PARTNERSHIP Outline 1 registered with the Securities and Exchange Commission (SEC), as called
for under the Article 1772 (capitalization of a partnership) of the Code. And
I. THE CONCEPT OF PARTNERSHIP
A. Historical Background
B. The Nature of Partnerships (Arts. 1767-1770)
I. Definition
Article 1767 - By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession.
Case:
1. Litonjua v. Litonjua G.R. Nos. 166299-300
FACTS: 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 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
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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.
2. Heirs of Tan Eng Kee v. Court of Appeals
Distinguished from employer-employee relationship, co-ownership, etc.
FACTS: After the second World War, Tan EngKee and Tan Eng Lay, pooling
their resources and industry together, entered into a partnership engaged
in the business of selling lumber and hardware and construction supplies.
They named their enterprise "Benguet Lumber" which they jointly managed
until Tan EngKee's death. Petitioners herein averred that the business
prospered due to the hard work and thrift of the alleged partners.
However, they claimed that in 1981, Tan Eng Lay and his children caused
the conversion of the partnership "Benguet Lumber" into a corporation
called "Benguet Lumber Company." The incorporation was purportedly a
ruse to deprive Tan EngKee and his heirs of their rightful participation in
the profits of the business. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and liquidation thereof,
and the equal division of the net assets of Benguet Lumber. The RTC ruled
in favor of petitioners, declaring that Benguet Lumber is a joint venture
which is akin to a particular partnership. The Court of Appeals rendered the
assailed decision reversing the judgment of the trial court.
ISSUE: Whether the deceased Tan EngKee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership
RULING:
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 Kee's 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.
Also, the trial court determined that Tan EngKee and Tan Eng Lay had
entered into a joint venture, which it said is akin to a particular
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partnership. A particular partnership is distinguished from a joint
adventure, to wit:(a) A joint adventure (an American concept similar to our
joint accounts) is a sort of informal partnership, with no firm name and no
legal personality. In a joint account, the participating merchants can
transact business under their own name, and can be individually liable
therefor. (b) Usually, but not necessarily a joint adventure is limited to a
SINGLE TRANSACTION, although the business of pursuing to a successful
termination maycontinue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain kind. A
joint venture "presupposes generally a parity of standing between the joint
co-ventures or partners, in which each party has an equal proprietary
interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business. The evidence
presented by petitioners falls short of the quantum of proof required to
establish a partnership. In the absence of evidence, we cannot accept as
an established fact that Tan EngKee allegedly contributed his resources to
a common fund for the purpose of establishing a partnership. Besides, it is
indeed odd, if not unnatural, that despite the forty years the partnership
was allegedly in existence, Tan EngKee 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. A demand for periodic accounting is evidence of a partnership.
During his lifetime, Tan EngKee appeared never to have made any such
demand for accounting from his brother, Tang Eng Lay. We conclude that
Tan EngKee was only an employee, not a partner since they did not
present and offer evidence that would show that Tan EngKee received
amounts of money allegedly representing his share in the profits of the
enterprise. There being no partnership, it follows that there is no
dissolution, winding up or liquidation to speak of.
3. Jarantilla, Jr. v. Jarantilla, G.R. No. 154486
FACTS: The spouses Andres Jarantilla and FelisaJaleco were survived by
eight children: Federico Sr., Delfin, Benjamin, Conchita, Rosita, Pacita,
Rafael and Antonieta. Petitioner Federico Jarantilla, Jr. is the grandchild of
the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife
Leda Jamili. Petitioner also has two other brothers: Doroteo and Tomas
Jarantilla.
The Jarantilla heirs extrajudicially partitioned amongst themselves the real
properties of their deceased parents. With the exception of the real
property adjudicated to PacitaJarantilla, the heirs also agreed to allot the
produce of the said real properties for the years 1947-1949 for the studies
of Rafael and AntonietaJarantilla.
Sps. Rosita Jarantilla and Vivencio Deocampo entered into an agreement
with the spouses Buenaventura Remotigue and ConchitaJarantilla to
provide mutual assistance to each other by way of financial support to any
commercial and agricultural activity on a joint business arrangement. This
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proved to be successful as they were able to establish a manufacturing and
trading business, acquire real properties, and construct buildings, among
other things. The same ended in 1973 upon their voluntary dissolution.
The spouses Buenaventura and ConchitaRemotigue executed a document
Acknowledgement of Participating Capital stating the participating capital of
of their co-owners as of the year 1952, with AntonietaJarantillas stated as
eight thousand pesos (P8,000.00) and Federico Jarantilla, Jr.s as five
thousand pesos (P5,000.00).
The controversy started when Antonieta filed a complaint against
Buenaventura, Cynthia, Doroteo and Tomas, for the accounting of the
assets and income of the co-ownership, for its partition and the delivery of
her share corresponding to eight percent (8%), and for damages. She
alleged that the initial contribution of property and money came from the
heirs inheritance, and her subsequent annual investment of seven
thousand five hundred pesos (P7,500.00) as additional capital came from
the proceeds of her farm.
Respondents denied having formed a partnership. They did not deny the
existence and validity of the "Acknowledgement of Participating Capital"
and in fact used this as evidence to support their claim that Antonietas 8%
share was limited to the businesses enumerated therein. Petitioner
Federico Jr joined his aunt Antonieta and likewise asserted his share in the
supposed partnership.
The RTC rendered judgment in favor of Antonieta and Federico. On appeal,
the CA set the RTC Decision. Petitioner filed a petition for review to the SC.
ISSUE: Whether or not the CA erred in ruling that petitioners are not
entitled to profits over the businesses not listed in the Acknowledgement
HELD: No. CA Decision Affirmed
CIVIL LAW- There is a co-ownership when an undivided thing or right
belongs to different persons. It is a partnership when two or more persons
bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
CIVIL LAW- The common ownership of property does not itself create a
partnership between the owners, though they may use it for the purpose of
making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the
application of the proceeds therefrom.
Under Article 1767 of the Civil Code, there are two essential elements in a
contract of partnership: (a) an agreement to contribute money, property or
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industry to a common fund; and (b) intent to divide the profits among the
contracting parties.
It is not denied that all the parties in this case have agreed to contribute
capital to a common fund to be able to later on share its profits. They have
admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement
of Participating Capital.
The Acknowledgement of Participating Capital is a duly notarized document
voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura
Remotigue in 1957. Petitioner does not dispute its contents and is actually
relying on it to prove his participation in the partnership. Article 1797 of
the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses.
The petitioner himself claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However, petitioner fails to
realize that this document specifically enumerated the businesses covered
by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City
and Remotigue Trading in Cotabato City. Since there was a clear
agreement that the capital the partners contributed went to the three
businesses, then there is no reason to deviate from such agreement and go
beyond the stipulations in the document. Therefore, the Court of Appeals
did not err in limiting petitioners share to the assets of the businesses
enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez, the Court held that since a partnership is a separate
juridical entity, the shares to be paid out to the partners is necessarily
limited only to its total resources.
CIVIL LAW- express and implied trust
The petitioner further asserts that he is entitled to respondents properties
based on the concept of trust. He claims that since the subject real
properties were purchased using funds of the partnership, wherein he has
a 6% share, then "law and equity mandates that he should be considered
as a co-owner of those properties in such proportion."
As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily
show the existence of the trust and its elements. While implied trusts may
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be proved by oral evidence, the evidence must be trustworthy and received
by the courts with extreme caution, and should not be made to rest on
loose, equivocal or indefinite declarations. Trustworthy evidence is required
because oral evidence can easily be fabricated.
The petitioner has failed to prove that there exists a trust over the subject
real properties. Aside from his bare allegations, he has failed to show that
the respondents used the partnerships money to purchase the said
properties. Even assuming arguendo that some partnership income was
used to acquire these properties, the petitioner should have successfully
shown that these funds came from his share in the partnership profits.
After all, by his own admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in the partnership.
DENIED.
4. Sy v. Court of Appeals, G.R. No. 142293
FACTS: Sometime in 1958, private respondent Jaime Sahot[5] started
working as a truck helper for petitioners family-owned trucking business
named Vicente Sy Trucking. In 1965, he became a truck driver of the same
family business, renamed T. Paulino Trucking Service, later 6Bs Trucking
Corporation in 1985, and thereafter known as SBT Trucking Corporation
since 1994. Throughout all these changes in names and for 36 years,
private respondent continuously served the trucking business of
petitioners. When Sahot was 59 years old, he incurred several absences
due to various ailments. Particularly causing him pain was his left thigh,
which greatly affected the performance of his task as a driver. He inquired
about his medical and retirement benefits with the Social Security System
(SSS) on April 25, 1994, but discovered that his premium payments had
not been remitted by his employer.Sahot filed a week-long leave to get
medical attention. He was treated for EOR, presleyopia, hypertensive
retinopathy G II and heart enlargement. Because of such, Belen Paulino of
the SBT Trucking Service management told him to file a formal request for
extension of his leave. When Sahot applied for an extended leave, he was
threatened of termination of employment should he refuse to go back to
work. Eventually, Sahot was dismissed from employment which prompted
the latter to file an illegal dismissal case with the NLRC. For their part,
petitioners admitted they had a trucking business in the 1950s but denied
employing helpers and drivers. They contend that private respondent was
not illegally dismissed as a driver because he was in fact petitioners
industrial partner. They add that it was not until the year 1994, when SBT
Trucking Corporation was established, and only then did respondent Sahot
become an employee of the company, with a monthly salary that reached
P4,160.00 at the time of his separation. The NLRC and the CA ruled that
Sahot was an employee of the petitioner.
ISSUE: Whether Sahot is an industrial partner
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RULING:
No. Article 1767 of the Civil Code states that in a contract of partnership
two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits among
themselves. Not one of these circumstances is present in this case. No
written agreement exists to prove the partnership between the parties.
Private respondent did not contribute money, property or industry for the
purpose of engaging in the supposed business. There is no proof that he
was receiving a share in the profits as a matter of course, during the period
when the trucking business was under operation. Neither is there any proof
that he had actively participated in the management, administration and
adoption of policies of the business. Thus, the NLRC and the CA did not err
in reversing the finding of the Labor Arbiter that private respondent was an
industrial partner from 1958 to 1994. On this point, the Court affirmed the
findings of the appellate court and the NLRC. Private respondent Jaime
Sahot was not an industrial partner but an employee of petitioners from
1958 to 1994. The existence of an employer-employee relationship is
ultimately a question of fact and the findings thereon by the NLRC, as
affirmed by the Court of Appeals, deserve not only respect but finality
when supported by substantial evidence. Substantial evidence is such
amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.
II. Elements
Article 1767 - By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession.
5. Evangelista v. CIR;
Facts: Petitioners borrowed sum of money from their father and together
with their own personal funds they used said money to buy several real
properties. They then appointed their brother (Simeon) as manager of the
said real properties with powers and authority to sell, lease or rent out said
properties to third persons. They realized rental income from the said
properties for the period 1945-1949.On September 24, 1954 respondent
Collector of Internal Revenue demanded the payment of income tax on
corporations, real estate dealer's fixed tax and corporation residence tax
for the years 1945-1949. The letter of demand and corresponding
assessments were delivered to petitioners on December 3, 1954,
whereupon they instituted the present case in the Court of Tax Appeals,
with a prayer that "the decision of the respondent contained in his letter of
demand dated September 24, 1954" be reversed, and that they be
absolved from the payment of the taxes in question. CTA denied their
petition and subsequent MR and New Trials were denied. Hence this
petition.
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Issue:
Whether or not petitioners have formed a partnership and consequently,
are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real
estate dealers fixed tax.
Held: YES.
The essential elements of a partnership are two, namely: (a) an agreement
to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element
is undoubtedly present in the case at bar, for, admittedly, petitioners have
agreed to, and did, contribute money and property to a common fund.
Upon consideration of all the facts and circumstances surrounding the case,
we are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among
themselves, because of the following observations, among others: (1) Said
common fund was not something they found already in existence; (2)They
invested the same, not merely in one transaction, but in a series of
transactions; (3) The aforesaid lots were not devoted to residential
purposes, or to other personal uses, of petitioners herein. Although, taken
singly, they might not suffice to establish the intent necessary to constitute
a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners
herein. For purposes of the tax on corporations, our National Internal
Revenue Code, includes these partnerships with the exception only of duly
registered general copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are subject
to the income tax for corporations.
6. AFISCO v. CA G.R. No. 112675, Jan 25, 1999
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 ccorporation.
4

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 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.
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.
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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
organized in, or existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered general co-
partnership (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
5
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
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.
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a. Common fund
7. Lim Tong Lim v. Philippine Fishing Gear, G.R. No. 136448
November 3, 1999
FACTS: Lim Tong Lim requested Peter Yao and Antonio Chuato engage in
commercial fishing with him. The three agreed to purchase two fishing
boats but since they do not have the money they borrowed from one Jesus
Lim the brother of Lim Tong Lim. Subsequently, they again borrowed
money for the purchase of fishing nets and other fishing equipments. Yao
and Chua represented themselves as acting in behalf of Ocean Quest
Fishing Corporation (OQFC) and they contracted with Philippine Fishing
Gear Industries (PFGI) for the purchase of fishing nets amounting to more
than P500k. However, they were unable to pay PFGI and hence were sued
in their own names as Ocean Quest Fishing Corporation is a non-existent
corporation. Chua admitted his liability while Lim Tong Lim refused such
liability alleging that Chua and Yao acted without his knowledge and
consent in representing themselves as a corporation.
ISSUE: Whether Lim Tong Lim is liable as a partner
HELD: Yes. It is apparent from the factual milieu that the three decided to
engage in a fishing business. Moreover, their Compromise Agreement had
revealed their intention to pay the loan with the proceeds of the sale and to
divide equally among them the excess or loss. The boats and equipment
used for their business entails their common fund. 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. The principle of
corporation by estoppel cannot apply in the case as Lim Tong Lim also
benefited from the use of the nets in the boat, which was an asset of the
partnership. Under the law on estoppel, those acting in behalf of a
corporation and those benefited by it, knowing it to be without valid
existence are held liable as general partners. Hence, the question as to
whether such was legally formed for unknown reasons is immaterial to the
case.
AFISCO v. CA G.R. No. 112675, January 25, 1999
Same case #6
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b. Profits
AFISCO v. CA G.R. No. 112675, January 25, 1999
Same case #6
8. Gatchalian v. CIR G.R. No. 45425 April 29, 1939.
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 third-prizes 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.
9. Santos v. Sps. Reyes, G.R. No. 135813
Facts: In June 1986, Fernando Santos and Nieves Reyes were introduced
to each other by Meliton Zabat regarding a lending business venture
proposed by Nieves. Fernando Santos (70%), Nieves Reyes (15%), and
Santiaguel
Melton Zabat (15%) orally instituted a partnership with them as partners.
It was agreed that Santos shall be financier and that Nieves and Zabat
shall contribute their industry by taking charge of solicitation of members
and collection of loan payments. Their venture was launched on June 13,
1986, with the agreement that Santos would receive 70% of the profits
while Nieves and Zabat would earn 15% each.
Later, in July 1986, Nieves introduced Cesar Gragera to Santos. Gragera
was the chairman of Monte Maria Development Corporation. Gragera
sought short-term loans for members of the corporation. It was agreed
that the partnership shall provide loans to the employees of Grageras
corporation and Gragera shall earn commission from loan payments.
In August 1986, the three partners put into writing their verbal agreement
to form the partnership. As earlier agreed, Santos shall finance and Nieves
shall do the daily cash flow more particularly from their dealings with
Gragera, Zabat on the other hand shall be a loan investigator. But then
later, Nieves and Santos found out that Zabat was engaged in another
lending business which competes with their partnership hence Zabat was
expelled.
The two continued with the partnership and they took with them Nieves
husband, Arsenio, who became their loan investigator. Later, Santos
accused the spouses of not remitting Grageras commissions to the latter.
He sued them for collection of sum of money. The spouses countered that
Santos merely filed the complaint because he did not want the spouses to
get their shares in the profits. Santos argued that the spouses, insofar as
the dealing with Gragera is concerned, are merely his employees. Santos
alleged that there is a distinct partnership between him and Gragera which
is separate from the partnership formed between him, Zabat and Nieves.
PLAINTIFFS ARGUMENTS:
Petitioner maintains that he employed the services of respondent spouses
in the money-lending venture with Gragera, with Nieves as bookkeeper and
Arsenio as credit investigator. That Nieves introduced Gragera to Santos
did not make her a partner. She was only a witness to the Agreement
between the two. Separate from the partnership between petitioner and
Gragera was that which existed among petitioner, Nieves and Zabat, a
partnership that was dissolved when Zabat was expelled.
DEFENDANTS ARGUMENTS: In their answer, the defendants asserted that
they were partners and not mere employees of petitioner. The complaint,
they alleged, was filed to preempt and prevent them from claiming their
rightful share to the profits of the partnership. Arsenio alleged that he was
enticed by the petitioner to take the place of Zabat after petitioner learned
of Zabat's activities. Arsenio resigned from his job at the Asian
Development Bank to join the partnership. Nieves claimed that she
7
participated in the business as a partner, as the lending activity with Monte
Maria originated from her initiative.
DECISIONS OF --
LOWER COURT: The Trial court held that respondents were partners,
and not merely employees of the petitioner. It ruled that Gragera was
only a commission agent of petitioner, not his partner.
CA: The CA upheld the decision of the lower court. The CA ruled that
the following circumstances indicated the existence of a partnership
among the parties (1) it was Nieves who broached to petitioner the
idea of starting a money-lending business and introduced him to
Gragera (2) Arsenio received dividends or profit-shares covering the
period of July 15 to August 7, 1986 (3) the partnership contract was
executed after the Agreement with Gragera and petitioner and thus
showed the parties intention to consider it as a transaction of the
partnership. In their common venture, petitioner invested capital while
respondents contributed industry or services with the intention of
sharing in the profits of the business.
The defendants were industrial partners of the petitioner. Nieves
herself provided the initiative in the lending activities with Monte
Maria. In consonance with the agreement between appellant, Nieves
and Zabat (later replaced by Arsenio), they contributed industry to
the common fund with the intention of sharing in the profits of the
partnership. The spouses provided services without which the
partnership would not have [had] the wherewithal to carry on the
purpose for which it was organized and as such [were] considered
industrial partners the partnership between Santos, Nieves and Zabat
was technically dissolved by the expulsion of Zabat therefrom, the
remaining partners simply continued the business of the partnership
without undergoing the procedure relative to dissolution. Instead,
they invited Arsenio to participate as a partner in their operations.
There was therefore, no intent to dissolve the earlier partnership. The
partnership between Santos, Nieves and Arsenio simply took over and
continued the business of the former partnership with Zabat, one of
the incidents of which was the lending operations with Monte Maria.
Gragera and Santos were not partners. The money-lending activities
undertaken with Monte Maria was done in pursuit of the business for
which the partnership between [petitioner], Nieves and Zabat (later
Arsenio) was organized. Gragera who represented Monte Maria was
merely paid commissions in exchange for the collection of loans. The
commissions were fixed on gross returns, regardless of the expenses
incurred in the operation of the business. The sharing of gross returns
does not in itself establish a partnership.
Santiaguel
ISSUE/S:
1. Whether or not the Santos and Spouses Reyes are partners
2. Whether or not the Spouses Reyes has a share in the partnership
profits being Industrial partners.
HELD:
FIRST ISSUE: BUSINESS RELATIONSHIP
Yes, the court upheld the decisions of the Trial Court and CA that there was
a partnership created between Santos and Spouses Reyes. By the contract
of partnership, two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the
profits among themselves. The "Articles of Agreement" stipulated that the
signatories shall share the profits of the business in a 70-15-15 manner,
with petitioner getting the lion's share. This stipulation clearly proved the
establishment of a partnership.
Though it is true that the original partnership between Zabat, Santos and
Nieves was terminated when Zabat was expelled, the said partnership was
however considered continued when Nieves and Santos continued engaging
as usual in the lending business even getting Nieves husband, who
resigned from the Asian Development Bank, to be their loan investigator
who, in effect, substituted Zabat. There is no separate partnership between
Santos and Gragera. The latter being merely a commission agent of the
partnership. This is even though the partnership was formalized shortly
after Gragera met with Santos.
SECOND ISSUE: ACCOUNTING OF PARTNERSHIP
HOWEVER, the order of the Court of Appeals directing Santos to give the
spouses their shares in the profit is premature. The accounting made by
the trial court is based on the total income of the partnership. Such total
income calculated by the trial court did not consider the expenses
sustained by the partnership. All expenses incurred by the money-lending
enterprise of the parties must first be deducted from the total income in
order to arrive at the net profit of the partnership. The share of each one
of them should be based on this net profit and not from the gross
income or total income.
For the purpose of determining the profit that should go to an industrial
partner (who shares in the profits but is not liable for the losses), the gross
income from all the transactions carried on by the firm must be added
together, and from this sum must be subtracted the expenses or the losses
sustained in the business. Only in the difference representing the net
profits does the industrial partner share. But if, on the contrary, the losses
exceed the income, the industrial partner does not share in the losses.
8
 III. Characteristics
a. Lawful Purpose and Common Benefit
Article 1770 - A partnership must have a lawful object or purpose, and
must be established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the profits
shall be confiscated in favor of the State, without prejudice to the
provisions of the Penal Code governing the confiscation of the instruments
and effects of a crime.
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
10. Arbes v. Polistico G.R. No. 31057
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.
Santiaguel
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 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 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
9
 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
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.
b. Separate juridical personality
i. When it exists
Article 1768 - The partnership has a judicial personality separate and
distinct from that of each of the partners, even in case of failure to comply
with the requirements of Article 1772, first paragraph.
Evangelista v. CIR G.R. No. L-9996, October 15, 1957
Same case #5
Article 1775 - Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members may contract
in his own name with third persons, shall have no juridical personality, and
shall be governed by the provisions relating to co-ownership.
ii. Effects
11. Aguila v. CA, G.R. No. 127347, November 25, 1999
Facts: 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.
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).
Santiaguel
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.
(a) Rules to Determine Existence
Article 1769 - 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 from 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 installments 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
10
 I. In General
a. Intent of the Parties
Evangelista v. CIR G.R. No. L-9996, October 15, 1957.
Same case #5
II. Specific Rules
a. Person not partners to each other not partners to third persons
Article 1769 (1) - Except as provided by Article 1825, persons who are
not partners as to each other are not partners as to third persons;
b. Co-ownership does not of itself establish a partnership
Article 1769 (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;
12. Oa v. CIR, G.R. No. L-19342, May 25, 1972
Facts: Julia Buales died leaving as heirs her surviving spouse, Lorenzo
Oa and her five children. A civil case was instituted for the settlement of
her state, in which Oa was appointed administrator and later on the
guardian of the three heirs who were still minors when the project for
partition was approved. This shows that the heirs have undivided
interest in 10 parcels of land, 6 houses and money from the War Damage
Commission.
Although the project of partition was approved by the Court, no attempt
was made to divide the properties and they remained under the
management of Oa who used said properties in business by leasing or
selling them and investing the income derived therefrom and the proceeds
from the sales thereof in real properties and securities. As a result,
petitioners properties and investments gradually increased. Petitioners
returned for income tax purposes their shares in the net income but they
did not actually receive their shares because this left with Oa who
invested them.
Based on these facts, CIR decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate income tax, particularly
for years 1955 and 1956. Petitioners asked for reconsideration, which was
denied hence this petition for review from CTAs decision.
Issue: W/N there was a co-ownership or an unregistered partnership
W/N the petitioners are liable for the deficiency corporate income tax
Santiaguel
Held: Unregistered partnership. The Tax Court found that instead of
actually distributing the estate of the deceased among themselves
pursuant to the project of partition, the heirs allowed their properties to
remain under the management of Oa and let him use their shares as part
of the common fund for their ventures, even as they paid corresponding
income taxes on their respective shares.
Yes. For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the moment the
said common properties and/or the incomes derived therefrom are used as
a common fund with intent to produce profits for the heirs in proportion to
their respective shares in the inheritance as determined in a project
partition either duly executed in an extrajudicial settlement or approved by
the court in the corresponding testate or intestate proceeding. The reason
is simple. From the moment of such partition, the heirs are entitled already
to their respective definite shares of the estate and the incomes thereof,
for each of them to manage and dispose of as exclusively his own without
the intervention of the other heirs, and, accordingly, he becomes liable
individually for all taxes in connection therewith. If after such partition, he
allows his share to be held in common with his co-heirs under a single
management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at least, an
unregistered partnership is formed.
For purposes of the tax on corporations, our National Internal Revenue
Code includes these partnerships
The term partnership includes a syndicate, group, pool, joint venture or
other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on (8 Mertens Law of
Federal Income Taxation, p. 562 Note 63; emphasis ours.)
with the exception only of duly registered general copartnerships within
the purview of the term corporation. It is, therefore, clear to our mind
that petitioners herein constitute a partnership, insofar as said Code is
concerned, and are subject to the income tax for corporations. Judgment
affirmed.
13. Obillos v. CIR G.R. No. L-68118, October 29, 1985
Facts: On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of
1,124 and 963 square meters of located at Greenhills, San Juan, Rizal. The
next day he transferred his rights to his four children, the petitioners, to
enable them to build their residences. The Torrens titles issued to them
showed that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation and Olga
Cruz Canada for the total sum of P313,050. They derived from the sale a
11
total profit of P134, 341.88 or P33,584 for each of them. They treated the
profit as a capital gain and paid an income tax on one-half thereof or of
P16,792.
In April, 1980, the Commissioner of Internal Revenue required the four
petitioners to pay corporate income tax on the total profit of P134,336 in
addition to individual income tax on their shares thereof. The petitioners
are being held liable for deficiency income taxes and penalties totalling
P127,781.76 on their profit of P134,336, in addition to the tax on capital
gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed
an unregistered partnership or joint venture The petitioners contested the
assessments. Two Judges of the Tax Court sustained the same. Hence, the
instant appeal.
Issue: Whether or not the petitioners had indeed formed a partnership or
joint venture and thus liable for corporate tax.
Held: The Supreme Court held that the petitioners should not be
considered to have formed a partnership just because they allegedly
contributed P178,708.12 to buy the two lots, resold the same and divided
the profit among themselves. To regard so would result in oppressive
taxation and confirm the dictum that the power to tax involves the power
to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners would obliterate the
distinction between a co-ownership and a partnership. The petitioners were
not engaged in any joint venture by reason of that isolated transaction.
*Article 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.*
Their original purpose was to divide the lots for residential purposes. If
later on they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to
resell the same to dissolve the co-ownership. The division of the profit was
merely incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. It had to be terminated sooner or later.
They did not contribute or invest additional ' capital to increase or expand
the properties, nor was there an unmistakable intention to form
partnership or joint venture.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.
Santiaguel
All co-ownerships are not deemed unregistered partnership.Co-
Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise,
would be to subject the income of all
Co-ownerships of inherited properties to the tax on corporations, inasmuch
as if a property does not produce an income at all, it is not subject to any
kind of income tax, whether the income tax on individuals or the income
tax on corporation.
As compared to other cases:
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
where after an extrajudicial settlement the co-heirs used the inheritance or
the incomes derived therefrom as a common fund to produce profits for
themselves, it was held that they were taxable as an unregistered
partnership.
This case is different from Reyes vs. Commissioner of Internal Revenue, 24
SCRA 198, where father and son purchased a lot and building, entrusted
the administration of the building to an administrator and divided equally
the net income, and from Evangelista vs. Collector of Internal Revenue,
102 Phil. 140, where the three Evangelista sisters bought four pieces of
real property which they leased to various tenants and derived rentals
therefrom. Clearly, the petitioners in these two cases had formed an
unregistered partnership.
14. Pascual v. CIR, G.R. No. 78133, October 18, 1988
FACTS: Petitioners bought two (2) parcels of land and a year after, they
bought another three (3) parcels of land. Petitioners subsequently sold the
said lots in 1968 and 1970, and realized net profits. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974 by availing of
the tax amnesties granted in the said years. However, the Acting BIR
Commissioner assessed and required Petitioners to pay a total amount of
P107,101.70 as alleged deficiency corporate income taxes for the years
1968 and 1970. Petitioners protested the said assessment asserting that
they had availed of tax amnesties way back in 1974. In a reply, respondent
Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under
Section 24, both of the National Internal Revenue Code that the
unregistered partnership was subject to corporate income tax as
distinguished from profits derived from the partnership by them which is
subject to individual income tax; and that the availment of tax amnesty
under P.D. No. 23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them from the tax
liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
12

ISSUE: Whether the Petitioners should be treated as an unregistered
partnership or a co-ownership for the purposes of income tax.
RULING: The Petitioners are simply under the regime of co-ownership and
not under unregistered partnership.
By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves (Art. 1767, Civil Code of
the Philippines). In the present case, there is no evidence that petitioners
entered into an agreement to contribute money, property or industry to a
common fund, and that they intended to divide the profits among
themselves. The sharing of returns does not in itself establish a partnership
whether or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a partnership,
the existence of a juridical personality different from the individual
partners, and the freedom of each party to transfer or assign the whole
property. Hence, there is no adequate basis to support the proposition that
they thereby formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and sold the same a few
years thereafter did not thereby make them partners. They shared in the
gross profits as co- owners and paid their capital gains taxes on their net
profits and availed of the tax amnesty thereby. Under the circumstances,
they cannot be considered to have formed an unregistered partnership
which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
c. Sharing of gross return does not establish a partnership
Article 1769 (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 from which the returns are
derived;
Oa v. CIR, G.R. No. L-19342, May 25, 1972
Same case #12
d. Receipt of profits prima facie evidence of being a partner
Article 1769 (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 installments 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;
Santiaguel
(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.
15. Heirs of Jose Lim and Juliet Lim, G.R. No. 172690
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
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:
13

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.
Santiaguel
II. FORMING THE PARTNERSHIP (Arts. 1771-1775)
1. Formal Requirements
1. In General
Article 1771 - A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary.
16. Lilibeth Sunga-Chan G.R. No. 143340
FACTS
Lamberto Chua alleged that in 1977, he verbally entered into a partnership
with Jacinto in the distribution of Shellane LPG. For business convenience,
Lamberto and Jacinto allegedly agreed to register the business name of
their partnership, SHELLITE GAS APPLIANCE CENTER, under the name of
Jacinto as a sole proprietorship. Both Lamberto and Jacinto contributed
P100,000.00 to the partnership, with the intention that the profits would be
equally divided between them.
The partnership allegedly had Jacinto as manager, assisted by Josephine
Sy, sister-in-law of Lamberto. Upon Jacintos death in the later part of
1989, his daughter, Lilibeth took over the operations of Shellite without
Lambertos consent. Despite Lambertos repeated demands for accounting,
she failed to comply.
On June 22m 1992, Lamberto filed a complaint against Lilibeth with the
RTC. RTC decided in favor of Lamberto.
Lilibeth questions the correctness of the finding that a partnership existed
between Lamberto and Jacinto. In the absence of any written document to
show such partnership between Lamberto and Jacinto, Lilibeth argues that
these courts were proscribed from hearing the testimonies of Lamberto and
his witness, Josephine, to prove the alleged partnership three (3) years
after Jacintos death.
To support the argument, Lilibeth invokes the DEAD MANS STATUTE OR
SURVIVORSHIP RULE under Sec. 23, Rule 130. Lilibeth thus implores this
Court to rule that the testimonies of Lamberto and his alter ego, Josephine,
should not have been admitted to prove certain claims against a deceased
person (Jacinto).
ISSUE
Whether or not the DEAD MANS STATUTE applies to this case so as to
render inadmissible Lambertos testimony and that if his witness,
Josephine.
HELD
No. The Dead Mans Statute provides that if one party to the alleged
transaction is precluded from testifying by death, insanity, or other mental
14
disabilities, the surviving party is not entitled to the undue advantage of
giving his own contradicted and unexplained account of the transaction.
Lilibeth filed a compulsory counterclaim against Lamberto in their answer
before the RTC, and with the filing of their counterclaim, Lilibeth herself
effectively removed this case from the ambit of the Dead Mans Statute.
Well entrenched is the rule that when it is the executor or administrator or
representatives of the estate that sets up the counterclaim, Lamberto, may
testify to occurrences before the death of the deceased to defeat the
counterclaim. Moreover, as defendant in the counterclaim, Lamberto is not
disqualified from testifying as to matters of fact occurring before the death
of the deceased, said action not having been bought against but by the
estate or representatives of the deceased.
The testimony of Josephine is not covered by the Dead Mans Statute for
the simple reason that she is not a party or assignor of a party to a case
or persons in whose behalf a case is prosecuted. Lamberto offered the
testimony of Josephine to establish the existence of the partnership
between Lamberto and Jacinto. Lilibeths insistence that Josephine is the
alter ego of Lamberto does not make her an assignor because of the term
assignor of a party means assignor of a cause of action which has
arisen, and not the assignor of a right assigned before any cause of action
has arisen. Plainly then, Josephine is merely a witness of Lamberto, latter
being the plaintiff.
Lilibeths reliance alone on the Dead Mans Statue to defeat Lambertos commission although the company netted a gross sales of P
claim cannot prevail over the factual findings that a partnership was
established between Lamberto and Jacinto. Based not only on the
testimonial evidence, but the documentary evidence as well, they
considered the evidence for Lamberto as sufficient to prove the formation
of a partnership, albeit an informal one.
17. Tocao v. Court of Appeals, G.R. No. 127405,
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
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
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.
Santiaguel
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
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.
15
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 was entitled to a
percentage of the net profits of the business.
Therefore, the parties formed a partnership.
3. When Notarized Agreement and Inventory Required
Article 1771 - A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary.
Article 1773 - A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
Litonjua v. Litonjua G.R. Nos. 166299-300 December 13,
2005
Same case #1
Art. 1773 does not apply
18. Agad v. Mabato, G.R. No. L-24193
Facts: Agad alleged in his complaint that he and Mabato were partners in a
fishpond business pursuant to a public instrument:
That he contributed P1k to its capital, with the right to receive 50% of
the profits
That Mabato, who handled the partnership funds, had yearly rendered
accounts of itsoperations
That Mabato failed and refused to render account for the years 1957-
1963
That he prayed that Mabato be ordered to give him his share of the
profits of such partnership plus attorneys fees, as well as the
dissolution of the partnership
Mabato denied the existence of the partnership on the ground that the
contract therefore hadnot been perfected because Agad failed to give
his P1k contribution to the capital. He filed a motion to dismiss on the
ground of lack of cause of action.
TC: motion to dismiss granted public instrument declared null and void
No inventory of the fishpond has been attached to the public instrument
pursuant to Art. 1773
Issue: WON immovable property or real rights have been contributed to
the alleged partnership,
thus allowing the application of Art. 1773.
Santiaguel
Held: No immovable property or real rights have been contributed in the
alleged partnership.
Art. 1771: A partnership may be constituted in any form, except where
immovable property orreal rights are contributed thereto, in which case a
public instrument shall be necessary.Art. 1773: A contract of partnership is
void, whenever immovable property is contributedthereto, if inventory of
said property is not made, signed by the parties and attached to thepublic
instrument.
The public instrument presented showed that it was the operation of a
fishpond and not the engagement in a fishpond business that was the
purpose established between Agad and Mabato.
Neither contributed a fishpond nor a real right to any fishpond. Their
contributions were limited to the sum of P1k each
No inventory.
19. Torres v. Court of Appeals, G.R. No. 134559
FACTS: Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel Torres
for the development of a parcel of land into a subdivision.
They executed a Deed of Sale covering the said parcel of land in favor of
Manuel, who then had it registered in his name and obtained from
Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the subdivision through
mortgage of said property. All three of them also agreed to share the
proceeds from the sale of the subdivided lots. The project failed and the
property was foreclosed. Petitioner alleged that it was due to Manuels s
lack of funds or means and skills. And also alleged that the latter
misappropriate the amount loaned to his own company. On the other hand,
respondent alleged that he used the loan to implement the Agreement,
which incurred P85,000 expenses. And further avers that failure of project
was due to petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers, forcing him to give up on the project.
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, but were acquitted. They filed a civil case, but
was dismissed by trial court and affirmed by Court of Appeals. Hence, this
petition.
ISSUE:
1. Whether the petitioners have formed partnership with the respondent
and if they do, whether or not it was void.
16
2. Whether or not respondent shall be held liable to the failure of the
project.
HELD:
1. A reading of the terms embodied in the Agreement indubitably shows
the existence of a partnership pursuant to Article 1767 of the Civil
Code, which provides: By the contract of partnership two or more
persons bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among
themselves. Under the Agreement, petitioners would contribute
property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in addition
to his industry, the amount needed for general expenses and other
costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. There is manifestation of intent
to form partnership.It should be stressed that the parties implemented
the contract. Thus, petitioners transferred the title to the land to
facilitate its use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the proceeds of
which were used for the survey and the subdivision of the land. As
noted earlier, he developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct low-cost housing
units on the property. Respondents actions clearly belie petitioners
contention that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not only
money or property, but also industry. Further, under Art. 1773, A
contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made,
signed by the parties, and attached to the public instrument. This was
intended primarily to protect third personsthe execution of a public
instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they
cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to
those who contract with the partnership in the belief [in] the efficacy
of the guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory is made.
The case at bar does not involve third parties who may be prejudiced.
2. The Court of Appeals held that petitioners acts were not the cause of
the failure of the project. But it also ruled that neither was respondent
responsible therefor. In imputing the blame solely to him, petitioners
failed to give any reason why we should disregard the factual findings
of the appellate court relieving him of fault. Verily, factual issues
cannot be resolved in a petition for review under Rule 45, as in this
case. Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine. Accordingly, we find
Santiaguel
no reversible error in the CA's ruling that petitioners are not entitled to
damages.
4. Notarized and Recorded
Article 1772 - Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a public
instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Article 1768 - The partnership has a judicial personality separate and
distinct from that of each of the partners, even in case of failure to comply
with the requirements of Article 1772, first paragraph
3. Corporations as Partners
Joint venture akin to partnership
20. Philex Mining Corp. v. Commissioner of Internal Revenue,
G.R. No. 148187
Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining
Corporation for the former to manage the latters mining claim know as the
Sto. Mine. The parties agreement was denominated as Power of
Attorney. The mine suffered continuing losses over the years, which
resulted in petitioners withdrawal as manager of the mine. The parties
executed a Compromise Dation in Payment, wherein the debt of Baguio
amounted to Php. 112,136,000.00. Petitioner deducted said amount from
its gross income in its annual tax income return as loss on the settlement
of receivables from Baguio Gold against reserves and allowances. BIR
disallowed the amount as deduction for bad debt. Petitioner claims that it
entered a contract of agency evidenced by the power of attorney
executed by them and the advances made by petitioners is in the nature of
a loan and thus can be deducted from its gross income. Court of Tax
Appeals (CTA) rejected the claim and held that it is a partnership rather
than an agency. CA affirmed CTA
Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the Power of Attorney (PA)
is the instrument material that is material in determining the true nature of
the business relationship between petitioner and Baguio. An examination of
the said PA reveals that a partnership or joint venture was indeed intended
by the parties. While a corporation like the petitioner cannot generally
enter into a contract of partnership unless authorized by law or its charter,
it has been held that it may enter into a joint venture, which is akin to a
particular partnership. The PA indicates that the parties had intended to
create a PAT and establish a common fund for the purpose. They also had
17
a joint interest in the profits of the business as shown by the 50-50 sharing
of income of the mine.
Moreover, in an agency coupled with interest, it is the agency that cannot
be revoked or withdrawn by the principal due to an interest of a third party
that depends upon it or the mutual interest of both principal and agent. In
this case the non-revocation or non-withdrawal under the PA applies to the
advances made by the petitioner who is the agent and not the principal
under the contract. Thus, it cannot be inferred from the stipulation that it is
an agency.
4. Partnership Term
Art. 1784 - A partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated.
Art. 1785 - When a partnership for a fixed term or particular undertaking
is continued after the termination of such term or particular undertaking
without any express agreement, the rights and duties of the partners
remain the same as they were at such termination, so far as is consistent
with a partnership at will.
A continuation of the business by the partners or such of them as
habitually acted therein during the term, without any settlement or
liquidation of the partnership affairs, is prima facie evidence of a
continuation of the partnership.
5. Partnership Purpose
Art. 1770 - A partnership must have a lawful object or purpose, and must
be established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the profits
shall be confiscated in favor of the State, without prejudice to the
provisions of the Penal Code governing the confiscation of the instruments
and effects of a crime.
6. Firm Name
Article 1815 - Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in
the firm name, shall be subject to the liability of a partner.
Article 1846 - The surname of a limited partner shall not appear in the
partnership name unless:
(1) It is also the surname of a general partner, or
Santiaguel
(2) Prior to the time when the limited partner became such, the
business has been carried on under a name in which his
surname appeared.
A limited partner whose surname appears in a partnership name contrary
to the provisions of the first paragraph is liable as a general partner to
partnership creditors who extend credit to the partnership without actual
knowledge that he is not a general partner.
21. In Re: Sycip, Salazar, Feliciano, Hernandez & Castillo, G.R.
No. X92-1 (Resolution), [July 30, 1979].
See Rule 3.02 Code of Professional Responsibility, June 21, 1988.
7. Failure to register.
22. Angeles v. Secretary of Justice, G.R. No. 142612,
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
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
The parties agreed that Mercado would administer the ands and
complete the necessary paperwork
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
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
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
18
 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
Angeles spouses failed to show sufficient proof that Mercado
deliberately deceived them in the transaction
Mercado satisfactorily explained that the Angeles spouses do not want
to be revealed as the financiers
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
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.
Angeles spouses acknowledged their joint business venture in the
barangay conciliation proceedings although they assailed the manner
the business was conducted
Although the legal formalities for the formation were not adhered to,
the partnership relationship was evident.
There is no estafa where money is delivered by a partner to his co-
partner on the latters representation that the amount shall be applied
to the business of their partnership. In case of the money received,
the co-partners liability is civil in nature
ISSUE:
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.
Santiaguel
2. Angeles spouses allege that they had no partnership with Mercado,
relying on Arts. 1771 to 1773 of the Civil Code.
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
The Angeles spouses contributed money to the partnership and not
immovable property
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.
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
A contract showing a sosyo industrial or industrial partnership o
Contribution of money & industry to a common fund
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.
G. Partnership by estoppel.
19