Aurbach vs.

Sanitary Wares
(Partnership; Joint Venture; Foreign and Domestic Corp)

F: This consolidated petition assailed the decision of the CA directing a certain MANNER OF ELECTION OF
OFFICERS IN THE BOARD OF DIRECTORS
*There are two groups in this case, the Lagdameo group composed of Filipino investors and the American Standard
Inc. (ASI) composed of foreign investors.
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be
viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to
form a corporation and not a joint venture.

I: The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined:
*(1) the nature of the business established by the parties whether it was a joint venture or a corporation and

H:
While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or
joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall
constitute the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in entering into the Agreement is to enter into a joint venture
enterprise
An examination of the Agreement shows that certain provisions were inccuded to protect the interests of ASI as
the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts. ASI is
contractually entitled to designate a member of the Executive Committee and the vote of this member is required
for certain transactions
The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of
Saniwares. ASI is also given the right to designate the president and plant manager .The Agreement further
provides that the sales policy of Saniwares shall be that which is normally followed by ASI and that Saniwares
should not export "Standard" products otherwise than through ASI's Export Marketing Services. Under the
Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the
same.
The legal concept of a joint venture is of common law origin. It has no precise legal definition but it has been
generally understood to mean an organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control.
The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature.
 Lim vs. Philippine Fishing Gear Industries Inc. [GR 136448, 3 November 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.
G.R. L-68118 Obillos v. CIR
Facts:

In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan. The next day, he transferred his
rights to his four children for them to build their own residences. The Torrens title would show that they were co-owners
of the two lots. However, the petitioners resold them to Walled City Securities Corporation and Olga Cruz Canda for
P313k or P33k for each of them. They treated the profit as capital gains and paid an income tax of P16,792.00

The CIR requested the petitioners to pay the corporate income tax of their shares, as this entire assessment is based on the
alleged partnership under Article 1767 of the Civil Code; simply because they contributed each to buy the lots, resold
them and divided the profits among them.

But as testified by Obillos, they have no intention to form the partnership and that it was merely incidental since they sold
the said lots due to high demand of construction. Naturally, when they sell them as co-partners, it will result to the share
of profits. Further, their intention was to divide the lots for residential purposes.

Issue:

Was there a partnership, hence, they are subject to corporate income taxes?

Court Ruling:

Not necessarily. As Article 1769 (3) of the Civil Code provides: the sharing of gross returns does not in itself establish a
partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which
the returns are derived. There must be an unmistakeable intention to form a partnership or joint venture.

In this case, the Commissioner should have investigated if the father paid donor's tax to establish the fact that
there was really no partnership.
CIR VS. SUTER

FACTS:A limited partnership named William J. Suter 'Morcoin' Co., Ltd was formed 30September 1947 by William
J. Suter as the ge neral partner, and Julia Spirig
andG u s t a v C a r l s o n . T h e y c o n t r i b u t e d , r e s p e c t i v e l y , P 2 0 , 0 0 0 . 0 0 , P 1 8 , 0 0 0 . 0 0 a n d P2,000.0
0. it was also duly registered with the SEC. On 1948 Suter and Spirig got m a r r i e d a n d i n e f f e c t
C a r l s o n s o l d h i s s h a r e t o t h e c o u p l e , t h e s a m e w a s a l s o registered with the
SEC. T h e l i m i t e d p a r t n e r s h i p h a d b e e n f i l i n g i t s i n c o m e t a x r e t u r n s
a s a corporation, without objection by the herein petitioner, Commissioner of Internal Revenue, until
in 1959 when the latter, in an assessment, consolidated the incomeof the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter
inthe amount of P2,678.06 for 1954 and P4,567.00 for 1955.

ISSUE:Whether or not the limited partnership has been dissolved after the marriageof Suter and Spirig and buying
the interest of limited partner Carlson.

RULING:No, the limited partnership was not dissolved

. A h u s b a n d a n d a w i f e m a y n o t e n t e r i n t o a c o n t r a c t o
f g e n e r a l copartnership, because under the Civil Code, which applies in the absen
c e o f e x p r e s s p r o v i s i o n i n t h e C o d e o f C o m m e r c e , p e r s o n s p r o h i b i t e d f r o m m a k i n g donati
ons to each other are prohibited from entering into universal partnerships. (2Echaverri 196) It follows that the marriage of
partners necessarily brings about thedissolution of a pre-existing partnership.
W h a t t h e l a w p r o h i b i t s w a s w h e n t h e s p o u s e s e n t e r e d i n t o a g e n e r a l partnership.
In the case at bar, the partnership was limited
 FERNANDEZ vs. DE LA ROSA
G.R. No. 413 February 2, 1903
FACTS: Fernandez alleges that in January, 1900, he entered into a verbal agreement with Dela Rosa to form a partnership
for the purchase of cascoes and the carrying on of the business of letting the same for hire in Manila, and Dela Rosa is to
buy the cascoes and each partner to furnish for that purpose such amount of money as he could, the profits to be divided
proportionately; Fernandez furnished Dela Rosa sums to purchase and repair cascoes, the latter taking the titles in his own
name; that in April the parties undertook to draw up articles of partnership for the purpose of embodying the same in an
authentic document, but that the defendant having proposed a draft of such articles which differed materially from the
terms of the earlier verbal agreement, and being unwillingly to include the 2nd casco in the partnership, they were unable
to come to any understanding and no written agreement was executed; that the defendant having in the meantime had the
control and management of the two cascoes, the plaintiff made a demand for an accounting upon him, which the
defendant refused to render, denying the existence of the partnership altogether.
Dela Rosa admits that the project of forming a partnership in the casco business in which he was already engaged to some
extent individually was discussed between himself and the plaintiff in January, 1900, but he denies that any agreement
was ever consummated. He denies that the plaintiff furnished any money in January, 1900, for the purchase of the first
casco, or for repairs on the same, but claims that he borrowed 300 pesos on his individual account in January from the
bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which he admits he received
from the Fernandez March 5, he claims was for the purchase of the first casco, which he alleged was bought March 12,
and he alleges that he never received anything from the defendant toward the purchase of the 2nd casco. He claims to have
paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second one.
ISSUE:
(1) Did a partnership exist between the parties?

(2) If such partnership existed, was it terminated as a result of the act of the defendant in receiving back the 1,125 pesos?

HELD:
(1) Partnership is a contract by which 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 Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of partnership are, therefore, (1) mutual
contribution to a common stock, and (2) a joint interest in the profits. If the contract contains these two elements the
partnership relation results, and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil Code,
secs. 1689, 1695.)
We have found as a fact that money was furnished by the plaintiff and received by the defendant with the understanding
that it was to be used for the purchase of the cascoes in question. This establishes the first element of the contract, namely,
mutual contribution to a common stock. The second element, namely, the intention to share profits, appears to be an
unavoidable deduction from the fact of the purchase of the cascoes in common, in the absence of any other explanation of
the object of the parties in making the purchase in that form, and, it may be added, in view of the admitted fact that prior
to the purchase of the first casco the formation of a partnership had been a subject of negotiation between them.

It is thus apparent that a complete and perfect contract of partnership was entered into by the parties. This contract, it is
true, might have been subject to a suspensive condition, postponing its operation until an agreement was reached as to the
respective participation of the partners in the profits, the character of the partnership as collective or en comandita, and
other details, but although it is asserted by counsel for the defendant that such was the case, there is little or nothing in the
record to support this claim, and that fact that the defendant did actually go on and purchase the boat, as it would seem,
before any attempt had been made to formulate partnership articles, strongly discountenances the theory.
The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of partnership as a
civil contract, the contributions of the partners not having been in the form of immovables or rights in immovables. (Civil
Code, art. 1667.) The special provision cited, requiring the execution of a public writing in the single case mentioned and
dispensing with all formal requirements in other cases, renders inapplicable to this species of contract the general
provisions of article 1280 of the Civil Code.

2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returned to him by the
defendant after the definitive failure of the attempt to agree upon partnership articles. The amount returned fell short, in
our view of the facts, of that which the plaintiff had contributed to the capital of the partnership, since it did not include
the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is quite possible, as claimed by the
plaintiff, that a profit may have been realized from the business during the period in which the defendant have been
administering it prior to the return of the money, and if so he still retained that sum in his hands. For these reasons the
acceptance of the money by the plaintiff did not have the effect of terminating the legal existence of the partnership by
converting it into a societas leonina, as claimed by counsel for the defendant.
The result is that we hold and declare that a partnership was formed between the parties in January, 1900, the existence of
which the defendant is bound to recognize; that cascoes No. 1515 and 2089 constitute partnership property, and that the
plaintiff is entitled to an accounting of the defendants administration of such property, and of the profits derived
therefrom. This declaration does not involve an adjudication as to any disputed items of the partnership account.
Gatchalian vs.Collector of Internal Revenue

GR L-45425

FACTS:

Jose Gatchalian along with 14 others bonded together to purchase a sweeptakes ticket in the amount of Ps 2.00 and
registered the same as Jose Gatchalian and Co. This ticket has eventually won 3rd prize amounting to Ps 50,000.00 which
they divided in accordance with their aliquot share in the cost of the ticket. Gatchalian receiving Ps 4425 for his Ps .18
cost.

A month after winning the ticket they were assessed by the Collector of Internal Revenue for the payment of Income Tax
of their unregistered partnership requesting them to pay Ps 1,499.94. They replied that that they merely formed a co-
ownership not Partnership and requested the CIR that they be exempted from paying such assessed income tax. They also
submitted evidence of payment of income tax by each of them for their corresponding individual taxable pertaining to
their share in the winnings. However it was denied by the CIR.

Demand letter ensued until it resulted to the issuance of Warrant of distraint and levy on the property of the petitioner.
Through the the 2 co-owner of Gatchalian they paid a portion of the tax assessed amounting to Ps 602.51 to avoid the
embargo of the property and promised to pay the balance in installments guaranteed by 2 solvent persons as required by
the CIR. The payment was made under protest and petitioner filed for request for refund at the same time. The protest
was overruled and the demand for refund was denied.

Another warrant for distraint and levy on the property was issued for failure to pay the monthly installments. Finally the
balance was paid Ps 1,260.93 which includes legal interest and penalties. Again a formal protest and request for refund
was filed and was denied.

Petitioners elevated the matter to SC requesting refund of amount of Ps 1,863.44 and legal interest hereon.

ISSUE:

Whether or not Petitioners formed Co-Ownership or Unregistered Partnership when they purchased the winning
sweepstakes ticket?

RULING:

SC ruled that when they bonded together and contributed to the cost of the ticket they formed an Unregistered Partnership.
For they contributed money or property into a common fund which they invest in the ticket and when it won, they divided
the profit among themselves.
Pastor vs. Gaspar

Facts:

On November 1900, MacarioNicasio and the defendant Gaspar entered into a contract of partnership under the
name Nicasio and Gaspar.
The said partnership owned the steam launch Luisa, and its only business was relating to this launch.
On November 24, 1900, with the desire to enlarge their business, a contract was made between the firm of
Nicasio and Gaspar on the one side, and on the other side the plaintiff and 4 others from whom N and G secured a
sum of P28, 000 in order to finance the purchase of 6 additional launches.
In the contract, N and G undertakes to return the amount loaned to the plaintiff within a period of ten years from
the date of the instrument and to guarantee the fulfillment of the said payment they pledge to the same parties the
6 launches.
Barely 7 months after the execution of the contract, it was terminated and was sold by mutual consent.
The plaintiff brought action alleging that the contract was one of partnership, and that the consent of his agent to
terminate the contract and the sale of the launches was obtained by fraud and the dissolution of the partnership
was null and void.

Issue: WON the transaction between the parties a loan or a contract of partnership.

Ruling: It was a LOAN in view of the ff. features contained in the contract as found by the SC:

(a) It is twice stated positively that N and G are the only partners and the only persons interested in the partnership of N
and G, to which statements Pastor and his associates assented to when he signed the document;

(b) It is stated, also distinctly and positively, that the money has been furnished as a loan;

(c) N and G bind themselves in the contract to repay the amount something that they would not be bound to do were the
contract one of partnership;

(d) In the contract, N and G create in favor of Pastor and his associates a right of pledge over the launches, a thing
inconsistent with the idea of partnership;

(e) N and G are to be considered as consignees only as long as they do not pay the debt. This indicates that they had a
right to pay it;

(f) They bind themselves not to alienate the launches until they had paid the debt indicating clearly that by paying the debt
they could do so, a thing inconsistent with the idea of a partnership; and

(g) It is also stated that the launch Luisa is not included in the contract.

It was also ruled that, the fact that Pastor et. al., was to share in the profits andlosses of the business and that N and G
should answer for the payment of the debt only with the launches and not with their property, indicate that the petitioner
was a partner. But these provisions are not conclusive. The rights of third persons are not concerned. The parties could, in
making the contract, if they choose, take some provisions from the law of partnership and others fromthe law of loans.
Loans with a right to receive a part of the profits in lieu of interests are not uncommon. As between the parties, such a
contract is not one of a partnership.
LORENZO OA V CIR

GR No. L -19342 | May 25, 1972 | J. Barredo

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

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.
SARDANE VS. COURT OF APPEALS
FACTS:
Petitioner Sardane is the owner of a Sardane Trucking Services. One day Sardane borrowed money from the other guy by
making promises and issuing several promissory notes. On the due date the other guy wanted his money back but instead
of paying Sardane apologized for his failure to pay on time, and he promised the other guy that he would pay him next
time. After so many failed attempts to collect his money the other guy got mad and finally decided to seek the
intervention of the court. Now after so many failed attempts to collect the promised payment, the other guy, Mr.Acojedo
(Private Respondent), with so much hate on his heart, finally filed a collection case against Sardane. Even during the
scheduled date of the trial, Sardane, as usual he did not show up. On motion by the petitioner(herein private respondent),
the Court issued an order declaring the Sardane in default and eventually after presentation of evidence ex parte,
the court rendered judgment by default in favor of the petitioner. Sardane then appealed to the CFI, and he claimed that
the promissory notes were his contribution to the partnership; and that there is no contract of loan; thus he is not indebted
to the other guy. The CFI, believing the arguments of Sardane, ruled on his favor thereby reversing the decision of the
lower court by dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant
P500.00 for moral damages

ISSUE:
whether or not a partnership existed?

HELD:
NONE .The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the
private respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the
profits of a business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such
profits were received in payment as wages of an employee. Furthermore, herein petitioner had no voice in the
management of the affairs of the basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez
Hermanos, denied the claim of the plaintiff therein that he was a partner in the business of the defendant. The same rule
was reiterated in Bastida vs. Menzi & Co., Inc., et al. which involved the same factual and legal milieu.
DELUAO v. CASTEEL

G.R. No. L-21906; December 24, 1968

Ponente: J. Castro

FACTS:

In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy land, 178.76 hectares, in the then
sitio of Malalag, municipality of Padada, Davao for 3 consecutive times because the Bureau of Fisheries did not act upon
his previous applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat poised upon his position by the other
applicants who entered upon and spread themselves within the area, Casteel realized the urgent necessity of expanding his
occupation thereof by constructing dikes and cultivating marketable fishes. But lacking financial resources at that time, he
sought financial aid from his uncle Felipe Deluao.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel
immediately filed a protest. Consequently, two administrative cases ensued involving the area in question.

However, despite the finding made in the investigation of the above administrative cases, the Director of Fisheries
nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the improvements which he
had introduced on the land, and ordered that the land be leased through public auction

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of
the second part, executed a contract denominated a "contract of service". On the same date the above contract was
entered into, Inocencia Deluao executed a special power of attorney in favor of Jesus Donesa

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17, 1948.
Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases and asked for
reinvestigation of the application of Nicanor Casteel over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel to be reinstated in the area and
that he shall pay for the improvement made thereupon.
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and
ejected the latter's representative (encargado), Jesus Donesa, from the premises.

ISSUE:
Whether the reinstatement of Casteel over the subject land constitute a dissolution of the partnership between him and
Deluao

HELD:

Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

The Supreme Court ruled that the arrangement under the so-called "contract of service" continued until the decision both
dated Sept. 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B.
This development, by itself, brought about the dissolution of the partnership. Since the partnership had for its object the
division into two equal parts of the fishpond between the appellees and the appellant after it shall have been awarded to
the latter, and therefore it envisaged the unauthorized transfer of one half thereof to parties other than the applicant
Casteel, it was dissolved by the approval of his application and the award to him of the fishpond.

The approval was an event which made it unlawful for the members to carry it on in partnership. Moreover, subsequent
events likewise reveal the intent of both parties to terminate the partnership because each refused to share the fishpond
with the other.