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ART. 1767
payment of corporate income tax. The respondents asked for
1.CIR v. Ledesma reconsideration upon the ground that during the period of January
1 to July 13, 1949 the respondents were operating merely as co-
owners of the plantation. They claimed that the case of Hacienda
Fortuna was really one of co-ownership and not that of an
Carlos Ledesma, Julieta Ledesma and the Spouses unregistered co-partnership and that it is not subject to corporate
Amparo Ledesma and Vicente Gustilo Jr., purchased from their tax.
parents the sugar plantation known as Hacienda Fortuna. By
virtue of the sale the respondents owned one-third each of the
undivided portion of the plantation. The respondents took over the WON the Hacienda Fortuna is an unregistered partnership prior
sugar cane farming on the plantation beginning with the crop year to its registration and
1948-1949 and the San Carlos Milling Co. Ltd. Credited them with
their share in the gross sugar production in the same crop year. WON it should pay corporate income tax during the period of Jan
1, 1949-July 13, 1949

In running the sugar plantation, the respondents shared RULING:

equally expenses of production, on basis of their respective one- The respondents had actually operated the "Hacienda
third undivided portions of the plantation and the San Carlos Milling Fortuna" as a general partnership from January 1, 1949. Although
Co., Ltd. issued to respondents separate quedans for the sugar petitioners acquired undivided shares in the Hacienda Fortuna, the
produced, and based on the quota under the plantation audits intention of the parties was to form a general partnership. Their
respectively issued to them. On July 11, 1949, the respondents intention is confirmed by the fact that they actually organized a
organized themselves into a general co-partnership under the firm general co-partnership on July 11, 1949 and the Articles of General
name Hacienda Fortuna. The articles of general co-partnership Co-partnership which was registered on July 14, 1949 provides that
were registered in the commercial register of the office of the the agreement shall be retroactive as of January 1, 1949.
Register of Deeds in Bacolod City, on July 14, 1949. The general
partnership provides the agreement shall have retroactive effect as The Section 24 of the Revenue Code imposes an income
of January 1, 1949. tax on corporations and the term "corporation" includes
unregistered general co-partnerships. Hence, if the Sec 24 of the
In 1959, the Commissioner of Internal Revenue assessed a Revenue Code will be followed, Hacienda Fortuna is liable to pay
corporate income tax against the partnership Hacienda Fortuna corporate income tax prior to the date of its registration. However,
for the calendar year of 1949. The respondents contested upon the as early as 1924, the BIR had applied the status-at-the-end-of-the-
ground that the Hacienda Fortuna was a registered general co- taxable-year rule in determining the income tax liability of a
partnership and requested for the cancellation of the assessment. partnership, such that partnership is considered a registered
The Commissioner contested that the income realized by partnership for the entire taxable year even if its articles of co-
the partnership prior to the registration cannot be exempt from the
ART. 1767
partnership are registered only at the middle of the taxable year, or
in the last month of the taxable year.
The Supreme Court ruled that the exclusion of a registered
partnership from the entities subject to the payment of corporate
income tax should be made to cover the entire taxable year,
regardless of whether the registration takes place at the middle, or
towards the last days, of the taxable year. This is so because, after FACTS:
all, the taxable status of the taxpayer, for the purposes of the On November 29, 1947, the plaintiff entered on a written
payment of income tax, is determined as of the end of the taxable agreement with the defendant, the provisions of which are
year, and the income tax is collected after the end of the taxable (1) that they shall organize a partnership for the bottling and
year. Since it is the policy of the government to encourage a distribution of Mision soft drinks, plaintiff to act as industrial
partnership to register its articles of co-partnership in order that the partner or manager, and the defendant will furnish the capital
government can better ascertain the profits of the partnership and necessary therefor; (2) that the defendant was to decide matters
the distribution of said profits among the partner, this benefit of of general policy regarding the business, while the plaintiff was to
exclusion from paying corporate income tax arising from attend to the operation and development of the bottling plant; (3)
registration should be liberally extended to registered, or that the plaintiff was to secure the Mision Soft Drinks franchise for
registering, partnerships in order that the purpose of the and in behalf of the proposed partnership; and (4) that the plaintiff
government may be attained. The provision of Section 24 of the tax was to receive 30 per cent of the net profits of the business.
code excluding "registered general co-partnership" from the
Prior to entering into this agreement, plaintiff had informed the
payment of corporate income tax is not an exemption clause but a
Mission Dry Corporation of Los Angeles, California, U.S.A.,
classification clause which must be construed liberally in favor of manufacturers of the bases and ingredients of the beverages
the taxpayer. bearing its name, that he had interested a prominent financier
Therefore, even though the Hacienda Fortuna is (defendant herein) in the business, who was willing to invest half a
million dollars. In order to close the deal, he requested that the
considered as an unregistered partnership prior to its registration,
right to bottle and distribute be granted him for a limited time
its subsequent registration exempted the partnership from paying
under the condition that it will finally be transferred to the
corporate income tax for the period of Jan 1, 1949-July 13, 1949. corporation.
When the bottling plant was already on operation, plaintiff
demanded of defendant that the partnership papers be executed.
At first defendant excused himself and continued to refuse the
execution of partnership papers.
The plaintiff prays for the execution of the contract of partnership,
an accounting of the profits, and a share thereof of 30 per cent, as
well as damages. The CFI held that the execution of the contract
ART. 1767
of partnership could not be enforced upon the parties, but it also was perfected. But while he had already lost his option thereto
held that the defense of fraud was not proved. (when the contract was entered into), the principal obligation that
he assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false
ISSUE: representation, this was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the partnership
WON false representation or fraud, if it existed, annuls the agreement.
agreement to form the partnership.
But, on the other hand, this supposed ownership of an exclusive
franchise was actually the consideration or price plaintiff gave in
RULING: exchange for the share of 30 percent granted him in the net profits
No. of the partnership business. Defendant agreed to give plaintiff 30
per cent share in the net profits because he was transferring his
Article 1270 of the Spanish Civil Code distinguishes two kinds of exclusive franchise to the partnership.
(civil) fraud, the causal fraud, which may be a ground for the
annulment of a contract, and the incidental deceit, which only We conclude from the above that while the representation that
renders the party who employs it liable for damages. The plaintiff had the exclusive franchise did not vitiate defendant's
Supreme Court held that in order that fraud may vitiate consent, it consent to the contract, it was used by plaintiff to get from
must be the causal, not merely the incidental, inducement to the defendant a share of 30 per cent of the net profits; in other words,
making of the contract. by pretending that he had the exclusive franchise and promising
to transfer it to defendant, he obtained the consent of the latter to
The record abounds with circumstances indicative that the fact give him (plaintiff) a big slice in the net profits. This is the dolo
that the principal consideration, the main cause that induced incidente defined in article 1270 of the Spanish Civil Code,
defendant to enter into the partnership agreement with plaintiff, because it was used to get the other party's consent to a big
was the ability of plaintiff to get the exclusive franchise to bottle share in the profits, an incidental matter in the agreement.
and distribute for the defendant or for the partnership. The original
draft prepared by defendant's counsel was to the effect that Having arrived at the conclusion that the agreement may not be
plaintiff obligated himself to secure a franchise for the defendant. declared null and void, the question that next comes before us is,
Correction appears in this same original draft, but the change is May the agreement be carried out or executed? We find no merit
made not as to the said obligation but as to the grantee. In the in the claim of plaintiff that the partnership was already a fait
corrected draft the word "capitalist"(grantee) is changed to accompli from the time of the operation of the plant, as it is
"partnership." The contract in its final form retains the substituted evident from the very language of the agreement that the parties
term "partnership." intended that the execution of the agreement to form a
partnership was to be carried out at a later date.
The defendant was, therefore, led to the belief that plaintiff had
the exclusive franchise, but that the same was to be secured for
or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract
ART. 1767
3. Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin of the winding up of its affairs.
Bacorro v. CA, SEC and
Joaquin Misa G.R. No. 109248 July 3, 1995 The parties filed with the appellate court separate appeals
Vitug, J.
1. Whether or not the partnership of Bito, Misa & Lozada (now Bito,
On February 17, 1988 ,Gregorio Ortega, then one of the junior Lozada, Ortega & Castillo) is a partnership at will;
partners in the law firm Bito, Misa, and Lozada withdrew in said firm
by writing several letter of withdrawal and retirement from the 2. Whether or not the withdrawal of Misa dissolved the partnership
partnership. On June 30, 1988, he filed with the Commission's regardless of his good or bad faith.
Securities Investigation and Clearing Department (SICD) a petition
for dissolution and liquidation of partnership. Held:
1. Yes. The partnership agreement of the firm provides that
On July 13, 1988, respondents-appellees filed their opposition the partnership shall continue so long as mutually satisfactory and
to the petition. upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners. Furthermore, the partnership
On 31 March 1989, the hearing officer rendered a decision agreement does not provide for a specified period or undertaking.
ruling that the Petitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership. Hence, the 2. Yes. Any one of the partners may, at his sole pleasure,
petitioner and respondents are enjoined to abide by the provisions of dictate dissolution of the partnership at will. He must, however, act in
their Agreement relative to the matter governing the liquidation of good faith, not that the attendance of bad faith can prevent the
the shares of any retiring or withdrawing partner in the partnership dissolution of the partnership but that it can result in a liability for
interest. damages. The presence of a period for its specific duration or the
statement of a particular purpose for its creation can prevent the
On appeal, the SEC en banc reversed the decision of the dissolution of any partnership by an act or will of a partner. Among
Hearing Officer and held that the withdrawal of Attorney Joaquin L. partners, mutual agency arises and the doctrine of delectus personae
Misa had dissolved the partnership of "Bito, Misa & Lozada." The allows them to have the power, although not necessarily the right, to
Commission ruled that, being a partnership at will, the law firm could dissolve the partnership.
be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can
be forced to continue in the partnership against his will.
The parties sought a reconsideration of the above decision. (GR No. 75875, December 15, 1989)
Attorney Misa, in addition, asked for an appointment of a receiver to
take over the assets of the dissolved partnership and to take charge FACTS:
ART. 1767
American Standard Inc. (ASI), a foreign corporation, entered by several provisions protecting the interests of ASI as the minority.
into an Agreement with Sanitary Wares Manufacturing Corporation Having established as a joint venture, the rigid rules of construction
(Saniwares), a domestic corporation, to participate in the ownership in Corporation Law do not apply.
of an enterprise which would engage primarily in the business of
manufacturing and selling vitreous china and sanitary wares. SC then decided the issue based on the intention of the parties
manifested by the words of the Agreement. It ruled that the provision
The Articles of Incorporation provide that as long as ASI shall of the Agreement granting ASI the right to designate three directors
own atleast 30% of the outstanding stock, it shall designate three of is an implied waiver of its cumulative voting. From the foregoing, ASI
the nine directors, and the other six shall be designated by other cannot nominate more than three directors. For this reason, SC
stockholders. affirmed the results of the first election.

Later, the 30% capital stock of ASI was increased to 40%. The legal concept of a joint venture has no precise legal
Consequently, in the annual stockholders meeting, ASI invoked its definition, but it has been understood to mean an organization
right to cumulative voting (based on its additional 10% equity) hence formed for some temporary purpose. It is hardly distinguishable from
nominated 4 candidates for the Board of Directors. However, this was partnership, since their elements are similar community of interest
ruled out of order and the stockholders proceeded with the election in the business, sharing of profits and losses, and a mutual right of
of directors 3 from ASI and 6 from the others. This resulted to a control. It would seem therefore that under Philippine law, a joint
heated argument between the ASI Group of foreign investors venture is a form of partnership and should thus be governed by the
(petitioners) and the Lagdameo Group composed of Filipino investors law of partnerships. SC however recognized a distinction between the
(respondents). In a separate venue, ASI Group later conducted two, and held that although a corporation cannot enter into a
another voting resulting to the election of 5 directors. partnership contract, it may however engage in a joint venture.

The parties then filed separate petitions with the Securites

and Exchange Commission (SEC). The Hearing Officer as affirmed by 5. LIM TONG LIM vs. PHILIPPINE FISHING GEAR
SEC en banc, upheld the election of the Lagdameo Group. The Court of INDUSTRIES, INC.
Appeals affirmed. G.R. No. 136448, November 3, 1999

Hence this petition. Facts:

ISSUE: Antonio Chua, Peter Yao and Petitioner Lim Tong Lim were
Whether or not ASI may invoke cumulative voting engaged in the fishing business. They purchased fishing nets and
floats from Respondent Philippine Fishing Gear Industries, Inc. The
HELD: buyers, however, failed to pay for the items. Hence, Respondent filed
a collection suit against Chua, Yao and Petitioner, in their capacities
No. The Supreme Court (SC) held that an examination of as general partners, with a prayer for a writ of preliminary
important provisions of the Agreement shows that the parties agreed attachment. The lower court issued a Writ of Preliminary Attachment
to establish a joint venture and not a corporation. This is manifested and the items were attached.
ART. 1767
Moreover, it is clear that the partnership extended not only to
Upon motion of Respondent, the items were ordered sold at the purchase of the boat, but also to that of the nets and the floats. The
public auction wherein Respondent was the sole and winning bidder. fishing nets and the floats, both essential to fishing, were obviously
The proceeds of the sale paid for by Respondent were deposited in acquired in furtherance of their business. It would have been
court, and replaced the attached property as a guaranty in case inconceivable for Lim to involve himself so much in buying the boat
Respondent gets a favorable ruling. but not in the acquisition of the aforesaid equipment, without which
the business could not have proceeded.
The trial court eventually ruled that Respondent was entitled
to the Writ of Attachment and that Chua, Yao and Petitioner, as A partnership may be deemed to exist among parties who
general partners, were jointly liable to pay respondent. The CA agree to borrow money to pursue a business and to divide the profits
affirmed the decision of the lower court. Hence, petitioner brought or losses that may arise therefrom, even if it is shown that they have
this petition for review on certiorari. not contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily
Issue: cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract
Whether by their acts, Petitioner, Chua and Yao could be entered into on behalf of an unincorporated association or ostensible
deemed to have entered into a partnership. corporation may lie in a person who may not have directly transacted
on its behalf, but reaped benefits from that contract.

Yes. The facts as found by the two lower courts clearly showed
that there existed a partnership among Chua, Yao and him, pursuant
to Article 1767 of the Civil Code.

It is clear that Chua, Yao and Lim had decided to engage in a

fishing business, which they started by buying boats financed by a
loan secured from Jesus Lim who was petitioner's brother. In their
Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase and
the repair of which were financed with borrowed money, fell under
the term "common fund" under Article 1767. The contribution to such
fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.