the managing partner of the
partnership may execute all acts of administration
including the right to sue debtors of the partnership in
case of their failure to pay their obligations when it
became due and demandable. Or at the very least, Chua
being a partner of petitioner Tai Tong Chuache &

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FIRST EXAM: PARTNERSHIP


Company is an agent of the partnership. Being an agent,
it is understood that he acted for and in behalf of the firm.
Public respondent's allegation that the civil case filed by
Arsenio Chua was in his capacity as personal creditor of
spouses Palomo has no basis.
E. M. BACHRACH, plaintiff and appellee, vs. "LA
PROTECTORA" ET AL., defendants and appellants.
PARTNERSHIP LIABILITY OF MEMBERS FOR DEBTS
OF CIVIL PARTNERSHIP.While a member of a civil
partnership is not liable in solidum (solidariamente) with
his fellows for its entire indebted ness, he is liable with
them for his aliquot part thereof (mancomunadamente).
(Arts. 1698, 1137, Civ. Code.)
ID. AUTHORITY OF MEMBER TO CONTRACT IN
BEHALF OF FIRM.Several members of a civil
partnership executed a document authorizing one of the
members to buy two automobile trucks in the name and
representation of the firm. The partner holding this
authority effected the purchase and signed the name of
the partnership to the purchase money notes and added
his own name as an individual, thereby assuming, as to
himself, joint and several liability with the firm. Held: That
the partners who emitted the authority were not liable on
the note, as the document in question contained no
authority to bind them personally and in fact the notes did
not purport to do so but they were held liable in their
capacity as partners.
JOSE MACHUCA, plaintiff and appellee, vs.
CHUIDIAN, BUENAVENTURA & Co., defendants and
appellants.
COPARTNERSHIP LIQUIDATION.Where the articles
of copartnership provide that upon liquidation the claims
of outside persons shall first be satisfied before those of
the partners, the assignment of a partner's interest
pending liquidation is the assignment of a future interest
which can not be enforced until the termination of the
liquidation.
PANG LIM and BENITO GALVEZ, plaintiffs and
appellees, vs. LO SENG, defendant and appellant.
LANDLORD AND TENANT TERMINATION OF LEASE
BY PURCHASER OF ESTATE INCONSISTENT
POSITIONS OF LESSEE.A lessee who upon disposing
of his interest in a contract of lease purchases the leased
premises from the landlord, cannot thereafter exercise the
right of terminating the lease which is conceded to
purchasers by article 1571 of the Civil Code. As vendor of
the leasehold he is bound to respect the rights of his own
vendee.
FORCIBLE ENTRY AND UNLAWFUL DETAINER
POSSESSION VALID AGAINST ONE COOWNER
VALID AGAINST ALL.A person who is in lawful
possession of a leasehold estate and who has the lawful
right to retain possession as against one of the two
owners of the undivided fee cannot be dispossessed of
the premises in an action of unlawful detainer jointly
instituted by such owners. Having lawful possession as
against one he is entitled to retain it as against both.
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners, vs.
HON. JOSE R. RAMOLETE, as Presiding Judge,
Branch III, CFI, Cebu and TAN PUT, respondents.

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Atty. Catherine Guerzo-Barrion
Civil procedure Rules of procedure should not be used
as tool for denial of substantial justice.Petitioners
should be granted relief, if only to stress emphatically
once more that the rules of procedure may not be
misused and abused as instruments for the denial of
substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative
instance of how some members of the bar availing of their
proficiency in invoking the letter of the rules without regard
to their real spirit and intent, succeed in inducing courts to
act contrary to the dictates of justice and equity, and, in
some instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their actuations as
earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the
plain injunction of Section 2 of Rule 1 is that the rules
shall be liberally construed in order to promote their object
and to assist the parties in obtaining not only speedy but
more imperatively, just . . . and inexpensive
determination of every action and proceeding.
Same Default When motion to lift order of default is
under both, contains the reasons for failure to answer and
as well as the facts constituting prospective defense, a
formal verification or separate af idavit of merit is not
necessary.When a motion to lift order of default
contains the reasons for the failure to answer as well as
the facts constituting the prospective defense of the
defendant and it is sworn to by said defendant, neither a
formal verification nor a separate affidavit of merit is
necessary.
Same Same Jurisdiction A motion to lift order of default
on ground summons was not served is in order and is in
essence an attack on jurisdiction of the court.A motion
to lift an order of default on the ground that service of
summons has not been made in accordance with the
rules is in order and is in essence verily an attack against
the jurisdiction of the court over the person of the
defendant, no less than if it were worded in a manner
specifically embodying such a direct challenge.
Same Motions Dismissal of action Defendants are
entitled to 3 day prior notice of motion to drop them as
parties.According to Chief Justice Moran, three days
at least must intervene between the date of service of
notice and the date set for the hearing, otherwise the court
may not validly act on the motion. Such is the correct
construction of Section 4 of Rule 15.
Same Counterclaim When a counterclaim is
compulsory: Defendants counterclaim is compulsory,
not only because the same evidence to sustain it will also
refute the cause or causes of action alleged in plaintiffs
complaint, but also because from its very nature, it is
obvious that the same cannot remain pending for
independent adjudication by the court. (Section 2, Rule
17).
Same Motions to Dismiss Actions A motion to dismiss
an action against nondefaulted defendants should not be
granted when such defendants and those declared in
default are all indispensable parties to the action.As the
plaintiffs complaint has been framed, all the six
defendants are charged with having actually taken part in
a conspiracy to misappropriate, conceal and convert to
their own benefit the profits, properties and all other
assets of the partnership Glory Commercial Company, to
the extent that they have allegedly organized a

13 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


corporation, Glory Commercial Company, Inc. with what
they had illegally gotten from the partnership. Upon such
allegations, no judgment finding the existence of the
alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally
possible without the presence of all the defendants. x x x
Accordingly, upon these premises, x x x it is clear that all
the six defendants below, defaulted and nondefaulted, are
indispensable parties. x x x Such being the case, the
questioned order of dismissal is exactly the opposite of
what ought to have been done. Whenever it appears to
the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of
the court to stop the trial and to order the inclusion of such
party.
Same Dismissal of Actions The Rules of Court does not
comprehend whimsical dropping or adding of parties in a
complaint.The apparent idea below is to rely on the
theory that under Section 11 of Rule 3, parties may be
dropped by the court upon motion of any party at any
stage of the action, hence it is the absolute right
prerogative of the plaintiff to choosethe parties he
desires to sue, without dictation or imposition by the court
or the adverse party. x x x But the truth is that nothing
can be more incorrect. Section 11 of Rule 3 does not
comprehend whimsical and irrational dropping or adding
of parties in a complaint. What it really contemplates is
erroneous or mistaken nonjoinder and misjoinder of
parties. x x x The rule presupposes that the original
inclusion had been made in the honest conviction that it
was proper and the subsequent dropping is requested
because it has turned out that such inclusion was a
mistake. And this is the reason why the rule ordains that
the dropping be on such terms as are justjust to all the
parties. x x x His honor ought to have considered that the
outright dropping of the nondefaulted defendants Lim and
Leonardo, over their objection at that, would certainly be
unjust not only to the petitioners, their own parents, who
would in consequence be entirely defenseless, but also to
Lim and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment
against their parents. Respondent court paid no heed at
all to the mandate that such dropping must be on such
terms as are justmeaning to all concerned with its legal
and factual effects.
Attorneys Legal ethics Counsel should not attempt to
befuddle issues of a case.Parties and counsel would be
well advised to avoid such attempts to befuddle the issues
as invariably they will be exposed for what they are,
certainly unethical and degrading to the dignity of the law
profession. Moreover, almost always they only betray the
inherent weakness of the cause of the party resorting to
them.
Civil procedure Default: Being declared in default does
not imply an admission that plaintif s cause of action is
lawful.These provisions are not to be understood as
meaning that default or the failure of the defendant to
answer should be interpreted as an admission by the
said defendant that the plaintiffs causes of action find
support in the law or that plaintiff is entitled to the relief
prayed for. Being declared in default does not constitute
a waiver of rights except that of being heard and of
presenting evidence in the trial court. x x x In other words,
a defaulted defendant is not actually thrown out of court.
While in a sense it may be said that by defaulting he
leaves himself at the mercy of the court, the rules see to

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it that any judgment against him must be in accordance
with law.
Same Evidence Defaults Reception of evidence by clerk
of court after declaration of defendants default is wrong
in principle and orientation and has no basis in any rule.
It should
be
discontinued.Incidentally,
these
considerations argue against the present widespread
practice of trial judges, as was done by His Honor in this
case, of delegating to their clerks of court the reception of
the plaintiffs evidence when the defendant is in default.
Such a practice is wrong in principle and orientation. It has
no basis in any rule. x x The clerk of court would not be in
a position much less have the authority to act in the
premises in the manner demanded by the rules of fair play
and as contemplated in the law, considering his
comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides,
the default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the
demeanor and conduct of the witnesses of the plaintiff,
the better to appreciate their truthfulness and credibility.
We therefore declare as a matter of judicial policy that
there being no imperative reason for judges to do
otherwise, the practice should be discontinued.
Same Same Same Trial court should leave enough
opportunity open for possible lifting of default order.It is
preferable to leave enough opportunity open for possible
lifting of the order of default before proceeding with the
reception of the plaintiffs evidence and the rendition of
the decision. x x x The gain in time and dispatched should
the court immediately try the case on the very day of or
shortly after the declaration of default is far outweighed by
the inconvenience and complications involved in having
to undo everything already done in the event the
defendant should justify his omission to answer on time
Same Same Same: Where a common cause of action is
averred against several defendants some of whom are
declared in default, the latter have a right to own the
defenses interposed by answering defendants and to
expect a result of the litigation totally common with them
in kind and amount.In all instances where a common
cause of action is alleged against several defendants
some of whom answer and the others do not, the latter or
those in default acquire a vested right not only to own the
defense interposed in the answer of their codefendant or
codefendants not in default but also to expect a result of
the litigation totally common with them in kind and in
amount whether favorable or unfavorable. The
defendants is carried through to its adjective phase as
ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness
of the cause of action also inevitably implies that all the
defendants are indispensable parties, the courts power
to act is integral and cannot be split such that it cannot
relieve any of them and at the same time render judgment
against the rest. x x x Of course, he has to suffer the
consequences of whatever the answering defendant may
do or fail to do, regardless of possible adverse
consequences, but if the complaint has to be dismissed in
so far as the answering defendant is concerned, it
becomes his inalienable right that the same be dismissed
also as to him. It does not matter that the dismissal is upon
the evidence presented by the plaintiff or upon the latters
desistance, for in both contingencies, the lack of sufficient
legal basis must be the cause.

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FIRST EXAM: PARTNERSHIP


Same Same Same Compromise agreement
Indispensable parties Where all defendants are
indispensable parties, any compromise the plaintif wish to
make should await the courts judgment at which stage
the plaintif may treat the matter of execution as he may
please.Where all the defendants are indispensable
parties, for which reason the absence of any of them in
the case would result in the court losing its competency to
act validly, any compromise that the plaintiff might wish to
make with any of them must, as a matter of correct
procedure, have to await until after the rendition of the
judgment, at which stage the plaintiff may then treat the
matter of its execution and the satisfaction of his claim as
variably as he might please. Accordingly, in the case now
before Us together with the dismissal of the complaint
against the nondefaulted defendants, the court should
have ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle
of unity and indivisibility of the action just discussed
because all the defendants here have already joined
genuine issues with plaintiff. Their default was only at the
pretrial.
Same Same Same Even if a defendant has been
declared in default he is entitled to notice of all further
proceedings if he files a motion to set aside the default
order.Even after a defendant has been declared in
default, provided he files a motion to set aside the order
of default, he shall be entitled to notice of all further
proceedings regardless of in default, provided he files a
motion to set aside the order of default, who has not filed
such a motion to set aside must still be served with all
substantially amended or supplemental pleadings.
Same Same Same Pretrial Where a defendant was
declared in default during the pretrial stage there is no
need for an oath or verification of merits of defenses in
the motion to reconsider default order.With these facts
in mind and considering that issues had already been
joined even as regards the defaulted defendants, it would
be requiring the obvious to pretend that there was still
need for an oath or a verification as to the merits of the
defense of the defaulted defendants in their motion to
reconsider their default. x x x Under these circumstances
the form of the motion by which the default was sought to
be lifted is secondary and the requirements of Section 3
of Rule 18 need not be strictly complied with, unlike in
cases of default for failure to file an answer. We can thus
hold as We do hold for the purposes of the revival of their
right to notice under Section 9 of Rule 13, that petitioners
motion for reconsideration was in substance legally
adequate, regardless of whether or not it was under oath.
Same Same Same Amendment of pleadings Dropping
of a party in the complaint is substantial and entitles
defaulted defendant to notice thereof.In any event, the
dropping of the defendants Lim and Leonardo from
plaintiffs amended complaint was virtually a second
amendment of plaintiffs complaint. And there can be no
doubt that such amendment was substantial, x x x
Accordingly, notice to petitioners of the plaintiffs motion
of October 18, 1974 was legally indispensable under the
rule abovequoted. Consequently, respondent court had
no authority to act on the motion to dismiss, pursuant to
Section 6 of Rule 15.
Appeals Certiorari A party may resort to remedy of
certiorari rather than appeal where proceedings in trial
court has gone far out of hand as to require prompt
action.The proceedings below have gone so far out of

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Atty. Catherine Guerzo-Barrion
hand that prompt action is needed to restore order in the
entangled situation created by the series of plainly illegal
orders it had issued. The essential purpose of certiorari is
to keep the proceedings in lower judicial courts and
tribunals within legal bounds, so that due process and the
rule of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury, juridical
and otherwise, ensues.
Civil procedure Pretrial Trial court should consider
evidence adduced at pretrial in arriving at its judgment on
the merits of an action. The fundamental purpose of
pretrial, aside from affording the parties every opportunity
to compromise or settle their differences, is for the court
to be apprised of the unsettled issues between the parties
and of their respective evidence relative thereto, to the
end that it may take corresponding measures that would
abbreviate the trial as much as possible and the judge
may be able to ascertain the facts with the least
observance of technical rules. x x x In brief, the pretrial
constitutes part and parcel of the proceedings, and hence,
matters dealt with therein may not be disregarded in the
process of decisionmaking. Otherwise, the real essence
of compulsory pretrial would be insignificant and
worthless.
Civil law Evidence Primary evidence of a marriage is
marriage contract.The primary evidence of a marriage
must be an authentic copy of the marriage contract. While
a marriage may also be proved by other competent
evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the
person who allegedly solemnized a marriage is not
admissible evidence of such marriage unless proof of loss
of the contract or of any other satisfactory reason for its
nonproduction is first presented to the court.
Partnership A partner has no obligation to account to
anyone for properties acquired after dissolution of
partnership in absence of proof he violated trust of
deceased partner during existence of partnership.
Defendants have no obligation to account to anyone for
such acquisitions (long after the partnership had been
automatically dissolved as a result of the death of Po
Chuan) in the absence of clear proof that they had
violated the trust of Po Chuan during the existence of the
partnership.
Same Succession No funds or property may be
adjudicated to her or representative of deceased partner
without liquidation of partnership being first terminated.
No specific amounts or properties may be adjudicated to
the heir or legal representative of the deceased partner
without the liquidation being first terminated.
DAN FUE LEUNG, petitioner, vs. HON.
INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
Remedial Law Civil Procedure Pleadings Complaint
The nature of the action may be determined from the facts
alleged in the complaint as constituting the cause of
action.Therefore, the lower courts did not err in
construing the complaint as one wherein the private
respondent asserted his right as partner of the petitioner
in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance
therein. We agree with the appellate courts observation
to the effect that x x x given its ordinary meaning,

15 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


financial assistance is the giving out of money to another
without the expectation of any returns therefrom. It
connotes an ex gratia dole out in favor of someone driven
into a state of destitution. But this circumstance under
which the P4,000.00 was given to the petitioner does not
obtain in this case. (p. 99, Rollo) The complaint explicitly
stated that as a return for such financial assistance,
plaintiff (private respondent) would be entitled to twentytwo percentum (22%) of the annual profit derived from the
operation of the said panciteria. (p. 107, Rollo) The
wellsettled doctrine is that the x x x nature of the action
filed in court is determined by the facts alleged in the
complaint as constituting the cause of action. (De Tavera
v. Philippine Tuberculosis Society, Inc., 113 SCRA 243
Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
Civil Law Partnership Prescription The right to demand
an accounting exists as long as the partnership exists.
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806,
1807 and 1809 show that the right to demand an
accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
Same Same Dissolution of Partnerships The Court may
order the dissolution of the partnership in question
because its continuation has become inequitable.
Considering the facts of this case, the Court may decree
a dissolution of the partnership under Article 1831 of the
Civil Code which, in part, provides: Art. 1831. On
application by or for a partner the court shall decree a
dissolution whenever: x x x x x x xxx "(3) A partner has
been guilty of such conduct as tends to affect prejudicially
the carrying on of the business (4) A partner willfully or
persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not
reasonably practicable to carry on the business in
partnership with him xxx xxx xxx (6) Other circumstances
render a dissolution equitable. There shall be a
liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.
EMILIO EMNACE, petitioner, vs. COURT OF
APPEALS, ESTATE OF VICENTE TABANAO,
SHERWIN TABANAO, VICENTE WILLIAM TABANAO,
JANETTE TABANAO DEPOSOY, VICENTA MAY
TABANAO VARELA, ROSELA TABANAO and
VINCENT TABANAO, respondents.
Actions Docket Fees Even if the exact value of the
partnerships total assets cannot be shown with certainty
at the time of filing, the plaintif s can and must ascertain,
through informed and practical estimation, the amount
they expect to collect from the partnership, in order to
determine the proper amount of docket and other fees.
The trial court does not have to employ guesswork in
ascertaining the estimated value of the partnerships
assets, for respondents themselves voluntarily pegged
the
worth
thereof
at
Thirty
Million
Pesos
(P30,000,000.00). Hence, this case is one which is really
not beyond pecuniary estimation, but rather partakes of
the nature of a simple collection case where the value of
the subject assets or amount demanded is pecuniarily
determinable. While it is true that the exact value of the
partnerships total assets cannot be shown with certainty
at the time of filing, respondents can and must ascertain,
through informed and practical estimation, the amount

Business Organization 1
Atty. Catherine Guerzo-Barrion
they expect to collect from the partnership, particularly
from petitioner, in order to determine the proper amount
of docket and other fees. It is thus imperative for
respondents to pay the corresponding docket fees in
order that the trial court may acquire jurisdiction over the
action.
Same Same Pauper Litigants A party cannot invoke the
third paragraph of Section 16, Rule 141 of the Rules of
Court which allows that the legal fees shall be a lien on
the monetary or property judgment that may be rendered
in favor of such party if he is not a pauperlitigant.
Petitioner, however, argues that the trial court and the
Court of Appeals erred in condoning the nonpayment of
the proper legal fees and in allowing the same to become
a lien on the monetary or property judgment that may be
rendered in favor of respondents. There is merit in
petitioners assertion. The third paragraph of Section 16,
Rule 141 of the Rules of Court states that: The legal fees
shall be a lien on the monetary or property judgment in
favor of the pauperlitigant. Respondents cannot invoke
the above provision in their favor because it specifically
applies to pauperlitigantsNowhere in the records does it
appear that respondents are litigating as paupers, and as
such are exempted from the payment of court fees.
Same Same The provision of the third paragraph of
Section 5(a), Rule 141 of the Rules of Court clearly
contemplates an initial payment of the filing fees
corresponding to the estimated amount of the claim
subject to adjustment as to what later may be proved.
The rule applicable to the case at bar is Section 5(a) of
Rule 141 of the Rules of Court, which defines the two
kinds of claims as: (1) those which are immediately
ascertainable and (2) those which cannot be immediately
ascertained as to the exact amount. This second class of
claims, where the exact amount still has to be finally
determined by the courts based on evidence presented,
falls squarely under the third paragraph of said Section
5(a), which provides: In case the value of the property or
estate or the sum claimed is less or more in accordance
with the appraisal of the court, the dif erence of fee shall
be refunded or paid as the case may be. (Italics ours) In
Pilipinas Shell Petroleum Corporation v. Court of Appeals,
this Court pronounced that the abovequoted provision
clearly contemplates an initial payment of the filing fees
corresponding to the estimated amount of the claim
subject to adjustment as to what later may be proved.
Moreover, we reiterated therein the principle that the
payment of filing fees cannot be made contingent or
dependent on the result of the case. Thus, an initial
payment of the docket fees based on an estimated
amount must be paid simultaneous with the filing of the
complaint. Otherwise, the court would stand to lose the
filing fees should the judgment later turn out to be adverse
to any claim of the respondent heirs.
Same Same The matter of payment of docket fees is not
a mere trivialitythe payment of docket fees cannot be
made dependent on the outcome of the case, except
when the claimant is a pauperlitigant.The matter of
payment of docket fees is not a mere triviality. These fees
are necessary to defray court expenses in the handling of
cases. Consequently, in order to avoid tremendous losses
to the judiciary, and to the government as well, the
payment of docket fees cannot be made dependent on
the outcome of the case, except when the claimant is a
pauperlitigant.

16 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


Same Same While the rule is that the payment of the
docket fee in the proper amount should be adhered to,
there are certain exceptions which must be strictly
construed.Based on the foregoing, the trial court erred
in not dismissing the complaint outright despite their
failure to pay the proper docket fees. Nevertheless, as in
other procedural rules, it may be liberally construed in
certain cases if only to secure a just and speedy
disposition of an action. While the rule is that the payment
of the docket fee in the proper amount should be adhered
to, there are certain exceptions which must be strictly
construed. In recent rulings, this Court has relaxed the
strict adherence to the Manchester doctrine, allowing the
plaintiff to pay the proper docket fees within a reasonable
time before the expiration of the applicable prescriptive or
reglementary period.
Same Venue Partnerships An action for accounting,
payment of partnership shares, division of assets and
damages is a personal action which, under the Rules,
may be commenced and tried where the defendant
resides or may be found, or where the plaintif s reside, at
the election of the latter.On the matter of improper
venue, we find no error on the part of the trial court and
the Court of Appeals in holding that the case below is a
personal action which, under the Rules, may be
commenced and tried where the defendant resides or
may be found, or where the plaintiffs reside, at the
election of the latter.
Same Same Same If an action is against a partner, on
the basis of his personal liability, it is an action in
personam, and the fact that two of the assets of the
partnership are parcels of land does not materially change
the nature of the action.Petitioner, however, insists that
venue was improperly laid since the action is a real action
involving a parcel of land that is located outside the
territorial jurisdiction of the court a quo. This contention is
not welltaken. The records indubitably show that
respondents are asking that the assets of the partnership
be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets
of the partnership are parcels of land does not materially
change the nature of the action. It is an action in
personam because it is an action against a person,
namely, petitioner, on the basis of his personal liability. It
is not an action in rem where the action is against the thing
itself instead of against the person.Furthermore, there is
no showing that the parcels of land involved in this case
are being disputed. In fact, it is only incidental that part of
the assets of the partnership under liquidation happen to
be parcels of land.
Same Same Same A complaint seeking the liquidation
and partition of the assets of the partnership with
damages is a personal action which may be filed in the
proper court where any of the parties reside.The action
filed by respondents not only seeks redress against
petitioner. It also seeks the enforcement of, and
petitioners compliance with, the contract that the partners
executed to formalize the partnerships dissolution, as
well as to implement the liquidation and partition of the
partnerships assets. Clearly, it is a personal action that,
in effect, claims a debt from petitioner and seeks the
performance of a personal duty on his part. In fine,
respondents complaint seeking the liquidation and
partition of the assets of the partnership with damages is
a personal action which may be filed in the proper court
where any of the parties reside. Besides, venue has
nothing to do with jurisdiction for venue touches more

Business Organization 1
Atty. Catherine Guerzo-Barrion
upon the substance or merits of the case. As it is, venue
in this case was properly laid and the trial court correctly
ruled so.
Same Parties Succession The surviving spouse does
not need to be appointed as executrix or administratrix of
the estate before she can file an action based on the rights
of her deceased husbandshe and her children are
complainants in their own right as successors, the
deceaseds rights being transmitted to his heirs from the
moment of death.On the third issue, petitioner asserts
that the surviving spouse of Vicente Tabanao has no legal
capacity to sue since she was never appointed as
administratrix or executrix of his estate. Petitioners
objection in this regard is misplaced. The surviving
spouse does not need to be appointed as executrix or
administratrix of the estate before she can file the action.
She and her children are complainants in their own right
as successors of Vicente Tabanao. From the very
moment of Vicente Tabanaos death, his rights insofar as
the partnership was concerned were transmitted to his
heirs, for rights to the succession are transmitted from the
moment of death of the decedent. Whatever claims and
rights Vicente Tabanao had against the partnership and
petitioner were transmitted to respondents by operation of
law, more particularly by succession, which is a mode of
acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance of
a person are transmitted. Moreover, respondents became
owners of their respective hereditary shares from the
moment Vicente Tabanao died.
Same Same Same The heirs, as successors who
stepped into the shoes of their decedent upon his death,
can commence any action originally pertaining to the
decedent.A prior settlement of the estate, or even the
appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to
acquire legal capacity to sue. As successors who stepped
into the shoes of their decedent upon his death, they can
commence any action originally pertaining to the
decedent. From the moment of his death, his rights as a
partner and to demand fulfillment of petitioners
obligations as outlined in their dissolution agreement were
transmitted to respondents. They, therefore, had the
capacity to sue and seek the courts intervention to
compel petitioner to fulfill his obligations.
Same Partnerships Accounting Prescription For as
long as the partnership exists, any of the partners may
demand an accounting of the partnerships business, and
prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is
done. The three (3) final stages of a partnership are: (1)
dissolution (2) windingup and (3) termination. The
partnership, although dissolved, continues to exist and its
legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners.
For as long as the partnership exists, any of the partners
may demand an accounting of the partnerships business.
Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is
done. Contrary to petitioners protestations that
respondents right to inquire into the business affairs of
the partnership accrued in 1986, prescribing four (4) years
thereafter, prescription had not even begun to run in the
absence of a final accounting.

17 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


SERGIO V. SISON, plaintiff and appellant, vs. HELEN
J. MCQUAID, defendant and appellee.
PLEADING
AND
PRACTICE DISMISSAL
OF
COMPLAINT PRESCRIPTION OF ACTION, NOT
SHOWN.Where it is not clear from the allegations of the
complaint just when plaintiff's cause of action accrued,
and consequently,, it cannot be determined with certainty
whether that action has already prescribed or not, ,the
defense of prescription can not be sustained on a mere
motion to dismiss based on what appears on the face of
the complaint.
ID. ID. NO CAUSE OF ACTION.Plaintiff 'Seeks to
recover from defendant onehalf of the purchase price of
lumber sold by the partnership to the United States Army.
But his complaint does not show why he should be
entitled to the sum he claims. It does not allege that there
has been a liquidation of their partnership business . and
the said sum has been found to be due him as his share
of the profits. Held: The complaint states no cause of
.action. .The proceeds from the sale of a certain amount
of lumber cannot be considered profits until costs and
expenses have been deducted. Moreover, the profits of a
business cannot be determined by taking into account the
result of one particular transaction instead of all the
transactions had. Hence, the need for a general
liquidation before a member of a partnership may claim a
specific sum as his share of the profits.
JOSE ORNUM AND EMERENCIANA ORNUM,
petitioners, vs. MARIANO LASALA ET AL.,
respondents.
PARTNERSHIP ACCOUNTS AND ACCOUNTING
WHEN STATEMENT OF ACCOUNTS IS DEEMED
APPROVED.Held: That the last and final statement of
accounts quoted in the decision had been approved by
the respondents. This approval resulted, by virtue of the
letter of Father Mariano Lasala of July 19, 1932, from the
failure of the respondents to object to the statement and
from their promise to sign the same as soon as they
received their shares as shown in said statement. After
such shares had been paid by the petitioners and
accepted by the respondents without any reservation, the
approval of the statement of accounts was virtually
confirmed and its signing thereby became a mere
formality to be complied with by the respondents
exclusively. Their refusal to sign, after receiving their
shares, amounted to a waiver of that formality in favor of
the petitioners who had already performed their
obligation.
ID. ID. ID. APPROVAL OF STATEMENT OF
ACCOUNTS PRECLUDES RIGHT TO FURTHER
LIQUIDATION.This approval precludes any right on the
part of the respondents to a further liquidation, unless the
latter can show that there was fraud, deceit, error or
mistake in said approval. The Court of Appeals did not
make any finding that there was fraud, and on the matter
of error or mistake, its pronouncement that the evidence
tends to prove that there were mistakes in the petitioners'
statements of accounts, without specifying the mistakes,
merely intimates, in the opinion of this court, a suspicion
and is not such a positive and unmistakable finding of fact
as to justify a revision, especially because the Court of
Appeals has relied on the bare allegations of the parties.
Even admitting that, as alleged by the petitioners in the
counterclaim, they overpaid the respondents in the sum
of P575.12, this error is essentially fatal to the latter's

Business Organization 1
Atty. Catherine Guerzo-Barrion
theory that they are entitled to more than what the
statement of accounts shows, and is therefore not the
kind of error that calls for another accounting which will
serve the purpose of the respondents' suit. Moreover, as
the petitioners did not appeal from the decision of the
Court of First Instance.
PROPERTY RIGHTS OF PARTNERS
INOCENCIA DELUAO and FELIPE DELUAO,
plaintiffsappellees, vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendantappellant.
Political law Administrative law Rulemaking power
Fisheries Act Fisheries Administrative Order 14 sec 7
prohibiting transfer or subletting of fishponds.Fisheries
Administrative Order 14, sec. 7 prohibiting the transfer or
subletting of fishponds covered by permits or lease
agreements is not inconsistent with the Fisheries Act.
Sec. 63 of the Fisheries Act allows only holders of permits
or leases issued or executed by the Secretary of
Agriculture and Natural Resources (DANR Secretary) to
exercise the acts of entering the land and construct a
fishpond therein. Therefore, only a holder of a permit or
lease and no one else may enjoy the benefits allowed by
the law. In declaring null and void a sublease or transfer
of the whole or part of a fishpond and/or its improvements
unless. previously approved by the Director
(Commissioner) of Fisheries, sec. 37 (a) of Fisheries
Administrative Order 14 does no more than carry into
effect the will of the legislature as expressed in the
Fisheries Act. It is a valid administrative order issued
under the authority conferred by sec. 4 of the Fisheries
Act on the DANR Secretary to "issue instructions, orders,
rules and regulations consistent with this Act, as may be
necessary to carry into effect the provisions thereof." It
surely cannot be considered an act of legislation.
Civil law Partnership Contract to divide or transfer a
fishpond.A partnership formed to divide a fishpond into
equal parts is null and void as being against public policy.
A partnership cannot be formed for an illegal purpose
because it is against several prohibitory laws. And since
the contract is null and void, the party cannot be made to
execute a formal transfer of onehalf of the fishpond and
to secure official approval of the same as agreed upon.
Political law Administrative law Judicial review When
not allowed. Purely administrative and discretionary
functions of administrative agencies of the government
may not be interfered with by the courts especially in a
case where the agency is not even a party.
Civil law Contracts Fisheries Act Where equitable
grounds cannot be advanced to secure approval of
prohibited contract.The nullity of a prohibited contract
of transfer of a fishpond under the Fisheries Act cannot
be cured by equitable considerations unlike other rulings
of the Supreme Court in analogous cases. Firstly, the
subjectmatter in the Zamboanga case is private property
while the one at bar is public property. Secondly, in this
case there is a clear prohibition ,that without the approval
of the DANR Secretary any sublease or transfer is null
and void. Thus, the maxim "equity regards that as done
which should have been done" does not apply. Lastly, the
Lacuesta ruling does not apply where there is no showing
that the parties to the contract would not have succeeded
in securing the approval of the fishpond application were
it not for the indispensable aid both material and

18 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


otherwise extended by both parties to the f iling of the
application. In other words, in this case the parties are not
joint applicants for a permit.
Same Same Trust Cannot be established in violation of
law.Trust is founded on equity and can never result
from an act violative of .the law.
Same Same Partnership Article 1811 of Civil Code
con.strued Meaning of "specific partnership property."
Article 1811 of the Civil Code contemplates a tangible
property, such as a car, truck or a piece of land, but not
an intangible thing such as the beneficial right to a
fishpond.
MAURO LOZANA, plaintiff and appellee, vs.
SERAFIN DEPAKAKIBO, defendant and appellant.
PARTNERSHIP CONTRIBUTION IN KIND DISPOSAL
BY CONTRIBUTING PARTIES NOT ALLOWED.An
equipment which was contributed by one of the partners
to the partnership becomes the property of the
partnership and as such cannot be disposed of by the
party contributing the same without the consent or
approval of the partnership or of the other partner
(Clemente vs. Galvan, 67 Phil., 565).
ID. ANTIDUMMY LAW REFERS TO ALIENS ONLY.
The admission by the defendant that he and the plaintiff,
who are both Filipinos, are dummies of another person, is
an error of law, and not a statement of fact. Since both
parties are not aliens but Filipinos, the AntiDummy law
has not been violated. The said law refers to aliens only
(Commonwealth Act 1080 as amended).
ID. FURNISHING CURRENT TO FRANCHISE HOLDER
WlTHOUT APPROVAL OF PUBLIC SERVICE
COMMISSION PARTNERSHIP NOT VOID AB INITIO.
The act of the partnership in furnishing electric current to
the franchise holder without the previous approval of the
Public Service Commission, does not per se make the
contract of partnership null and void' from the beginning.
ROGER V. NAVARRO, petitioner, vs. HON. JOSE L.
ESCOBIDO, Presiding Judge, RTC Branch 37,
Cagayan de Oro City, and KAREN T. GO, doing
business under the name KARGO ENTERPRISES,
respondents.
Civil Procedure Parties The 1977 Rules of Civil
Procedure requires that every action must be prosecuted
or defended in the name of the real partyininterest, i.e.,
the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of
the suit.The 1977 Rules of Civil Procedure requires that
every action must be prosecuted or defended in the name
of the real partyininterest, i.e., the party who stands to be
benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit.
Civil Law Conjugal Properties Registration of the trade
name in the name of one persona womandoes not
necessarily lead to the conclusion that the trade name as
a property is hers alone, particularly when the woman is
married By law, all property acquired during the marriage,
whether the acquisition appears to have been made,
contracted or registered in one or both spouses, is
presumed to be conjugal unless the contrary is proved.
The registration of the trade name in the name of one
persona womandoes not necessarily lead to the

Business Organization 1
Atty. Catherine Guerzo-Barrion
conclusion that the trade name as a property is hers
alone, particularly when the woman is married. By law, all
property acquired during the marriage, whether the
acquisition appears to have been made, contracted or
registered in the name of one or both spouses, is
presumed to be conjugal unless the contrary is proved.
Same Same The conjugal partnership is governed by
the rules on the contract of partnership in all that is not in
conflict with what is expressly determined in this chapter
or by spouses in their marriage settlement. In other words,
the property relations of the husband and wife shall be
governed primarily by Chapter 4 on Conjugal Partnership
of Gains of the Family Code and, suppletorily, by the
spouses marriage settlement and by the rules on
partnership under the Civil Code.Under Article 108 of
the Family Code, the conjugal partnership is governed by
the rules on the contract of partnership in all that is not in
conflict with what is expressly determined in this Chapter
or by the spouses in their marriage settlements. In other
words, the property relations of the husband and wife
shall be governed primarily by Chapter 4 on Conjugal
Partnership of Gains of the Family Code and, suppletorily,
by the spouses marriage settlement and by the rules on
partnership under the Civil Code. In the absence of any
evidence of a marriage settlement between the spouses
Go, we look at the Civil Code provision on partnership for
guidance
Same Partnership In this connection, Article 1811 of the
Civil Code provides that [a] partner is a coowner with the
other partners of specific partnership property. Taken
with the presumption of the conjugal nature of the funds
used to finance the four checks used to pay for the
petitioners stocks subscription, and with the presumption
that the credits themselves are part of the conjugal
funds.In this connection, Article 1811 of the Civil Code
provides that [a] partner is a coowner with the other
partners of specific partnership property. Taken with the
presumption of the conjugal nature of the funds used to
finance the four checks used to pay for petitioners stock
subscriptions, and with the presumption that the credits
themselves are part of conjugal funds, Article 1811 makes
Quirino and Milagros de Guzman coowners of the alleged
credit.
Same Same Only one of the coowners, namely the coowner who filed the suit for the recovery of the coowned
property, is an indispensable party thereto. The other coowners are not indispensable partners. They are not even
necessary parties, for a complete relief can be accorded
in a suit even without their participation, since the suit is
presumed to have been filed for the benefit of all coowners.In sum, in suits to recover properties, all
coowners are real parties in interest. However, pursuant
to Article 487 of the Civil Code and relevant jurisprudence,
any one of them may bring an action, any kind of action,
for the recovery of coowned properties. Therefore, only
one of the coowners, namely the coowner who filed the
suit for the recovery of the coowned property, is an
indispensable party thereto. The other coowners are not
indispensable parties. They are not even necessary
parties, for a complete relief can be accorded in the suit
even without their participation, since the suit is presumed
to have been filed for the benefit of all coowners. Civil
Law Property Replevin We see nothing in these
provisions which requires the applicant to make a prior
demand on the possessor of the property before he can
file an action for a writ of replevin. Thus, prior demand is
not a condition precedent to an action for a writ of

19 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


replevin.We possessor of the property before he can
file an action for a writ of replevin. Thus, prior demand is
not a condition precedent to an action for a writ of replevin.
ARSENIO T. MENDIOLA, petitioner, vs. COURT OF
APPEALS, NATIONAL LABOR RELATIONS
COMMISSION, PACIFIC FOREST RESOURCES,
PHILS., INC. and/or CELLMARK AB, respondents.
Partnership In a partnership, the members become coowners of what is contributed to the firm capital and of all
property that may be acquired thereby and through the ef
orts of the members Each partner possesses a joint
interest in the whole of partnership property If the relation
does not have this feature, it is not one of partnership.
In a partnership, the members become coowners of what
is contributed to the firm capital and of all property that
may be acquired thereby and through the efforts of the
members. The property or stock of the partnership forms
a community of goods, a common fund, in which each
party has a proprietary interest. In fact, the New Civil
Code regards a partner as a coowner of specific
partnership property. Each partner possesses a joint
interest in the whole of partnership property. If the relation
does not have this feature, it is not one of partnership.
This essential element, the community of interest, or
coownership of, or joint interest in partnership property is
absent in the relations between petitioner and private
respondent Pacfor. Petitioner is not a partowner of Pacfor
Phils. William Gleason, private respondent Pacfors
President established this fact when he said that Pacfor
Phils. is simply a theoretical company for the purpose of
dividing the income 5050. He stressed that petitioner
knew of this arrangement from the very start, having been
the one to propose to private respondent Pacfor the
setting up of a representative office, and not a branch
office in the Philippines to save on taxes. Thus, the
parties in this case, merely shared profits. This alone does
not make a partnership.
Labor Law EmployerEmployee Relationship The
principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not
the actual exercise of the right by interfering with the work,
but the right to control, which constitutes the test of the
existence of an employeremployee relationship. The
power of control refers merely to the existence of the
power, and not to the actual exercise thereof. The
principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not
the actual exercise of the right by interfering with the work,
but the right to control, which constitutes the test of the
existence of an employeremployee relationship. In the
case at bar, private respondent Pacfor, as employer,
clearly possesses such right of control. Petitioner, as
private respondent Pacfors resident agent in the
Philippines, is, exactly so, only an agent of the
corporation, a representative of Pacfor, who transacts
business, and accepts service on its behalf.
EmployerEmployee
Relationship
Constructive
Dismissals Although there is no reduction of the salary of
petitioner, constructive dismissal is still present because
continued employment of petitioner is rendered, at the
very least, unreasonable.Although there is no reduction
of the salary of petitioner, constructive dismissal is still
present because continued employment of petitioner is
rendered, at the very least, unreasonable. There is an act
of clear discrimination, insensibility or disdain by the
employer that continued employment may become so
unbearable on the part of the employee so as to foreclose

Business Organization 1
Atty. Catherine Guerzo-Barrion
any choice on his part except to resign from such
employment.
JOSEFINA P. REALUBIT, petitioner, vs. PROSENCIO
D. JASO and EDEN G. JASO, respondents.
Evidence Public Documents Notarial Law It is a settled
rule that documents acknowledged before notaries public
are public documents which are admissible in evidence
without necessity of preliminary proof as to their
authenticity and due execution.The Spouses Realubit
argue that, in upholding its validity, both the RTC and the
CA inordinately gave premium to the notarization of the
27 June 1997 Deed of Assignment executed by Biondo in
favor of the Spouses Jaso. Calling attention to the latters
failure to present before the RTC said assignor or, at the
very least, the witnesses to said document, the Spouses
Realubit maintain that the testimony of Rolando Diaz, the
Notary Public before whom the same was acknowledged,
did not suffice to establish its authenticity and/or validity.
They insist that notarization did not automatically and
conclusively confer validity on said deed, since it is still
entirely possible that Biondo did not execute said deed or,
for that matter, appear before said notary public. The
dearth of merit in the Spouses Realubits position is,
however, immediately evident from the settled rule that
documents acknowledged before notaries public are
public documents which are admissible in evidence
without necessity of preliminary proof as to their
authenticity and due execution.
Same Same Same A public document not only enjoys
a presumption of regularity but is also considered prima
facie evidence of the facts therein stateda party
assailing the authenticity and due execution of a notarized
document is, consequently, required to present evidence
that is clear, convincing and more than merely
preponderant.It cannot be gainsaid that, as a public
document, the Deed of Assignment Biondo executed in
favor of Eden not only enjoys a presumption of regularity
but is also considered prima facie evidence of the facts
therein stated. A party assailing the authenticity and due
execution of a notarized document is, consequently,
required to present evidence that is clear, convincing and
more than merely preponderant. In view of the Spouses
Realubits failure to discharge this onus, we find that both
the RTC and the CA correctly upheld the authenticity and
validity of said Deed of Assignment upon the combined
strength of the abovediscussed disputable presumptions
and the testimonies elicited from Eden and Notary Public
Rolando Diaz.
Joint Ventures Partnership Agency Words and Phrases
Generally understood to mean an organization formed for
some temporary purpose, a joint venture is likened to a
particular partnership or one which has for its object
determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation
The rule is settled that joint ventures are governed by the
law on partnerships which are, in turn, based on mutual
agency or delectus personae.Generally understood to
mean an organization formed for some temporary
purpose, a joint venture is likened to a particular
partnership or one which has for its object determinate
things, their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation. The rule is settled
that joint ventures are governed by the law on
partnerships which are, in turn, based on mutual agency
or delectus personae. Insofar as a partners conveyance
of the entirety of his interest in the partnership is

20 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


concerned, Article 1813 of the Civil Code provides as
follows: Art. 1813. A conveyance by a partner of his whole
interest in the partnership does not itself dissolve the
partnership, or, as against the other partners in the
absence of agreement, entitle the assignee, during the
continuance of the partnership, to interfere in the
management or administration of the partnership
business or affairs, or to require any information or
account of partnership transactions, or to inspect the
partnership books but it merely entitles the assignee to
receive in accordance with his contracts the profits to
which the assigning partners would otherwise be entitled.
However, in case of fraud in the management of the
partnership, the assignee may avail himself of the usual
remedies. In the case of a dissolution of the partnership,
the assignee is entitled to receive his assignors interest
and may require an account from the date only of the last
account agreed to by all the partners.
Same Same Same The transfer by a partner of his
partnership interest does not make the assignee of such
interest a partner of the firm, nor entitle the assignee to
interfere in the management of the partnership business
or to receive anything except the assignees profits.
From the foregoing provision, it is evident that (t)he transfer by a partner of his partnership interest does not make
the assignee of such interest a partner of the firm, nor
entitle the assignee to interfere in the management of the
partnership business or to receive anything except the
assignees profits. The assignment does not purport to
transfer an interest in the partnership, but only a future
contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his
proportionate interest in the capital. Since a partners
interest in the partnership includes his share in the profits,
we find that the CA committed no reversible error in ruling
that the Spouses Jaso are entitled to Biondos share in
the profits, despite Juanitas lack of consent to the
assignment of said Frenchmans interest in the joint
venture. Although Eden did not, moreover, become a
partner as a consequence of the assignment and/or
acquire the right to require an accounting of the
partnership business, the CA correctly granted her prayer
for dissolution of the joint venture conformably with the
right granted to the purchaser of a partners interest under
Article 1831 of the Civil Code.
Appeals Evidence As a rule, findings of fact of the Court
of Appeals are binding and conclusive upon the Supreme
Court and will not be reviewed or disturbed on appeal
Exceptions.Based on the evidence on record,
moreover, both the RTC and the CA ruled out the
dissolution of the joint venture and concluded that the ice
manufacturing business at the aforesaid address was the
same one established by Juanita and Biondo. As a rule,
findings of fact of the CA are binding and conclusive upon
this Court, and will not be reviewed or disturbed on appeal
unless the case falls under any of the following
recognized exceptions: (1) when the conclusion is a
finding grounded entirely on speculation, surmises and
conjectures (2) when the inference made is manifestly
mistaken, absurd or impossible (3) where there is a grave
abuse of discretion (4) when the judgment is based on a
misapprehension of facts (5) when the findings of fact are
conflicting (6) when the CA, in making its findings, went
beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee (7) when
the findings are contrary to those of the trial court (8)
when the findings of fact are conclusions without citation
of specific evidence on which they are based (9) when

Business Organization 1
Atty. Catherine Guerzo-Barrion
the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the
respondents and, (10) when the findings of fact of the CA
are premised on the supposed absence of evidence and
contradicted by the evidence on record. Unfortunately for
the Spouses Realubits cause, not one of the foregoing
exceptions applies to the case.
OBLIGATIONS OF PARTNERS
WITH REGARD TO THIRD PERSON
PETITION FOR AUTHORITY TO CONTINUE USE OF
THE FIRM NAME SYCIP, SALAZAR, FELICIANO,
HERNANDEZ & CASTILLO.
Civil Law Partnership Firm Name Use in the partnership
name of the names of deceased partners contrary to Art.
1815 of the Civil Code Names in a firm name of a
partnership must be living partners Reasons.
Inasmuch as Sycip, Salazar, Feliciano, Hernandez and
Castillo and Ozaeta, Romulo, De Leon, Mabanta and
Reyes are partnerships, the use in their partnership
names of the names of deceased partners will run counter
to Article 1815 of the Civil Code. x x x It is clearly tacit in
the above provision that names in a firm name of a
partnership must either be those of living partners and, in
the case of nonpartners, should be living persons who can
be subjected to liability. In fact, Article 1825 of the Civil
Code prohibits a third person from including his name in
the firm name under pain of assuming the liability of a
partner. The heirs of a deceased partner in a law firm
cannot be held liable as the old members to the creditors
of a firm particularly where they are nonlawyers. Thus,
Canon 34 of the Canons of Professional Ethics prohibits
an agreement for the payment to the widow and heirs of
a deceased lawyer of a percentage, either gross or net, of
the fees received from the future business of the
deceased lawyers clients, both because the recipients of
such division are not lawyers and because such
payments will not represent service or responsibility on
the part of the recipient. Accordingly, neither the widow
nor the heirs can be held liable for transactions entered
into after the death of their lawyerpredecessor. There
being no benefits accruing, there can be no
corresponding liability.
Same Same Same Commercial Partnership Art. 1840
refers to commercial partnership with goodwill, not
professional partnerships Goodwill cannot arise in a
professional partnership.Secondly, Article 1840 treats
more of a commercial partnership with a good will to
protect rather than of a professional partnership, with no
saleable good, will but whose reputation depends on the
personal qualifications of its individual members. Thus, it
has been held that a saleable goodwill can exist only in a
commercial partnership and cannot arise in a professional
partnership consisting of lawyers.
Same Same Same Practice of Law Partnership for the
practice of law, nature of.A partnership for the practice
of law cannot be likened to partnerships formed by other
professionals or for business. For one thing, the law on
accountancy specifically allows the use of a trade name
in connection with the practice of accountancy. A
partnership for the practice of law is not a legal entity. It is
a mere relationship or association for a particular
purpose. x x x It is not a partnership formed for the
purpose of carrying on a trade or business or of holding
property. Thus, it has been stated that the use of a nom

21 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


de plume, assumed or trade name in law practice is
improper.
Same Same Same Same Right to practice law, nature
of.The right to practice law is not a natural or
constitutional right but is in the nature of a privilege or
franchise. It is limited, to persons of good moral character
with special qualifications duly ascertained and certified.
The right does not only presuppose in its possessor
integrity, legal standing and attainment, but also the
exercise of a special privilege, highly personal and
partaking of the nature of a public trust.
Same Same Same Custom Continued use of a
deceased or former partners name in the firm names of
law partnerships not sanctioned by local custom Reason
Possibility of deception upon the public where the name
of a deceased partner continues to be used.It is true
that Canon 33 does not consider as unethical the
continued use of the name of a deceased or former
partner in the firm name of a law partnership when such
a practice is permissible by local custom but the Canon
warns that care should be taken that no imposition or
deception is practiced through this use. It must be
conceded that in the Philippines, no local custom permits
or allows the continued use of a deceased or former
partners name in the firm names of law partnerships.
Firm names, under our custom, identify the more active
and/or more senior members or partners of the law firm.
A glimpse at the history of the firms of petitioners and of
other law firms in this country would show how their firm
names have evolved and changed from time to time as
the composition of the partnership changed. The
possibility of deception upon the public, real or
consequential, where the name of a deceased partner
continues to be used cannot be ruled out. A person in
search of legal counsel might be guided by the familiar
ring of a distinguished name appearing in a firm title.
Same Same Same Same Same Evidence Concept of
Customs To be admissible custom must be proved as a
fact Distinctions between juridical custom and social
custom.Not so in this jurisdiction where there is no local
custom that sanctions the practice. Custom has been
defined as a rule of conduct formed by repetition of acts,
uniformly observed (practiced) as a social rule, legally
binding and obligatory. Courts take no judicial notice of
custom. A custom must be proved as a fact, according to
the rules of evidence. A local custom as a source of right
cannot be considered by a court of justice unless such
custom is properly established by competent evidence
like any other fact. We find such proof of the existence of
a local custom, and of the elements requisite to constitute
the same, wanting herein. Merely because something is
done as a matter of practice does not mean that Courts
can rely on the same for purposes of adjudication as a
juridical custom. Juridical custom must be differentiated
from social custom. The former can supplement statutory
law or be applied in the absence of such statute. Not so
with the latter.
Same Same Same Practice of Law Practice of law not
considered moneymaking trade but peculiarly related to
the administration of justice. The practice of law is
intimately and peculiarly related to the administration of
justice and should not be considered like an ordinary
"moneymaking trade."
TECK SEING & Co., LTD., petitioner and appellee.
SANTIAGO Jo CHUNG CANG ET AL., partners, vs.

Business Organization 1
Atty. Catherine Guerzo-Barrion

FIRST EXAM: PARTNERSHIP

PACIFIC COMMERCIAL COMPANY ET AL., creditors


and appellants.

1887, January 25, 1888, November 10, 1890, and


January 26, 1900.)

MERCANTILE LAW CONTRACTS PARTNERSHIP


INSTANT
CASE.Held:
That
the
mercantile
establishment which operated under the name of Teck
Seing & Co., Ltd., and which was constituted by the
document set forth in the decision, is not a corporation,
nor a cuenta en participacin (joint account association),
nor a sociedad annma, nor a sociedad en comandita
(limited partnership), nor a de facto commercial
association, but is a general partnership.

ID. ID. ID. ID. ID. ID. DECISION IN HUNGMANYoc


vs. KIENGCHIONGSENG, DISTINGUISHED.There is
a marked difference between the facts of the case of
HungManYoc vs. KiengChiongSeng ([1906], 6 Phil., 498),
and the facts of the instant case.

ID. ID. ID. LIMITED PARTNERSHIP.Those who seek


to avail themselves of the protection of laws permitting the
creation of limited partnerships must show a substantially
full compliance with such laws. A limited partnership that
has not complied with the law of its creation is not
considered a limited partnership at all, but a general
partnership in which all the members are liable.
ID. ID. ID. ID.To establish a limited partnership, there
must be, at least, one general partner and the name of at
least one of the general partners must appear in the firm
name. (Code of Commerce, arts. 122 [2], 146, 148.)
ID. ID. ID. DEFECTS IN THE ORGANIZATION FIRM
NAME ARTICLE 126 OF THE CODE OF COMMERCE,
CONSTRUED.Article 126 of the Code of Commerce
requires the general copartnership to transact business
under the name of all its members, or of several of them,
or of one only. The object of the article is manifestly to
protect the public against imposition and fraud.
ID. ID. ID. ID. ID. ID.Article 126 of the Code of
Commerce was intended more for the protection of the
creditors than of the partners themselves. A distinction
can be drawn between the right of the alleged partnership
to institute action when failing to live up to the provisions
of the law, or even the rights of the partners as among
themselves, and the right of a third person to hold
responsible a general partnership which merely lacks a
firm name, in order to make it a partnership de jure. The
law should be construed as rendering contracts made in
violation of it unlawful and unenforceable at the instance
of the offending party only, but not as designed to take
away the rights of innocent parties who may have dealt
with the offenders in ignorance of their having violated the
law.
ID. ID. ID. ID. ID. ID.The civil law and the common
law alike point to a difference between the rights of the
partners who have failed to comply with the law and the
rights of third persons who have dealt with the
partnership.
ID. ID. ID. ID. ID. ID.According to the Spanish civil
law, defects in the organization cannot affect relations
with third persons. Contracts entered into by commercial
associations defectively organized are valid when they
are voluntarily executed by the parties, if the only
controversy relates to whether or not they complied with
the agreement.
ID. ID. ID. ID. ID. ID. FAILURE OF REGISTRY,
EFFECT. While the failure to register in the commercial
registry necessarily precludes the members from
enforcing rights acquired by them against third persons,
such failure cannot prejudice the rights of third persons.
(Decisions of the supreme court of Spain of December 6,

22 | T A L I O N _ P Q V

ID. ID. ID. ID. ID. ID. TEST OF PARTNERSHIP.


The legal intention deducible from the acts of the parties
controls in determining the existence of a partnership. If
they intend to do a thing which in law constitutes a
partnership, they are partners, although their purpose was
to avoid the creation of such relation.
ID. ID. ID. ID. ID. ID. BANKRUPTCY AND
INSOLVENCY LIABILITY OF PARTNERSHIP AND
PARTNERS.If a firm be insolvent, but one or more
partners thereof are solvent, the creditors may proceed
both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before
seizing the property of the partners.
PHILIPPINE NATIONAL BANK, plaintiff and appellee,
vs. SEVERO EUGENIO Lo ET AL., defendants.
SEVERO EuGENIO Lo, NG KHEY LING and YEP
SENG, appellants.
ASSOCIATIONS
GENERAL
PARTNERSHIPS
LIABILITY. The anomalous adoption of a firm name by
the defendant partners cannot be set up by them as a
defense so as to evade a liability contracted by them,
inasmuch as such anomaly does not affect the liability of
the general partners to third persons under article 127 of
the Code of Commerce. (See HungManYoc vs.
KiengChiongSeng, 6 Phil., 498.)
ID. ID. ID.The object of article 126 of the Code of
Commerce in requiring a general partnership to transact
business under the name of all its members, of several of
them, or of one only, is to protect the public from
imposition and fraud. The provision of said article 126 is
for the protection of the creditors rather than of the
partners themselves. The doctrine formerly enunciated by
this court is that the law must be construed as rendering
contracts made in violation of it, unlawful and
unenforceable only as between the partners and at the
instance of the infringer, but not in the sense of depriving
innocent parties of their rights, who may have dealt with
the guilty parties in ignorance of the latter's having
violated the law and that contracts entered into by
mercantile associations defectively organized are valid
when voluntarily executed by the parties and the only
question is whether or not they complied with the
agreement. (Jo Chung Cang vs. Pacific Commercial Co.,
45 Phil., 142.)
ID. ID. ID.Appellants' contention that such parts of
their property as are not included in the partnership assets
cannot be levied upon for the payment of the partnership
obligations, except after the partnership property has
been exhausted is untenable, for the partnership property
described in the mortgage no longer existed at the time of
the filing of the herein complaint, nor has its existence
been proved, nor was it offered to the plaintiff for sale.
Hence article 237 of the Code of Commerce invoked by
the appellants can in no way be applicable to this case.

Business Organization 1
Atty. Catherine Guerzo-Barrion
ID. ID. ID.All the members of a general partnership,
be they managing partners of the same or not, shall be
personally and solidarily liable with all their property for
the results of the transactions made in the name and for
the account of the partnership, under the signature of the
latter and by a person authorized to use it. (Sec. 127,
Code of Commerce.)
NICOLAS CO-PITCO, plaintiff and appellee, vs.
PEDRO YULO, defendant and appellant.
1.REVIEW; EVIDENCE; CERTIFICATE.In order that
this court may consider the evidence upon review, it must
be accompanied by a certificate of the clerk or the
stenographer to the effect that it is the evidence which
was taken in the case.
2.CIVIL PARTNERSHIP.Each member of a civil
partnership is not bound to pay all the debts of the
concern, but simply his pro rata, share.
3.ID.A partnership formed to operate a sugar plantation
is a civil and not a mercantile partnership. Co-Pitco vs.
Yulo., 8 Phil. 544, No. 3146 September 14, 1907

ISLAND SALES, INC., plaintiffappellee, vs. UNITED


PIONEERS GENERAL CONSTRUCTION COMPANY,
ET. AL defendants. BENJAMIN C. DACO, defendantappellant.
Civil law Partnership Condonation by creditor of share in
partnerships debt of one partner does not increase pro
rata liability of other partners.In the instant case, there
were five general partners when the promissory note in
question was executed for and in behalf of the
partnerships. Since the liability of the partners in pro rata,
the liability of the appellant Benjamin C. Daco shall be
limited to only 1/5 of the obligations of the defendant
company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon
motion of the plaintiff, does not unmake the said Lumauig
as a general partner in the defendant company. In so
moving to dismiss the complaint, the plaintiff merely
condoned Lumauigs individual liability to the plaintiff.
ELMO MUASQUE, petitioner, vs. COURT OF
APPEALS, CELESTINO GALAN, TROPICAL
COMMERCIAL COMPANY and RAMON PONS,
respondents.
Civil Law Partnership Fact that there was a
misunderstanding between the partners does not convert
the partnership into a sham organization.There is
nothing in the records to indicate that the partnership
organized by the two men was not a genuine one. If there
was a falling out or misunderstanding between the
partners, such does not convert the partnership into a
sham organization.
Same Same Payments made to the partnership, valid
where the recipient made it appear that he and another
were true partners in the partnership.Likewise, when
Muasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name,
he indorsed the check in favor of Galan. Respondent
Tropical therefore, had every right to presume that the
petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to
blame for making the relationship appear otherwise, not

23 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


only to Tropical but to their other creditors as well. The
payments made to the partnership were, therefore, valid
payments.
Same Same Liability of partners to third persons who
extended credit to the partnership.No error was
committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment
which binds both Galan and the petitioner. Since the two
were partners when the debts were incurred, they are also
both liable to third persons who extended credit to their
partnership.
Same Same, Remedial Law Civil Procedure Pretrial
Delimitation of issues during the pretrial agreed upon by
one party binds said party to the delimitation.The
petitioner, therefore, should be bound by the delimitation
of the issues during the pretrial because he himself
agreed to the same.
Same Same Liability of partners to third persons for
contracts executed in connection with the partnership
business is pro rata.We, however, take exception to the
ruling of the appellate court that the trial court's ordering
petitioner and Galan to pay the credits of Blue Diamond
and Cebu Southern Hardware "jointly and severally" is
plain error since the liability of partners under the law to
third persons for contracts executed in connection with
partnership business is only pro rata under Art. 1816, of
the Civil Code.
Same Same Same While the liability of partners are
merely joint in transactions entered into by the
partnership, the partners are liable to third persons
solidarily for the whole obligation if the case involves loss
or injury caused to any person not a partner in the
partnership, and misapplication of money or property of a
third person received by a partner or the partnership.
While it is true that under Article 1816 of the Civil Code,
"AII partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may
be entered into the name and for the account of the
partnership, under its signature and by a person
authorized to act for the partnership. x x x", this provision
should be construed together with Article 1824 which
provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership
under Articles 1822 and 1823." In short, while the liability
of the partners are merely joint in transactions entered
into by the partnership, a third person who transacted with
said partnership can hold the partners solidarily liable for
the whole obligation if the case of the third person falls
under Articles 1822 or 1823.
Same Same Same: Same Solidary obligation of
partners to third persons Rationale.The obligation is
solidary because the law protects him, who in good faith
relied upon the authority of a partner, whether such
authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or
guilty, as well as the legal entity which is the partnership,
are solidarily liable.
Same Same Same Same Solidary liability of all
partners and the partnership as a whole for the
consequences of any wrongful act committed by any of
the partners.ln the case at bar the respondent Tropical
had every reason to believe that a partnership existed
between the petitioner and Galan and no fault or error can

Business Organization 1
Atty. Catherine Guerzo-Barrion
be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as
far as it was concerned, Galan was a true partner with real
authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the cases
of Cebu Southern Hardware and Blue Diamond Glass
Palace who supplied materials on credit to the
partnership. Thus, it is but fair that the consequences of
any wrongful act committed by any of the partners therein
should be answered solidarily by all the partners and the
partnership as a whole.
J. TIOSEJO INVESTMENT CORP., petitioner, vs.
SPOUSES BENJAMIN AND ELEANOR ANG,
respondents.
Remedial Law Appeals The perfection of an appeal in
the manner and within the period prescribed by law is not
only mandatory but jurisdictional Considering that they
are requirements which cannot be trifled with as mere
technicality to suit the interest of a party, failure to perfect
an appeal in the prescribed manner has the ef ect of
rendering the judgment final and executory.While the
dismissal of an appeal on purely technical grounds is
concededly frowned upon, it bears emphasizing that the
procedural requirements of the rules on appeal are not
harmless and trivial technicalities that litigants can just
discard and disregard at will. Neither being a natural right
nor a part of due process, the rule is settled that the right
to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the
provisions of the law. The perfection of an appeal in the
manner and within the period prescribed by law is, in fact,
not only mandatory but jurisdictional. Considering that
they are requirements which cannot be trifled with as
mere technicality to suit the interest of a party, failure to
perfect an appeal in the prescribed manner has the effect
of rendering the judgment final and executory.
Same Same Rules prescribing the time for doing specific
acts or for taking certain proceedings are considered
absolutely indispensable to prevent needless delays and
to orderly and promptly discharge judicial business.The
record shows that, having been granted the 15day
extension sought in its first motion, petitioner filed a
second motion for extension praying for an additional 10
days from 17 April 2006 within which to file its petition for
review, on the ground that pressures of work and the
demands posed by equally important cases prevented its
counsel from finalizing the same. As correctly ruled by the
CA, however, heavy workload cannot be considered as a
valid justification to sidestep the reglementary period
since to do so would only serve to encourage needless
delays and interminable litigations. Indeed, rules
prescribing the time for doing specific acts or for taking
certain proceedings are considered absolutely
indispensable to prevent needless delays and to orderly
and promptly discharge judicial business. Corollary to the
principle that the allowance or denial of a motion for
extension of time is addressed to the sound discretion of
the court, moreover, lawyers cannot expect that their
motions for extension or postponement will be granted as
a matter of course.
Contracts Joint Ventures By the express terms of the
Joint Venture Agreement (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.Even

24 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


prescinding from the foregoing procedural considerations,
we also find that the HLURB Arbiter and Board correctly
held petitioner liable alongside PPGI for respondents
claims and the P10,000.00 administrative fine imposed
pursuant to Section 20 in relation to Section 38 of P.D.
957. By the 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.
Civil Law Partnership 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
copartners. 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. As correctly
argued by the latter, 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 copartners. Whether innocent or
guilty, all the partners are solidarily liable with the
partnership itself.
DISSOLUTION AND WINDING UP
IRMA IDOS, petitioner, vs. COURT OF APPEALS and
PEOPLE OF THE PHILIPPINES, respondents.
Criminal Law Bouncing Checks Law (Batas Pambansa
Blg. 22) Statutory Construction For an act to be
punishable under Batas Pambansa Blg. 22, it must come
clearly within both the spirit and the letter of the statute.
Considering that penal statutes are strictly construed
against the state and liberally in favor of the accused, it
bears stressing that for an act to be punishable under the
B.P. 22, it must come clearly within both the spirit and the
letter of the statute. Otherwise, the act has to be declared
outside the laws ambit and a plea of innocence by the
accused must be sustained.
Same Same Elements of the Of ense Penalized Under
Batas Pambansa Blg. 22.As decided by this Court, the
elements of the offense penalized under B.P. 22, are as
follows: (1) the making, drawing and issuance of any
check to apply to account or for value (2) the knowledge
of the maker, drawer or issuer that at the time of issue he
does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its
presentment and (3) subsequent dishonor of the check
by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.
Same Same Same Partnerships Where a check issued
to a partner, to evidence only his share or interest in the
partnership, is to be funded from receivables to be
collected and goods to be sold by the partnership, and
only when such collection and sale are realized, the same

Business Organization 1
Atty. Catherine Guerzo-Barrion
does not involve a debt of or any account due and payable
by the drawer.In the present case, with regard to the
first issue, evidence on record would show that the
subject check was to be funded from receivables to be
collected and goods to be sold by the partnership, and
only when such collection and sale were realized. Thus,
there is sufficient basis for the assertion that the petitioner
issued the subject check (Metrobank Check No.
103115490 dated October 30, 1986, in the amount of
P135,828.87) to evidence only complainants share or
interest in the partnership, or at best, to show her
commitment that when receivables are collected and
goods are sold, she would give to private complainant the
net amount due him representing his interest in the
partnership. It did not involve a debt of or any account due
and payable by the petitioner.
Partnerships Final Stages of a Partnership.Under the
Civil Code, the three final stages of a partnership are (1)
dissolution (2) windingup and (3) termination. These
stages are distinguished, to wit: (1) Dissolution Defined
Dissolution is the change in the relation of the partners
caused by any partner ceasing to be associated in the
carrying on of the business (Art. 1828). It is that point of
time the partners cease to carry on the business together.
[Citation omitted] (2) Winding Up DefinedWinding up is
the process of settling business af airs after dissolution.
(NOTE: Examples of winding up: the paying of previous
obligations the collecting of assets previously
demandable even new business if needed to wind up, as
the contracting with a demolition company for the
demolition of the garage used in a used car partnership.)
(3) Termination DefinedTermination is the point in time
after all the partnership af airs have been wound up.
[Citation omitted] (Italics supplied.)
Criminal Law Bouncing Checks Law (Batas Pambansa
Blg. 22) Where the check was issued merely to evidence
a partners share in the partnership, it should be deemed
as having been drawn without consideration at the time of
issue.For there is nothing on record which even slightly
suggests that petitioner ever became interested in
acquiring, much less keeping, the shares of the
complainant. What is very clear therefrom is that the
petitioner exerted her best efforts to sell the remaining
goods and to collect the receivables of the partnership, in
order to come up with the amount necessary to satisfy the
value of complainants interest in the partnership at the
dissolution thereof. To go by accepted custom of the
trade, we are more inclined to the view that the subject
check was issued merely to evidence complainants
interest in the partnership. Thus, we are persuaded that
the check was not intended to apply on account or for
value rather it should be deemed as having been drawn
without consideration at the time of issue.
Same Same Absent the first elementthe making,
drawing and issuance of any check to apply on account
or for valuea persons issuance of a check is not an act
contemplated in nor made punishable by Batas
Pambansa Blg. 22.Absent the first element of the
offense penalized under B.P. 22, which is the making,
drawing and issuance of any check to apply on account
or for value, petitioners issuance of the subject check
was not an act contemplated in nor made punishable by
said statute.
Same Same Presumptions The prima facie
presumption arising from the fact of drawing, issuing or
making a check, the payment of which was subsequently

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FIRST EXAM: PARTNERSHIP


refused for insuf iciency of funds is not suf icient proof of
guilt by the issuer.Noteworthy for the defense
knowledge of insufficiency of funds or credit in the drawee
bank for the payment of a check upon its presentment is
an essential element of the offense. It must be proved,
particularly where the prima facie presumption of the
existence of this element has been rebutted. The prima
facie presumption arising from the fact of drawing, issuing
or making a check, the payment of which was
subsequently refused for insufficiency of funds is,
moreover, not sufficient proof of guilt by the issuer.
Same Same Statutory Construction It is basic doctrine
that penal statutes such as Batas Pambansa Blg. 22
must be construed with such strictness as to carefully
safeguard the rights of the defendant The element of
knowledge of insuf iciency of funds has to be proved by
the prosecution, and absent said proof, an accused could
not be held criminally liable under that law.Since
petitioner issued these four checks without actual
knowledge of the insufficiency of funds, she could not be
held liable under B.P. 22 when one was not honored right
away. For it is basic doctrine that penal statutes such as
B.P. 22 must be construed with such strictness as to
carefully safeguard the rights of the defendant x x x. The
element of knowledge of insufficiency of funds has to be
proved by the prosecution absent said proof, petitioner
could not be held criminally liable under that law.
Moreover, the presumption of prima facie knowledge of
such insufficiency in this case was actually rebutted by
petitioners evidence.
Same Same Compromise Agreements A compromise
agreement entered into by the parties during the
pendency of the case for violation of Batas Pambansa
Blg. 22 constitutes an arrangement for the payment in full
of the subject check.But in fact, while the subject check
initially bounced, it was later made good by petitioner. In
addition, the terms of the parties compromise agreement,
entered into during the pendency of this case, effectively
invalidates the allegation of failure to pay or to make
arrangement for the payment of the check in full. Verily,
said compromise agreement constitutes an arrangement
for the payment in full of the subject check.
Same Same Where no notice of dishonor was actually
sent to and received by the accused, the prima facie
presumption that she knew about the insuf iciency of
funds cannot applythe absence of a notice of dishonor
necessarily deprives an accused an opportunity to
preclude a criminal prosecution.The absence of notice
of dishonor is crucial in the present case. As held by this
Court in prior cases: Because no notice of dishonor was
actually sent to and received by the petitioner, the prima
facie presumption that she knew about the insufficiency
of funds cannot apply. Section 2 of B.P. 22 clearly
provides that this presumption arises not from the mere
fact of drawing, making and issuing a bum check there
must also be a showing that, within five banking days from
receipt of the notice of dishonor, such maker or drawer
failed to pay the holder of the check the amount due
thereon or to make arrangement for its payment in full by
the drawee of such check. [Italics supplied.] The
absence of a notice of dishonor necessarily deprives an
accused an opportunity to preclude a criminal
prosecution. Accordingly, procedural due process clearly
enjoins that a notice of dishonor be actually served on
petitioner. Petitioner has a right to demandand the
basic postulates of fairness requirethat the notice of

Business Organization 1
Atty. Catherine Guerzo-Barrion
dishonor be actually sent to and received by her to afford
her the opportunity to avert prosecution under B.P. 22.
Same Same The fact that the drawer repeatedly notified
the payee of the insuf iciency of funds militates strongly
against the prosecutions stand. What militates strongly
against public respondents stand is the fact that petitioner
repeatedly notified the complainant of the insufficiency of
funds. Instructive is the following pronouncement of this
Court in Magno v. Court of Appeals: Furthermore, the
element of knowing at the time of issue that he does not
have sufficient funds in or credit with the drawee bank for
the payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee
bank for insufficiency of funds or credit or would have
been dishonored for the same reason x x x is inversely
applied in this case. From the very beginning, petitioner
never hid the fact that he did not have the funds with which
to put up the warranty deposit and as a matter of fact, he
openly intimated this to the vital conduit of the transaction,
Joey Gomez, to whom petitioner was introduced by Mrs.
Teng. It would have been different if this predicament was
not communicated to all the parties he dealt with
regarding the lease agreement the financing of which was
covered by L.S. Finance Management.
TESTATE ESTATE OF LAZARO MOTA, deceased, ET
AL., plaintiffs and appellants, vs. SALVADOR
SERRA, defendant and appellee.
OBLIGATIONS CONTRACTS NOVATION CONSENT
OF CREDITOR.In order that there may be a novation
of a contract by the substitution of the debtor, the express
consent of the creditor is necessary.
ID. ID. ID. ID. TIME AND FORM OF CONSENT.It is
not necessary that the creditor should give his consent
simultaneously with the execution of the new contract. He
may do so afterwards, provided it is given in an
indubitable manner.
ID. ID. ID. ID. EVIDENCE.The mere fact that the
creditor has dealt with the person who is alleged to have
been substituted in the place of the original debtor on
matters different from the obligation incurred does not
prove that said creditor has consented to the substitution
so as to liberate the original debtor from his obligations, it
not appearing that the creditor has taken part in the
agreement of substitution or that he has waived his right
against the original debtor.
ID. ID. CONFUSION.The rights of creditor and debtor
are not merged in one same person by the fact that the
things pertaining to said creditor and debtor which were
the subject of the obligation were transferred to him where
said transfer did not include, among the rights and
obligations transferred, the credit that the creditor had
against the debtor.
ID. ID. PARTNERSHIP DISSOLUTION EFFECTS
OF.The dissolution of a partnership does not extinguish
its obligations already incurred, and the partnership
continues until they are liquidated, although it may not
incur new obligations.
ID. ID. ID. ID. ID. PERIOD.Obligations contracted by
a partner with his copartners, for the fulfillment of which a
period was fixed, become pure obligations upon the
immediate dissolution of the partnership by agreement of
the members, and the partner entitled to enforce them

26 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


may bring an action for the purpose after the dissolution
agreed upon by the parties, without the necessity of
waiting for the expiration of the period originally fixed.
MARJORIE TOCAO and WILLIAM T. BELO,
petitioners, vs. COURT OF APPEALS and NENITA A.
ANAY, respondents.
Partnerships Appeals The issue of whether or not a
partnership exists is a factual matter which are within the
exclusive domain of both the trial court and the Court of
Appeals.The issue of whether or not a partnership
exists is a factual matter which are within the exclusive
domain of both the trial and appellate courts. This Court
cannot set aside factual findings of such courts absent
any showing that there is no evidence to support the
conclusion drawn by the court a quo. In this case, both
the trial court and the Court of Appeals are one in ruling
that petitioners and private respondent established a
business partnership. This Court finds no reason to rule
otherwise.
Same Requisites for a Partnership to Have Juridical
Personality Since a contract of partnership is consensual,
an oral contract of partnership is as good as a written one
Where no immovable property or real rights are involved,
what matters is that the parties have complied with the
requisites of a partnership.To be considered a juridical
personality, a partnership must fulfill these requisites: (1)
two or more persons bind themselves to contribute
money, property or industry to a common fund and (2)
intention on the part of the partners to divide the profits
among themselves. It may be constituted in any form a
public instrument is necessary only where immovable
property or real rights are contributed thereto. This implies
that since a contract of partnership is consensual, an oral
contract of partnership is as good as a written one. Where
no immovable property or real rights are involved, what
matters is that the parties have complied with the
requisites of a partnership. The fact that there appears to
be no record in the Securities and Exchange Commission
of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code did
not cause the nullification of the partnership. The pertinent
provision of the Civil Code on the matter states: Art. 1768.
The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of
failure to comply with the requirements of article 1772,
first paragraph.
Same Guaranty While Article 2055 of the Civil Code
simply provides that guaranty must be express, Article
1403, the Statute of Frauds, requires that a special
promise to answer for the debt, default or miscarriage of
another be in writing.Petitioner Belos denial that he
financed the partnership rings hollow in the face of the
established fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover,
his having authorized in writing on October 7, 1987, on a
stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirtyseven (37%) of the proceeds of her personal sales, could
not be interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a
guarantor is belied by that personal act of proprietorship
in the business. Moreover, if he was indeed a guarantor
of future debts of petitioner Tocao under Article 2053 of
the Civil Code, he should have presented documentary
evidence therefor. While Article 2055 of the Civil Code
simply provides that guaranty must be express, Article

Business Organization 1
Atty. Catherine Guerzo-Barrion
1403, the Statute of Frauds, requires that a special
promise to answer for the debt, default or miscarriage of
another be in writing.
Same EmployerEmployee Relationship While it is true
that the receipt of a percentage of net profits constitutes
only prima facie evidence that the recipient is a partner in
the business, the evidence in the instant case at bar
controverts an employeremployee relationship between
the parties.The business venture operated under
Geminesse Enterprise did not result in an employeremployee relationship between petitioners and private
respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie
evidence that the recipient is a partner in the business,
the evidence in the case at bar controverts an employeremployee relationship between the parties. In the first
place, private respondent had a voice in the management
of the affairs of the cookware distributorship, including
selection of people who would constitute the
administrative staff and the sales force. Secondly,
petitioner Tocaos admissions militate against an
employeremployee relationship. She admitted that, like
her who owned Geminesse Enterprise, private
respondent
received
only
commissions
and
transportation and representation allowances and not a
fixed salary.
Same Same If indeed a person is employed by another,
it is dif icult to believe that the former and the latter shall
receive the same income in the business.If indeed
petitioner Tocao was private respondents employer, it is
difficult to believe that they shall receive the same income
in the business. In a partnership, each partner must share
in the profits and losses of the venture, except that the
industrial partner shall not be liable for the losses. As an
industrial partner, private respondent had the right to
demand for a formal accounting of the business and to
receive her share in the net profit.
Same The best evidence of the existence of the
partnership, which is not yet terminated (though in the
winding up stage), are the unsold goods and uncollected
receivables.Petitioners underscore the fact that the
Court of Appeals did not return the unaccounted and
unremitted stocks of Geminesse Enterprise amounting to
P208,250.00. Obviously a ploy to offset the damages
awarded to private respondent, that claim, more than
anything else, proves the existence of a partnership
between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership,
which was not yet terminated (though in the winding up
stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since
the partnership has not been terminated, the petitioner
and private complainant remained as copartners. x x x.
Same Dissolution of Partnerships A mere falling out or
misunderstanding between partners does not convert the
partnership into a sham organizationthe partnership
exists until dissolved under the law. Undoubtedly,
petitioner Tocao unilaterally excluded private respondent
from the partnership to reap for herself and/or for
petitioner Belo financial gains resulting from private
respondents efforts to make the business venture a
success. Thus, as petitioner Tocao became adept in the
business operation, she started to assert herself to the
extent that she would even shout at private respondent in
front of other people. Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to

27 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private
respondent was no longer necessary in the business
operation, and resulted in a falling out between the two.
However, a mere falling out or misunderstanding between
partners does not convert the partnership into a sham
organization. The partnership exists until dissolved under
the law.
Same Same Any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will,
though 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
An unjustified dissolution by a partner can subject him to
action for damages. Since the partnership created by
petitioners and private respondent has no fixed term and
is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a
partner. Thus: x x x. The right to choose with whom a
person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence
is, in turn, dependent on the constancy of that mutual
resolve, along with each partners capability to give it, and
the absence of cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will.
He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages.
An unjustified dissolution by a partner can subject him to
action for damages because by the mutual agency that
arises in a partnership, the doctrine of delectus personae
allows the partners to have the power, although not
necessarily the right to dissolve the partnership.
Same Same Even if one partner had ef ected her own
withdrawal from the partnership and considered herself as
having ceased to be associated with the partnership in the
carrying on of the business, the partnership was not
terminated therebyit continues until the winding up of
the business. Petitioner Tocaos unilateral exclusion of
private respondent from the partnership is shown by her
memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the
vicepresident for sales of Geminesse Enterprise. By that
memo, petitioner Tocao effected her own withdrawal from
the partnership and considered herself as having ceased
to be associated with the partnership in the carrying on of
the business. Nevertheless, the partnership was not
terminated thereby it continues until the winding up of the
business.
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP
"TAN SIN AN and ANTONIO C. GOQUIOLAY",
plaintiffs and appellants vs. WASHINGTON Z. SYCIP,
ET AL., defendants and appellees.
PARTNERSHIP
MANAGEMENT,
RIGHT
OF
EXCLUSIVE PERSONAL RIGHT TERMINATION
UPON MANAGERPARTNER'S DEATH.The right of
exclusive management conferred upon Tan Sin An, being
premised upon trust and confidence, was a mere personal
right that terminated upon Tan's demise.
ID. ARTICLES OF COPARTNERSHIP RIGHT OF
HEIRS TO REPRESENT DECEASED PARTNER
MANAGERIAL RIGHT PROPRIETARY INTEREST.
The provision in the Articles of Copartnership stating that
"in the event of death of any one of the partners within the

Business Organization 1
Atty. Catherine Guerzo-Barrion
10year term of the partnership, the deceased partner shall
be represented by his heirs", could not have referred to
the managerial right given to Tan Sin An more
appropriately, it relates to the succession in the
proprietary interest of each partner.
ID. ID. EFFECT OF HEIRS' FAILURE TO REPUDIATE
HEIRS BECOME INDIVIDUAL PARTNERS MINORITY
OF HEIRS.Consonant with the articles of copartnership
providing for the continuation of the firm notwithstanding
the death of one of the partners, the heirs of the
deceased, by never repudiating or refusing to be bound
under said provision, became individual partners with
Antonio Goquiolay upon Tan's demise. Minority of the
heirs is not a bar to the application of that clause in the
articles of copartnership. Heirs liability in the partnership
being limited to the value of their importance, they
become no more than limited partners, when they
manifest their intent to be bound as general partners.
ID. SALE OF PARTNERSHIP PROPERTIES
CONSENT OF ALL PARTNERS UNNECESSARY
STRANGERS DEALING WITH PARTNERSHIPS
POWER TO BIND PARTNERSHIP. As to whether or
not the consent of the other partners was necessary to
perfect the sale of the partnership properties, the Court
believes that it is not. Strangers dealing with a partnership
have the right to assume, in the absence of restrictive
clauses in the copartnership agreement, that every
general partner has power to bind the partnership.
ID. ID. ESTOPPEL.By allowing defendant Kong Chai
Pin to retain control of the partnership properties from
1942 to 1949, plaintiff Goquiolay estopped himself from
denying her (Kong Chai Pin's) legal representation of the
partnership, with the power to bind it by proper contracts.
PARTNERSHIP GENERAL PARTNER BY ESTOPPEL
WIDOW OF MANAGING PARTNER AUTHORIZED BY
OTHER PARTNER TO MANAGE PARTNERSHIP.By
authorizing the widow of the managing partner to manage
partnership property (which a limited partner could not be
authorized to do), the other general partner recognized
her as a general partner, and is now in estoppel to deny
her position as a general partner, with authority to
administer and alienate partnership property.
ID. HEIR OF PARTNER STATUS ORDINARILY AS
LIMITED PARTNER BUT MAY WAIVE IT AND BECOME
A GENERAL PARTNER.Although the heir of a partner
ordinarily becomes a limited partner for his own
protection, yet the heir may disregard it and instead elect
to become a collective or general partner, with all the
rights and obligations of one. This choice pertains
exclusively to the heir, and does not require the assent of
the surviving partner.
ID. PRESUMPTIONS AUTHORITY OF PARTNER TO
DEAL WITH PROPERTY.A third person has the right
to presume that a general partner dealing with partnership
property has the requisite authority from his copartners.
ID. PROPERTY OF PARTNERSHIP SALE OF
IMMOVABLES, WHEN CONSIDERED WlTHIN THE
ORDINARY POWERS OF A GENERAL PARTNER.
Where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present
case), the immovables thus acquired by the firm form part
of its stockintrade, and the sale thereof is in pursuance of

28 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


partnership purposes, hence within the ordinary powers
of the partner.
ID. SALE OF PARTNERSHIP PROPERTY ACTION
FOR RESCISSION ON GROUND OF FRAUD NO
INADEQUACY OF PRICE CASE AT BAR.Appellant's
claim that the price was inadequate, relies on the
testimony of a realtor, who in 1955, six years after the sale
in question, asserted that the land was by then worth
double the price for which it was sold. But taking into
account the continued rise of real estate values since
liberation, and the f act that the sale in question was
practically a forced sale because the partnership had no
other means to pay its legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to
justify the rescission of the sale.
ID. ID. ID. RELATIONSHIP ALONE IS NO BADGE OF
FRAUD.The Supreme Court has ruled that relationship
alone is not a badge of fraud (Oria Hnos. vs. McMicking,
21 Phil., 243 Hermandad del Smo, Nombre de Jesus vs.
Sanchez, 40 Official Gazette 1685).
ID. ID. ID. FRAUD OF CREDITORS DISTINGUISHED
FROM FRAUD TO OBTAIN CONSENT.Fraud used to
obtain a party's consent to a contract (deceit or dolus in
contrahendo) is different from fraud of creditors that gives
rise to a rescission of contract.
ID. ID. ID. SUBSIDIARY NATURE ALLEGATION OF
NO OTHER MEANS TO OBTAIN REPARATION,
NECESSARY. The action for rescission is subsidiary it
can not be instituted except when the party suffering
damage has no other legal means to obtain reparation for
the same. Hence, if there is no allegation or evidence that
the plaintiff can not obtain reparation 'from the widow and
heirs of the deceased partner, the suit to rescind the sale
in question is not maintainable, even if the fraud charged
actually did exist.
NG CHO Cio, ET AL., plaintiffsappellants, vs. NG
DlONG, defendantappellant. C. N. HODGES, ET AL.,
defendantsappellees.
Partnership Insolvency Termination of proceeding.
Where, after the approval by the court of a composition
agreement in an insolvency proceeding, the court
declared the proceeding terminated and, pursuant to its
order, the assignee reconveyed to the partnership its
properties on April 2, 1946, for all legal and practical
purposes the insolvency ended on said date and the firm
was restored to its status quo. It reacquired its personality,
Its properties ceased to be in custodia legis.
Same Sales Sale of land by partnership.A sale of land,
made by the general manager of a partnership, by virtue
of the power vested in him by the articles of partnership,
which sale was effected after the insolvency proceeding
involving the partnership was terminated, is valid.
Same Old law Liquidation of partnership's af airs after
expiration of term.The general manager of a
partnership, whose term had expired, may liquidate its
business. His sale of the lots belonging to the firm, while
it was under receivership, is sanctioned by article 228 of
the Code of Commerce, the law in force at the time of the
sale.
Sales Inadequacy of price must be proven.The
unsupported claim, that the sale of certain lots was made

Business Organization 1
Atty. Catherine Guerzo-Barrion
for an inadequate price, is a mere speculation which has
no place in our judicial system. Since every claim must be
substantiated by sufficient evidence, such a conjectural
pretension cannot be entertained.
Appeals Mortgage Prescription Issues cannot be raised
for the first time on appeal.The claim, that an action for
foreclosure of a mortgage has already prescribed, cannot
be raised for the first time on appeal. Same When
reconveyance of properties to partnership is not proper.
The claim, that the trial court should have adjudicated
to the partnership the properties which Julian Go bought
from C.N. Hodges, is not tenable because that claim was
not raised in the pleadings and because there is no
evidence that Go promised to reconvey them to the
partnership.
PRIMELINK PROPERTIES AND DEVELOPMENT
CORPORATION and RAFAELITO W. LOPEZ,
petitioners, vs. MA. CLARITA T. LAZATINMAGAT,
JOSE SERAFIN T. LAZATIN, JAIME TEODORO T.
LAZATIN and JOSE MARCOS T. LAZATIN,
respondents.
Actions Pleadings and Practice A pleading may add as
general prayer for such further or other relief as may be
deemed just and equitable the prayer in the complaint
for other reliefs equitable and just in the premises justifies
the grant of a relief not otherwise specifically prayed for.
We agree with petitioners that respondents did not
specifically pray in their complaint below that possession
of the improvements on the parcels of land which they
contributed to the JVA be transferred to them.
Respondents made a specific prayer in their complaint
that, upon the rescission of the JVA, they be placed in
possession of the parcels of land subject of the
agreement, and for other reliefs and such other remedies
as are just and equitable in the premises. However, the
trial court was not precluded from awarding possession of
the improvements on the parcels of land to respondents
in its decision. Section 2(c), Rule 7 of the Rules of Court
provides that a pleading shall specify the relief sought but
it may add as general prayer for such further or other relief
as may be deemed just and equitable. Even without the
prayer for a specific remedy, proper relief may be granted
by the court if the facts alleged in the complaint and the
evidence introduced so warrant. The court shall grant
relief warranted by the allegations and the proof even if
no such relief is prayed for. The prayer in the complaint
for other reliefs equitable and just in the premises justifies
the grant of a relief not otherwise specifically prayed for.
Partnerships Joint Venture Agreements (JVAs) A JVA is
a form of partnership, and as such is to be governed by
the laws on partnership.We agree with the CA ruling
that petitioner Primelink and respondents entered into a
joint venture as evidenced by their JVA which, under the
Courts ruling in Aurbach, is a form of partnership, and as
such is to be governed by the laws on partnership.
Same Same Dissolution of Partnerships On dissolution,
the partnership is not terminated but continues until the
winding up of partnership af airs is completed.When the
RTC rescinded the JVA on complaint of respondents
based on the evidence on record that petitioners willfully
and persistently committed a breach of the JVA, the court
thereby dissolved/cancelled the partnership. With the
rescission of the JVA on account of petitioners fraudulent
acts, all authority of any partner to act for the partnership
is terminated except so far as may be necessary to wind
up the partnership affairs or to complete transactions

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FIRST EXAM: PARTNERSHIP


begun but not yet finished. On dissolution, the partnership
is not terminated but continues until the winding up of
partnership affairs is completed. Winding up means the
administration of the assets of the partnership for the
purpose of terminating the business and discharging the
obligations of the partnership.
Same Same Same Unless otherwise agreed, the
parties who have not wrongfully dissolved the partnership
have the right to wind up the partnership af airs.The
transfer of the possession of the parcels of land and the
improvements thereon to respondents was only for a
specific purpose: the winding up of partnership affairs,
and the partition and distribution of the net partnership
assets as provided by law. After all, Article 1836 of the
New Civil Code provides that unless otherwise agreed by
the parties in their JVA, respondents have the right to
wind up the partnership affairs: Art. 1836. Unless
otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the
last surviving partner, not insolvent, has the right to wind
up the partnership affairs, provided, however, that any
partner, his legal representative or his assignee, upon
cause shown, may obtain winding up by the court.
Same Same Same Until the partnership accounts are
determined, it cannot be ascertained how much any of the
parties is entitled to, if at all. It must be stressed, too,
that although respondents acquired possession of the
lands and the improvements thereon, the said lands and
improvements remained partnership property, subject to
the rights and obligations of the parties, inter se, of the
creditors and of third parties under Articles 1837 and 1838
of the New Civil Code, and subject to the outcome of the
settlement of the accounts between the parties as
provided in Article 1839 of the New Civil Code, absent any
agreement of the parties in their JVA to the contrary. Until
the partnership accounts are determined, it cannot be
ascertained how much any of the parties is entitled to, if
at all. It was thus premature for petitioner Primelink to be
demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does
not contain any provision designating any party to wind up
the affairs of the partnership.
GREGORIO MAGDUSA, ET AL., petitioners, vs.
GERUNDIO ALBARAN, ET AL., respondents.
Partnership Dissolution and Liquidation When a
partner's share may be returned.A partner's share can
not be returned without first dissolving and liquidating the
partnership (Po Yeng Cheo vs.Lim Ka Yam, 44 Phil. 177),
for the return is dependent on the discharge of the
creditors, whose claims enjoy preference over those of
the partners and it is selfevident that all members of the
partnership are interested in its assets and business, and
are entitled to be heard in the matter of the firm's
liquidation and the distribution of its property.
Same Same Same Preference of creditors over
partnership assets. Unless a proper accounting and
liquidation of the partnership affairs is first had, the capital
shares of the retiring partners can not be repaid, for the
firm's outside creditors have preference over the assets
of the enterprise (Civil Code, Art. 1839), and the firm's
property can not be diminished to their prejudice. Same
Same Same Remaining partner not personally liable for
partner's shares.Aremaining partner can not be held
liable in his personal capacity for the payment of partners

Business Organization 1
Atty. Catherine Guerzo-Barrion
shares, for he does not hold them except as manager of,
or trustee for, the partnership. It is the latter who must
refund their shares to the retiring partners.
BENJAMIN YU, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and JADE MOUNTAIN
PRODUCTS COMPANY LIMITED, WILLY CO,
RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN
JENG and CHEN HOFU, respondents.
Labor Law Corporation Law Partnership Court agrees
with the result reached by the NLRC that the legal ef ect
of the changes in the membership of the partnership was
the dissolution of the old partnership. In respect of the
first issue, we agree with the result reached by the NLRC,
that is, that the legal effect of the changes in the
membership of the partnership was the dissolution of the
old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987.
Same Same Same Occurrence of events which
precipitate the legal consequence of dissolution of a
partnership do not automatically result in the termination
of the legal personality of the old partnership.The
occurrence of events which precipitate the legal
consequence of dissolution of a partnership do not,
however, automatically result in the termination of the
legal personality of the old partnership.
Same Same Same The legal personality of the expiring
partnership persists for the limited purpose of winding up
and closing of the af airs of the partnership.In the
ordinary course of events, the legal personality of the
expiring partnership persists for the limited purpose of
winding up and closing of the affairs of the partnership. In
the case at bar, it is important to underscore the fact that
the business of the old partnership was simply continued
by the new partners, without the old partnership
undergoing the procedures relating to dissolution and
winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise
owned by the preceding partnership, and continued using
the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and
distributing its net assets, and then reassembling the said
assets or most of them and opening a new business
enterprise.
Same Same Same A withdrawing partner remains liable
to a third party creditor of the old partnership.What is
important for present purposes is that, under the above
described situation, not only the retiring partners
(Rhodora Bendal, et al.) but also the new partnership itself
which continued the business of the old, dissolved, one,
are liable for the debts of the preceding partnership. In
Singson, et al. v. Isabela Saw Mill, et al, the Court held
that under facts very similar to those in the case at bar, a
withdrawing partner remains liable to a third party creditor
of the old partnership.
Same Same Same Creditors of the old Jade Mountain
are also creditors of the New Jade Mountain which
continued the business of the old one without liquidation
of the partnership af airs.Under Article 1840 above,
creditors of the old Jade Mountain are also creditors of the
new Jade Mountain which continued the business of the
old one without liquidation of the partnership affairs.
Indeed, a creditor of the old Jade Mountain, like petitioner

30 | T A L I O N _ P Q V

FIRST EXAM: PARTNERSHIP


Benjamin Yu in respect of his claim for unpaid wages, is
entitled to priority visavis any claim of any retired or
previous partner insofar as such retired partners interest
in the dissolved partnership is concerned.
Same Same Same The new partnership is entitled to
appoint and hire a new general or assistant general
manager to run the af airs of the business enterprise
taken over.It is at the same time also evident to the
Court that the new partnership was entitled to appoint and
hire a new general or assistant general manager to run
the affairs of the business enterprise taken over. An
assistant general manager belongs to the most senior
ranks of management and a new partnership is entitled to
appoint a top manager of its own choice and confidence.
The nonretention of Benjamin Yu as Assistant General
Manager did not therefore constitute unlawful termination,
or termination without just or authorized cause. We think
that the precise authorized cause for termination in the
case at bar was redundancy.

ILDEFONSO DE LA ROSA, administrator of the


intestate estate of the deceased GoLio, plaintiff and
appellant, vs. ENRIQUE ORTEGA GOCOTAY,
defendant and appellant.
PARTNERSHIPS LIQUIDATION OF THEIR BUSINESS
DETERMINING PROFITSWhen in liquidating a
partnership the profits for a given period of time cannot be
exactly determined for lack of evidence, but the profits for
certain periods prior and subsequent thereto are known,
the profits corresponding to the said given time may be
determined by finding the average of those profits already
known and multiplying it by the length of the time included
between said periods.
ID. ID. MANAGING PARTNER His AUTHORITY
RECEIVER.When to prevent a receiver from taking
charge of a business in dissolution, the managing partner
gives a bond and continues the business, he ceases to be
managing partner from that time in order to become
receiver and while before that date the property was
liable for his acts, yet that is not the case with his
subsequent acts, which are regulated by the provisions of
section 175 of the Code of Civil Procedure, and without
express judicial authority he cannot continue the business
of the partnership, being personally liable for the losses
should he do so. (34 Cyc., 296.)