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Evangelista & Co. vs. Abad Santos - 51 SCRA 416 (1973)

FACTS: On October 9, 1954 a co-partnership was formed under the name of

"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership were
amended so as to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonarda Atienza Abad Santos and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a contribution of P17,500 each. On
December 17, 1963 herein respondent filed suit against the three other
partners, alleging that the partnership, which was also made a party-
defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to
refuse to let her examine the partnership books or to give her information
regarding the partnership affairs or to pay her any share in the dividends
declared by the partnership. The defendants, in their answer, denied ever
having declared dividends or distributed profits of the partnership; denied
likewise that the plaintiff ever demanded that she be allowed to examine the
partnership books; and by way of affirmative defense alleged that the amended
Articles of Co-partnership did not express the true agreement of the parties,
which was that the plaintiff was not an industrial partner; that she did not in
fact contribute industry to the partnership.

ISSUE: Whether or not the Articles of Co-partnership shall be considered as a

conclusive evidence of respondent’s status as a limited partner?

HELD: No. The Court held that despite the genuineness of the Articles of Co-
partnership the same did not express the true intent and agreement of the
parties, however, as the subsequent events and testimonial evidences indicate
otherwise, the Court upheld that respondent is an industrial partner of the
company.

Article 1789 provides that ‘An industrial partner cannot engage in

business for himself, unless the partnership expressly permits him to do so;
and if he should do so, the capitalist partners may either exclude him from the
firm or avail themselves of the benefits which he may have obtained in violation
of this provision, with a right to damages in either case.’ Since 1954 and until
after the promulgation of the decision of the appellate court, Abad Santos has
served as a judge of the City Court of Manila and had been paid for services
rendered allegedly contributed by her to the partnership. Though being a judge
of the City Court of Manila cannot be characterized a business and/or may be
considered an antagonistic business to the partnership, the petitioners,
subsequent of petitioners’ answer to the complaint, petitioners reached the
decision that respondent be excluded from and deprived of her alleged share in
the interest or participation as an alleged industrial partner in the net profits
or income of the partnership.
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Having always known the respondent is a City Judge even before she
joined the partnership, why did it take petitioners so many years before
excluding her from said company? Furthermore, the act of exclusion is
premised on the ground that respondent has always been a partner, an
industrial partner.

Fernandez vs. Dela Rosa - 6 Phil 671 (1906)

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, which 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?
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(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.
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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 defendant’s
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.

Campos Rueda & Co. vs. Pacific Commercial & Co. - 44 Phil 916 (1923)

FACTS: Campos, Rueda & Co., a limited partnership, is indebted to the

appellants: Pacific Commercial Co. , Asiatic Petroleum Co, and International
Banking Corporation amounting to not less than P1,000.00 (which were not
paid more than 30 days prior to the date of the filing by petitioners of the
application for voluntary insolvency).
The trial court denied their petition on the ground that it was not proven, nor
alleged, that the members of the firm were insolvent at the time the application
was filed. It also held that the partners are personally and solidarily liable for
the consequences of the transactions of the partnership. From this judgment
the petitioners appeal to this court, on the ground that this finding of the lower
court is erroneous.

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

an act of insolvency.
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HELD: Yes. A limited partnership’s juridical personality is different from the

personality of its members. On general principle, the limited partnership must
answer for and suffer the consequence of its acts.

Unlike the common law, the Philippine statutes consider a limited

partnership as a juridical entity for all intents and purposes, which personality
is recognized in all its acts and contracts (art. 116, Code of Commerce). This
being so and the juridical personality of a limited partnership being different
from that of its members, it must, on general principle, answer for, and suffer,
the consequence of its acts as such an entity capable of being the subject of
rights and obligations. If, as in the instant case, the limited partnership of
Campos Rueda & Co. Failed to pay its obligations with three creditors for a
period of more than thirty days, which failure constitutes, under our
Insolvency Law, one of the acts of bankruptcy upon which an adjudication of
involuntary insolvency can be predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent.

The petitioners have a right to a judicial decree declaring the involuntary

insolvency of said partnership.

Vargas & Co. vs. Chan - 29 Phil 446 (1915)

FACTS: The plaintiff is a merchantile association duly organized under the

laws of the Philippine Islands and presumably registered as required by law. An
action was begun by Chan Hang Chiu against the plaintiff in this case to
recover a sum of money. The summons and complaint were placed in the
hands of the sheriff, who certified that served the same on Vargas & Co. by
delivering to and leaving with one Jose Macapinlac personally true copies
thereof, he being the managing agent of said Vargas & Co. at the time of such
service. The justice's court rendered judgment against Vargas & Co. for the
sum of P372.28. Thereafter execution was duly issued and the property of
Vargas & Co. levied on for the payment thereof.
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The contention of plaintiff is that Vargas & Co. being a partnership, it is

necessary, in bringing an action against it, to serve the summons on all of the
partners, delivering to each one of them personally a copy thereof; and that the
summons in this case having been served on the managing agent of the
company only, the service was of no effect as against the company and the
members thereof and the judgment entered by virtue of such a service was
void. Plaintiff also contends that even admitting that service on the managing
agent of the plaintiff is sufficient service, as a matter of fact no service was
really made on the managing agent of the company but, rather, on an employee
or salesman of the company, who had no powers of management or supervision
and who was not competent to receive service on behalf of the company.

ISSUE: Whether it is necessary, in bringing an action against it, to serve the

summons on all of the partners to satisfy a sufficient service of summon.

HELD: No. The Court ruled that neither of these contentions can be sustained.
It has been the universal practice in the Philippine Islands to treat companies
of the class to which the plaintiff belongs as legal or juridicial entities and to
permit them to sue and be sued in the name of the company, the summons
being served solely on the managing agent or other official of the company
specified by the section of the Code of Civil Procedure referred to. The plaintiff
brings this action in the company name and not in the name of the members of
the firm. Actions against companies of the class to which plaintiff belongs are
brought, according to the uninterrupted practice, against such companies in
their company names and not against the individual partners constituting the
firm.

It would be idle to serve process on individual members of a partnership

if the litigation were to be conducted in the name of the partnership itself and
by the duly constituted officials of the partnership exclusively.

Ngo Tian Tek vs. Phil. Educate Co. - 78 Phil 275 (1947)

FACTS: The plaintiff, Philippine Education Co., Inc., instituted in the Court of
First Instance of Manila an action against the defendants, Vicente
Tan alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for the
recovery of some P16,070.14, unpaid cost of merchandise purchased by Lee
Guan Box Factory from the plaintiff and five other corporate entities which,
though not parties to the action, had previously assigned their credits to the
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plaintiff, together with attorney's fees, interest and costs. /by agreement of the
parties, the case was heard before a referee, Attorney Francisco Dalupan, who
in due time submitted his report holding the defendants jointly and severally
liable to the plaintiff for the sum of P16,070.14. The Court of First Instance of
Manila rendered judgment was affirmed by the Court of Appeals in its decision,
now the subject of our review at the instance of the partnership Ngo Tian Tek
and Ngo Hay, petitioner herein.

ISSUE: Whether the Court of Appeals erred in holding that Lee Guan Box
Factory was a subsidiary of the Modern Box Factory.

HELD: No. The Court overruled petitioner's contention that the Court of
Appeals erred in holding that Lee Guan Box Factory was a subsidiary of the
Modern Box Factory and in disregarding the fact that the contracts evidencing
the debts in question were signed by Vicente Tan alias Chan Sy, without any
indication that tended to involve the Modern Box Factory or the petitioner. In
the first place, we are concluded by the finding of the Court of Appeals
regarding the ownership by the petitioner of Lee Guan Box Factory.

Secondly, the circumstances that Vicente Tan alias Chan Sy acted in his
own name cannot save the petitioner, in view of said ownership, and because
contracts entered into by a factor of a commercial establishment known to
belong to a well known enterprise or association, shall be understood as made
for the account of the owner of such enterprise or association, even when the
factor has not so stated at the time of executing the same, provided that such
contracts involve objects comprised in the line and business of the
establishment. The fact that Vicente Tan did not have any recorded power of
attorney executed by the petitioner will not operate to prejudice third persons,
like the respondent Philippine Education Co., Inc., and its assignors.

Petitioner's allegation that "fraud in the inception of the debt is personal

to the contracting parties and does not follow assignment," and that the
contracts assigned to the respondent company "are immoral and against public
policy and therefore void," constitute defenses on the merits, but do not affect
the efficacy of the assignment. It is obvious that, apart from the fact that the
petitioner cannot invoke fraud of its authorship to evade liability, the appealed
decision is founded on an obligation arising, not from fraud, but from the very
contracts under which merchandise had been purchased by Lee Guan Box
Factory.

Regarding the suggestion in petitioner's memorandum that this case should be

dismissed because of the death of Ngo Hay, it is sufficient to state that the
petitioner Ngo Tian Tek and Ngo Hay is sued as a partnership possessing a
personality distinct from any of the partners.
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Tai Tong Chuache and Co. vs. Insurance Commission - 158 SCRA 336
(1988)

FACTS: Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the
amount of P100,000.00. To secure the payment of the loan, a mortgage was
executed over the land and the building in favor of Tai Tong Chuache & Co.
Arsenio Chua, representative of Thai Tong Chuache & Co. insured the latter's
interest with Travellers Multi-Indemnity Corporation for P100,000.00
(P70,000.00 for the building and P30,000.00 for the contents thereof) Pedro
Palomo secured a Fire Insurance Policy covering the building for P50,000.00
with respondent Zenith Insurance Corporation. On July 16, 1975, another Fire
Insurance was procured from respondent Philippine British Assurance
Company, covering the same building for P50,000.00 and the contents thereof
for P70,000.00. The building and the contents were totally razed by fire.

Based on the computation of the loss, including the Travellers Multi-

Indemnity, respondents, Zenith Insurance, Phil. British Assurance and
S.S.S. Accredited Group of Insurers, paid their corresponding shares of the
loss. Complainants were paid the following: P41,546.79 by Philippine British
Assurance Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by
S.S.S. Group of Accredited Insurers Demand was made from respondent
Travellers Multi-Indemnity for its share in the loss but the same was refused.

Hence, complainants demanded from the other three (3) respondents the
balance of each share in the loss in the amount of P30,894.31 (P5,732.79-
Zenith Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited)
but the same was refused, hence, this action.

In their answers, Philippine British Assurance and Zenith Insurance

Corporation denied liability on the ground that the claim of the complainants
had already been waived, extinguished or paid. Both companies set up
counterclaim in the total amount of P 91,546.79. SSS Accredited Group of
Insurers informed the Commission that the claim of complainants for the
balance had been paid in the amount in full. Travellers Insurance, on its part,
admitted the issuance of a Policy and alleged defenses that Fire Policy,
covering the furniture and building of complainants was secured by a certain
Arsenio Chua and that the premium due on the fire policy was paid by Arsenio
Chua. Tai Tong Chuache & Co. also filed a complaint in intervention claiming
the proceeds of the fire Insurance Policy issued by respondent Travellers Multi-
Indemnity.

As adverted to above respondent Insurance Commission dismissed

spouses Palomos' complaint on the ground that the insurance policy subject of
the complaint was taken out by Tai Tong Chuache & Company, for its own
interest only as mortgagee of the insured property and thus complainant as
mortgagors of the insured property have no right of action against the
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respondent. It likewise dismissed petitioner's complaint in intervention in the

following words: From the above decision, only intervenor Tai Tong Chuache
filed a motion for reconsideration but it was likewise denied hence, the present
petition.

ISSUE: Whether or not Tai Tong had insurable interest.

HELD: Yes. Petition granted.

Respondent advanced an affirmative defense of lack of insurable interest

on the part of the petitioner that before the occurrence of the peril insured
against, the Palomos had already paid their credit due the petitioner. However,
they were never able to prove that Tai had a lack of insurable interest. Hence,
the decision must be adverse against them. However respondent Insurance
Commission absolved respondent insurance company from liability on the
basis of the certification issued by the then Court of First Instance of
Davao, Branch II, that in a certain civil action against the Palomos, Arsenio
Lopez Chua stands as the complainant and not Tai Tong Chuache. From said
evidence respondent commission inferred that the credit extended by petitioner
to the Palomos secured by the insured property must have been paid. These
findings was based upon a mere inference.

The record of the case shows that the petitioner to support its claim for
the insurance proceeds offered as evidence the contract of mortgage which has
not been cancelled nor released. It has been held in a long line of cases that
when the creditor is in possession of the document of credit, he need not prove
non-payment for it is presumed. The validity of the insurance policy taken by
petitioner was not assailed by private respondent. Moreover, petitioner's claim
that the loan extended to the Palomos has not yet been paid was corroborated
by Azucena Palomo who testified that they are still indebted to herein
petitioner.

Public respondent argues however, that if the civil case really stemmed
from the loan granted to Azucena Palomo by petitioner the same should have
been brought by Tai Tong Chuache or by its representative in its own behalf.
From the above premise, respondent concluded that the obligation secured by
the insured property must have been paid. However, it should be borne in
mind that petitioner being a partnership may sue and be sued in its name or
by its duly authorized representative.

Petitioner's declaration that Arsenio Lopez Chua acts as the managing

partner of the partnership was corroborated by respondent insurance
company. Thus Chua as the managing partner of the partnership may execute
all acts of administration including the right to sue debtors of the partnership
in case of their failure to pay their obligations when it became due and
demandable. Public respondent's allegation that the civil case filed by Arsenio
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Chua was in his capacity as personal creditor of spouses Palomo has no basis.
The policy then had legal force and effect.

ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF

APPEALS and FELICIDAD S. VDA. DE ABROGAR, respondents.

FACTS:

Petitioner is the manager of A.C. Aguila& Sons, Co., a partnership engaged in

lending activities. Private respondent and her late husband, Ruben M. Abrogar,
were the registered owners of a house and lot, covered by Transfer Certificate of
Title No. 195101, in Marikina, Metro Manila.

On April 18 1991, the spouses Ruben and FelicidadAbrogar entered into a loan
agreement (written in a Memorandum of Agreement)for P200,000.00with a
lending firm called A.C. Aguila& Sons, Co., a partnership. In order to secure
the loan, the spouses mortgaged their house and lot. In case of non-payment,
the property shall be automatically appropriated to the partnership and a deed
of sale shall be readily executed in favor of the partnership, with a 90-day
redemption period.

Felicidad failed to make payment upon the death of her husband. She refused
to turn over the property. The firm filed an ejectment case against her (wherein
she lost). She also failed to redeem the property within the period stipulated in
the Memorandum of Agreement. She then filed a civil case against Alfredo
Aguila, manager of the firm, seeking for the declaration of nullity of the deed of
sale.She alleged that the signature of her husband on the deed of sale was a
forgery because he was already dead when the deed was supposed to have been
executed on June 11, 1991.

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 pactumcommissorium sale
which is prohibited under Art. 2088 of the Civil Code (note the disparity of the
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purchase price, which is the loan amount, with the actual value of the property
which is after all located in a subdivision).

ISSUE:

Whether or not the case should have been filed against petitioner, who is the
manager of the firm, or A.C. Aguila& Sons, Co., the actual partnership.

RULING:

The case should have been filed against A.C. Aguila& Sons, Co.

The civil case was filed not against the real party in interest. As pointed out by
the petitioner, 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.

HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and

BENGUET LUMBER COMPANY, represented by its President TAN
ENG LAY, respondents.
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FACTS:

Following the death of Tan EngKee on September 13, 1984, MatildeAbubo,

the common-law spouse of the decedent, joined by their children Teresita,
Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein
petitioners HEIRS OF TAN ENG KEE, filed suit against the decedents brother
TAN ENG LAY on February 19, 1990. The complaint, docketed as Civil Case No.
1983-R in the Regional Trial Court of Baguio City was for accounting,
liquidation and winding up of the alleged partnership formed after World War II
between Tan EngKee and Tan Eng Lay. On March 18, 1991, the petitioners
filed an amended complaintimpleading private respondent herein BENGUET
LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint
was admitted by the trial court in its Order dated May 3, 1991.

The amended complaint principally alleged that 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 EngKees 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.

Tan Eng Lay denied that there was a partnership between him and his
brother. He said that Tan EngKee was merely an employee of Benguet Lumber.
He showed evidence consisting of Tan EngKee’s payroll; his SSS as an
employee and Benguet Lumber being the employee. As a result of the
presentation of said evidence, the heirs of Tan EngKee filed a criminal case
against Tan Eng Lay for allegedly fabricating those evidence. Said criminal case
was however dismissed for lack of evidence.

ISSUE:

Whether or not Tan EngKee is a partner.

HELD:

No. There was no certificate of partnership between the brothers. The

heirs were not able to show the agreement between the brothers as to the
sharing of profits. Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of partnership, no agreement
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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. Tan Eng Lay was able to show
evidence that Benguet Lumber is a sole proprietorship. He registered the same
as such in 1954; that Kee was just an employee based on the latter’s payroll
and SSS coverage, and other records indicating Tan Eng Lay as the proprietor.

The essence of a partnership is that the partners share in the profits and
losses. Each has the right to demand an accounting as long as the partnership
exists. Even if it can be speculated that a scenario wherein “if excellent
relations exist among the partners at the start of the business and all the
partners are more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible.” But in the
situation in the case at bar, the deferment, if any, had gone on too long to be
plausible. A person is presumed to take ordinary care of his concerns. A
demand for periodic accounting is evidence of a partnership which Kee never
did.

The Court noted that in determining whether a partnership exists, these

rules shall apply:

(1) Except as provided by Article 1825, persons who are not

partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a
joint or common right or interest in any property which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the business, but
no such inference shall be drawn if such profits were received in
payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.
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MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondent
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FACTS:

On June 22, 1965, petitioners bought two (2) parcels of land from
Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3)
parcels of land from Juan Roque. These lots were subsequently sold in 1968
and 1972. Petitioners realized a net profit in the sale made in 1968 in the
amount of P165,224.70, while they realized a net profit of P60,000.00 in the
sale made in 1970. The corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax amnesties granted in the
said years.

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. 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 and
P.D. No. 23, as amended.

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
 16

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.

LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B.

OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B.
OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE

FACTS:

On March 23, 1944, Julia Buñales died leaving as heirs her surviving
spouse, Lorenzo Oña and her five children. In 1948, a civil case was instituted
for the settlement of her state, in which Oña 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 ½ 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
Oña 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 Oña who invested them.

Based on these facts, CIR decided that petitioners formed an

unregistered partnership and therefore, subject to the corporate income tax,
 17

particularly for years 1955 and 1956. Petitioners asked for reconsideration,
which was denied hence this petition for review from CTA’s decision.

ISSUE:

Whether or not there was an unregistered partnership between the petitioners,

making them liable for the deficiency corporate income tax.

HELD:

YES. The relationship between the petitioners is that of an

unregistered partnership in which they are liable for the deficiency
corporate income tax.

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 Oña 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.

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.

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
 18

FACTS:

Plaintiffs purchased from one of the duly authorized agents of the

National Charity Sweepstakes Office one ticket for the sum of two pesos (P2),
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 or not the plaintiffs formed a partnership making them liable for
income tax.

HELD:

Yes. There is no doubt that if the plaintiffs merely formed a community of

property the latter is exempt from the payment of income tax under the
law.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.
 19

FLORENCIO REYES and ANGEL REYES, petitioners,

vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX
APPEALS

FACTS:

On October 31, 1950, petitioners, father and son, purchased a lot and
building, known as the Gibbs Building, situated at 671 Dasmariñas Street,
Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving a
balance of P460,000.00, representing the mortgage obligation of the vendors
with the China Banking Corporation, which mortgage obligations were
assumed by the vendees. The initial payment of P375,000.00 was shared
equally by petitioners. At the time of the purchase, the building was leased to
various tenants, whose rights under the lease contracts with the original
owners, the purchasers, petitioners herein, agreed to respect.

The administration of the building was entrusted to an administrator

who collected the rents; kept its books and records and rendered statements of
accounts to the owners; negotiated leases; made necessary repairs and
disbursed payments, whenever necessary, after approval by the owners; and
performed such other functions necessary for the conservation and
preservation of the building. Petitioners divided equally the income of operation
and maintenance. The gross income from rentals of the building amounted to
about P90,000.00 annually.
 20

An assessment was made against petitioners by the CIR for income tax,
surcharge, and compromise for the years 1951 to 1954 and 1955 to 1956. In
the joint decision of respondent Court of Tax Appeals, the tax liability for the
years 1951 to 1954 was reduced to P37,128.00 and for the years 1955 and
1956, to P20,619.00 as income tax due "from the partnership formed" by
petitioners. The reduction was due to the elimination of surcharge, the failure
to file the income tax return being accepted as due to petitioners honest belief
that no such liability was incurred as well as the compromise penalties for
such failure to file.A reconsideration of the aforesaid decision was sought and
denied by respondent Court of Tax Appeals. Hence this petition for review.

ISSUE:

Whether or not the petitioners 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.

HELD:

YES. After referring to another section of the National Internal Revenue

Code, which explicitly provides that the term corporation "includes
partnerships" and then to Article 1767 of the Civil Code of the Philippines,
defining what a contract of partnership is, the opinion goes on to state that
"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. Hence, the issue
narrows down to their intent in acting as they did. 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.

For purposes of the tax on corporations, the National Internal Revenue

Code, include these partnerships — with the exception only of duly registered
general co-partnerships within the purview of the term "corporation." It is,
therefore, clear that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for corporations
 21

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA

EVANGELISTA, petitioners, 
vs.
THE COLLECTOR OF INTERNAL
REVENUE and THE COURT OF TAX APPEALS, respondents.G.R. No. L-
9996, October 15, 1957

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.

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,
 22

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.

Kiel vs. Estate of Sabert

Facts

Albert F. Kiel commenced to work on certain public lands situated in the

municipality of Parang, Cotabato, known as Parang Plantation Company. In
1910, Kiel and P. S. Sabert entered into an agreement to develop the
plantation. Sabert was to furnish the capital and Kiel was to manage it. It
seems that this partnership was formed so that the land could be acquired in
the name of Sabert, Kiel being a German citizen and not deemed eligible to
acquire public lands in the Philippines.

During the World War, Kiel was deported from the Philippines. Five persons,
including P. S. Sabert, organized the Nituan Plantation Company, to which
Sabert transferred all the rights and interests of the Parang Plantation
Company. Kiel appears to have tried to secure a settlement from Sabert. But
Sabert's death came before any amicable arrangement could be reached and
before an action by Kiel against Sabert could be decided. So these proceedings
against the estate of Sabert.
 23

Issue

What is the nature of the proceeding? Is this an action to establish a resulting

trust in the land of Sabert? NO

Held

The court held that a ruling on the issue of establishing trust is not needed.
Note that the complaint as framed asks for a straight money judgment against
an estate. In no part of the complaint did plaintiff allege any interest in
land, claim any interest in land, or pretend to establish a resulting trust
in land. This is not an action to establish trust in the land, because a trust
will not be created when, for the purpose of evading the law prohibiting
one from taking or holding real property, he takes a conveyance thereof
in the name of a third person.

Also, no partnership agreement in writing was entered into by Kiel and Sabert.
Thus the real issue is whether or not the alleged verbal copartnership formed
by Kiel and Sabert has been proved. The court held that declarations of one
partner, not made in the presence of his copartner, are not competent to prove
the existence of a partnership between them, and that the existence of a
partnership cannot be established by general reputation, rumor, or hearsay.

Although we feel that competent evidence exists establishing the partnership,

Kiel under the facts had no standing in court to ask for any part of the
land and in fact he does not do so. His only legal right is to ask for what is
in effect an accounting with reference to its improvements and income
when Sabert became the trustee of the estate on behalf of Kiel.

Kiel is not entitled to any share in the land itself, but he has clearly shown his
right to one-half of the value of the improvements and personal property on the
land. The value of these improvements and of the personal property cannot be
ascertained from the record and the case must therefore be remanded for
further proceedings.

Agad vs Mabato
 24

Facts: Petitioner Mauricio Agad claims that he and defendant Severino Mabato
are partners in a fishpond business to which they contributed P1000 each. As
managing partner, Mabato yearly rendered the accounts of the operations of
the partnership. However, for the years 1957-1963, defendant failed to render
the accounts despite repeated demands. Petitioner filed a complaint against
Mabato to which a copy of the public instrument evidencing their partnership
is attached. Aside from the share of profits (P14,000) and attorney’s fees
(P1000), petitioner prayed for the dissolution of the partnership and winding
up of its affairs.

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

Art. 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.

Art. 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if inventory of said property is not made, signed by the
parties; and attached to the public instrument.

Issue: Whether or not immovable property or real rights have been contributed
to the partnership.

Held: Based on the copy of the public instrument attached in the complaint,
the partnership was established to operate a fishpond", and not to "engage in a
fishpond business.” Thus, Mabato’s contention that “it is really inconceivable
how a partnership engaged in the fishpond business could exist without said
fishpond property (being) contributed to the partnership” is without merit.
Their contributions were limited to P1000 each and neither a fishpond nor a
real right thereto was contributed to the partnership.

Therefore, Article 1773 of the Civil Code finds no application in the case at bar.
Case remanded to the lower court for further proceedings.
25