Article 1767

Lim tong Lim vs Philippine Fishing Gear

Can petitioner be treated as a partner despite Lim not being part of the contract?
Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation knowing it to
be without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it
shall not be allowed to use as a defense its lack of corporate personality.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not
preclude the 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, knowing it to be
without valid existence, are held liable as general partners.

A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they
have not contributed any capital of their own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for
debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that contract.

Evangelista et Al vs CIR

Petitioners borrowed money from their father to buy and sell parcels of land.

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 NationalInternal Revenue Code, as well as to the residence tax for corporations and the real
estate dealers fixed tax.

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 main issue is in the second element that they did not have the intent in acting the way they did

As to the Second element, 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.

Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the
acts performed by them, a legal entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships are lacking in the case at bar.
This pretense was correctly rejected by the Court of Tax Appeals.

Estanislao vs CA
Brothers and Sister. Petitioner was the manager of the gasoline business Petitioner failed to submit
accounting and the other partners were forced to compel him by filing a case. Petitioner says that
they do not have a partnership in the first place.
Petitioner contends that because of an additional cash pledge agreement, there was the cancellation
of the Joint affidavit caused the abrogation of the partnership.

There is no doubt that the parties hereto formed a partnership when they bound themselves to
contribute money to a common fund with the intention of dividing the profits among themselves.6 The
sole dealership by the petitioner and the issuance of all government permits and licenses in the
name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of
the parties of having only one dealer of the SHELL products..

Heirs of Lim vs Lim Article 1769 and Article 1767

Rules to determine existence of Partnership

This case is about a trucking business where the petitioners and repondents are in laws. They are from
a Chinese Family. The original partners was Jose who had connections as a liason officer of a sawmill,
Jimmy and Norberto Uy. When Jose died, his son Elfledo helped managed the business. Elfledo
eventually died leaving his wife as the person who was in charge of the business. The other partners
did not approve of this and filed a case stating that she was not a partner of the business.
In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner,
Elfledo was not a partner; and that he and Norberto entered into a partnership with Jose

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate sharing of
the profits and losses among them. A contract of partnership is defined by the Civil Code as one
where 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.
Undoubtedly, the best evidence would have been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this case, because the alleged partnership was never
formally organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the
"partner" in the trucking business.

Art. 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;
 (3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the
returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the
business;

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

The above testimonies prove that Elfledo was not just a hired help but one of the partners in the
trucking business, active and visible in the running of its affairs from day one until this ceased
operations upon his demise.

Sevilla vs CA

Doctrine: A Branch manager is not considered a partner but rather one who is engaged in the
contract of agency

Noguerra the owner of the property at mabini street leased it to TWS through Canilao.

They set up a branch there of Tourist World Service

When it opened they made Lina Sevilla run the place.

Later on, Tourist world was informed that Lina was connected to a rival firm.

Tourist World considered on closing down the office there.

Gabino Canilao tried to visit the office to close it down but no one was there and the office was
locked. He padlocked the same.

When Sevilla and the other employees could not enter the premises, they filed an injunction

TWs insisted that Sevilla was an employee and and that she had not say with the lease executed.
In general, we have relied on the so-called right of control test, "where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the
means to be used in reaching such end." 10Subsequently, however, we have considered, in addition
to the standard of right-of control, the existing economic conditions prevailing between the parties,
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means
used in connection therewith.like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship.11

Sevilla tried to tell the court that she was a partner and not some mere employee

SC However declared that

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her
letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to
stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control
over the manner in which the business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers or partners, in which each party
has an equal proprietary interest in the capital or property contributed 15 and where each party
exercises equal rights in the conduct of the business.16 furthermore, the parties did not hold
themselves out as partners, and the building itself was embellished with the electric sign "Tourist
World Service, Inc. 17in lieu of a distinct partnership name.
As compensation, she received 4% of the proceeds in the concept of commissions. And as we said,
Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as
owner of the business undertaking. We are convinced, considering the circumstances and from the
respondent Court's recital of facts, that the ties had contemplated a principal agent relationship,
rather than a joint managament or a partnership..

Torres vs Court of Appeals

Doctrine:
Application to Article 1767: There was the intention to form the partnership when petitioners would
contribute property to the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to
form a partnership.
Application to Article 1773 : If there are no third parties in the case, this article cannot be applied

In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with
Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel
over a parcel of land, the sisters received no cash payment from Manuel but the promise of profits
(60% for the sisters and 40% for Manuel) said parcel of land is to be developed as a subdivision.

Manuel then had the title of the land transferred in his name and he subsequently mortgaged the
property. He used the proceeds from the mortgage to start building roads, curbs and gutters. Manuel
also contracted an engineering firm for the building of housing units. But due to adverse claims in the
land, prospective buyers were scared off and the subdivision project eventually failed.

The Sisters filed a case.

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a
partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial court's pronouncement that losses as well as profits in a joint venture should be
distributed equally, 7 the CA invoked Article 1797 of the Civil Code which provides:
Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's
finding of a partnership, were void.

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while respondent would give, in addition
to his industry, the amount needed for general expenses and other costs. Furthermore, the income
from the said project would be divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 11

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code,
which provides:

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

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

They contend that since the parties did not make, sign or attach to the public instrument an inventory
of the real property contributed, the partnership is void.

The execution of a public instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot be subject to inscription in
the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud
to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the law when no such inventory is
made." The case at bar does not involve third parties who may be prejudiced.

Sardane vs Court of Appeals

Sardane borrowed money

Doctrine: The fact that he had received 50% of the net profits does not conclusively establish that he
was a partner of the private respondent herein.

He failed to pay so respondent filed an action for recovery of sum of money.

MTC granted the action but RTC reveresed the decision telling them that they were partners so they
were liable for business losses.

SC held that receiving profits does not necessarily mean that the person is a partner to the business.
The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory
notes may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to
prove that a partnership existed between the private parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner. The fact that he had received 50% of
the net profits does not conclusively establish that he was a partner of the private respondent herein.
Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits
of a business is prima facie evidence that he is a partner in the business, no such inference shall be
drawn if such profits were received in payment as wages of an employee. Furthermore, herein
petitioner had no voice in the management of the affairs of the basnig. Under similar facts, this Court
in the early case of Fortis vs. Gutierrez Hermanos,