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Nature, Creation

Evangelista vs CIR (Intent)


Facts: Herein petitioners seek a review of CTAs decision holding them
liable for income tax, real estate dealers tax and residence tax. As
stipulated, petitioners borrowed from their father a certain sum for the
purpose of buying real properties. Within February 1943 to April 1994,
they have bought parcels of land from different persons, the management
of said properties was charged to their brother Simeon evidenced by a
document. These properties were then leased or rented to various
tenants.
On September 1954, CIR demanded the payment of income tax on
corporations, real estate dealers fixed tax, and corporation residence tax
to which the petitioners seek to be absolved from such payment.
Issue: Whether petitioners are subject to the tax on corporations.
Ruling: The Court ruled that with respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and partnership
as used in Section 24 (provides that a tax shall be levied on every
corporation no matter how created or organized except general copartnerships) and 84 (provides that the term corporation includes among
others, partnership) of the NIRC. Pursuant to Article 1767, NCC (provides
for the concept of partnership), its essential elements are: (a) an
agreement to contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting parties.
It is of the opinion of the Court that the first element is undoubtedly
present for petitioners have agreed to, and did, contribute money and
property to a common fund. As to the second element, the Court fully
satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves as indicated
by the following circumstances:
1.
The common fund was not something they found already in
existence nor a property inherited by them pro indiviso. It was created
purposely, jointly borrowing a substantial portion thereof in order to
establish said common fund;

2.
They invested the same not merely in one transaction, but in a
series of transactions. The number of lots acquired and transactions
undertake is strongly indicative of a pattern or common design that was
not limited to the conservation and preservation of the aforementioned
common fund or even of the property acquired. In other words, one
cannot but perceive a character of habitually peculiar to business
transactions engaged in the purpose of gain;
3.
Said properties were not devoted to residential purposes, or to
other personal uses, of petitioners but were leased separately to several
persons;
4.
They were under the management of one person where the affairs
relative to said properties have been handled as if the same belonged to a
corporation or business and enterprise operated for profit;
5.
Existed for more than ten years, or, to be exact, over fifteen years,
since the first property was acquired, and over twelve years, since Simeon
Evangelista became the manager;
6.
Petitioners have not testified or introduced any evidence, either on
their purpose in creating the set up already adverted to, or on the causes
for its continued existence.
The collective effect of these circumstances is such as to leave no room
for doubt on the existence of said intent in petitioners herein.
Also, petitioners argument that their being mere co-owners did
not create a separate legal entity was rejected because, according to the
Court, the tax in question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from "partnerships". When the
NIRC includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which
are not necessarily "partnerships", in the technical sense of the term. The
qualifying expression found in Section 24 and 84(b) clearly indicates that
a joint venture need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax on
corporations. Accordingly, the lawmaker could not have regarded that
personality as a condition essential to the existence of the partnerships
therein referred to. For purposes of the tax on corporations, NIRC includes
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these partnerships - with the exception only of duly registered general co


partnerships - within the purview of the term "corporation." It is, therefore,
clear that petitioners herein constitute a partnership, insofar as said Code
is concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations (Section 2 of CA No. 465),
it is analogous to that of section 24 and 84 (b) of the NIRC. It is apparent
that the terms "corporation" and "partnership" are used in both statutes
with substantially the same meaning. Consequently, petitioners are
subject, also, to the residence tax for corporations.
Finally, on the issues of being liable for real estate dealers tax, they are
also liable for the same because the records show that they have
habitually engaged in leasing said properties whose yearly gross rentals
exceeds P3,000.00 a year.

2 Woodhouse vs Halili
Commenced at stipulated time not when consent was given
FACTS: On November 29, 1947, plaintiff Woodhouse entered into a written
agreement with defendant Halili stating among others that: 1) that they
shall organize a partnership for the bottling and distribution of Missionsoft
drinks, plaintiff to act as industrial partner or manager, and the defendant
as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff
was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership and 3) that the plaintiff was to receive 30 per cent
of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission
Dry Corporation of Los Angeles, California, that he had interested a
prominent financier (defendant herein) in the business, who was willing to
invest half a milliondollars in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal with him,
that the right to bottle and distribute be granted him for a limited time
under the condition that it will finally be transferred to the corporation.
Pursuant to this request, plaintiff was given a thirty days option on

exclusive bottling and distribution rights for the Philippines. The contract
was finally signed by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of
defendant that the partnership papers be executed. Defendant Halili gave
excuses and would not execute said agreement, thus the complaint by the
plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2)
accounting of profits and 3)share thereof of 30 percent with 4) damages
in the amount of P200,000. The Defendant on the other hand claims that:
1) the defendants consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become
owner of an exclusive bottling franchise, which representation was false,
and that plaintiff did not secure the franchise but was given to defendant
himself 2) that defendant did not fail to carry out his undertakings, but
that it was plaintiff who failed and 3)that plaintiff agreed to contribute to
the exclusive franchise to the partnership, but plaintiff failed to do so with
a 4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the
profits and that the 2) execution of contract cannot be enforced upon
parties. Lastly, the 3) fraud wasnt proved
ISSUES: 1. WON plaintiff falsely represented that he had an exclusive
franchise to bottle Mission beverages
2. WON false representation, if it existed, annuls the agreement to form
the partnership
HELD: 1. Yes. Plaintiff did make false representations and this can be seen
through his letters to Mission Dry Corporation asking for the latter to grant
him temporary franchise so that he could settle the agreement with
defendant. The trial court reasoned, and the plaintiff on this appeal
argues, that plaintiff only undertook in the agreement to secure the
Mission Dry franchise for and in behalf of the proposed partnership. The
existence of this provision in the final agreement does not militate against
plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The
defendant believed, or was made to believe, that plaintiff was the grantee
of an exclusive franchise. Thus it is that it was also agreed upon that the
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franchise was to be transferred to the name of the partnership, and that,


upon its dissolution or termination, the same shall be reassigned to the
plaintiff.
Again, the immediate reaction of defendant, when in California he learned
that plaintiff did not have the exclusive franchise, was to reduce, as he
himself testified, plaintiffs participation in the net profits to one half of
that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he(plaintiff) was the exclusive grantee of
the franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes
two kinds of (civil) fraud, the causal fraud, which may be ground for the
annulment of a contract, and the incidental deceit, which only renders the
party who employs it liable for damages only. The Supreme Court has held
that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente) inducement to the
making of the contract.
The record abounds with circumstances indicative of the fact that the
principal consideration, the main cause that induced defendant to enter
into the partnership agreement with plaintiff, was the ability of plaintiff to
get the exclusive franchise to bottle and distribute for the defendant or for
the partnership. The original draft prepared by defendants counsel was to
the effect that plaintiff obligated himself to secure a franchise for the
defendant. But if plaintiff was guilty of a false representation, this was not
the causal consideration, or the principal inducement, that led plaintiff to
enter into the partnership agreement. On the other hand, this supposed
ownership of an exclusive franchise was actually the consideration or
price plaintiff gave in exchange for the share of 30 per cent granted him in
the net profits of the partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he was transferring
his exclusive franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null
and void, may the agreement be carried out or executed? The SC finds no
merit in the claim of plaintiff that the partnership was already a fait
accompli from the time of the operation of the plant, as it is evident from
the very language of the agreement that the parties intended that the
execution of the agreement to form a partnership was to be carried out at

a later date. , The defendant may not be compelled against his will to
carry out the agreement nor execute the partnership papers. The law
recognizes the individuals freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. Dispostive Postion: With
modification above indicated, the judgment appealed from is hereby
affirmed.
3 Torres vs CA
(-) invty valid JV
In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint
venture agreement with Manuel Torres. Under the agreement, the sisters
agreed to execute a deed of sale in favor Manuel over a parcel of land, the
sisters received no cash payment from Manuel but the promise of profits
(60% for the sisters and 40% for Manuel) said parcel of land is to be
developed as a subdivision.
Manuel then had the title of the land transferred in his name and he
subsequently mortgaged the property. He used the proceeds from the
mortgage to start building roads, curbs and gutters. Manuel also
contracted an engineering firm for the building of housing units. But due
to adverse claims in the land, prospective buyers were scared off and the
subdivision project eventually failed.
The sisters then filed a civil case against Manuel for damages equivalent
to 60% of the value of the property, which according to the sisters, is
whats due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed
the lower court
The sisters then appealed before the Supreme Court where they argued
that there is no partnership between them and Manuel because the joint
venture agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters entered into with
Manuel is a partnership agreement whereby they agreed to contribute
property (their land) which was to be developed as a subdivision. While on
the other hand, though Manuel did not contribute capital, he is an
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industrial partner for his contribution for general expenses and other
costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage (60-40). Clearly, the contract
manifested the intention of the parties to form a partnership. Further still,
the sisters cannot invoke their right to the 60% value of the property and
at the same time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters,
nor can it be blamed to Manuel (the sisters on their appeal did not show
evidence as to Manuels fault in the failure of the partnership). The sisters
must then bear their loss (which is 60%). Manuel does not bear the loss of
the other 40% because as an industrial partner he is exempt from losses.
4 Gatchalian vs CIR
Facts: Plaintiffs purchased, in the ordinary course of business, from one of
the duly authorized agents of the National Charity Sweepstakes Office one
ticket for the sum of two pesos (P2), said ticket was registered in the
name of Jose Gatchalian and Company. The ticket won one of the thirdprizes in the amount of P50,000.
Jose Gatchalian was required to file the corresponding income tax return
covering the prize won. Defendant-Collector made an assessment against
Jose Gatchalian and Co. requesting the payment of the sum of P1,499.94
to the deputy provincial treasurer of Pulilan, Bulacan. Plaintiffs, however
through counsel made a request for exemption. It was denied.
Plaintiffs failed to pay the amount due, hence a warrant of distraint and
levy was issued. Plaintiffs paid under protest a part of the tax and
penalties to avoid the effects of the warrant. A request that the balance be
paid by plaintiffs in installments was made. This was granted on the
condition that a bond be filed.
Plaintiffs failed in their installment payments. Hence a request for
execution of the warrant of distraint and levy was made. Plaintiffs paid
under protest to avoid the execution.
A claim for refund was made by the plaintiffs, which was dismissed, hence
the appeal.
Issue: Whether the plaintiffs formed a partnership hence liable for income
tax.

Held: Yes. According to the stipulation facts the plaintiffs organized a


partnership of a civil nature because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing equally the prize which
they may win, as they did in fact in the amount of P50,000. The
partnership was not only formed, but upon the organization thereof and
the winning of the prize, Jose Gatchalian personally appeared in the office
of the Philippines Charity Sweepstakes, in his capacity as co-partner, as
such collection the prize, the office issued the check for P50,000 in favor
of Jose Gatchalian and company, and the said partner, in the same
capacity, collected the said check. All these circumstances repel the idea
that the plaintiffs organized and formed a community of property only.
5 Arbes vs Polistico (subsequently unlawful)
FACTS: This is an action to bring about liquidation of the funds and
property of the association called "Turnuhan Polistico & Co." The plaintiffs
were members or shareholders, and the defendants were designated as
president-treasurer, directors and secretary of said association. By
agreement of the parties, the court appointed a commissioner to examine
all the books, documents, and accounts of "Turnuhan Polistico & Co. The
commissioner rendered his report, showing a balance of the cash on hand
in the amount of P24,607.80. The trial court in accepting the report,
rendered judgment, holding that the association "Turnuhan Polistico & Co."
is unlawful, and sentencing the defendants jointly and severally to return
the amount of P24,607.80, as well as the documents showing the
uncollected credits of the association, to the plaintiffs in this case, and to
the rest of the members of the said association represented by said
plaintiffs. There is no question that "Turnuhan Polistico & Co." is an
unlawful partnership, but the appellants allege that because it is so, some
charitable institution to whom the partnership funds may be ordered to be
turned over, should be included, as a party defendant. The appellants
refer to article 1666 of the Civil Code, particularly the second paragraph,
which provides: When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable institutions of the domicile
of the partnership, or, in default of such, to those of the province. ISSUE:
WHETHER OR NOT A CHARITABLE INSTITUTION IS A NECESSARY PARTY IN
THIS CASE. RULING: NO, no charitable institution is a necessary party in
the present case of determination of the rights of the parties. The action
which may arise from said article, in the case of unlawful partnership, is
that for the recovery of the amounts paid by the member from those in
4

charge of the administration of said partnership, and it is not necessary


for the said parties to base their action to the existence of the partnership,
but on the fact that of having contributed some money to the partnership
capital. Hence, the charitable institution of the domicile of the partnership,
and in the default thereof, those of the province are not necessary parties
in this case. In so ruling, the court had the occasion of explaining the
scope and spirit of the provision of Article 1666 of the Civil Code (now
Article 1770 of the New Civil Code). With regard to Contributions of an
Illegal Partnership: the court holds that (1) The partner who limits
himself to demanding only the amount contributed by him need not resort
to the partnership contract on which to base his action since

partition or distribution of the profits is one of the juridical effects thereof.


(3) Furthermore, it would be immoral and unjust for the law to permit a
profit from an industry prohibited by it.

said contract does not exist in the eyes of the law, the purpose from which
the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what
belongs to others, without any consideration; for which reason he is not
bound to return it and he who has paid in his share is entitled to recover it.
(2) Our Code does not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be returned by the partners,
because it only deals with the disposition of the profits; but the fact that
said contributions are not included in the disposal prescribed profits,
shows that in consequences of said exclusion, the general law must be
followed, and hence the partners should reimburse the amount of their
respective contributions. (3) Any other solution is immoral, and the law
will not consent to the latter remaining in the possession of the manager
or administrator who has refused to return them, by denying to the
partners the action to demand them. With regard to Profits of an Illegal
Partnership: the court holds that (1) The article cited above permits no
action for the purpose of obtaining the earnings made by the unlawful
partnership, during its existence as result of the business in which it was
engaged, because for the purpose, the partner will have to base his action
upon the partnership contract, which is to annul and without legal
existence by reason of its unlawful object; and it is self evident that what
does not exist cannot be a cause of action. (2) Profits earned in the course
of the partnership, because they do not constitute or represent the
partner's contribution but are the result of the industry, business or
speculation which is the object of the partnership, and therefor, in order to
demand the proportional part of the said profits, the partner would have
to base his action on the contract which is null and void, since this

Under the joint venture, Belo acted as capitalist, Tocao as president and
general manager, and Anay as head of the marketing department and
later, vice-president for sales

6 Tocao vs CA (-) profits, not a partner


FACTS: Private respondent Nenita A. Anay met petitioner William T. Belo,
then the vice-president for operations of Ultra Clean Water Purifier,
through her former employer in Bangkok. Belo introduced Anay to
petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen
cookwares

The parties agreed that Belo's name should not appear in any documents
relating to their transactions with West Bend Company. Anay having
secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's
name.
The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly
production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was
not reduced to writing on the strength of Belo's assurances that he was
sincere, dependable and honest when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter
addressed to the Cubao sales office to the effect that she was no longer
the vice-president of Geminesse Enterprise.

Anay attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8, 1988 to February 5,
1988 and the audit of the company to determine her share in the net
profits.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P
13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages against Marjorie D. Tocao and William
Belo before the Regional Trial Court of Makati, Branch 140
The trial court held that there was indeed an "oral partnership agreement
between the plaintiff and the defendants. The Court of Appeals affirmed
the lower courts decision.
ISSUE:

Whether the parties formed a partnership

HELD:

Yes, the parties involved in this case formed a partnership

The Supreme Court held that 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.
In the case at hand, Belo acted as capitalist while Tocao as president and
general manager, and Anay as head of the marketing department and
later, vice-president for sales. Furthermore, Anay wasentitled to a
percentage of the net profits of the business.
Therefore, the parties formed a partnership
7 Heirs of Jose Lim vs Juliet Villa Lim (Profit sharing)

In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a
partnership agreement with Jimmy Yu and Norberto Uy. The three
contributed P50,000.00 each and used the funds to purchase a truck to
start their trucking business. A year later however, Jose Lim died. The
eldest son of Jose Lim, Elfledo Lim, took over the trucking business and
under his management, the trucking business prospered. Elfledo was able
to but real properties in his name. From one truck, he increased it to 9
trucks, all trucks were in his name however. He also acquired other motor
vehicles in his name.

In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart


attack. Elfledos wife, Juliet Lim, took over the properties but she intimated
to Jimmy and the heirs of Norberto that she could not go on with the
business. So the properties in the partnership were divided among them.

Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet
to do an accounting of all income, profits, and properties from the estate
of Elfledo Lim as they claimed that they are co-owners thereof. Juliet
refused hence they sued her.

The heirs of Jose Lim argued that Elfledo Lim acquired his properties from
the partnership that Jose Lim formed with Norberto and Jimmy. In court,
Jimmy Yu testified that Jose Lim was the partner and not Elfledo Lim. The
heirs testified that Elfledo was merely the driver of Jose Lim.

ISSUE: Who is the partner between Jose Lim and Elfledo Lim?

HELD: It is Elfledo Lim based on the evidence presented regardless of


Jimmy Yus testimony in court that Jose Lim was the partner. If Jose Lim
was the partner, then the partnership would have been dissolved upon his
death (in fact, though the SC did not say so, I believe it should have been
dissolved upon Norbertos death in 1993). A partnership is dissolved upon
the death of the partner. Further, no evidence was presented as to the
6

articles of partnership or contract of partnership between Jose, Norberto


and Jimmy. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized.

But at any rate, the Supreme Court noted that based on the functions
performed by Elfledo, he is the actual partner.

The following circumstances tend to prove that Elfledo was himself the
partner of Jimmy and Norberto:

1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of the initial
capital in the partnership;

2.) Elfledo ran the affairs of the partnership, wielding absolute control,
power and authority, without any intervention or opposition whatsoever
from any of petitioners herein;

3.) all of the properties, particularly the nine trucks of the partnership,
were registered in the name of Elfledo;

4.) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the
profits of the business; and

5.) none of the heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in the
case of Heirs of Tan Eng Kee, a demand for periodic accounting is
evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the


real and personal properties acquired and registered in the names of
Elfledo and Juliet formed part of the estate of Jose, having been derived
from Joses alleged partnership with Jimmy and Norberto.

Elfledo was not just a hired help but one of the partners in the trucking
business, active and visible in the running of its affairs from day one until
this ceased operations upon his demise. The extent of his control,
administration and management of the partnership and its business, the
fact that its properties were placed in his name, and that he was not paid
salary or other compensation by the partners, are indicative of the fact
that Elfledo was a partner and a controlling one at that. It is apparent that
the other partners only contributed in the initial capital but had no say
thereafter on how the business was ran. Evidently it was through Elfredos
efforts and hard work that the partnership was able to acquire more trucks
and otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
8 Agad vs Mabato
Facts: Petitioner Mauricio Agad claims that he and defendant Severino
Mabato are partners in afishpond business to which they contributed
P1000 each. As managing partner, Mabato yearly renderedthe accounts of
the operations of the partnership. However, for the years 1957-1963,
defendant failedto render the accounts despite repeated demands.
Petitioner filed a complaint against Mabato to whicha copy of the public
instrument evidencing their partnership is attached. Aside from the share
of profits
(P14,000) and attorneys fees
dissolution of the partnership and

(P1000),

petitioner

prayed

for

the

winding up of its affairs.Mabato denied the existence of the partnership


alleging that Agad failed to pay hisP1000 contribution.He then filed a
motion to dismiss on the ground of lack of cause of action. The lower court
dismissed thecomplaint finding a failure to state a cause of action
predicated upon the theory that the contract of partnership is null and
void, pursuant to Art. 1773 of our Civil Code, because an inventory of
thefishpond referred in said instrument had not been attached thereto.Art.
7

1771. A partnership may be constituted in any form, except where


immovable property or realrights are contributed thereto, in which case a
public instrument shall be necessary. Art. 1773. A contract of partnership
is void, whenever immovable property is contributed thereto, if inventory
of said property is not made, signed by the parties; and attached to the
public instrument.
Issue: Whether or not immovable property or real rights have been
contributed to the partnership.
Held: Based on the copy of the public instrument attached in the
complaint, the partnership was established to operate a fishpond", and
not to "engage in a fishpond business. Thus, Mabatos contention that it
is really inconceivable how a partnership engaged in the
fishpond business could exist without said fishpond property (being)
contributed to the partnership is without merit. Their contributions were
limited to P1000 each and neither a fishpond nor a real right thereto was
contributed to the partnership. Therefore, Article 1773 of the Civil Code
finds no application in the case at bar. Case remanded to the lower court
for further proceedings.
9 Angeles vs Secretary of Justice
DOCTRINE: The purpose of registration of the contract of partnership with
the SEC is to give notice to third parties. Failure to register the contract of
partnership does not affect the liability of the partnership and of the
partners to third persons, nor does it affect the partnerships juridical
personality. A partnership may exist even if the partners do not use the
words partner or partnership.
FACTS:

Angeles spouses filed a criminal complaint for estafa against


Mercado, their brother-in-law
o
Claimed that Mercado convinced them to enter into a contract of
antichresis, to last for 5 years, covering 8 parcels of land planted with
fruit-bearing lanzones trees in Nagcarlan, Laguna and owned by Juan
Sanzo
o
The parties agreed that Mercado would administer the ands and
complete the necessary paperwork

o
After 3 years, the Angeles spouses asked for an accounting from
Mercado, and they claim that only after this demand for an accounting did
thy discover that Mercado had put the contract of antichresis over the
subject land under Mercado and his spouses names

Mercado denied the Angeles spouses allegations


o
Claimed that there exists an industrial partnership, colloquially
known as sosyo industrial, between him and his spouse as industrial
partners and the Angeles spouses as financiers, and that this had existed
since 1991, before the contract of antichresis over the subject land
o
Mercado used his and his spouses earnings as part of the capital in
the business transactions which he entered into in behalf of the Angeles
spouses. It was their practice to enter into business transactions with
other people under the name of Mercado because the Angeles spouses did
not want to be identified as the financiers
o
Attached bank receipts showing deposits in behalf of Emerita
Angeles and contracts under his name for the Angeles spouses

During the barangay conciliation proceedings, Oscar Angeles stated


that there was a written sosyo industrial agreement: capital would come
from the Angeles spouses while the profit would be divided evenly
between Mercado and the Angeles spouses

Provincial Prosecution Office: first recommended the filing of a


criminal information for estafa, but after Mercado filed his counter-affidavit
and moved for reconsideration, issued an amended resolution dismissing
the complaint

Angeles spouses appealed to Sec. of Justice, saying that the


document evidencing the contract of antichresis executed in the name of
the Mercado spouses, instead of the Angeles spouses, and that such
document alone proves Mercados misappropriation of their P210, 000

Sec. of Justice: dismissed the appeal


o
Angeles spouses failed to show sufficient proof that Mercado
deliberately deceived them in the transaction
o
Mercado satisfactorily explained that the Angeles spouses do not
want to be revealed as the financiers
o
Under the circumstances, it was more likely that the Angeles
spouses knew from the very start that the questioned document was not
really in their names
o
A partnership truly existed between the Angeles spouses and
Mercado, which was clear from the fact that they contributed money to a
common fund and divided the profits among themselves.
8

o
Angeles spouses acknowledged their joint business venture in the
barangay conciliation proceedings although they assailed the manner the
business was conducted
o
Although the legal formalities for the formation were not adhered
to, the partnership relationship was evident.
o
There is no estafa where money is delivered by a partner to his copartner on the latters representation that the amount shall be applied to
the business of their partnership. In case of the money received, the copartners liability is civil in nature
ISSUES/HELD:
1.
W/N the Sec. of Justice committed grave abuse of discretion in
dismissing the appeal - No
2.
W/N a partnership existed between Mercado and the Angeles
spouses - Yes
3.
W/N there was misappropriation by Mercado No
RATIO/RULING:
1. Angeles spouses fail to convince that the Secretary of Justice
committed grave abuse of discretion when he dismissed their appeal.
Moreover, they committed a procedural error when they failed to file a
motion for reconsideration of the Sec. of Justices resolution, which is
already enough reason to dismiss the case.

Failure to register does not affect the liability of the partnership and
of the partners to third persons, nor does it affect the partnerships
juridical personality

The Angeles spouses admit to facts that prove the existence of a


partnership
o
A contract showing a sosyo industrial or industrial partnership
o
Contribution of money & industry to a common fund
o
Division of profits between the Angeles spouses and Mercado
3. Mercado satisfactorily explained that the Angeles spouses do not want
to be revealed as the financiers, thus the document which was in the
name of Mercado and his spouse fail to convince that there was deceit or
false representation that induced the Angeles spouses to part with their
money

Even the RTC of Sta. Cruz, Laguna, which handled the civil case filed
by the Angeles spouses against Mercado and Leo Cerayban stated that it
was the practice to have the contracts secured in Mercados name as the
Angeles spouses fear being kidnapped by the NPA or being questioned by
the BIR as Oscar Angeles was working with the government.

Accounting of the proceeds is not a proper subject for the present


case.
DISPOSITION: Petition for certiorari dismissed. Decision of Sec. of Justice
affirmed.

2. Angeles spouses allege that they had no partnership with Mercado,


relying on Arts. 1771 to 1773 of the Civil Code.

10 A. Litonjua vs Litonjua

The Angeles spouses position that there is no partnership because


of the lack of a public instrument indicating the same and a lack of
registration with the SEC holds no water
o
The Angeles spouses contributed money to the partnership and not
immovable property
o
Mere failure to register the contract of partnership with the SEC
does not invalidate a contract that has the essential requisites of a
partnership. The purpose of registration is to give notice to third parties.

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo
entered into a contract of partnership with him. Aurelio showed as
evidence a letter sent to him by Eduardo that the latter is allowing Aurelio
to manage their family business (if Eduardos away) and in exchange
thereof he will be giving Aurelio P1 million or 10% equity, whichever is
higher. A memorandum was subsequently made for the said partnership
agreement. The memorandum this time stated that in exchange of
Aurelio, who just got married, retaining his share in the family business
(movie theatres, shipping and land development) and some other
immovable properties, he will be given P1 Million or 10% equity in all

Partnership, how formed

these businesses and those to be subsequently acquired by them


whichever is greater.
In 1992 however, the relationship between the brothers went sour. And so
Aurelio demanded an accounting and the liquidation of his share in the
partnership. Eduardo did not heed and so Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: No. The partnership is void and legally nonexistent. The
documentary evidence presented by Aurelio, i.e. the letter from Eduardo
and the Memorandum, did not prove partnership.
The 1973 letter from Eduardo on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an unsigned document,
there can be no quibbling that said letter does not meet the public
instrumentation requirements exacted under Article 1771 (how
partnership is constituted) of the Civil Code. Moreover, being unsigned
and doubtless referring to a partnership involving more than P3,000.00 in
money or property, said letter cannot be presented for notarization, let
alone registered with the Securities and Exchange Commission (SEC), as
called for under the Article 1772 (capitalization of a partnership) of the
Code. And inasmuch as the inventory requirement under the succeeding
Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on
the nature of Aurelios contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not
a public instrument and again, no inventory was made of the immovable
property and no inventory was attached to the Memorandum. Article 1773
of the Civil Code requires that if immovable property is contributed to the
partnership an inventory shall be had and attached to the contract.
KINDS OF PARTNERSHIP
11 Ortega v. CA
FACTS: On December 19, 1980, respondent Joaquin Misa associated
himself together, as senior partner with petitioners Ortega, del Castillo, Jr.,
and Bacorro, as junior partners. On Feb. 17, 1988, respondent Misa wrote
a letter stating that he is withdrawing and retiring from the firm and
asking for a meeting with the petitioners to discuss the mechanics of the

liquidation. On June 30, 1988, petitioner filed a petition to the Commision's


Securities Investigation and Clearing Department for the formal
dissolution and liquidation of the partnership. On March 31, 1989, the
hearing officer rendered a decision ruling that the withdrawal of the
petitioner has not dissolved the partnership. On appeal, the SEC en banc
reversed the decision and was affirmed by the Court of Appeals. Hence,
this petition.
ISSUE: Whether or not the Court of Appeals has erred in holding that the
partnership is a partnership at will and whether or not the Court of
Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith
HELD: No. The SC upheld the ruling of the CA regarding the nature of the
partnership. The SC further stated that a partnership that does not fix its
term is a partnership at will. 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
partner's 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.
SEPARATE AND JURIDICAL PERSONALITY
12 Aguila v. CA 1999
Identity Separate and Distinct
In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan
agreement with a lending firm called A.C. Aguila & Sons, Co., a
partnership. The loan was for P200k. To secure the loan, the spouses
mortgaged their house and lot located in a subdivision. The terms of the
loan further stipulates that in case of non-payment, the property shall be
automatically appropriated to the partnership and a deed of sale be
readily executed in favor of the partnership. She does have a 90 day
redemption period.
10

Ruben died, and Felicidad failed to make payment. She refused to turn
over the property and so the firm filed an ejectment case against her
(wherein she lost). She also failed to redeem the property within the
period stipulated. She then filed a civil case against Alfredo Aguila,
manager of the firm, seeking for the declaration of nullity of the deed of
sale. The RTC retained the validity of the deed of sale. The Court of
Appeals reversed the RTC. The CA ruled that the sale is void for it is a
pactum commissorium sale which is prohibited under Art. 2088 of the
Civil Code (note the disparity of the purchase price, which is the loan
amount, with the actual value of the property which is after all located in a
subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party
in interest. As pointed out by Aguila, he is not the real party in interest but
rather it was the partnership A.C. Aguila & Sons, Co. The Rules of Court
provide 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. 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, as
in the case at bar.
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, Felicidad 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. 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.
13 Mendiola v. CA
DOCTRINE: In a partnership, the members become co-owners 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 co-owner 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 co-ownership of, or joint
interest in partnership property is absent in the relations between
petitioner and private respondent Pacfor. xxx the parties in this case,
merely shared profits. This alone does not make a partnership. Besides, a
corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter. This doctrine is based on the
following considerations: (1) that the mutual agency between the
partners, whereby the corporation would be bound by the acts of persons
who are not its duly appointed and authorized agents and officers, would
be inconsistent with the policy of the law that the corporation shall
manage its own affairs separately and exclusively; and, (2) that such an
arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally
invested in the corporation.
FACTS: Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a
corporation organized and existing under the laws of California, USA. It is a
subsidiary of Cellulose Marketing International (organized in Sweden)
Private respondent Pacfor entered into a "Side Agreement on
Representative Office known as Pacific Forest Resources (Phils.), Inc." with
petitioner Arsenio T. Mendiola (ATM). The Side Agreement outlines the
business relationship of the parties with regard to the Philippine
operations of Pacfor. Private respondent will establish a Pacfor
representative office in the Philippines, to be known as Pacfor Phils, and
petitioner ATM will be its President. Petitioner's base salary and the
overhead expenditures of the company shall be borne by the
representative office and funded by Pacfor/ATM, since Pacfor Phils. is
equally owned on a 50-50 equity by ATM and Pacfor-usa.
In its application (to the SEC), private respondent Pacfor proposed to
establish its representative office in the Philippines. It also designated
petitioner as its resident agent in the Philippines, authorized to accept
summons and processes in all legal proceedings, and all notices affecting
the corporation. The Side Agreement was amended through a "Revised
11

Operating and Profit Sharing Agreement for the Representative Office


Known as Pacific Forest Resources (Philippines)," where the salary of
petitioner was increased to $78,000 per annum. Both agreements show
that the operational expenses will be borne by the representative office
and funded by all parties "as equal partners," while the profits and
commissions will be shared among them. In July 2000, petitioner wrote the
Vice President for Asia of Pacfor, seeking confirmation of his 50% equity of
Pacfor Phils. Private respondent Pacfor, through its President, replied that
petitioner is not a part-owner of Pacfor Phils. because the latter is merely
Pacfor-USA's representative office and not an entity separate and distinct
from Pacfor-USA. "It's simply a 'theoretical company' with the purpose of
dividing the income 50-50."11 Petitioner presumably knew of this
arrangement from the 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. Petitioner claimed that
he was all along made to believe that he was in a joint venture with them;
that he would have been better off remaining as an independent agent or
representative of Pacfor-USA as ATM Marketing Corp. Petitioner raised
other issues, such as the rentals of office furniture, salary of the
employees, company car, as well as commissions allegedly due him. The
issues were not resolved, hence, in October 2000, petitioner wrote PacforUSA demanding payment of unpaid commissions and office furniture and
equipment rentals.
Privatre respondent Pacfor through counsel ordered petitioner to turn over
to it all papers, documents, files, records, and other materials in his or
ATM Marketing Corporation's possession that belong to Pacfor or Pacfor
Phils then to remit more than 300k xmas giveaway fund for clients of
Pacfor Phil and finally Pacfor withdraw all its offers of settlement and
ordered petitioner to transfer title and turn over to it possession of the
service car.18 Private respondent Pacfor likewise sent letters to its clients
in the Philippines, advising them not to deal with Pacfor Phils. Petitioner
construed these directives as a severance of the "unregistered
partnership" between him and Pacfor, and the termination of his
employment as resident manager of Pacfor Phils. On the basis of the "Side
Agreement," petitioner insisted that he and Pacfor equally own Pacfor
Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis,
Pacfor Phils.' office furniture and equipment and the service car. He also
reiterated his demand for unpaid commissions, and proposed to offset

these with the remaining Christmas giveaway fund in his possession.


Furthermore, he did not renew the lease contract with Pulp and Paper,
Inc., the lessor of the office premises of Pacfor Phils., wherein he was the
signatory to the lease agreement. Private respondent Pacfor placed
petitioner on preventive suspension and ordered him to show cause why
no disciplinary action should be taken against him. Private respondent
Pacfor charged petitioner with willful disobedience and serious misconduct
for his refusal to turn over the service car and the Christmas giveaway
fund which he applied to his alleged unpaid commissions. Private
respondent also alleged loss of confidence and gross neglect of duty on
the part of petitioner for allegedly allowing another corporation owned by
petitioner's relatives, High End Products, Inc. (HEPI), to use the same
telephone and facsimile numbers of Pacfor, to possibly steal and divert the
sales and business of private respondent. Petitioner denied the charges.
He reiterated that he considered the import of Pacfor Presidents letters as
a "cessation of his position and of the existence of Pacfor Phils." He
likewise informed private respondent Pacfor that ATM Marketing Corp. now
occupies Pacfor Phils.' office premises, and demanded payment of his
separation pay.
Petitioner filed his complaint for illegal dismissal, recovery of separation
pay, and payment of attorney's fees with the NLRC. Private respondent
directed petitioner to explain why he should not be disciplined for serious
misconduct and conflict of interest; charged petitioner anew with serious
misconduct for the latter's alleged act of fraud and misrepresentation in
authorizing the release of an additional peso salary for himself, besides
the dollar salary agreed upon by the parties. Private respondent also
accused petitioner of disloyalty and representation of conflicting interests
for having continued using the Pacfor Phils.' office for operations of HEPI
LA: ruled in favor of petitioner, finding there was constructive dismissal.
By directing petitioner to turn over all office records and materials,
regardless of whether he may have retained copies, private respondent
Pacfor virtually deprived petitioner of his job by the gradual diminution of
his authority as resident manager. Petitioner's position as resident
manager whose duty, among others, was to maintain the security of its
business transactions and communications was rendered meaningless.
NLRC: in favor of Private respondent Pacfor. He set aside the July 30, 2001
decision of the labor arbiter, for lack of jurisdiction and lack of merit. It
held there was no employer-employee relationship between the parties.
12

Based on the two agreements between the parties, it concluded that


petitioner is not an employee of private respondent Pacfor, but a full coowner (50/50 equity).
MR denied. CA: Affirmed holding that "the legal basis of the complaint is
not employment but perhaps partnership, co-ownership, or independent
contractorship." Hence, the Labor Code cannot apply. MR denied Issues:
Was there an employer-employee relationship or a partnership? Can both
exist at the same time? There was an employer employee relationship but
no partnership Was he constructively dismissed? (Not important so
omitted) YES. Ratio: Petitioner argues that he is an industrial partner of
the partnership he formed with private respondent Pacfor, and also an
employee of the partnership. Petitioner insists that an industrial partner
may at the same time be an employee of the partnership, provided there
is such an agreement, which, in this case, is the "Side Agreement" and the
"Revised Operating and Profit Sharing Agreement." We hold that petitioner
is an employee of private respondent Pacfor and that no partnership or coownership exists between the parties.
In a partnership, the members become co-owners 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 co-owner 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 co-ownership of, or joint
interest in partnership property is absent in the relations between
petitioner and private respondent Pacfor. Petitioner is not a part-owner of
Pacfor Phils. William Gleason, private respondent Pacfor's President
established this fact when he said that Pacfor Phils. is simply a "theoretical
company" for the purpose of dividing the income 50-50. 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. Besides, a corporation cannot become a
member of a partnership in the absence of express authorization by
statute or charter. This doctrine is based on the following considerations:

(1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its duly
appointed and authorized agents and officers, would be inconsistent with
the policy of the law that the corporation shall manage its own affairs
separately and exclusively; and, (2) that such an arrangement would
improperly allow corporate property to become subject to risks not
contemplated by the stockholders when they originally invested in the
corporation. No such authorization has been proved in the case at bar.
(This part goes into the employer-employee relationship bit, I dont think
its important but I included it na din if ever magtanong re: paano nagging
employee) Be that as it may, we hold that on the basis of the evidence, an
employer-employee relationship is present in the case at bar. The
elements to determine the existence of an employment relationship are:
(a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employer's power to control
the employee's conduct. The most important element is the employer's
control of the employee's conduct, not only as to the result of the work to
be done, but also as to the means and methods to accomplish it.43 In the
instant case, all the foregoing elements are present. First, it was private
respondent Pacfor which selected and engaged the services of petitioner
as its resident agent in the Philippines. Second, as stipulated in their Side
Agreement, private respondent Pacfor pays petitioner his salary
amounting to $65,000 per annum which was later increased to $78,000.
Third, private respondent Pacfor holds the power of dismissal, as may be
gleaned through the various memoranda it issued against petitioner,
placing the latter on preventive suspension while charging him with
various offenses, including willful disobedience, serious misconduct, and
gross neglect of duty, and ordering him to show cause why no disciplinary
action should be taken against him.
Lastly and most important, private respondent Pacfor has the power of
control over the means and method of petitioner in accomplishing his
work.
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.44 In the case at bar, private respondent Pacfor, as
13

employer, clearly possesses such right of control. Petitioner, as private


respondent Pacfor's 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. This right of control was
exercised by private respondent Pacfor during the period of November to
December 2000, when it directed petitioner to turn over to it all records of
Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway
fund intended for clients of Pacfor Phils.; and, when it withdrew all its
offers of settlement and ordered petitioner to transfer title and turn over
to it the possession of the service car. It was also during this period when
private respondent Pacfor sent letters to its clients in the Philippines,
particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising
them not to deal with petitioner and/or Pacfor Phils. In its letter to
DAVCOR, private respondent Pacfor replied to the client's request for an
invoice payment extension, and formulated a revised payment program
for DAVCOR. This is one unmistakable proof that private respondent Pacfor
exercises control over the petitioner. DISPOSITIVE: IN VIEW WHEREOF, the
petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in
CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the
December 20, 2001 Decision of the National Labor Relations Commission,
are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor
Arbiter isREINSTATED with the MODIFICATION that the amount of
P250,000.00 representing an alleged increase in petitioner's salary shall
be deducted from the grant of separation pay for lack of evidence. SO
ORDERED.
14 Campos Rueda v. Pacific Commercial
Facts: Campos, Rueda & Co., a limited partnership, is indebted to the
appellants: Pacific Commercial Co. , Asiatic Petroleum Co, and
International Banking Corporation amounting to not less than P1,000.00
(which were not paid more than 30 days prior to the date of the filing by
petitioners of the application for voluntary insolvency).
The trial court denied their petition on the ground that it was not proven,
nor alleged, that the members of the firm were insolvent at the time the
application was filed. It also held that the partners are personally and
solidarily liable for the consequences of the transactions of the
partnership.

Issue: Whether or not a limited partnership may be held to have


committed an act of insolvency.
Held: Yes. A limited partnerships juridical personality is different from the
personality of its members. On general principle, the limited partnership
must answer for and suffer the consequence of its acts. Under our
Insolvency Law, one of the acts of bankruptcy upon w/c an adjudication of
involuntary insolvency can be predicated is the failure to pay obligations.
The failure of Campos, Rueda & Co., to pay its obligations constitutes an
act w/c is specifically provided for in the Insolvency Law for declaration of
involuntary insolvency. The petitioners have a right to a judicial decree
declaring the involuntary insolvency of said partnership.
DISTINGUISH
15 Obillos v. CIR
Facts: In 1973, Jose Obillos completed payment on two lots located in
Greenhills, San Juan. The next day, he transferred his rights to his four
children for them to build their own residences. The Torrens title would
show that they were co-owners of the two lots. However, the petitioners
resold them to Walled City Securities Corporation and Olga Cruz Canda for
P313k or P33k for each of them. They treated the profit as capital gains
and paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate income tax of their
shares, as this entire assessment is based on the alleged partnership
under Article 1767 of the Civil Code; simply because they contributed
each to buy the lots, resold them and divided the profits among them.
But as testified by Obillos, they have no intention to form the partnership
and that it was merely incidental since they sold the said lots due to high
demand of construction. Naturally, when they sell them as co-partners, it
will result to the share of profits. Further, their intention was to divide the
lots for residential purposes.
Issue: Was there a partnership, hence, they are subject to corporate
income taxes?
Court Ruling: Not necessarily. As Article 1769 (3) of the Civil Code
provides: the sharing of gross returns does not in itself establish a
14

partnership, whether or not the persons sharing them have a joint or


common right or interest in any property from which the returns are
derived. There must be an unmistakeable intention to form a partnership
or joint venture.
In this case, the Commissioner should have investigated if the father paid
donor's tax to establish the fact that there was really no partnership.
16 Tuason v. Bolanos
Facts: Plaintiffs complaint against defendant was to recover possession of
a registered land. In the complaint, the plaintiff is represented by its
Managing Partner, Gregorio Araneta, Inc., another corporation. Defendant,
in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession under claim of
ownership,adverse to the entire world by defendant and his predecessors
in interest" from time immemorial . After trial, the lower court
rendered judgment for plaintiff, declaring defendant to be without any
right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent. Defendant
appealed directly to the Supreme Court and contended, among others,
that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on
the theory that it is illegal for two corporations to enter into a partnership
Issue: Whether or not a corporation may enter into a joint venture with
another corporation.
Ruling: It is true that the complaint states that the plaintiff is represented
herein by its Managing Partner Gregorio Araneta, Inc.;, another
corporation, but there is nothing against one corporation being
represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. cannot act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is that ;though a
corporation has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of that venture is
in line with the business authorized by its charter.; (Wyoming-Indiana Oil
Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2. Fletcher Cyc. of Corp.,
1082.). There is nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as & its managing
partner; is not in line with the corporate business of either of them.

17 Heirs of Tan Eng Kee v. CA


Periodic Accounting Profit Sharing
Facts: Benguet Lumber has been around even before World War II but
during the war, its stocks were confiscated by the Japanese. After the war,
the brothers Tan Eng Lay and Tan Eng Kee pooled their resources in order
to revive the business. In 1981, Tan Eng Lay caused the conversion of
Benguet Lumber into a corporation called Benguet Lumber and Hardware
Company, with him and his family as the incorporators. In 1983, Tan Eng
Kee died. Thereafter, the heirs of Tan Eng Kee demanded for an
accounting and the liquidation of the partnership.
Tan Eng Lay denied that there was a partnership between him and his
brother. He said that Tan Eng Kee was merely an employee of Benguet
Lumber. He showed evidence consisting of Tan Eng Kees payroll; his SSS
as an employee and Benguet Lumber being the employee. As a result of
the presentation of said evidence, the heirs of Tan Eng Kee filed a criminal
case against Tan Eng Lay for allegedly fabricating those evidence. Said
criminal case was however dismissed for lack of evidence.
ISSUE: Whether or not Tan Eng Kee is a partner.
HELD: No. There was no certificate of partnership between the brothers.
The heirs were not able to show what was the agreement between the
brothers as to the sharing of profits. All they presented were
circumstantial evidence which in no way proved partnership.
It is obvious that there was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to the period
after the war until Kees death in 1984. It had no business book, no
written account nor any memorandum for that matter and no license
mentioning the existence of a partnership.
In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a
sole proprietorship. He registered the same as such in 1954; that Kee was
just an employee based on the latters payroll and SSS coverage, and
other records indicating Tan Eng Lay as the proprietor.
15

Also, the business definitely amounted to more P3,000.00 hence if there


was a partnership, it should have been made in a public instrument.
But the business was started after the war (1945) prior to the publication
of the New Civil Code in 1950?
Even so, nothing prevented the parties from complying with this
requirement.
Also, the Supreme Court emphasized that for 40 years, 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. Even if it can be speculated
that a scenario wherein if 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. A demand for periodic
accounting is evidence of a partnership which Kee never did.
The Supreme Court also noted: In determining whether a partnership
exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not share
any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;
(4) 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, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;


(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
18 Aurbach v. Sanitary Wares
F: This consolidated petition assailed the decision of the CA directing a
certain MANNER OF ELECTION OFOFFICERS IN THE BOARD OF
DIRECTORS*There are two groups in this case, the
Lagdameo group
composed of Filipino investors and the
American Standard Inc. (ASI) composed of foreign investors.The ASI Group
and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of theparties should be viewed strictly on the "Agreement" dated
August 15,1962 wherein it is clearly stated that the parties' intention was
to form a corporation and not a joint venture.
I: The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting held
on March 8, 1983. To answer this question the following factors should be
determined:*(1) the nature of the business established by the parties
whether it was a joint venture or a corporation and
H: While certain provisions of the Agreement would make it appear that
the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and
does not preclude, the existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into a joint venture enterprise
*An examination of the Agreement shows that certain provisions were
included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate
acts. ASI is contractually entitled to designate a member of the Executive
16

Committee and the vote of this member is required for certain


transactions
*The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares. ASI is also given the
right to designate the president and plant manager. The Agreement
further provides that the sales policy of Saniwares shall be that which is
normally followed by ASI and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services. Under
the Agreement, ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same.
*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. It is in fact hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a
mutual right of control.
*The main distinction cited by most opinions in common law jurisdictions
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.
19 Bourns v. Carman
FACTS: An action to recover the sum of $437.50 balance due on a contract
for the sawing of lumber yard of Lo-Chim-Lim was filed by Bourns
(Plaintiff). The contract was entered into by Lo-Chim-Lim, acting as in his
own name with the plaintiff, and it appears that Lo-Chim-Lim personally
agreed to pay for the work himself. The plaintiff brought the action against
Lo-Chim-Lim and his co-defendants jointly, alleging that at the time the
contract was made, they were the joint proprietors and operators of the
said lumber yard engaged in the purchase and sale of lumber under the
name and style of Lo-Chim-Lim, hence were partners. The lower court
dismissed the action on the ground that defendants D.M. Carman,
Fulgencio and Tan-Tongco, except Vicente Palance and Go-Tauco were not
the partners of Lo-Chim-Lim.
ISSUE: Whether appellants are deemed partners of Lo-Chim-Lim and
hence are liable to Bourns

HELD: No. The alleged partnership between Lo-Chim-Lim and the


appellants was formed by verbal agreement only. There is no evidence
tending to show that the said agreement was reduced to writing, or that it
was ever recorded in a public instrument. Moreover, the partnership had
no corporate name. The partnership was engaged in business under the
name and style of Lo-Chim-Lim only. Moreover, it does not appear that
there was any mutual agreement between the parties and if there were
any, it has not been shown what the agreement was. The contracts made
with the plaintiff were made by Lo-Chim-Lim individually in his own name,
and there is no evidence that the partnership over contracted in any form.
Hence, the partnership is one of cuentasen participacion. It is but a simple
business conducted by Lo-Chim-Lim exclusively in his own name. A
partnership constituted in such a manner, the existence of which was only
known to those who had an interest in the same, being no mutual
agreements between the partners and without a corporate name
indicating to the public in some way that there were other people besides
the one who ostensibly managed and conducted the business, is exactly
the accidental partnership of cuentas en participacion defined in Art. 239
of the Code of Commerce. Those who contract with the person under
whose name the business of such partnership of cuentas en participacion
is conducted, shall have only a right of action against such person and not
against the other persons interested, and the latter, on the other hand,
shall have no right of action against the third person who contracted with
the manager unless such manager formally transfers his right to them.
20 Philex Mining Corp v. CIR 2008
FACTS: BIR sent a letter to Philex asking it to settle its tax liabilities
amounting to P124 million. Philex protested the demand for payment
stating that it has pending claims for VAT input credit/refund amounting to
P120 million. Therefore, these claims for tax credit/refund should be
applied against the tax liabilities.
In reply the BIR found no merit in Philexs position. On appeal, the CTA
reduced the tax liability of Philex.
ISSUES: Whether legal compensation can properly take place between the
VAT input credit/refund and the excise tax liabilities of Philex Mining Corp;
Whether the BIR has violated the NIRC which requires the refund of input
taxes within 60 days
17

Whether the violation by BIR is sufficient to justify non-payment by Philex


RULING: No, legal compensation cannot take place. The government and
the taxpayer are not creditors and debtors of each other.
Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its
claim for VAT input credit. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund
No, despite the lethargic manner by which the BIR handled Philexs tax
claim, it is a settled rule that in the performance of government function,
the State is not bound by the neglect of its agents and officers. It must be
stressed that the same is not a valid reason for the non-payment of its tax
liabilities.
21 AFISCO v. CA 1999
DOCTRINE: Unregistered Partnerships and associations are considered as
corporations for tax purposes Under the old internal revenue code, A
tax is hereby imposed upon the taxable net income received during each
taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or
organized, xxx. Ineludibly, the Philippine legislature included in the
concept of corporations those entities that resembled them such as
unregistered partnerships and associations.
Insurance pool in the case at bar is deemed a partnership or association
taxable as a corporation In the case at bar, petitioners-insurance
companies formed a Pool Agreement, or an association that would handle
all the insurance businesses covered under their quota-share reinsurance
treaty and surplus reinsurance treaty with Munich is considered a
partnership or association which may be taxed as a corporation.
Double Taxation is not Present in the Case at Bar Double taxation means
taxing the same person twice by the same jurisdiction for the same
thing. In the instant case, the insurance pool is a taxable entity distinct
from the individual corporate entities of the ceding companies. The tax on
its income is obviously different from the tax on the dividends received by
the companies. There is no double taxation.
FACTS: The petitioners are 41 non-life domestic insurance corporations.
They issued risk insurance policies for machines. The petitioners in 1965

entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance


Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter
called Munich), a non-resident foreign insurance corporation.
The
reinsurance treaties required petitioners to form a pool, which they
complied with.
In 1976, the pool of machinery insurers submitted a financial statement
and filed an Information Return of Organization Exempt from Income Tax
for 1975. On the basis of this, the CIR assessed a deficiency of
P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and
P89,438.68 on dividends paid to Munich and to the petitioners,
respectively.
The Court of Tax Appeal sustained the petitioner's liability. The Court of
Appeals dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a partnership
taxable as a corporation, and that the latters collection of premiums on
behalf of its members, the ceding companies, was taxable income.
ISSUE/S: Whether or not the pool is taxable as a corporation.
Whether or not there is double taxation.
HELD: 1) Yes: Pool taxable as a corporation
Argument of Petitioner: The reinsurance policies were written by them
individually and separately, and that their liability was limited to the
extent of their allocated share in the original risks thus reinsured. Hence,
the pool did not act or earn income as a reinsurer. Its role was limited to
its principal function of allocating and distributing the risk(s) arising from
the original insurance among the signatories to the treaty or the members
of the pool based on their ability to absorb the risk(s) ceded[;] as well as
the performance of incidental functions, such as records, maintenance,
collection and custody of funds, etc.
Argument of SC: According to Section 24 of the NIRC of 1975:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic


corporations. -- A tax is hereby imposed upon the taxable net income
received during each taxable year from all sources by every corporation
18

organized in, or existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered general copartnership (compaias colectivas), general professional partnerships,
private educational institutions, and building and loan associations xxx.
Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as unregistered
partnerships and associations. Interestingly, the NIRCs inclusion of such
entities in the tax on corporations was made even clearer by the Tax
Reform Act of 1997 Sec. 27 read together with Sec. 22 reads:
SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this Code, an income
tax of thirty-five percent (35%) is hereby imposed upon the taxable
income derived during each taxable year from all sources within and
without the Philippines by every corporation, as defined in Section 22 (B)
of this Code, and taxable under this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx

xxx

(B) The term corporation shall include partnerships, no matter how


created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include
general professional partnerships [or] a joint venture or consortium
formed for the purpose of undertaking construction projects or engaging
in petroleum, coal, geothermal and other energy operations pursuant to
an operating or consortium agreement under a service contract without
the Government. General professional partnerships are partnerships
formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any
trade or business.
Thus, the Court in Evangelista v. Collector of Internal Revenue held that
Section 24 covered these unregistered partnerships and even associations
or joint accounts, which had no legal personalities apart from their
individual members.
Furthermore, Pool Agreement or an association that would handle all the
insurance businesses covered under their quota-share reinsurance treaty

and surplus reinsurance treaty with Munich may be considered a


partnership because it contains the following elements: (1) The pool has a
common fund, consisting of money and other valuables that are deposited
in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool. (2) The pool functions
through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding
companies. (3) While, the pool itself is not a reinsurer and does not issue
any policies; its work is indispensable, beneficial and economically useful
to the business of the ceding companies and Munich, because without it
they would not have received their premiums pursuant to the agreement
with Munich. Profit motive or business is, therefore, the primordial reason
for the pools formation.
2) No: There is no double taxation.
Argument of Petitioner: Remittances of the pool to the ceding companies
and Munich are not dividends subject to tax. Imposing a tax would be
tantamount to an illegal double taxation, as it would result in taxing the
same premium income twice in the hands of the same taxpayer.
Furthermore, even if such remittances were treated as dividends, they
would have been exempt under tSections 24 (b) (I) and 263 of the 1977
NIRC , as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of
the RP-West German Tax Treaty.
Argument of Supreme Court: Double taxation means taxing the same
person twice by the same jurisdiction for the same thing. In the instant
case, the insurance pool is a taxable entity distince from the individual
corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the
companies. There is no double taxation.
Tax exemption cannot be claimed by non-resident foreign insurance
corporattion; tax exemption construed strictly against the taxpayer Section 24 (b) (1) pertains to tax on foreign corporations; hence, it cannot
be claimed by the ceding companies which are domestic corporations. Nor
can Munich, a foreign corporation, be granted exemption based solely on
this provision of the Tax Code because the same subsection specifically
taxes dividends, the type of remittances forwarded to it by the pool. The
foregoing interpretation of Section 24 (b) (1) is in line with the doctrine
19

that a tax exemption must be construed strictissimi juris, and the


statutory exemption claimed must be expressed in a language too plain to
be mistaken.

Lim Po Chuan has not been satisfactorily established and that, on the
contrary, the evidence on record convincingly shows that her relation with
said deceased was that of a common-law wife.

PARTNERS OBLIGATIONS

Moreover, the Supreme Court said that the lower courts committed an
error by awarding 1/3 of the partnership properties to Tan because there
has been no liquidation proceedings yet. And if there has not yet been any
liquidation of the partnership, the only right plaintiff could have would be
to what might result after much liquidation to belong to the deceased
partner (her alleged husband) and before this is finished, it is impossible
to determine, what rights or interest, if any the deceased had.

21 Lim Tanhu v. Remolete


FACTS: Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who
was a partner in the commercial partnership, Glory Commercial Company
with Antonio Lim Tanhu and Alfonso Ng Sua".
Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan,
and Eng Chong Leonardo, through fraud and machination, took actual and
active management of the partnership and although Tee Hoon Lim Po
Chuan was the manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to purchase lands and
buildings in the cities of Cebu, Lapulapu, Mandaue, and the municipalities
of Talisay and Minglanilla.
She alleged in her complaint that after the death of Tee Hoon Lim Po
Chuan, the defendants, without liquidation, continued the business of
Glory Commercial Company, by purportedly organizing a corporation
known as the Glory Commercial Company, Incorporated and sometime in
the month of November, 1967, defendants, particularly Antonio Lim
Tanhu, by means of fraud deceit, and misrepresentations did then and
there, induce and convince her to execute a quitclaim of all her rights and
interests, in the assets of the partnership of Glory Commercial Company.
Thereafter, in the year 1968-69, the defendants who had earlier promised
to liquidate the aforesaid properties and assets in favor, among others of
plaintiff and until the middle of the year 1970 when the plaintiff formally
demanded from the defendants the accounting of real and personal
properties of the Glory Commercial Company, defendants refused and
stated that they would not give the share of the plaintiff.
ISSUE: Whether Tan has a right over the liquidated properties of the
partnership
HELD: No, Tan has no right over the liquidated properties of the
partnership. The Supreme Court held that there is no alternative but to
hold that plaintiff Tan Put's allegation that she is the widow of Tee Hoon

In other words, no specific amounts or properties may be adjudicated to


the heir or legal representative of the deceased partner without the
liquidation being first terminated.
22 Liwanag v. CA
Facts: Liwanag asked Isidora Rosales to join her and Thelma Tagbilaran in
the business of buying and selling cigarettes. Under their agreement,
Rosales would give the money needed to buy the cigarettes while Liwanag
and Tabligan would act as her agents, with a corresponding 40%
commission to her if the goods are sold; otherwise the money wouldbe
returned to Rosales.
Rosales gave several cash advances amounting to 633,650.
Money was misappropriated. Rosales files a complaint of estafa against
them.
Issue: 1. WON the parties entered into a partnership agreement; 2. if in
the negative, WON the transaction is a simple loan
Held: 1. No. Even assuming that a contract of partnership was indeed
entered into by and between the parties, when money or property have
been received by a partner for a specific purpose and he later
misappropriated it, such partner is guilty of estafa.
2. No. In a contract of loan once the money is received by the debtor,
ownership over the same is transferred. being the owner, the borrower
can dispose of it for whatever purpose he may deem proper.
23 US v. Clarin
20

Misappropriation
Sometime before 1910, Pedro Larin formed a partnership with Pedro
Tarug, Eusebio Clarin and Carlos de Guzman. Larin, being the capitalist,
agreed to contribute P172.00 to the partnership and the three others shall
use said fund to trade mangoes. The three industrial partners bought
mangoes and sell them and they earned P203.00 but they failed to give
Larins share of the profits. Larin charged them with the crime of estafa,
but the provincial fiscal filed an information only against Eusebio Clarin in
which he accused him of appropriating to himself not only the P172 but
also the share of the profits that belonged to Larin, amounting to P15.50.
Clarin was eventually convicted.
ISSUE: Whether or not the conviction is correct.
HELD: No. The P172.00 having been received by the partnership, the
business commenced and profits accrued, the action that lies with the
partner who furnished the capital for the recovery of his money is not a
criminal action for estafa, but a civil one arising from the partnership
contract for a liquidation of the partnership and a levy on its assets if
there should be any.
The then Penal Code provides that those who are guilty of estafa are those
who, to the prejudice of another, shall appropriate or misapply any
money, goods, or any kind of personal property which they may have
received as a deposit on commission for administration or in any other
producing the obligation to deliver or return the same, (as, for example,
in commodatum, precarium, and other unilateral contracts which require
the return of the same thing received) does not include money received
for a partnership; otherwise the result would be that, if the partnership,
instead of obtaining profits, suffered losses, as it could not be held liable
civilly for the share of the capitalist partner who reserved the ownership of
the money brought in by him, it would have to answer to the charge of
estafa, for which it would be sufficient to argue that the partnership had
received the money under obligation to return it.
24 Pang Lim v. Lo Seng
The partner who collects is authorized to manage and actually
Lo Seng and Pang Lim were partners in the business of running a distillery,
known as "El Progreso. The land on which said distillery is located was to

the firm of Lo Seng and Co. for the term of three years. Upon the
expiration of this lease a new written contract, in the making of which Lo
Yao was represented by one Lo Shui as attorney in fact, became effective
whereby the lease was extended for fifteen years. Pang Lim sold all his
interest in the distillery to his partner Lo Seng, thus placing the latter in
the position of sole owner.
Lo Shui, again acting as attorney in fact of Lo Yao, executed and
acknowledged before a notary public a deed purporting to convey to Pang
Lim and another Chinaman named Benito Galvez, the entire distillery
plant. But this document was never recorded in the registry of property.
Thereafter, Pang Lim and Benito Galvez demanded possession from Lo
Seng, but the latter refused to yield; and the present action of unlawful
detainer was thereupon initiated by Pang Lim and Benito Galvez in the
court of the justice of the peace of Paombong to recover possession of the
premises.
Plaintiff Pang Lim has occupied a double role in the transactions which
gave rise to this litigation, namely, first, as one of the lessees; and
secondly, as one of the purchasers now seeking to terminate the lease.
These two positions are essentially antagonistic and incompatible. Every
competent person is by law bond to maintain in all good faith the integrity
of his own obligations; and no less certainly is he bound to respect the
rights of any person whom he has placed in his own shoes as regards any
contract previously entered into by himself.
Issue: WON Pang Lim, having been a participant in the contract of lease
now in question, is in a position to terminate it: and this is a fatal obstacle
to the maintenance of the action of unlawful detainer by him.
Held: NO. While yet a partner in the firm of Lo Seng and Co., Pang Lim
participated in the creation of this lease, and when he sold out his interest
in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's
interest in the firm assets, including the lease; and Pang Lim cannot now
be permitted, in the guise of a purchaser of the estate, to destroy an
interest derived from himself, and for which he has received full value.
Ratio: The bad faith of the plaintiffs in seeking to deprive the defendant of
this lease is strikingly revealed in the circumstance that prior to the
acquisition of this property Pang Lim had been partner with Lo Seng and
21

Benito Galvez an employee. Both therefore had been in relations of


confidence with Lo Seng and in that position had acquired knowledge of
the possibilities of the property and possibly an experience which would
have enabled them, in case they had acquired possession, to exploit the
distillery with profit.

Gatchalian, subject to his right to demandfrom the latter his contribution


to the amount of redemption.

it would be shocking to the moral sense if the condition of the law were
found to be such that Pang Lim, after profiting by the sale of his interest in
a business, worthless without the lease, could intervene as purchaser of
the property and confiscate for his own benefit the property which he had
sold for a valuable consideration to Lo Seng.

PARTNERS OBLIGATION INTER SE

Above all other persons in business relations, partners are required to


exhibit towards each other the highest degree of good faith. In fact the
relation between partners is essentially fiduciary, each being considered
in law, as he is in fact, the confidential agent of the other.
If one partner obtains in his own name and for his own benefit the renewal
of a lease on property used by the firm, to commence at a date
subsequent to the expiration of the firm's lease, the partner obtaining the
renewal is held to be a constructive trustee of the firm as to such lease. As
Lo Seng is vested with the possessory right as against Pang Lim, he
cannot be ousted either by Pang Lim or Benito Galvez. Having lawful
possession as against one cotenant, he is entitled to retain it against both.
25 Catalan v. Gatchalian 1959
FACTS:Catalan and Gatchalian are partners. They mortgaged two lots to
Dr. Marave together with the improvements thereon to secure a credit
from the latter. The partnership failed to pay the obligation. The properties
were sold to Dr. Marave at a public auction. Catalan redeemed the
property and he contends that title should be cancelled and a new one
must be issued in his name.
ISSUE:Did Catalans redemption of the properties make him the absolute
owner of thelands?
HELD: No. Under Article 1807 of the NCC every partner becomes a trustee
for hiscopartner with regard to any benefits or profits derived from his act
as a partner.Consequently, when Catalan redeemed the properties in
question, he became a trusteeand held the same in trust for his copartner

26 Pioneer Insurance v. CA
When De Facto Partnership Does Not Exist
Facts: Jacob Lim was the owner of Southern Air Lines, a single
proprietorship. In 1965, Lim convinced Constancio Maglana, Modesto
Cervantes, Francisco Cervantes, and Border Machinery and Heavy
Equipment Company (BORMAHECO) to contribute funds and to buy two
aircrafts which would form part a corporation which will be the expansion
of Southern Air Lines. Maglana et al then contributed and delivered money
to Lim.
But instead of using the money given to him to pay in full the aircrafts,
Lim, without the knowledge of Maglana et al, made an agreement with
Pioneer Insurance for the latter to insure the two aircrafts which were
brought in installment from Japan Domestic Airlines (JDA) using said
aircrafts as security. So when Lim defaulted from paying JDA, the two
aircrafts were foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed between Lim
and Maglana et al.
ISSUE: Whether or not Maglana et al must share in the loss as general
partners.
HELD: No. There was no de facto partnership. Ordinarily, when coinvestors agreed to do business through a corporation but failed to
incorporate, a de facto partnership would have been formed, and as such,
all must share in the losses and/or gains of the venture in proportion to
their contribution. But in this case, it was shown that Lim did not have the
intent to form a corporation with Maglana et al. This can be inferred from
acts of unilaterally taking out a surety from Pioneer Insurance and not
using the funds he got from Maglana et al. The record shows that Lim was
22

acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
27 Evangelista v. Abad Santos
FACTS: On October 9, 1954 a co-partnership was formed under the name
of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership were
amended so as to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonarda Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of
P17,500 each
On December 17, 1963 herein respondent filed suit against the
three other partners, alleging that the partnership, which was also made a
party-defendant, had been paying dividends to the partners except to her;
and that notwithstanding her demands the defendants had refused and
continued to refuse to let her examine the partnership books or to give
her information regarding the partnership affairs or to pay her any share
in the dividends declared by the partnership
The defendants, in their answer, denied ever having declared
dividends or distributed profits of the partnership; denied likewise that the
plaintiff ever demanded that she be allowed to examine the partnership
books; and by way of affirmative defense alleged that the amended
Articles of Co-partnership did not express the true agreement of the
parties, which was that the plaintiff was not an industrial partner; that she
did not in fact contribute industry to the partnership.
ISSUE: Whether Abad Santos is entitled to see the partnership books
because she is an industrial partner in the partnership
HELD: Yes, Abad Santos is entitled to see the partnership books. The
Supreme Court ruled that according to ART. 1299. Any partner shall have
the right to a formal account as to partnership affairs:
(1)If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2)If the right exists under the terms of any agreement;
(3)As provided by article 1807;

(4)Whenever other circumstances render it just and reasonable."


In the case at hand, the company is estopped from denying Abad Santos
as an industrial partner because it has been 8 years and the company
never corrected their agreement in order to show their true intentions.
The company never bothered to correct those up until Abad Santos filed a
complaint.
28 Moran v. Court of Appeals
Profit and Loss Sharing Speculative Damages
Facts: In February 1971, Isabelo Moran and Mariano Pecson entered into a
partnership agreement where they agreed to contribute P15k each for the
purpose of printing 95k posters of the delegates to the then 1971
Constitutional Commission. Moran shall be in charge in managing the
printing of the posters. It was further agreed that Pecson will receive a
commission of P1k a month starting from April 1971 to December 1971;
that the partnership is to be liquidated on December 15, 1971.
Pecson partially fulfilled his obligation to the partnership when he issued
P10k in favor of the partnership. He gave the P10k to Moran as the
managing partner. Moran however did not add anything and, instead, he
only used P4k out of the P10k in printing 2,000 posters. He only printed
2,000 posters because he felt that printing all 95k posters is a losing
venture because of the delay by the COMELEC in announcing the full
delegates. All the posters were sold for a total of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages.
The Court of Appeals affirmed the decision of the trial court but modified
the same as it ordered Moran to pay P47.5k for unrealized profit; P8k for
Pecsons monthly commissions; P7k as return of investment because the
venture never took off; plus interest.
ISSUE: Whether or not the CA judgment is correct.
HELD: No. The award of P47.5k for unrealized profit is speculative. There is
no evidence whatsoever that the partnership between the Moran and
Pecson would have been a profitable venture (because based on the
circumstances then i.e. the delay of the COMELEC in proclaiming the
candidates, profit is highly unlikely). In fact, it was a failure doomed from
the start. There is therefore no basis for the award of speculative damages
23

in favor of Pecson. Further, there is mutual breach in this case, Pecson


only gave P10k instead of P15k while Moran gave nothing at all.
As for the P8k monthly commission, this is without basis. 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,
Pecson is not entitled to the P8k commission.
As for the P7k award as return for Pecsons investment, the CA erred in his
ruling too. Though the venture failed, it did took off the ground as
evidenced by the 2,000 posters printed. Hence, return of investment is not
proper in this case. There are risks in any business venture and the failure
of the undertaking cannot entirely be blamed on the managing partner
alone, specially if the latter exercised his best business judgment, which
seems to be true in this case.
Moran must however return the unused P6k of Pecsons contribution to
the partnership plus P3k representing Pecsons profit share in the sale of
the printed posters. Computation of P3k profit share is as follows: (P10k
profit from the sale of the 2,000 posters printed) (P4k expense in
printing the 2k posters) = (P6k profit); Profit 2 = P3k each.
29 Martinez v. Ong Pong Co
Facts: Martinez delivered P1,500 to Ong Pong Co and Ong Lay to invest in
a store. They agreed that the profits and losses would be equally shared
by all of them. Martinez was demanding for the two Ongs to render an
accounting or to refund him the P1,500. Ong Pong Co alleged that Ong
Lay, now deceased, was the one who managed the business, and the
capita of P1,500 resulted in a loss so that he should not be made liable.
Issue: WON Ong Pong Co is liable? YES What is the extent of his liability?
joint
Held: The 2 partners (Ongs) were the administrators/managers and are
obliged to render accounting. Since neither of them rendered an account,
nor proved the alleged losses, they are obliged to return the capital to
Martinez.

Where two partners 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, and by virtue thereof are bound to fulfill the contract which
implies the management of the business.
Article 1796 is not applicable because no other money than that
contributed as capital was involved. The liability of the partners is joint.
Ong Pong Co shall only pay P750 to Martinez.
30 Agustin v. Inocencio
Facts: The parties, who had been conducting a partnership as industrial
partners without capital, contributed from its profits the sum of P807.28 as
a fund toward the construction of a casco for use in their business, to
which they added P3,500, borrowed from Maria del Rosario, the wife of
Inocencio, he being the managing partner. It is admitted that this total (a
little overP4,300), was the estimated cost of the casco but in the progress
of the work Inocencio found that it called for additional funds, which he
advanced to the amount of P2,024.49. This amount is necessary in order
to complete the work undertaken. Although it would seem that he failed to
notify his partners of the various items from time to time going to make
up this sum, it is shown that the books were at all times open to their
inspection, and that, being asked to examine them, they omitted to do so,
and that the Agustin, representing all the partners, was also present at the
construction of the casco, in charge of the practical work and cognizant of
its needs and its progress.
ISSUE/HELD: WON Inocencio, in borrowing money and advancing funds,
was acting within the scope of his authority as a managing partner.
YES. The work done in the casco having been within the scope of the
association and necessary to carry out its express object, the borrowing of
the money required to carry it on, with the acquiescence if not with the
affirmative consent of his associates, was not outside the powers of the
managing partner and constitutes a debt for which all the associates are
liable.
The note passed into the hands of Inocencio by reason of the successive
deaths of his wife and of their only child, each without debts, and for the
24

amount thereof he became a creditor, subject, however, to the deduction


therefrom of his proportionate part of the indebtedness.
The trial court treated his claim as an addition to his capital in the firm,
rather than as a loan, and this constitutes one of the grounds of error
stated by the appellant. We do not deem it necessary to pass upon this
objection, for the reason that, considered as a loan, this sum would place
the defendant as a creditor in a stronger position as against his associates
than if regarded as a mere contribution to capital. The error, if it be an
error, is not, therefore, prejudicial to the plaintiff, but is rather beneficial to
him. The respondent did not except to it.
Various small sums have been paid out of the profits to some of the
partners and these were properly allowed him in the judgment.
On the theory on which the action was disposed of, the trial court
committed no error in the computation of the various shares.
Of the four parties plaintiff, but one, Victor del Rosario, is interested in this
appeal, which has been dismissed as to the others, and as to him the
judgment of the trial court must be affirmed, with costs of this instance.
PARTNERS OBLIGATION TO PERSONAL/PSHIP CREDITORS
31 Litton v. Hill
FACTS: On February 14, 1934, the plaintiff sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill & Ceron, a certain
number of mining claims. Ceron paid to the plaintiff the sum or P1,150
leaving an unpaid balance of P720, and unable to collect this sum either
from Hill & Ceron or from its surety Visayan Surety & Insurance
Corporation, Litton filed a complaint in the Court of First Instance of Manila
against the said defendants for the recovery of the said balance. The
court, after trial, ordered Carlos Ceron personally to pay the amount
claimed and absolved the partnership Hill & Ceron, Robert Hill and the
Visayan Surety & Insurance Corporation. The CA affirmed the decision of
the court on May 29, 1937, having reached the conclusion that Ceron did
not intend to represent and did not act for the firm Hill & Ceron in the
transaction involved in this litigation.
Issue: Did the transaction bind the partnership or Ceron only?

Held:
While the transaction was entered into by Ceron, it bound the partnership.
Robert Hill had the same power to buy and sell; that in said partnership
Hill as well as Ceron made the transaction as partners in equal parts; that
on the date of the transaction, February 14, 1934, the partnership
between Hill and Ceron was in existence. After this date, or on February
19th, Hill& Ceron sold shares of the Big Wedge; and when the transaction
was entered into with Litton, it was neither published in the newspapers
nor stated in the commercial registry that the partnership Hill & Ceron had
been dissolved. The SC dissented from the view of the CA that for one of
the partners to bind the partnership the consent of the other is necessary.
Third persons, like the plaintiff, are not bound in entering into a contract
with any of the two partners, to ascertainwhether or not this partner with
whom the transaction is madehas the consent of the other partner.The
public need not makeinquires as to the agreements had between the
partners. Itsknowledge, is enough that it is contracting with the
partnership which is represented by one of the managing partners. The
second paragraph of the articles of partnership of Hill &Ceron reads in
part:
Second: That the purpose or object for which this co-partnership is
organized is to engage in the business of brokerage in general, such as
stock and bond brokers, real brokers, investment security brokers,
shipping brokers, and other activities pertaining to the business of brokers
in general. The kind of business in which the partnership Hill & Ceron is to
engage being thus determined, none of the two partners, under article
130 of the Code of Commerce, may legally engage in the business of
brokerage in general as stock brokers, security brokers and other activities
pertaining to the business of the partnership. Ceron, therefore, could not
have entered into the contract of sale of shares with Litton as a private
individual, but as a managing partner of Hill & Ceron. The stipulation in
the articles of partnership that any of the two managing partners may
contract and sign in the name of the partnership with the consent of the
other, undoubtedly creates an obligation between the two partners, which
consists in asking the other's consent before contracting for the
partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. Athird person may and has a
25

right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership but, on the contrary, is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed. If we
are to interpret the articles of partnership in question by holding that it is
the obligation of the third person to inquire whether the managing
copartner of the one with whom he contracts has given his consent to said
contract, which is practically casting upon him the obligation to get such
consent, this interpretation would, in similar cases, operate to hinder
effectively the transactions, a thing not desirable and contrary tothe
nature of business which requires promptness and dispatch one the basis
of good faith and honesty which are always presumed.
Resolution:
Hill asked for a reconsideration, using the same arguments, saying that he
did not consent to the deal of Ceron. The SC reiterated what they said,
and mentioned that had Ceron in anyway stated to the appellant at the
time of the execution of the contract, or if it could be inferred by his
conduct, that he had the consent of Hill, and should it turn out later that
he did not have such consent, this alone would not annul the contract
judging from the provisions of article 130 of the Code of Commerce
reading as follows:No new obligation shall be contracted against the will of
one of the managing partners, should he have expresslystated it; but if,
however, it should be contracted it shallnot be annulled for this reason,
and shall have its effectswithout prejudice to the liability of the partner
orpartners who contracted it to reimburse the firm for anyloss occasioned
by reason thereof.
32 Goquiolay v. Sycip
FACTS: Tan Sin An and Goquiolay entered into a general commercial
partnership under the partnership name Tan Sin An and Antonio
Goquiolay for the purpose of dealing in real estate. The agreement
lodged upon Tan Sin An the sole management of the partnership affairs.
The lifetime of the partnership was fixed at ten years and the Articles of
Co-partnership stipulated that in the event of death of any of the partners

before the expiration of the term, the partnership will not be dissolved but
will be continued by the heirs or assigns of the deceased partner. But the
partnership could be dissolved upon mutual agreement in writing of the
partners. Goquiolay executed a GPA in favor of Tan Sin An. The plaintiff
partnership purchased 3 parcels of land which was mortgaged to La
Urbana as payment of P25,000. Another 46 parcels of land were
purchased by Tan Sin An in his individual capacity which he assumed
payment of a mortgage debt for P35K. A downpayment and the
amortization were advanced by Yutivo and Co. The two obligations were
consolidated in an instrument executed by the partnership and Tan Sin An,
whereby the entire 49 lots were mortgaged in favor of Banco
HipotecarioTan Sin An died leaving his widow, Kong Chai Pin and four
minor children. The widow subsequently became the administratrix of the
estate. Repeated demands were made by Banco Hipotecario on the
partnership and on Tan Sin An. Defendant Sing Yee, upon request of
defendant Yutivo Sons , paid the remaining balance of the mortgage debt,
the mortgage was cancelled Yutivo Sons and Sing Yee filed their claim in
the intestate proceedings of Tan Sin An for advances, interest and taxes
paid in amortizing and discharging their obligations to La Urbana and
Banco Hipotecario. Kong Chai Pin filed a petition with the probate court
for authority to sell all the 49 parcels of land. She then sold it to Sycip and
Lee in consideration of P37K and of the vendees assuming payment of the
claims filed by Yutivo Sons and Sing Yee. Later, Sycip and Lee executed in
favor of Insular Development a deed of transfer covering the 49 parcels of
land.When Goquiolay learned about the sale to Sycip and Lee, he filed a
petition in the intestate proceedings to set aside the order of the probate
court approving the sale in so far as his interest over the parcels of land
sold was concerned. Probate court annulled the sale executed by the
administratrix w/ respect to the 60% interest of Goquiolay over the
properties Administratrix appealed.The decision of probate court was set
aside for failure to include the indispensable parties. New pleadings were
filed. The second amended complaint prays for the annulment of the sale
in favor of Sycip and Lee and their subsequent conveyance to Insular
Development. The complaint was dismissed by the lower court hence this
appeal.

ISSUE/S: Whether or not a widow or substitute become also a general


partner or only a limited partner. Whether or not the lower court err in
26

holding that the widow succeeded her husband Tan Sin An in the sole
management of the partnership upon Tans death Whether or not the
consent of the other partners was necessary to perfect the sale of the
partnership properties to Sycip and Lee?
HELD: Kong Chai Pin became a mere general partner. By seeking authority
to manage partnership property, Tan Sin Ans widow showed that she
desired to be considered a general partner. By authorizing the widow to
manage partnership property (which a limited partner could not be
authorized to do), Goqulay recognized her as such partner, and is now in
estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property. The articles did not provide
that the heirs of the deceased would be merely limited partners; on the
contrary, they expressly stipulated that in case of death of either partner,
the co partnership will have to be continued with the heirs or assignees.
It certainly could not be continued if it were to be converted from a
general partnership into a limited partnership since the difference
between the two kinds of associations is fundamental, and specially
because the conversion into a limited association would leave the heirs of
the deceased partner without a share in the management. Hence, the
contractual stipulation actually contemplated that the heirs would become
general partners rather than limited ones.

NO. The partnership of YULO and PALACIOS was engaged in the operation
of a sugar estate in Negros. It was, therefore a civilpartnership, as
distinguished from a mercantile partnership. Being a civil partnership, by
the express provisions of articles 1698 and 1137 of the Civil Code, the
partners are not liable each for the whole debt of the partnership.
Theliability is pro rata and in this case YULO is responsible toCO-PITCO for
only one-half of the debt. The fact that theother partner, PALACIOS, had
left the country can not increase the liability of YULO.
The judgment of the court below is reversed and judgment isordered in
favor of CO-PITCO and against YULO for the sumof P819.20 pesos with
interest thereon at the rate of 6 percent per annum from the 12th day of
January, 1905, and the costs of the Court of First Instance.
34 Bachrach v. La Protectora
Facts: Nicolas Segundo, Antonio Adiarte, Ignacio Flores and Modesto
Serrano (defendants) formed a civil partnership called La Protectora for
the purpose of engaging in the business of transporting passengers and
freight at Laoag, Ilocos Norte. Marcelo Barba, acting as manager,
negotiated for the purchase of 2 automobile trucks from E. M. Bachrach
for P16,500. Barba paid P3,000 in cash and for the balance executed
promissory notes.

33 Co-Pitco v. Yulo

One of these promissory notes was signed in the following manner:

Facts: Before Feb. 1903, FLORENCIO Yulo and Jaime PALACIOSwere


partners in the operation of a sugar estate in Victorias,Island of Negros,
and had commercial dealings with aChinaman named Dy-Sianco, who
furnished them withmoney and goods, and used to buy their crop of sugar.
PedroYULO, father of the said Florencio, took charge of the latter'sinterest
in the above-mentioned partnership, and he becamea general partner
with PALACIOS in the same business, andhe continued as such partner
until about the end of 1904,dealing with Dy-Sianco in the same manner as
the oldpartnership had dealt with the latter.

P.P La Protectora, By Marcelo Barba Marcelo Barba

CO-PITCO then finds that the balance due from the firm was1,638.40
pesos and orders judgment against YULO for theentire amount, with
interest.
ISSUE/HELD: WON YULO is liable for the entire amount.

The other 2 notes were signed in the same way but the word by was
omitted. It was obvious that in signing the notes, Barba intended to bind
both the partnership and himself.
The defendants executed a document in which they declared that they
were members of La Protectora and that they had granted to its president
full authority to contract for the purchase of the 2 automobiles. The
document was delivered by Barba to Bachrach at the time the vehicles
were purchased.
Barba incurred a debt amounting to P2,617.57 and Bachrach foreclosed a
chattel mortgage on the trucks but there was still balance. To recover the
balance, action was instituted against the defendants. Judgment was
rendered against the defendants.
27

Issue: a.Whether or not the defendants are liable for the firm debts.
b.Whether or not Barba had authority to incur expenses for the
partnership (relevant issue)
Held: a.Yes. Promissory notes constitute the obligation exclusively of La
Protectora and Barba. They do not constitute an obligation directly binding
the defendants. Their liability is based on the principles of partnership
liability. A member is not liable in solidum with his fellows for the entire
indebtedness but is liable with them or his aliquot part.
SC obiter: the document was intended merely as an authority to enable
Barba to bind the partnership and that the parties to the instrument did
not intend to confer upon Barba an authority to bind them personally.
b. Yes. Under Art 1804, every partner may associate another person with
him in his share. All partners are considered agents of the partnership.
Barba must be held to have authority to incur these expenses. He is
shown to have been in fact the president/manager, and there can be no
doubt that he had actual authority to incur obligation.
35 Island Sales, Inc. v. United Pioneers General Construction
Company
Liability of Partners Pro-rata Condonation

United Pioneers General Construction Company is a general partnership


formed by Benjamin Daco, Daniel Guizona, Noel Sim, Augusto Palisoc and
Romulo Lumauig. In 1961, United Pioneers purchased by installment a
motor vehicle from Island Sales, Inc. United Pioneers defaulted in its
payment hence it was sued and the 5 partners were impleaded as codefendants.
Upon motion of Island Sales, Lumauig was removed as a defendant.
United Pioneers lost the civil case and the trial court rendered judgment
ordering United Pioneers to pay the outstanding balance plus interest and
costs. It further decreed that the remaining 4 co-defendants shall pay
Island Sales in case United Pioneers property will not be enough to satisfy
its indebtedness to Island Sales.

ISSUE: What is the extent of the liability of the partners considering that
one partner was removed as a co-defendant on motion of Island Sales?
HELD: Their liability is pro-rata pursuant to Article 1816 of the Civil Code.
But is should be noted that since there were 5 partners when the purchase
was made in behalf of the partnership, the liability of each partner should
be 1/5th (of the companys obligation) each. The fact that the complaint
against Lumauig was dismissed, upon motion of the Island Sales, does not
unmake Lumauig as a general partner in the company. In so moving to
dismiss the complaint, Island Sales merely condoned Lumauigs individual
liability to them.
36 Lim Tong Lim v. Philippine Fishing Gear
Corporation by Estoppel
Facts: It was established that Lim Tong Lim requested Peter Yao to engage
in commercial fishing with him and one Antonio Chua. The three agreed to
purchase two fishing boats but since they do not have the money they
borrowed from one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing nets and other
fishing equipments. Now, Yao and Chua represented themselves as acting
in behalf of Ocean Quest Fishing Corporation (OQFC) they contracted
with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing
nets amounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their own
names because apparently OQFC is a non-existent corporation. Chua
admitted liability and asked for some time to pay. Yao waived his rights.
Lim Tong Lim however argued that hes not liable because he was not
aware that Chua and Yao represented themselves as a corporation; that
the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business, which
they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of
28

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.
Lim Tong Lim cannot argue that the principle of corporation by estoppels
can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim
benefited from the use of the nets found in his boats, the boat which has
earlier been proven to be an asset of the partnership. 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.
37 Munasque v. CA
FACTS: Elmo Muasque filed a complaint for payment of sum of money
and damages against respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered
into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodeling a portion of its building without exchanging or
expecting any consideration from Galan although the latter was casually
named as partner in the contract; that by virtue of his having introduced
the petitioner to the employing company (Tropical), Galan would receive
some kind of compensation in the form of some percentages or
commission.

On January 26, 1967, when the second check for P6,000.00 was due,
petitioner refused to indorse said check presented to him by Galan but
through later manipulations, respondent Pons succeeded in changing the
payee's name to Galan and Associates, thus enabling Galan to cash the
same at the Cebu Branch of the Philippine Commercial and Industrial Bank
(PCIB) placing the petitioner in great financial difficulty in his construction
business and subjecting him to demands of creditors to pay for
construction materials, the payment of which should have been made
from the P13,000.00 received by Galan.
Due to the unauthorized disbursement by respondents Tropical and Pons
of the sum of P13,000.00 to Galan, petitioner demanded that said amount
be paid to him by respondents under the terms of the written contract
between the petitioner and respondent company.
ISSUE: Whether there was a breach of trust when Tropical disbursed the
money to Galan instead of Muasque
HELD:
No, there was no breach of trust when Tropical disbursed the
money to Galan instead of Muasque.
The Supreme Court held that there is nothing in the records to indicate
that the partnership organized by the two men was not a genuine one. A
falling out or misunderstanding between the partners does not convert the
partnership into a sham organization.
In 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 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.

Tropical agreed to give petitioner the amount of P7,000.00 soon after the
construction began and thereafter the amount of P6,000.00 every fifteen
(15) days during the construction to make a total sum of P25,000.00.

38 MacDonald v. National City Bank

On January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00


not to the plaintiff but to a stranger to the contract, Galan, who succeeded
in getting petitioner's indorsement on the same check persuading the
latter that the same be deposited in a joint account.

Facts: Stasikinocey is a partnership formed by da Costa, Gorcey, Kusik and


Gavino. It was denied registration by theSEC due to a confusion between
the partnership and CardinalRattan. Cardinal Rattan is the business name
or style used byStasikinocey. Da Costa and Gorcey are the general
partners of Cardinal Rattan. Moreover, Da Costa is the managing partnerof

Quick Summary:

29

Cardinal Rattan. Stasikinocey had an overdaft account withNationa City


Bank, which was later converted into an ordinaryloan due the
partnerships failure in paying its obligation. Theordinary loan was secured
by a chattel mortgage over 3vehicles. During the subsistence of the loan,
the vehicles weresold to MacDonald and later on, MacDonald sold 2 of the
3vehicles to Gonzales. The bank brought an action for recoveryof its credit
and foreclosure of the chattel mortgage uponlearning of these
transactions.
Held:
While an unregistered commercial partnership has no juridical personality,
nevertheless, where two or more personsattempt to create a partnership
failing to comply with all thelegal formalities, the law considers them as
partners and theassociation is a partnership in so far as it is a favorable
tothird persons, by reason of the equitable principle of estoppel.Where a
partnership not duly organized has been recognizedas such in its dealings
with certain persons, it shall beconsidered as partnership by estoppel
and the personsdealing with it are estopped from denying its
partnershipexistence.
Facts:
Stasikinocey is a partnership formedby Alan Gorcey, Louis Da Costa Jr.,
WilliamKusik and Emma Badong Gavino.
It was denied registration in the SECdue to the confusion between
thispartnership and the business CardinalRattan, which is treated as a copartnershipwhere Gorcey and Da Costa are the generalpartners. It
appears that Cardinal Rattan ismerely the business name or style used
bythe partnership, Stasikinocey.
Prior to June 3, 1949 - Stasikinoceyhad an overdraft account with the
NationalCity Bank of New York, a foreign bankingassociation duly licensed
to do business inthe Philippines.
June 3, 1949 - said overdraftaccount has a P6,134.92 balance. Due to
thefailure of Stasikinocey to make the requiredpayment, said balance was
converted into anordinary loan for which a promissory jointnote, nonnegotiable was executed on thesame day by Da Costa for and in the name
of Cardinal Rattan, himself and Gorcey.

June 7, 1949 - said promissory notewas secured by a chattel mortgage


executedby Da Costa, general partner for and in thename of Stasikinocey.
Said mortgage wasconstituted over the following:
1. Fargo truck with motor No. T-118-202839, Serial No. 81410206 and
withplate No. T-7333 (1949)2.Plymouth Sedan automobile motor No. T5638876, Serial No. 11872718 and withplate No. 10372
3. Fargo Pick-Up FKI-16, with motor No. T-112800032, Serial No. 8869225
and withplate No. T-7222 (1949)
The mortgage deed was dulyregistered with the Office of the Register
of Deeds Pasig, Rizal. It has the followingstipulations:1.mortgagor shall not
sell or otherwisedispose of the said chattels without themortgagees
written consent
2. mortgagee may foreclose the mortgageat any time, after breach of any
conditionthereof, the mortgagor waiving the 30-day notice of foreclosure
June 7, 1949 - Gorcey and Da Costaexecuted an agreement purporting
to conveyand transfer all their rights, title andparticipation in Stasikinocey
to Shaeffer,allegedly in consideration of the cancellationof an
indebtedness of P25,000 owed by themand Stasikinocey to the latter.
Saidagreement is said to be in violation of theBulk Sales Law.
June 24, 1949 - during thesubsistence of the loan and chattelmortgage,
Stasikinocey,, through Gorcey andDa Costa transferred to MacDonald the
Fargotruck and Plymouth sedan
June 28, 1949 - Shaeffer sold theFargo pick-up to MacDonald
July 19, 1944 [what the case statedbut I guess it should be 1949] PaulMacDonald sold the Fargo truck andPlymouth sedan to Benjamin
Gonzales
When the National City Banklearned of these transactions, it filed
anaction against Stasikinocey, Da Costa,Gorcey, MacDonald and Gonzales
to recoverits credit and to foreclose the chattelmortgage.
CFI: annulled the sale of thevehicles to Gonzales; ordered Da Costa
andGorcey to pay the Bank jointly and severallyP6,132.92 with legal
interest; orderedGonzales to deliver the vehicles to the Bankfor sale at
public auction if Da Costa andGorcey fails to pay; ordered Da
30

Costa,Gorcey and MacDonald to pay the Bank jointly and severally any
deficiency thatremains unpaid should the proceeds of theauction sale be
insufficient

If the law recognizes a defectively organized partnership as de facto as


far asthird persons are concerned, for purposes of its de facto existence it
should have suchattribute of a partnership as domicile.

MacDonald and Gonzales appealedto the CA.

On the Validity of the Chattel Mortgage

CA: modified the CFI decision byruling that MacDonald is not jointly
andseverally liable with Gorcey and Da Costa topay any deficiency

The chattel mortgage is in the formrequired by law, and there is


therefore thepresumption of its due execution whichcannot be easily
destroyed by the biasedtestimony of the one who executed it.

Issue: WON the partnership, Stasikinocey is estoppedfrom asserting that it


does not have juridicalpersonality since it is an unregistered
commercialpartnership [
YES]Ratio:

While an unregistered commercialpartnership has no juridical


personality,nevertheless, where two or more personsattempt to create a
partnership failing tocomply with all the legal formalities, the lawconsiders
them as partners and theassociation is a partnership in so far as it is
afavorable to third persons, by reason of theequitable principle of
estoppel.

Da Costa and Gorcey cannot denythat they are partners of the


partnershipStasikinocey, because in all theirtransactions with the National
City Bank theyrepresented themselves as such. McDonaldcannot disclaim
knowledge of thepartnership Stasikinocey because he dealtwith said
entity in purchasing two of thevehicles in question through Gorcey and
DaCosta. The sale of the vehicles to MacDonaldbeing void, the sale to
Gonzales is also voidsince a buyer cannot have a better right thanthe
seller.

As was held in Behn Meyer & Co. vs.Rosatzin, where a partnership not
dulyorganized has been recognized as such in itsdealings with certain
persons, it shall beconsidered as partnership by estoppel andthe
persons dealing with it are estopped fromdenying its partnership
existence.

The interested version of Da Costathat the affidavit of good faith


appearing inthe chattel mortgage was executed inQuezon City before a
notary public for and inthe City of Manila was correctly rejected bythe trial
court and the Court of Appeals.
In view of the conclusion thatStasikinocey is a de facto partnership, andDa
Costa appears as a co-manager in theletter of Gorcey to the National City
Bank andin the promissory note executed by DaCosta, and that even the
partners considered him as such1, the partner who executedthe chattel
mortgage in question must bedeemed to be so fully authorized.
Section 6 of the Chattel MortgageLaw provides that when a partnership is
aparty to the mortgage, the affidavit may bemade and subscribed by one
member thereof.
In this case the affidavit was executed and subscribed by Da Costa, not
only as a partner but as a managing partner.
Dispositive: CA decision affirmed.
39 Magdusa v. Albaran
Appellant and appellees, together with various other persons, had verbally
formed a partnership de facto, for the sale of general merchandise to
which appellant contributed P2,000 as capital, and the others contributed
their labor, under the condition that out of the net profits of the business,
25% would be added to the original capital, and the remaining 75% would
be divided among the members in proportion to the length of service of
each. Sometime in 1953 and 1954, the appellees expressed their desire to
withdraw from the partnership, and appellant thereupon made a
computation to determine the value of the partners' shares to that date.
The results of the computation were embodied in the document drawn in
31

the handwriting of appellant. Appellees thereafter made demands upon


appellant for payment, but appellant having refused, they filed the initial
complaint in the court below. Appellant defended by denying any
partnership with appellees, whom he claimed to be mere employees of
his.
The Court of First Instance of Bohol dismissed the complaint on the ground
that the other were indispensable parties but had not been impleaded.
Upon appeal, the Court of Appeals reversed the decision, ruling that it is
not an action for a dissolution of a partnership and winding up of its affairs
or liquidation of its assets in which the interest of other partners who are
not brought into the case may be affected. The action of the plaintiffs is
one for the recovery of a sum of money with Gregorio Magdusa as the
principal defendant. The partnership, with Gregorio Magdusa as managing
partner, was brought into the case as an alternative defendant only.
Issue: Whether or not appellees' action can be entertained, because in the
distribution of all or part of a partnership's assets, all the partners have no
interest and are indispensable parties without whose intervention no
decree of distribution can be validly entered.
Held: It cannot be entertained. A partner's share cannot be returned
without first dissolving and liquidating the partnership, for the return is
dependent on the discharge of the creditors, whose claims enjoy
preference over those of the partners; and it is self-evident that all
members of the partnership are interested in his assets and business, and
are entitled to be heard in the matter of the firm's liquidation and the
distribution of its property. The liquidation drawn by appellant is not
signed by the other members of the partnership besides appellees and
appellant; it does not appear that they have approved, authorized, or
ratified the same, and, therefore, it is not binding upon them. At the very
least, they are entitled to be heard upon its correctness.
In addition, unless a proper accounting and liquidation of the partnership
affairs is first had, the capital shares of the appellees, as retiring partners,
cannot be repaid, for the firm's outside creditors have preference over the
assets of the enterprise, and the firm's property can not be diminished to
their prejudice. Finally, the appellant cannot be held liable in his personal
capacity for the payment of partners' shares for he does not hold them
except as manager of, or trustee for, the partnership. It is the latter that

must refund their shares to the retiring partners. Since not all the
members of the partnership have been impleaded, no judgment for refund
can be rendered.
RIGHTS OF A PARTNER
40 Dan Fue Leung v IAC
FACTS: The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the
decision of the then Court of First Instance of Manila, Branch II in Civil
Case No. 116725 declaring private respondent Leung Yiu a partner of
petitioner Dan Fue Leung in the business of Sun Wah Panciteria and
ordering the petitioner to pay to the private respondent his share in the
annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung. The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was established sometime in
October, 1955. It was registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner Dan Fue Leung as the
sole proprietor. Respondent Leung Yiu adduced evidence during the trial of
the case to show that Sun Wah Panciteria was actually a partnership and
that he was one of the partners having contributed P4,000.00to its initial
establishment. The private respondents evidence is summarized as
follows: About the time the Sun Wah Panciteria started to become
operational, the private respondent gave P4,000.00 as his contribution to
the partnership. This is evidenced by a receipt wherein the petitioner
acknowledged his acceptance of theP4,000.00 by affixing his signature
thereto. Furthermore, the private respondent received from the petitioner
the amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check from the profits of the operation of the restaurant for
the year 1974The petitioner denied having received from the private
respondent the amount of P4,000.00. He contested and impugned the
genuineness of the receipt.
His evidence is summarized as follows:
32

The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from his salaries as an employee
at Camp Stotsenberg in Clark Field and later as waiter at the Toho
Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. Petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a
single proprietorship solely owned and operated by himself alone. Fue
Leung also flatly denied having issued to the private respondent the
receipt (Exhibit G) and the Equitable Banking Corporation's Check No.
13389470 B in the amount of P12,000.00 (Exhibit B).
ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah
Panciteria?
HELD: The private respondent is a partner of the petitioner in Sun Wah
Panciteria. The requisites of a partnership which are
1) two or more persons bind themselves to contribute money, property,
or industry to a common fund; and
2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106
Phil.110)-have been established. As stated by the respondent, a partner
shares not only in profits but also in the losses of the firm. If excellent
relations exist among the partners at the start of business and all the
partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert
his rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondent's cause of action is
premised upon the failure of the petitioner to give him the agreed profits
in the operation of Sun Wah Panciteria. In effect the private respondent
was asking for an accounting of his interests in the partnership.
41 Emnace v. CA
FACTS: Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia
were partners in a business concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to dissolve their partnership
and executed an agreement of partition and distribution of the partnership
properties among them, consequent to Jacinto Divinagracia's withdrawal

from the partnership. Among the assets to be distributed were 5 fishing


boats, 6 vehicles, 2 parcels of land located at Sto. Nio and Talisay, Negros
Occidental, and cash deposits in the local branches of the Bank of the
Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente
Tabanao's untimely demise, petitioner failed to submit to Tabanao's heirs
any statement of assets and liabilities of the partnership, and to render an
accounting of the partnership's finances. Consequently, Tabanao' s heirs,
respondents herein, filed against petitioner an action for accounting,
payment of shares, division of assets and damages. Petitioner filed a
motion to dismiss the complaint on the grounds of improper venue, lack of
jurisdiction over the nature of the action or suit, and lack of capacity of
the estate of Tabanao to sue.
The trial court denied the motion to dismiss. It held that venue was
properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal liability.
Finally, the trial court held that the heirs of Tabanao had a right to sue in
their own names, in view of the provision of Article 777 of the Civil Code,
which states that the rights to the succession are transmitted from the
moment of the death of the decedent. Petitioner filed a petition for
certiorari before the Court of Appeals which was dismissed.
ISSUE1.
Whether the 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
2.
Whether the surviving spouse of Vicente Tabanao has legal capacity
to sue since she was never appointed as administratrix or executrix of his
estate
RULING 1.
No. 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 and not an action in rem where the action is against the thing
itself instead of against the person. In fact, it is only incidental that part of
33

the assets of the partnership under liquidation happen to be parcels of


land.
It also seeks the enforcement of, and petitioner's compliance with, the
contract that the partners executed to formalize the partnership's
dissolution, as well as to implement the liquidation and partition of the
partnership's 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. As it is,
venue in this case was properly laid and the trial court correctly ruled so.
2. Yes. 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 Tabanao's 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.
42 US v. Clarin Supra
PSHIP OBLIGATIONS TO THE PARTNERS
43 Agustin v. Inocencio
SYLLABUS: 1. PARTNERSHIP; ADVANCES ALLOWED MANAGING PARTNER.
On the adjustment of the accounts of a partnership, the managing partner
may be allowed funds borrowed or advanced and necessary to the
completion of the work, within the scope of the business and expressly
provided for by agreement among the partners.
The parties to this controversy, who had been conducting a partnership as
industrial partners without capital, contributed from its profits the sum of
P807.28 as a fund toward the construction of a casco for use in their

business, to which they added P3,500, borrowed from Maria del Rosario,
the wife of the defendant, Bartolome Inocencio, he being the managing
partner. It is admitted that this total, a little over P4,300, was the
estimated cost of the casco, but in the progress of the work the defendant
found that it called for additional funds, which he advanced to the amount
of P2,024.49. It is satisfactorily appears from the evidence that this
amount is necessary in order to complete the work undertaken. Although
it would seem that he failed to notify his partners of the various items
from time to time going to make up this sum, it is shown that the books
were at all times open to their inspection, and that, being asked to
examine them, they omitted to do so, and that the plaintiff Juan Agustin,
representing all the partners, was also present at the construction of the
casco, in charge of the practical work and cognizant of its needs and its
progress.

The work done in the casco having been within the scope of the
association and necessary to carry out its express object, the borrowing of
the money required to carry it on, with the acquiescence if not with the
affirmative consent of his associates, was not outside the powers of the
managing partner and constitutes a debt for which all the associates are
liable.
The note passed into the hands of the defendant by reason of the
successive deaths of his wife and of their only child, each without debts,
and for the amount thereof he became a creditor, subject, however, to the
deduction therefrom of his proportionate part of the indebtedness.
The trial court treated his claim on this note, as well as the sum of
P2,024.49 furnished by him, as an addition to his capital in the firm, rather
than as a loan, and this constitutes one of the grounds of error stated by
the Appellant. We do not deem it necessary to pass upon this objection,
for the reason that, considered as a loan, this sum would place the
defendant as a creditor in a stronger position as against his associates
than if regarded as a mere contribution to capital. The error, if it be an
error, is not, therefore, prejudicial to the plaintiff, but is rather beneficial to
him. The respondent did not except to it.
Various small sums have been paid out of the profits to some of the
partners and these were properly allowed him in the judgment.
34

On the theory on which the action was disposed of, the trial court
committed no error in the computation of the various shares.
Of the four parties plaintiff, but one, Victor del Rosario, is interested in this
appeal, which has been dismissed as to the others, and as to him the
judgment of the trial court must be affirmed, with costs of this instance.
So ordered.
44 Martinez v. Ong Pong Co
Supra 29
Dissolution, winding-up, termination
45 Idos v. CA
Facts: In 1985, Eddie Alarilla and Irma Idos formed a partnership which
they decided to terminate after a year. To pay Alarillas share of the asset,
Idos issued 4 post dated checks. Alarilla was able to encash the first,
second and fourth checks but the third was dishonored for insufficiency of
funds. He demanded payment but Idos failed to pay. She claimed that the
checks were issued as assurance of Alarillas share in the assets of the
partnership and that it was supposed to be deposited until the stocks were
sold. He filed an information for violation of BP blg. 22 against Idos in
which she was found guilty by the trial court.
Issue: Did the court confused and merged into one the legal concepts of
dissolution, liquidation and termination of a partnership?
Ruling: The partners agreement to terminate the partnership did not
automatically dissolve the partnership. They were in the process of
winding-up when the check in question was issued. The best evidence of
the existence of the partnership, which was not yet terminated were the
unsold goods and uncollected receivables which were presented to the
trial court. Article 1829 of the Civil Code provides that on dissolution the
partnership is not terminated but continues until the winding-up of
partnership affairs is completed. Since the partnership has not been
terminated, Idos and Alarilla remained co-partners. The check was issued
by petitioner to respondent as would a partner to another and not as a
payment by debtor to creditor. Thus, absent the first element of the
complained offense, the act is not punishable by the statute.

46 Singson v. Isabela Sawmill


Facts: In 1951, defendants entered into a contract of partnership under
the firm name Isabela Sawmill. In 1956 the plaintiff sold to the
partnership a motor truck and two tractors. The partnership was not able
to pay their whole balance even after demand was made. One of the
partners withdrew from the partnership but instead of terminating the said
partnership it was continued by the two remaining partners under the
same firm name. Plaintiffs also seek the annulment of the assignment of
right with chattel mortgage entered into by the withdrawing partner and
the remaining partners. The appellants contend that the chattel mortgage
may no longer be nullified because it had been judicially approved and
said chattel mortgage had been judicially foreclosed.
Issue: Whether the withdrawal of one of the partners dissolved the
partnership.
Ruling: It does not appear that the withdrawal of the partner was not
published in the newspapers. The appellees and the public in general had
a right to expect that whatever, credit they extended to the remaining
partners could be enforced against the properties of the partnership. The
withdrawing partner cannot be relieved from her liability to the creditor of
the partnership due to her own fault by not insisting on the liquidation of
the partnership. Though she had acted in good faith, the appellees also
acted in good faith in extending credit to the partnership. Where one of
two innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences. Technically, the
partnership was dissolved by the withdrawal of one of the partners.
Through her acts of entering into a memorandum with the remaining
partners misled the creditors that they were doing business with the
partnership. Hence, from the order of the lower court ordering the
withdrawing partner to pay the plaintiffs, she is thus entitled for
reimbursement from the remaining partners.
47 Yu v. NLRC
Facts: Benjamin Yu used to be the Assistant General Manager of Jade
Mountain, a partnership engaged in marble quarrying and export
business. The majority of the founding partners sold their interests in said
partnership to Willy Co and Emmanuel Zapanta without Yus knowledge.
Said new partnership continued operating under the same name and
35

continued the businesss operations. However, it transferred its main


office from Makati to Mandaluyong. Said new partnership did not anymore
availed of the services of Yu. Thus, he filed a complaint for illegal
dismissal, recovery of unpaid wages and damages.
Ruling : The legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership which had hired Yu
in 1984 and the emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987. The new partnership simply took over the
business enterprise owned by the preceeding partnership, and continued
using the old name of Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said
assets or most of them and opening a new business enterprise. Not only
the retiring partners but also the new partnership itself which continued
the business of the old, dissolved, one, are liable for the debts of the
preceding partnership.
48 Primelink Properties v. Lazatin-Magat
Dissolution and Winding Up Joint Venture Agreement Rights of Innocent
Party
Facts: In 1994, Primelink Properties and the Lazatin siblings entered into a
joint venture agreement whereby the Lazatins shall contribute a huge
parcel of land and Primelink shall develop the same into a subdivision. For
4 years however, Primelink failed to develop the said land. So in 1998, the
Lazatins filed a complaint to rescind the joint venture agreement with
prayer for preliminary injunction. In said case, Primelink was declared in
default or failing to file an answer and for asking multiple motions for
extension. The trial court eventually ruled in favor of the Lazatins and it
ordered Primelink to return the possession of said land to the Lazatins as
well as some improvements which Primelink had so far over the property
without the Lazatins paying for said improvements. This decision was
affirmed by the Court of Appeals. Primelink is now assailing the order; that
turning over improvements to the Lazatins without reimbursement is
unjust; that the Lazatins did not ask the properties to be placed under
their possession but they merely asked for rescission.
ISSUE: Whether or not the improvements made by Primelink should also
be turned over under the possession of the Lazatins.

HELD: Yes. In the first place, even though the Lazatins did specifically pray
for possession the same (placing of improvements under their possession)
is incidental in the relief they prayed for. They are therefore entitled
possession over the parcel of land plus the improvements made thereon
made by Primelink.
In this jurisdiction, joint ventures are governed by the laws of partnership.
Under the laws of partnership, when a partnership is dissolved, as in this
case when the trial court rescinded the joint venture agreement, the
innocent party has the right to wind up the partnership affairs.
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 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.
It must be stressed, too, that although the Lazatins 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 and
subject to the outcome of the settlement of the accounts between the
parties, absent any agreement of the parties in their JVA to the contrary
(here no agreement in the JVA as to winding up). Until the partnership
accounts are determined, it cannot be ascertained how much any of the
parties is entitled to, if at all.
CAUSES OF DISSOLUTION
49 Rojas v. Maglana
Facts: Maglana and Rojas executed their Articles of Co-Partnership called
Eastcoast Development Enterprises (EDE). It was a partnership with an
indefinite term of existence. Maglana shall manage the business affairs
while Rojas shall be the logging superintendant and shall manage the
logging operation. They shall share in all profits and loss equally. Due to
difficulties encountered they decided to avail of the sources of
Pahamatong as industrial partners. They again executed their Articles of
36

Co-Partnership under EDE. The term is 30 years. After sometime


Pamahatong sold his interest to Maglana and Rojas including equipment
contributed. After withdrawal of Pamahatong, Maglana and Rojas
continued the partnership. After 3 months, Rojas entered into a
management contract with another logging enterprise. He left and
abandoned the partnership. He even withdrew his equipment from the
partnership and was transferred to CMS. He never told Maglana that he
will not be able to comply with the promised contributions and he will not
work as logging superintendent. Maglana then told Rojas that the latter
share will just be 20% of the net profits. Rojas took funds from the
partnership more than his contribution. Thus, Maglana notified Rojas that
he dissolved the partnership.

The defendant alleges that "the formation of the supposed partnership


between the plaintiff and the defendant for the exploitation of the
aforesaid fish pond was not carried into effect, on account of the plaintiff
having refused to defray the expenses of reconstruction and exploitation
of said fish pond." and further averred that the right of the plaintiff had
already prescribed

Issue: What is the nature of the partnership and legal relationship of


Maglana and Rojas after Pahamatong retired from the second partnership

Ratio: The partnership formed was a particular partnership, it having had


for its subject-matter a specified thing, the exploitation of the
aforementioned fish pond

Ruling: It was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one, which they
unmistakably called additional agreement. Otherwise stated even
during the existence of the second partnership, all business transactions
were carried out under the duly registered articles. No rights and
obligations accrued in the name of the second partnership except in favor
of Pahamatong which was fully paid by the duly registered partnership.
50 Bearneza v. Dequilla
Facts: In the year 1903, Balbino Dequilla, the herein defendant, and
Perpetua Bearneza formed a partnership for the purpose of exploiting a
fish pond with Perpetua obligating herself to contribute to the payment of
the expenses of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they had been
doing until the death of the said Perpetua in the year 1912
The deceased left a will in one of the clauses of which she appointed
Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her
rights and interests in the fish pond in question
Domingo Bearnez then instituted an action to recover a part of the fish
pond belonging to the decedent, including of the profits received by the
defendant from the years 1913-1919

Judgment was then rendered declaring the plaintiff owner of one-half of


the fish pond but without may awarding him any damages. From this
judgment the defendant appeals
Issue/Held: W/N the plaintiff has any right to maintain an action for
recovery of the said one-half of the fish pond / NONE

Although, as the trial court says in its decision, the defendant, in his
letters to Perpetua or her husband, makes reference to the fish pond,
calling it "our," or "your fish pond," this reference cannot be held to
include the land on which the said fish pond was built
It has not been proven that Bearneza participated in the ownership of the
said land
Therefore, the land on which the fish pond was constructed did not
constitute part of the subject-matter of the partnership
This partnership was dissolved by the death of Perpetua Bearneza
Neither can it be maintained that the partnership continued to exist after
the death of Perpetua, inasmuch as it does not appear that any stipulation
to that effect has ever been made by her and the defendant
The partnership having been dissolved by the death of Perpetua Bearneza,
its subsequent legal status was that of a partnership in liquidation, and
the only rights inherited by her testamentary heir, the herein plaintiff,
were those resulting from the said liquidation in favor of the deceased
partner, and nothing more

37

Before this liquidation is made, which up to the present has not been
effected, it is impossible to determine what rights or interests, if any, the
deceased had, the partnership bond having been dissolved
There is no sufficient ground for holding that a community of property
existed between the plaintiff and the defendant, it not being known
whether the deceased still had any interest in the partnership property
which could have been transmitted by will to the plaintiff
Furthermore, it cannot be said that the partnership continued between the
plaintiff and the defendant. It is true that the latter's act in requiring the
heirs of Perpetua to contribute to the payment of the expenses of
exploitation of the aforesaid fishing industry was an attempt to continue
the partnership, but it is also true that neither the said heirs collectively,
nor the plaintiff individually, took any action in response to that
requirement, nor made any promise to that effect, and therefore no new
contract of partnership existed. The decision is hereby REVERSED

right of a less number of partners to effect the dissolution especially


where the firm has already sustained huge losses. It would be absurd and
unreasonable to hold that such an association could never be dissolved
and liquidated without the consent and agreement of two-thirds of its
partners, notwithstanding that it had lost all its capital, or had become
bankrupt, or that the enterprise for which it had been organized had been
concluded or utterly abandoned.
EFFECTS OF DISSOLN
52 Testate Estate of Mota v Serra
x
53 Bonnevie v. Hernandez
TRUSTS
54 Caezo v. Rojas

51 Lichauco v. Lichauco

55 Policarpio v. Court of Appeals and Uy

Dissolution

FACTS:

In 1901, F. Lichauco Hermanos partnership was formed. It was provided,


among others, in the partnership agreement that Faustino Lichauco will be
the managing partner; and that the firm cannot be dissolved except upon
the 2/3 vote of all the partners. In 1904, the firm wasnt performing well
and was unprofitable and so its machineries were dismantled. In 1905,
Eugenia and one other partner demanded Faustino to make an accounting
of the firms assets but Faustino refused to do so. Belatedly in 1912,
Eugenia et al filed a civil suit against Faustino to compel the latter to
perform ac accounting. Faustino, in his defense, argued that the firm was
not dissolved pursuant to the partnership agreement there being no 2/3
vote from all the members (Faustino et al are only 1/5 of the firm).

(1) Petitioner (along with his co-plaintiffs in the antecedent cases, namely,
Rodolfo Gayatin, Jose Villacin and Jocelyn Montinola) and private
respondent Rosito Uy were former tenants of the 30-door Barretto
Apartments formerly owned by Serapia Realty, Inc..

ISSUE: Whether or not Eugenia et al can demand an accounting.


HELD: Yes. The firm was already dissolved in 1904 when its machineries
were dismantled this was a sign that the firm abandoned and concluded
the purpose for it was formed (rice cleaning business). Upon said
dissolution, it was the duty of Faustino to liquidate the assets and inform
his partners. The provision which requires a 2/3 votes of all the partners to
dissolve the firm cannot be given effect because the same denied the

(2) Sometime in April 1984, private respondent was elected President of


the Barretto Tenants Association (hereafter referred to as the
"Association") which was formed, among others, "to promote, safeguard
and protect the general interest and welfare of its members."
(3) In a letter dated July 30, 1984, private respondent as president of the
Association sought the assistance of the then Minister of Human
Settlements to cause the expropriation of the subject property under the
Urban Land Reform Program for subsequent resale to its tenants.
(4) Failing to get the assistance of the government, the tenants undertook
to negotiate directly with the owners of the Barretto Apartments. Initially,
Private Respondent Rosito Uy orally expressed to Mrs. Rosita Barretto
Ochoa the tenants' desire to purchase their respective units. Later, in a
letter dated May 29, 1985, signed by thirty (30) tenants of the commercial
38

and residential units, the tenants formally expressed to Mrs. Ochoa their
intent to purchase.
(5) One and a half years later, on March 12, 1987, petitioner and his coplaintiffs were notified that private respondent was the new owner of the
apartment units occupied by them.
Applicable Laws:
(1) Article 1924. The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third persons.
(n)
(2) Article 1447. The enumeration of the following cases of implied trust
does not exclude others established by the general law of trust, but the
limitation laid down in article 1442 shall be applicable.
(3) Article 1442. The principles of the general law of trusts, insofar as they
are not in conflict with this Code, the Code of Commerce, the Rules of
Court and special laws are hereby adopted.
ISSUE: Whether or not a constructive trust existed between the plaintiffs
and the defendant.

RTC: The trial court found that private respondent had been designated
and entrusted by plaintiffs to negotiate with the Barretto family for the
sale of the units. It also found that a constructive trust was created
between the private respondent as "the cestui que trust [should be
trustee] and plaintiffs as beneficiaries [or cestuis que trust] vis-a-vis the
subject units."
CA: Reversed the RTC decision and denied the subsequent motion for
reconsideration.
HELD: There was a constructive trust.
RATIO: (1) Implied trust was created by the agreement between petitioner
(and the other tenants) and private respondent. Implied trusts are those
which, without being expressed, are deducible from the nature of the
transaction by operation of law as matters of equity, independently of the
particular intention of the parties. Constructive trusts are created in order

to satisfy the demands of justice and prevent unjust enrichment. They


arise against one who, by fraud, duress or abuse of confidence, obtains or
holds the legal right to property which he ought not, in equity and good
conscience, to hold.
(2) The tenants could not be faulted for not inquiring into the status of
private respondent's negotiation with the owners of the apartments. They
had a right to expect private respondent to be true to his duty as their
representative and to take the initiative of informing them of the progress
of his negotiations.
OTHER NOTES:
(1) "A constructive trust is substantially an appropriate remedy against
unjust enrichment. It is raised by equity in respect of property, which has
been acquired by fraud, or where although acquired originally without
fraud, it is against equity that it should be retained by the person holding
it."
(2) "Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to
him."
56 Pealber v. Ramos 2009
x
57 Rizal Surety and Insurance Co., v. Court of Appeals 1996
58 Ringor, et al. v. Ringor 2004
59 Herbon, et al., v. Palad and Cayetano 2006
60 Tigno, et al., v. Court of Appeals and Tigno 1997
61 Morales v. Court of Appeals, et al., 1997
62 Quevada v. Court of Appeals and Villaverde 2006
63 Heirs of Timoteo Moreno and Maria Rotea v. Mactan-Cebu
International Airport Authority,
FACTS:
39

MORENO: successors of 2 parcels of land

ISSUE: Do they have right to repurchase? Or right to reversion?

MACTAN wanted to acquire land:

HELD: PETITION GRANTED. CA DECISION REVERSED AND SET ASIDE.

i.
Government assured landowners that
they could repurchase their lands once Lahug Airport was closed or its
operations transferred to Mactan Airport

1. Return or repurchase of the condemned properties of petitioners could


be readily justified as the manifest legal effect or consequence of the trial
courts underlying presumption that Lahug Airport will continue to be in
operation when it granted the complaint for eminent domain and the
airport discontinued its activities.

ii.

Moreno refused offer.

iii.
Civil Aeronautics Administration as the
successor agency of the National Airport Corporation filed a complaint
with the Court of First Instance of Cebu, for the expropriation of land.
iv.
payment of just compensation.

Trial court promulgated public use upon

v.

MORENO were paid; no appeal.

vi.

Certificates of title were issued.

LAHUG AIRPORT CEASED OPERATIONS, lands not utilized.


Moreno plead for repurchase of land.
i.

Filed complaint for reconveyance and

damages.
ii.
Averred that they have been convinced
not to oppose since they could repurchase.
iii.

MCIAA did not object.

ENCHUAN FILED FOR MOTION OF TRANSFER


Acquired through deeds of assignment the rights of land.
DPWH claimed it leased in good faith from MCIAA to Regional Equipment
Services and Region 7 Office.
TRIAL COURT GRANTED RIGHT TO REPURCHASE but subject to the alleged
property rights of Richard E. Enchuan and the leasehold of DPWH.
CA reversed: rights gained by MCIAA were indicative of ownership in fee
simple

2. ARTICLE 1454: If an absolute conveyance of property is made in order


to secure the performance of an obligation of the grantor toward the
grantee, a trust by virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes due, he may demand
the reconveyance of the property to him.
a.
In the case at bar, government obliged itself to use of land for the
expansion of Lahug Airport
i.
Failure to keep its bargain: can be
compelled to reconvey, otherwise, petitioners would be denied the use of
their properties upon a state of affairs that was not conceived nor
contemplated when the expropriation was authorized.
3.
ARTICLE 1189: If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor.
a. CREDITOR: person who stands to receive something as a result of the
process of restitution.
i.
Petitioners must pay MCIAA the
necessary expenses in sustaining the properties and services
ii.
Government may keep whatever
income or fruits it may have obtained from the parcels of land.
iii.
Petitioners need not account for the
interests that the amounts they received as just compensation may have
earned in the meantime.

64 Guaranteed Homes, Inc. v. Heirs of Maria P. Valdez, et al., 2009


40

Facts:

The descendants of Pablo Pascua filed a complaint (in their complaint


respondents alleged that Pablo died intestate sometime in June 1945 and
was survived by his four children, one of whom was the deceased
Cipriano) seeking reconveyance of a parcel of land with an area of
23.7229 hectares situated in Cabitaugan, Subic, Zambales with Original
Certificate of Title (OCT) No. 404 in the name of Pablo. In the alternative,
the heirs of Valdez prayed that damages be awarded in their favor.
OCT No. 404 was attached as one of the annexes of respondents
complaint. It contained several annotations in the memorandum of
encumbrances which showed that the property had already been sold by
Pablo during his lifetime to Alejandria Marquinez and Restituto Morales.
It was further averred in the complaint that Jorge Pascua, Sr., son of
Cipriano, filed a petition before the RTC of Olongapo City for the issuance
of a new owners duplicate of OCT No. 404. However, the RTC denied the
petition and held that petitioner was already the owner of the land, noting
that the failure to annotate the subsequent transfer of the property to it at
the back of OCT No. 404 did not affect its title to the property.
Petitioner filed a motion to dismiss the complaint on the grounds that the
action is barred by the Statute of Limitations, more than 28 years having
elapsed from the issuance of TCT No. T-10863 up to the filing of the
complaint, and that the complaint states no cause of action as it is an
innocent purchaser for value, it having relied on the clean title of the
spouses Rodolfo.
The RTC granted petitioners motion to dismiss.
The appellate court further held that the ruling of the RTC that petitioner is
an innocent purchaser for value is contrary to the allegations in
respondents complaint.
Hence, the present petition for review.
Issue: The sole issue before this Court revolves around the propriety of the
RTCs granting of the motion to dismiss and conversely the tenability of
the Court of Appeals reversal of the RTCs ruling.

Held: The petition is meritorious. It is well-settled that to sustain a


dismissal on the ground that the complaint states no cause of action, the
insufficiency of the cause of action must appear on the face of the
complaint, and the test of the sufficiency of the facts alleged in the
complaint to constitute a cause of action is whether or not, admitting the
facts alleged, the court could render a valid judgment upon the same in
accordance with the prayer of the complaint.
Firstly, the complaint does not allege any defect with TCT No. T-8242 in
the name of the spouses Rodolfo, who were petitioners predecessors-ininterest, or any circumstance from which it could reasonably be inferred
that petitioner had any actual knowledge of facts that would impel it to
make further inquiry into the title of the spouses Rodolfo.
Secondly, while the Extrajudicial Settlement of a Sole Heir and
Confirmation of Sales executed by Cipriano alone despite the existence of
the other heirs of Pablo, is not binding on such other heirs, nevertheless, it
has operative effect under Section 44 of the Property Registration Decree
(SEC. 44. Statutory Liens Affecting Title).
Lastly, respondents claim against the Assurance Fund also cannot
prosper. Section 101 of P.D. No. 1529 clearly provides that the Assurance
Fund shall not be liable for any loss, damage or deprivation of any right or
interest in land which may have been caused by a breach of trust,
whether express, implied or constructive. Even assuming arguendo that
they are entitled to claim against the Assurance Fund, the respondents
claim has already prescribed since any action for compensation against
the Assurance Fund must be brought within a period of six (6) years from
the time the right to bring such action first occurred, which in this case
was in 1967.
The petition is GRANTED.
65 Pilapil, et al., v. Heirs of Maximino R. Briones
Facts: Donata and Maximino are married. When Maximino died, Donata
through her petition she was able to transfer in her as a sole owner the
properties acquired by Maximino prior to their marriage. When Donata
died her niece and nephew took over the properties as administrator, by
this time one of the descendants also file a petition to be appointed as
administrator but it was not successful because the properties are already
41

under the name of Donata and her descendants was already assigned as
administrators. The heirs of Maximino claimed that they were defrauded
by Donate when she successfully transferred the properties under her
name and allege that Donata was just a trustee under Art 1451 of NCC.

the entire estate of Maximino, including the real properties, and not
merely a co-owner with the other heirs of her deceased husband. There
being no basis for the Complaint of the heirs of Maximino in Civil Case No.
CEB-5794, the same should have been dismissed.

Issue: Is Donata just a trustee?


Ruling: No. The court finds that Donata did not use fraud when she
transferred the properties in her name. Donata and some of Maximinos
siblings just live in the same street and from the wake Maximo it was only
now that they made an action.
The heirs of Maximino failed to prove by clear and convincing evidence
that Donata managed, through fraud, to have the real properties,
belonging to the intestate estate of Maximino, registered in her name. In
the absence of fraud, no implied trust was established between Donata
and the heirs of Maximino under Article 1456 of the New Civil Code.
Donata was able to register the real properties in her name, not through
fraud or mistake, but pursuant to an Order, dated 2 October 1952, issued
by the CFI in Special Proceedings No. 928-R. The CFI Order, presumed to
be fairly and regularly issued, declared Donata as the sole, absolute, and
exclusive heir of Maximino; hence, making Donata the singular owner of

42