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Aurelio Litonjua Jr vs. Eduardo Litonjua Sr.

et al the inventory requirement under the succeeding Article 1773 goes into the matter of
validity when immovable property is contributed to the partnership, the next logical
Facts: point of inquiry turns on the nature of Aurelio’s contribution, if any, to the supposed
Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo
The Memorandum is also not a proof of the partnership for the same is not a
entered into a contract of partnership with him. Aurelio showed as evidence a letter
public instrument and again, no inventory was made of the immovable property and no
sent to him by Eduardo that the latter is allowing Aurelio to manage their family
inventory was attached to the Memorandum. Article 1773 of the Civil Code requires
business (if Eduardo’s away) and in exchange thereof he will be giving Aurelio P1
that if immovable property is contributed to the partnership an inventory shall be had
million or 10% equity, whichever is higher. A memorandum was subsequently made
and attached to the contract.
for the said partnership agreement. The memorandum this time stated that in
exchange of Aurelio, who just got married, retaining his share in the family business
(movie theatres, shipping and land development) and some other immovable
properties, he will be given P1 Million or 10% equity in all these businesses and those AFISCO INSURANCE CORP. et al. vs. COURT OF
to be subsequently acquired by them whichever is greater.
In 1992 however, the relationship between the brothers went sour. And so
Aurelio demanded an accounting and the liquidation of his share in the partnership.
[G.R. No. 112675. January 25, 1999]
Eduardo did not heed and so Aurelio sued Eduardo.
Unregistered Partnerships and associations are considered as corporations for tax
Whether or not there exists a partnership.
purposes – Under the old internal revenue code, “A tax is hereby imposed upon the
HELD: taxable net income received during each taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no
No. The partnership is void and legally nonexistent. The documentary
matter how created or organized, xxx.” Ineludibly, the Philippine legislature included
evidence presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did
in the concept of corporations those entities that resembled them such as unregistered
not prove partnership.
partnerships and associations.
The 1973 letter from Eduardo on its face, contains typewritten entries,
Insurance pool in the case at bar is deemed a partnership or association taxable as a
personal in tone, but is unsigned and undated. As an unsigned document, there can
corporation – In the case at bar, petitioners-insurance companies formed a Pool
be no quibbling that said letter does not meet the public instrumentation requirements
Agreement, or an association that would handle all the insurance businesses covered
exacted under Article 1771 (how partnership is constituted) of the Civil Code.
under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich
Moreover, being unsigned and doubtless referring to a partnership involving more than
is considered a partnership or association which may be taxed as a ccorporation.
P3,000.00 in money or property, said letter cannot be presented for notarization, let
alone registered with the Securities and Exchange Commission (SEC), as called for
Double Taxation is not Present in the Case at Bar – Double taxation means “taxing the
under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as
same person twice by the same jurisdiction for the same thing.” In the instant case,
the insurance pool is a taxable entity distince from the individual corporate entities of HELD:
the ceding companies. The tax on its income is obviously different from the tax on the
dividends received by the companies. There is no double taxation. 1) Yes: Pool taxable as a corporation

Argument of Petitioner: The reinsurance policies were written by them “individually

and separately,” and that their liability was limited to the extent of their allocated share
FACTS: in the original risks thus reinsured. Hence, the pool did not act or earn income as a
reinsurer. Its role was limited to its principal function of “allocating and distributing the
The petitioners are 41 non-life domestic insurance corporations. They risk(s) arising from the original insurance among the signatories to the treaty or the
issued risk insurance policies for machines. The petitioners in 1965 entered into members of the pool based on their ability to absorb the risk(s) ceded[;] as well as the
a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the performance of incidental functions, such as records, maintenance, collection and
Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident custody of funds, etc.”
foreign insurance corporation. The reinsurance treaties required petitioners to form a
pool, which they complied with. Argument of SC: According to Section 24 of the NIRC of 1975:

In 1976, the pool of machinery insurers submitted a financial statement and “SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax
filed an “Information Return of Organization Exempt from Income Tax” for 1975. On is hereby imposed upon the taxable net income received during each taxable year
the basis of this, the CIR assessed a deficiency of P1,843,273.60, and withholding from all sources by every corporation organized in, or existing under the laws of the
taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich Philippines, no matter how created or organized, but not including duly registered
and to the petitioners, respectively. general co-partnership (compañias colectivas), general professional partnerships,
private educational institutions, and building and loan associations xxx.”
The Court of Tax Appeal sustained the petitioner's liability. The Court of
Appeals dismissed their appeal. Ineludibly, the Philippine legislature included in the concept of corporations
those entities that resembled them such as unregistered partnerships and
The CA ruled in that the pool of machinery insurers was a partnership associations. Interestingly, the NIRC’s inclusion of such entities in the tax on
taxable as a corporation, and that the latter’s collection of premiums on behalf of its corporations was made even clearer by the Tax Reform Act of 1997 Sec. 27 read
members, the ceding companies, was taxable income. together with Sec. 22 reads:

“SEC. 27. Rates of Income Tax on Domestic Corporations. --

ISSUE/S: (A) In General. -- Except as otherwise provided in this Code, an income tax of thirty-
five percent (35%) is hereby imposed upon the taxable income derived during each
1. Whether or not the pool is taxable as a corporation.
taxable year from all sources within and without the Philippines by every corporation,

2. Whether or not there is double taxation. as defined in Section 22 (B) of this Code, and taxable under this Title as a corporation
“SEC. 22. -- Definition. -- When used in this Title: Argument of Petitioner: Remittances of the pool to the ceding companies and Munich
are not dividends subject to tax. Imposing a tax “would be tantamount to an illegal
xxx xxx xxx double taxation, as it would result in taxing the same premium income twice in the
hands of the same taxpayer.” Furthermore, even if such remittances were treated as
(B) The term ‘corporation’ shall include partnerships, no matter how created or
dividends, they would have been exempt under Sections 24 (b) (I) and 263 of the
organized, joint-stock companies, joint accounts (cuentas en participacion),
1977 NIRC , as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of the RP-
associations, or insurance companies, but does not include general professional
West German Tax Treaty.
partnerships [or] a joint venture or consortium formed for the purpose of undertaking
construction projects or engaging in petroleum, coal, geothermal and other energy Argument of Supreme Court: Double taxation means “taxing the same person twice
operations pursuant to an operating or consortium agreement under a service contract by the same jurisdiction for the same thing.” In the instant case, the insurance pool is
without the Government. ‘General professional partnerships’ are partnerships a taxable entity distince from the individual corporate entities of the ceding companies.
formed by persons for the sole purpose of exercising their common profession, no part The tax on its income is obviously different from the tax on the dividends received by
of the income of which is derived from engaging in any trade or business. the companies. There is no double taxation.

Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section 24 Tax exemption cannot be claimed by non-resident foreign insurance corporattion; tax
covered these unregistered partnerships and even associations or joint accounts, exemption construed strictly against the taxpayer - Section 24 (b) (1) pertains to tax on
which had no legal personalities apart from their individual members. foreign corporations; hence, it cannot be claimed by the ceding companies which are
domestic corporations. Nor can Munich, a foreign corporation, be granted exemption
Furthermore, Pool Agreement or an association that would handle all the insurance
based solely on this provision of the Tax Code because the same subsection
businesses covered under their quota-share reinsurance treaty and surplus
specifically taxes dividends, the type of remittances forwarded to it by the pool. The
reinsurance treaty with Munich may be considered a partnership because it contains
foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax
the following elements: (1) The pool has a common fund, consisting of money and
exemption must be construed strictissimi juris, and the statutory exemption claimed
other valuables that are deposited in the name and credit of the pool. This common
must be expressed in a language too plain to be mistaken.
fund pays for the administration and operation expenses of the pool. (2) The pool
functions through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding companies. (3)
While, the pool itself is not a reinsurer and does not issue any policies; its work is AFISCO INSURANCE CORP. V CA 302 SCRA 1
indispensable, beneficial and economically useful to the business of the ceding (January 25, 1999)
companies and Munich, because without it they would not have received their
premiums pursuant to the agreement with Munich. Profit motive or business is,
therefore, the primordial reason for the pool’s formation. Facts:

AFISCO and 40 other non-life insurance companies entered into a Quota

Share Reinsurance Treaties with Munich, a non-resident foreign insurance
2) No: There is no double taxation.
corporation, to cover for All Risk Insurance Policies over machinery erection,
breakdown and boiler explosion. The treaties required petitioners to form a pool, to indispensable, beneficial and economically useful to the business of the ceding
which AFISCO and the others complied. On April 14, 1976, the pool of machinery companies and Munich, because without it they would not have received their
insurers submitted a financial statement and filed an “Information Return of premiums.
Organization Exempt from Income Tax” for the year ending 1975, on the basis of
which, it was assessed by the commissioner of Internal Revenue deficiency corporate As to the claim of double taxation, the pool is a taxable entity distinct from
taxes. A protest was filed but denied by the CIR. the individual corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the said companies.
Petitioners contend that they cannot be taxed as a corporation, because (a) Clearly, there is no double taxation.
the reinsurance policies were written by them individually and separately, (b) their
liability was limited to the extent of their allocated share in the original risks insured As to the argument on prescription, the prescriptive period was totaled
and not solidary, (c) there was no common fund, (d) the executive board of the pool under the Section 333 of the NIRC, because the taxpayer cannot be located at the
did not exercise control and management of its funds, unlike the board of a address given in the information return filed and for which reason there was delay in
corporation, (e) the pool or clearing house was not and could not possibly have sending the assessment. Further, the law clearly states that the prescriptive period will
engaged in the business of reinsurance from which it could have derived income for be suspended only if the taxpayer informs the CIR of any change in the address.
itself. They further contend that remittances to Munich are not dividends and to subject
it to tax would be tantamount to an illegal double taxation, as it would result to taxing
the same premium income twice in the hands of the same taxpayer. Finally,
petitioners argue that the government’s right to assess and collect the subject Lim vs. Philippine Fishing Gear Industries Inc. [GR
Information Return was filed by the pool on April 14, 1976. On the basis of this return, 136448, 3 November 1999]
the BIR telephoned petitioners on November 11, 1981 to give them notice of its letter
of assessment dated March 27, 1981. Thus, the petitioners contend that the five-year
prescriptive period then provided in the NIRC had already lapsed, and that the internal FACTS:
revenue commissioner was already barred by prescription from making an Lim Tong Lim requested Peter Yao and Antonio Chuato engage in
assessment. 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
Held: and other fishing equipments. Yao and Chua represented themselves as acting in
behalf of “Ocean Quest Fishing Corporation” (OQFC) and they contracted with
A pool is considered a corporation for taxation purposes. Citing the case of Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to
Evangelista v. CIR, the court held that Sec. 24 of the NIRC covered these more than P500k. However, they were unable to pay PFGI and hence were sued in
unregistered partnerships and even associations or joint accounts, which had no legal their own names as Ocean Quest Fishing Corporation is a non-existent corporation.
personalities apart from individual members. Further, the pool is a partnership as Chua admitted his liability while Lim Tong Lim refused such liability alleging that Chua
evidence by a common fund, the existence of executive board and the fact that while and Yao acted without his knowledge and consent in representing themselves as a
the pool is not in itself, a reinsurer and does not issue any insurance policy, its work is corporation.
contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing
ISSUE: nets amounting to more than P500k.
Whether Lim Tong Lim is liable as a partner
They were however unable to pay PFGI and so they were sued in their own
names because apparently OQFC is a non-existent corporation. Chua admitted
liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim however
argued that he’s not liable because he was not aware that Chua and Yao represented
Yes. It is apparent from the factual milieu that the three decided to engage
themselves as a corporation; that the two acted without his knowledge and consent.
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 Whether or not Lim Tong Lim is liable.
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 HELD:
nets in the boat, which was an asset of the partnership. Under the law on estoppel,
Yes. From the factual findings of both lower courts, it is clear that Chua,
those acting in behalf of a corporation and those benefited by it, knowing it to be
Yao and Lim had decided to engage in a fishing business, which they started by
without valid existence are held liable as general partners. Hence, the question as to
buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In their
whether such was legally formed for unknown reasons is immaterial to the case.
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
Lim vs. Philippine Fishing Gear Industries Inc. [GR
borrowed money, fell under the term “common fund” under Article 1767. The
136448, 3 November 1999] 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.

It was established that Lim Tong Lim requested Peter Yao to engage in Lim Tong Lim cannot argue that the principle of corporation by estoppels
commercial fishing with him and one Antonio Chua. The three agreed to purchase two can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from
fishing boats but since they do not have the money they borrowed from one Jesus Lim the use of the nets found in his boats, the boat which has earlier been proven to be an
(brother of Lim Tong Lim). They again borrowed money and they agreed to purchase asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it
fishing nets and other fishing equipments. Now, Yao and Chua represented was never legally formed for unknown reasons, this fact alone does not preclude the
themselves as acting in behalf of “Ocean Quest Fishing Corporation” (OQFC) they liabilities of the three as contracting parties in representation of it. Clearly, under the
law on estoppel, those acting on behalf of a corporation and those benefited by it, Held:
knowing it to be without valid existence, are held liable as general partners. Yes. According to the stipulation facts the plaintiffs organized a partnership
of a civil nature because each of them put up money to buy a sweepstakes ticket for
the sole purpose of dividing equally the prize which they may win, as they did in fact in
the amount of P50,000. The partnership was not only formed, but upon the
Gatchalian vs. Collector of Internal Revenue [G.R.
organization thereof and the winning of the prize, Jose Gatchalian personally
No. L-45425, April 29, 1939]
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
Facts: Jose Gatchalian and company, and the said partner, in the same capacity, collected
Plaintiffs purchased, in the ordinary course of business, from one of the duly the said check. All these circumstances repel the idea that the plaintiffs organized and
authorized agents of the National Charity Sweepstakes Office one ticket for the sum of formed a community of property only.
two pesos (P2), said ticket was registered in the name of Jose Gatchalian and
Company. The ticket won one of the third-prizes in the amount of P50,000.
Jose Gatchalian was required to file the corresponding income tax return Pascual and Dragon v. CIR, G.R. No. 78133, October
covering the prize won. Defendant-Collector made an assessment against Jose
18, 1988
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
Petitioners bought two (2) parcels of land and a year after, they bought
was issued. Plaintiffs paid under protest a part of the tax and penalties to avoid the
another three (3) parcels of land. Petitioners subsequently sold the said lots in 1968
effects of the warrant. A request that the balance be paid by plaintiffs in installments
and 1970, and realized net profits. The corresponding capital gains taxes were paid by
was made. This was granted on the condition that a bond be filed.
petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said
Plaintiffs failed in their installment payments. Hence a request for execution
years. However, the Acting BIR Commissioner assessed and required Petitioners to
of the warrant of distraint and levy was made. Plaintiffs paid under protest to avoid the
pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for
the years 1968 and 1970. Petitioners protested the said assessment asserting that
A claim for refund was made by the plaintiffs, which was dismissed, hence
they had availed of tax amnesties way back in 1974. In a reply, respondent
the appeal.
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
Whether the plaintiffs formed a partnership hence liable for income tax.
that the unregistered partnership was subject to corporate income tax as distinguished
from profits derived from the partnership by them which is subject to individual income
tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual income tax liabilities but did not LORENZO OÑA V CIR
relieve them from the tax liability of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency income tax assessed.
GR No. L -19342
Whether the Petitioners should be treated as an unregistered partnership or
a co-ownership for the purposes of income tax.
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and
her five children. A civil case was instituted for the settlement of her state, in which
The Petitioners are simply under the regime of co-ownership and not under
Oña was appointed administrator and later on the guardian of the three heirs who
unregistered partnership.
were still minors when the project for partition was approved. This shows that the heirs
By the contract of partnership two or more persons bind themselves to contribute
have undivided ½ interest in 10 parcels of land, 6 houses and money from the War
money, property, or industry to a common fund, with the intention of dividing the profits
Damage Commission.
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,
Although the project of partition was approved by the Court, no attempt was
property or industry to a common fund, and that they intended to divide the profits
made to divide the properties and they remained under the management of Oña who
among themselves. The sharing of returns does not in itself establish a partnership
used said properties in business by leasing or selling them and investing the income
whether or not the persons sharing therein have a joint or common right or interest in
derived therefrom and the proceeds from the sales thereof in real properties and
the property. There must be a clear intent to form a partnership, the existence of a
securities. As a result, petitioners’ properties and investments gradually increased.
juridical personality different from the individual partners, and the freedom of each
Petitioners returned for income tax purposes their shares in the net income but they
party to transfer or assign the whole property. Hence, there is no adequate basis to
did not actually receive their shares because this left with Oña who invested them.
support the proposition that they thereby formed an unregistered partnership. The two
isolated transactions whereby they purchased properties and sold the same a few
Based on these facts, CIR decided that petitioners formed an unregistered partnership
years thereafter did not thereby make them partners. They shared in the gross profits
and therefore, subject to the corporate income tax, particularly for years 1955 and
as co- owners and paid their capital gains taxes on their net profits and availed of the
1956. Petitioners asked for reconsideration, which was denied hence this petition for
tax amnesty thereby. Under the circumstances, they cannot be considered to have
review from CTA’s decision.
formed an unregistered partnership which is thereby liable for corporate income tax,
as the respondent commissioner proposes.
1. Whether or not there was a co-ownership or an unregistered partnership
2. Whether or not the petitioners are liable for the deficiency corporate
income tax
Held: herein constitute a partnership, insofar as said Code is concerned, and are subject to
the income tax for corporations. Judgment affirmed.
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 Oña Commissioner of Internal Revenue vs. William j.
and let him use their shares as part of the common fund for their ventures, even as
Suter and the Court of Tax Appeals G.R. No. L-25532,
they paid corresponding income taxes on their respective shares.
Yes. For tax purposes, the co-ownership of inherited properties is automatically February 28, 1969
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 Facts:
produce profits for the heirs in proportion to their respective shares in the inheritance
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
as determined in a project partition either duly executed in an extrajudicial settlement
formed on 30 September 1947 by William J. Suter as the general partner, and Julia
or approved by the court in the corresponding testate or intestate proceeding. The
Spirig and Gustav Carlson, as the limited partners. The partners contributed,
reason is simple. From the moment of such partition, the heirs are entitled already to
respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October
their respective definite shares of the estate and the incomes thereof, for each of them
1947, the limited partnership was registered with the Securities and Exchange
to manage and dispose of as exclusively his own without the intervention of the other
Commission. In 1948, general partner Suter and limited partner Spirig got married
heirs, and, accordingly, he becomes liable individually for all taxes in connection
and, thereafter, on 18 December 1948, limited partner Carlson sold his share in the
therewith. If after such partition, he allows his share to be held in common with his co-
partnership to Suter and his wife. The sale was duly recorded with the Securities and
heirs under a single management to be used with the intent of making profit thereby in
Exchange Commission on 20 December 1948. The limited partnership had been filing
proportion to his share, there can be no doubt that, even if no document or instrument
its income tax returns as a corporation, without objection by the Commissioner of
were executed, for the purpose, for tax purposes, at least, an unregistered partnership
Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the
is formed.
income of 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 in the

For purposes of the tax on corporations, our National Internal Revenue amount of P2,678.06 for 1954 and P4,567.00 for 1955. Partner-Spouses Suter

Code includes these partnerships — protested the assessment.

The term “partnership” includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial Whether or not the partnership was dissolved after the marriage of the
operation, or venture is carried on… (8 Merten’s Law of Federal Income Taxation, p. partners, William J. Suter and Julia Spirig Suter and the subsequent sale to them by
562 Note 63; emphasis ours.) the remaining partner, Gustav Carlson?

With the exception only of duly registered general copartnerships — within Ruling:
the purview of the term “corporation.” It is, therefore, clear to our mind that petitioners
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but a HELD:
particular one since the contributions of the partners were fixed sums of money,
No. The action for accounting filed by Chua three (3) years after Jacinto’s
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them
death was well within the prescribed period. The Civil Code provides that an action to
was an industrial partner. It follows that the firm was not a partnership that spouses
enforce an oral contract prescribes in six (6) years while the right to demand an
were forbidden to enter by Article 1677 of the Civil Code of 1889 (now Article 1782 of
accounting for a partner’s interest as against the person continuing the business
the New Civil Code). Nor could the subsequent marriage of the partners operate to
accrues at the date of dissolution, in the absence of any contrary agreement.
dissolve it, such marriage not being one of the causes provided for that purpose by
Considering that the death of a partner results in the dissolution of the partnership, in
law. The capital contributions of partners William J. Suter and Julia Spirig were
this case, it was after Jacinto’s death that Chua as the surviving partner had the right
separately owned and contributed by them before their marriage; and after they were
to an account of his interest as against Lilibeth. It bears stressing that while Jacinto’s
joined in wedlock, such contributions remained their respective separate property
death dissolved the partnership, the dissolution did not immediately terminate the
under the Spanish Civil Code (Article 1396).
partnership. The Civil Code expressly provides that upon dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its
business, culminating in its termination.

Lilibeth Sunga-Chan vs Lamberto Chua


In 1977, Chua and Jacinto Sunga verbally agreed to form a partnership for
the sale and distribution of Shellane LPGs. Their business was very profitable but in G.R. No. 143340 August 15, 2001
1989 Jacinto died. Upon Jacinto’s death, his daughter Lilibeth took over the business
as well as the business assets. Chua then demanded for an accounting but Lilibeth
kept on evading him. In 1992 however, Lilibeth gave Chua P200k. She said that the
Lamberto Chua alleged that in 1977, he verbally entered into a partnership
same represents a partial payment; that the rest will come after she finally made an
with Jacinto in the distribution of Shellane LPG. For business convenience, Lamberto
accounting. She never made an accounting so in 1992, Chua filed a complaint for
and Jacinto allegedly agreed to register the business name of their partnership,
“Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares
SHELLITE GAS APPLIANCE CENTER, under the name of Jacinto as a sole
and Damages with Writ of Preliminary Attachment” against Lilibeth.
proprietorship. Both Lamberto and Jacinto contributed P100,000.00 to the
Lilibeth in her defense argued among others that Chua’s action has partnership, with the intention that the profits would be equally divided between them.
prescribed. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy,
sister-in-law of Lamberto. Upon Jacinto’s death in the later part of 1989, his daughter,
Lilibeth took over the operations of Shellite without Lamberto’s consent. Despite
ISSUE: Lamberto’s repeated demands for accounting, she failed to comply.
On June 22m 1992, Lamberto filed a complaint against Lilibeth with the
Whether or not Chua’s claim is barred by prescription.
RTC. RTC decided in favor of Lamberto.
Lilibeth questions the correctness of the finding that a partnership existed has arisen, and not the assignor of a right assigned before any cause of action has
between Lamberto and Jacinto. In the absence of any written document to show such arisen”. Plainly then, Josephine is merely a witness of Lamberto, latter being the
partnership between Lamberto and Jacinto, Lilibeth argues that these courts were plaintiff.
proscribed from hearing the testimonies of Lamberto and his witness, Josephine, to Lilibeth’s reliance alone on the “Dead Man’s Statue” to defeat Lamberto’s
prove the alleged partnership three (3) years after Jacinto’s death. claim cannot prevail over the factual findings that a partnership was established
To support the argument, Lilibeth invokes the “DEAD MAN’S STATUTE OR between Lamberto and Jacinto. Based not only on the testimonial evidence, but the
SURVIVORSHIP RULE” under Sec. 23, Rule 130. Lilibeth thus implores this Court to documentary evidence as well, they considered the evidence for Lamberto as
rule that the testimonies of Lamberto and his alter ego, Josephine, should not have sufficient to prove the formation of a partnership, albeit an informal one.
been admitted to prove certain claims against a deceased person (Jacinto).

Whether or not the “DEAD MAN’S STATUTE” applies to this case so as to
render inadmissible Lamberto’s testimony and that if his witness, Josephine.
G.R. No. L-39780; November 11, 1985

No. The “Dead Man’s Statute” provides that if one party to the alleged FACTS:

transaction is precluded from testifying by death, insanity, or other mental disabilities, Elmo Muñasque filed a complaint for payment of sum of money and
the surviving party is not entitled to the undue advantage of giving his own damages against respondents Celestino Galan, Tropical Commercial, Co., Inc.
contradicted and unexplained account of the transaction. (Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons for remodeling a portion
Lilibeth filed a compulsory counterclaim against Lamberto in their answer
of its building without exchanging or expecting any consideration from Galan although
before the RTC, and with the filing of their counterclaim, Lilibeth herself effectively the latter was casually named as partner in the contract; that by virtue of his having
removed this case from the ambit of the “Dead Man’s Statute”. Well entrenched is the introduced the petitioner to the employing company (Tropical), Galan would receive
some kind of compensation in the form of some percentages or commission.
rule that when it is the executor or administrator or representatives of the estate that
sets up the counterclaim, Lamberto, may testify to occurrences before the death of the Tropical agreed to give petitioner the amount of P7,000.00 soon after the
deceased to defeat the counterclaim. Moreover, as defendant in the counterclaim, construction began and thereafter the amount of P6,000.00 every fifteen (15) days
during the construction to make a total sum of P25,000.00.
Lamberto is not disqualified from testifying as to matters of fact occurring before the
death of the deceased, said action not having been bought against but by the estate On January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00
or representatives of the deceased. not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting
petitioner's indorsement on the same check persuading the latter that the same be
The testimony of Josephine is not covered by the “Dead Man’s Statute” for
deposited in a joint account.
the simple reason that she is not “a party or assignor of a party to a case or persons in
whose behalf a case is prosecuted”. Lamberto offered the testimony of Josephine to On January 26, 1967, when the second check for P6,000.00 was due,
petitioner refused to indorse said check presented to him by Galan but through later
establish the existence of the partnership between Lamberto and Jacinto. Lilibeth’s
manipulations, respondent Pons succeeded in changing the payee's name to Galan
insistence that Josephine is the alter ego of Lamberto does not make her an assignor and Associates, thus enabling Galan to cash the same at the Cebu Branch of the
because of the term “assignor” of a party means “assignor of a cause of action which Philippine Commercial and Industrial Bank (PCIB) placing the petitioner in great
financial difficulty in his construction business and subjecting him to demands of
creditors to pay for construction materials, the payment of which should have been
made from the P13,000.00 received by Galan.

Due to the unauthorized disbursement by respondents Tropical and Pons of

the sum of P13,000.00 to Galan, petitioner demanded that said amount be paid to him
by respondents under the terms of the written contract between the petitioner and
respondent company.


Whether there was a breach of trust when Tropical disbursed the money to
Galan instead of Muñasque


No, there was no breach of trust when Tropical disbursed the money to
Galan instead of Muñasque.

The Supreme Court held that there is nothing in the records to indicate that
the partnership organized by the two men was not a genuine one. A falling out or
misunderstanding between the partners does not convert the partnership into a sham

In the case at bar the respondent Tropical had every reason to believe that
a partnership existed between the petitioner and Galan and no fault or error can be
imputed against it for making payments to "Galan and Associates" and delivering the
same to Galan because as far as it was concerned, Galan was a true partner with real
authority to transact on behalf of the partnership with which it was dealing.