[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty.
Paolo Dimayuga
13.
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM
NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P.
FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R.
CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR.,
ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A.
LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C.
IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG,
ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.
Two firms ask that they be allowed to continue using the names
of their firms despite the fact that Attys. Sycip and Ozaeta died.
PETITIONERS ARGUMENTS
1. Under the law, a partnership is not prohibited from
continuing its business under a firm name that includes
the name of a deceased partner. NCC 1840 explicitly
sanctions the practice.
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
2. In regulating other professions (accountancy and
engineering), the legislature has authorized the
adoption of firm names without any restriction as to
the use of the name of a deceased partner. There is
no fundamental policy that is offended by the
continued use by a firm of professionals of a firm
name, which includes the name of a deceased partner,
at least where such firm name has acquired the
characteristics of a "trade name."
3. The Canons of Professional Ethics are not
transgressed by the continued use of the name of a
deceased partner because Canon 33 of the Canons of
Professional Ethics adopted by the American Bar
Association declares that:
The continued use of the name of a deceased or former
partner when permissible by local custom, is not
unethical but care should be taken that no imposition or
deception is practiced through this use.
4. There is no possibility of imposition or deception
because the deaths of their respective deceased
partners were well- publicized in all newspapers of
general circulation for several days. The stationeries
now being used by them carry new letterheads
indicating the years when their respective deceased
partners were connected with the firm.
Petitioners will notify all leading national and
international law directories of the fact of their
deceased partners' deaths.
5. No local custom prohibits the continued use of a
deceased partner's name in a professional firm's
name. There is no Philippine custom or usage that
recognizes that the name of a law firm identifies the
firms individual members.
6. The continued use of a deceased partner's name in
the firm name of law partnerships has been
consistently allowed byU.S. Courts and is an
accepted practice in the legal profession of most
countries.
Issue: WON they may be allowed to continue using the
current names of their firms.
Ruling:
NO. Petitioners advised to drop the names SYCIP and OZAETA
from their respective firm names. Names may be included in the
listing of individuals who have been partners, indicating the
years during which they served.
The Deen case [1953] Court advised the firm to desist from
including in their firm designation the name of C. D.Johnston, who
has long been dead
Register of Deeds of Manila v. China Banking Corporation
[1958] In this case, the law firm of Perkins & Ponce Enrile
moved to intervene as amicus curiae. The Court in a Resolution
stated that it "would like to be informed why the name of Perkins
is still being used although Atty. E. A. Perkins is already dead."
The Court advised the firm to drop the name of E.A. Perkins from
the firm name, and ruled that no practice should be allowed
which even in a remote degree could give rise to the possibility of
deception.
Judicial decisions applying or interpreting the laws form
part of the legal system. The Supreme Court in the Deen and
Perkins cases laid down a legal rule against which no custom or
practice to the contrary, even if proven, can prevail. This is not to
speak of our civil law which clearly ordains that a partnership is
dissolved by the death of any partner. Custom which are contrary
to law, public order or public policy shall not be countenanced.
The use in their partnership names of the names of deceased
partners will run counter to NCC 1815.
Art. 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the
partners. Those who, not being members of the partnership, include
their names in the firm name shall be subject to the liability of a
partner.
Names in a firm name of a partnership must either be those of
living partners and in the case of non-partners, should be
living persons who can be subjected to liability. NCC 1825
prohibits a third person from including his name in the firm
name under pain of assuming the liability of a partner.
The heirs of a deceased partner in a law firm cannot be held
liable as the old members to the creditors of a firm particularly
where they are non-lawyers. Canon 34 of the Canons of
Professional Ethics prohibits an agreement for the payment to
the widow and heirs of a deceased lawyer of a percentage, either
gross or net, of the fees received from the future business of the
deceased lawyer's clients, both because the recipients of such
division are not lawyers and because such payments will not
represent service or responsibility on the part of the recipient.
Neither the widow nor the heirs can be held liable for
transactions entered into after the death of their lawyer-
predecessor. There being no benefits accruing, there can be no
corresponding liability.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
The public relations value of the use of an old firm name can
tend to create undue advantages and disadvantages in the
practice of the profession. An able lawyer without connections
will have to make a name for himself starting from scratch.
Another able lawyer, who can join an old firm, can initially ride
on that old firm's reputation established by deceased partners.
ON ARGUMENT #1
NCC 1840 is within Chapter 3 of Title IX entitled "Dissolution
and Winding Up." It primarily deals with the exemption from
liability in cases of a dissolved partnership, of the individual
property of the deceased partner for debts contracted by the
person or partnership, which continues the business using the
partnership name or the name of the deceased partner as part
thereof. What the law contemplates therein is a hold-over
situation preparatory to formal reorganization.
Secondly, NCC 1840 treats more of a commercial partnership
with a good will to protect rather than of a professional
partnership [with no saleable goodwill but whose reputation
depends on the personal qualifications of its individual
members]. A saleable goodwill can exist only in a commercial
partnership, not in a professional partnership consisting of
lawyers.
ON ARGUMENT #2
A partnership for the practice of law cannot be likened to
partnerships formed by other professionals or for business.
The law on accountancy specifically allows the use of a trade
name in connection with the practice of accountancy.
A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. It is not
a partnership formed to carry on trade or business or of holding
property. The use of a nom de plume, assumed or trade name in
law practice is improper.
Primary characteristics which distinguish the legal
profession from business
1. A duty of public service, of which the emolument is a
byproduct, and in which one may attain the highest eminence
without making much money
2. A relation as an "officer of court" to the administration of
justice involving thorough sincerity, integrity, and reliability
3. A relation to clients in the highest degree fiduciary
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business methods
of advertising and encroachment on their practice, or dealing
directly with their clients
The right to practice law does not only presuppose in its
possessor integrity, legal standing and attainment, but also the
exercise of a special privilege, highly personal and partaking of
the nature of a public trust.
ON ARGUMENT #3
Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner when such a practice is
permissible by local custom, but the Canon warns that care
should be taken that no imposition or deception is practiced.
In the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name. Firm
names, under our custom, identify the more active and/or
more senior members or partners of the law firm.
Atty. Paolo Dimayuga
The possibility of deception upon the public, real or
consequential, where the name of a deceased partner continues
to be used cannot be ruled out. A person in search of legal
counsel might be guided by the familiar ring of a distinguished
name appearing in a firm title.
ON ARGUMENT #6
U.S. Courts have allowed the continued use of a deceased
partner's name because it is sanctioned by custom. Not so in
this jurisdiction where there is no local custom that
sanctions the practice.
Custom has been defined as a rule of conduct formed by
repetition of acts, uniformly observed (practiced) as a social rule,
legally binding and obligatory. Courts take no judicial notice of
custom. A custom must be proved as a fact, according to the rules
of evidence. A local custom as a source of right cannot be
considered by a court of justice unless such custom is properly
established by competent evidence like any other fact. Merely
because something is done as a matter of practice does not mean
that Courts can rely on the same for purposes of adjudication as a
juridical custom. Juridical custom must be differentiated from
social custom. The former can supplement statutory law or be
applied in the absence of such statute. Not so with the latter.
The practice of law is related to the administration of justice and
should not be considered like an ordinary "money-making
trade."Petitioners' desire to preserve the identity of their
firms in the eyes of the public must bow to legal and ethical
impediment.
Petitions DENIED
14.
G.R. No. L-4811 July 31, 1953
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
LABRADOR, J.:
Plaintiff Woodhouse entered on a written agreement with the
defendant Halili, wherein they shall organize a partnership for
the bottling and distribution of Mision soft drinks, Woodhouse to
act as industrial partner or manager, and Halili as a capitalist,
furnishing the capital necessary there for and that Woodhouse
was to secure the Mission Soft Drinks franchise for and in behalf
of the proposed partnership, to which Woodhouse was to receive
30 per cent of the net profits of the business.
Prior to entering into this agreement, Woodhouse requested the
Mission Dry Corporation that the right to bottle and distribute be
granted to him for a limited time in order that he may close the
deal with Halili, under the condition that it will finally be
transferred to the corporation. Pursuant for this request, plaintiff
was given "a thirty-days" option on exclusive bottling and
distribution rights for the Philippines".
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
The contract was finally signed by plaintiff on December 3, 1947.
On that day plaintiff and defendant went to the United States, and
on December 10, 1947, a franchise agreement (Exhibit V) was
entered into the Mission Dry Corporation and Fortunato F. Halili
and/or Charles F. Woodhouse, granted defendant the exclusive
right, license, and authority to produce, bottle, distribute, and sell
Mision beverages in the Philippines.
When the bottling plant was already on operation, plaintiff
demanded of defendant that the partnership papers be executed.
At first defendant executed himself, saying there was no hurry.
Then he promised to do so after the sales of the product had been
increased to P50,000. The defendant also reduced the plaintiffs
share from 30 percent to 15 percent after learning that the latter
did not have the exclusive franchise.
TRIAL COURT: held that the execution of the contract of
partnership could not be enforced upon the parties, but it also
held that the defense of fraud was not proved since it is
improbable that defendant was never shown the letter ("a thirty-
days" option on exclusive bottling and distribution rights)
On this appeal the defendant, as appellant, insists that plaintiff
did represent to the defendant that he had an exclusive franchise,
when as a matter of fact, at the time of its execution, he no longer
had it as the same had expired, and that, therefore, the consent of
the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
ISSUE:Did Woodhouse falsely represent that he had an exclusive
franchise to bottle Mission beverages?
HELD: Yes. It is improbable and incredible for him to have
disclosed the fact that he had only an option to the exclusive
franchise, which was to last thirty days only, and still more
improbable for him to have disclosed that, at the time of the
signing of the formal agreement, his option had already expired.
Had he done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal itself.
Plaintiff's attorney, Mr. Laurea, testified that Woodhouse
presented himself as being the exclusive grantee of a franchise.
As a matter of fact, the first draft that Mr. Laurea prepared, which
was made before the Manila Hotel conference on November 27th,
expressly states that plaintiff had the exclusive franchise.
ISSUE: Did plaintiffs false representation amount to a fraud that
would vitiate the contract?
HELD:No. The agreement may not be declared null and void.
The principal obligation that the plaintiff assumed or undertook
was to secure said franchise for the partnership, as the bottler
and distributor for the Mission Dry Corporation. We declare,
therefore, that if he was guilty of a false representation, this was
not the causal consideration, or the principal inducement, that
led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive
franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 percent granted him in the net
profits of the partnership business. Defendant agreed to give
Atty. Paolo Dimayuga
plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership.
We conclude from the above that while the representation that
plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits.
By pretending that he had the exclusive franchise and promising
to transfer it to defendant, he obtained the consent of the latter to
give him (plaintiff) a big slice in the net profits. This is the dolo
incidente defined in article 1270 of the Spanish Civil Code,
because it was used to get the other party's consent to a big share
in the profits, an incidental matter in the agreement.
In consequence, article 1270 of the Spanish Civil Code
distinguishes two kinds of (civil) fraud, the causal fraud, which
may be a ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages. This Court had held that in order that fraud
may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo causante), inducement to the making
of the contract.
ISSUE: May the agreement be executed?
HELD: As the trial court correctly concluded, the defendant may
not be compelled against his will to carry out the agreement nor
execute the partnership papers. Under the Spanish Civil Code, the
defendant has an obligation to do, not to give. The law recognizes
the individual's freedom or liberty to do an act he has promised
to do, or not to do it, as he pleases. It falls within what Spanish
commentators call a very personal act (actopersonalismo), of
which courts may not compel compliance, as it is considered an
act of violence to do so.
15.
ISABELO MORAN, JR. vs. CA and MARIANO E. PECSON
Facts:
On February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to the
1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of
P l,000 a month starting on April 15, 1971 up to December 15,
1971; that on December 15, 1971, a liquidation of the accounts in
the distribution and printing of the 95,000 posters would be
made, that Pecson gave Moran P10,000 for which the latter
issued a receipt; that only a few posters were printed; that on or
about May 28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first installment
on the date due, complete with the costs of collection.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Private respondent Pecson filed with the CFI of Manila an action
for the recovery of a sum of money and alleged in his complaint
three (3) causes of action, namely: (1) on the alleged partnership
agreement, the return of his contribution of P10,000.00, payment
of his share in the profits that the partnership would have
earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3)
moral and exemplary damages and attorney's fees.
The CFI held that by virtue of the partnership agreement entered
into by the parties-plaintiff and defendant the plaintiff did
contribute P10,000.00, and another sum of P7,000.00 for the
Voice of the Veteran or Delegate Magazine. Of the expected
95,000 copies of the posters, the defendant was able to print
2,000 copies only authorized of which, however, were sold at
P5.00 each. Nothing more was done after this and it can be said
that the venture did not really get off the ground. On the other
hand, the plaintiff failed to give his full contribution of
P15,000.00. Thus, each party is entitled to rescind the contract
which right is implied in reciprocal obligations under Article
1385 of the Civil Code where under 'rescission creates the
obligation to return the things which were the object of the
contract. The CA likewise rendered a decision against the
petitioner.
Issues: WON petitioner is liable to respondent for the supposed
expected profits due him.
Held:
The rule is, when a partner who has undertaken to
contribute a sum of money fails to do so, he becomes a
debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for
interests and damages from the time he should have
complied with his obligation (Art. 1788, Civil Code).
Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits, in the
absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an
investment of P15,000.00, the respondent was supposed to earn
a guaranteed P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of
which were sold at P5.00 each. The fantastic nature of expected
profits is obvious. We have to take various factors into account.
The failure of the Commission on Elections to proclaim all the
320 candidates of the Constitutional Convention on time was a
major factor. The petitioner undesirable his best business
judgment and felt that it would be a losing venture to go on with
the printing of the agreed 95,000 copies of the posters. Hidden
risks in any business venture have to be considered.
It does not follow however that the private respondent is not
entitled to recover any amount from the petitioner. The records
show that the private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000 copies were
sold at P5.00 each. The gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00 from the gross income
Atty. Paolo Dimayuga
of P10,000.00 and with no evidence on the cost of distribution,
the net profits amount to only P6,000.00. This net profit of
P6,000.00 should be divided between the petitioner and the
private respondent. And since only P4,000.00 was undesirable by
the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner submits that
the award of P8,000.00 as Pecson's supposed commission has no
justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would
give the private respondent a monthly commission of Pl,000.00
from April 15, 1971 to December 15, 1971 for a total of eight (8)
monthly commissions. The agreement does not state the basis of
the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties
could not have intended the giving of a commission inspite of loss
or failure of the venture. Since the venture was a failure, the
private respondent is not entitled to the P8,000.00 commission.
16.
G.R. No. L-23241 March 14, 1925
HENRY FLEISCHER, plaintiff-appellee,
vs.
BOTICA NOLASCO CO., INC., defendant-appellant
FACTS:
Fleischer instituted an action before the CFI of the Province of
Oriental Negros. against the board of directors of the Botica
Nolasco, Inc., a corporation duly organized and existing under the
laws of the Philippine Islands. The plaintiff prayed that said
board of directors be ordered to register in the books of the
corporation five shares of its stock in his name and to pay him the
sum of P500 for damages sustained by him resulting from the
refusal of said body to register the shares of stock in question. .
The defendant filed a demurrer on the ground that the facts
alleged in the complaint did not constitute sufficient cause of
action, and that the action was not brought against the proper
party, which was the Botica Nolasco, Inc. The demurrer was
sustained, and the plaintiff was granted five days to amend his
complaint.
The plaintiff filed an amended complaint against the Botica
Nolasco. The defendant again filed a demurrer on the ground that
the amended complaint did not state facts sufficient to constitute
a cause of action, and that said amended complaint was
ambiguous, unintelligible, uncertain, which demurrer was
overruled by the court.
The defendant answered the amended complaint denying
generally and specifically each and every one of the material
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
allegations thereof, and, as a special defense, alleged that the
defendant, pursuant to article 12 of its by-laws, had preferential
right to buy from the plaintiff said shares at the par value of P100
a share, plus P90 as dividends corresponding to the year 1922,
and that said offer was refused by the plaintiff.
Upon the issue presented by the pleadings above stated, the
cause was brought on for trial, at the conclusion of which, and on
August 21, 1924, the Honorable N. Capistrano, judge, held that, in
his opinion, article 12 of the by-laws of the corporation which
gives it preferential right to buy its shares from retiring
stockholders, is in conflict with Act No. 1459 (Corporation Law),
especially with section 35 thereof; and rendered a judgment
ordering the defendant corporation, through its board of
directors, to register in the books of said corporation the said five
shares of stock in the name of the plaintiff, Henry Fleischer, as the
shareholder or owner thereof, instead of the original owner,
Manuel Gonzalez, with costs against the defendant.
ISSUE: Whether or not article 12 of the by-laws of the
corporation is in conflict with the provisions of the Corporation
Law (Act No. 1459).
RULING: YES
Article 12 of the by-laws of the corporationgoverns the
transfer of shares of stock of defendant corporation. It also
creates a preferential right to buy, under the same
conditions, the share or shares of stock of a retiring
shareholder.
On the on the other hand, Section 13, paragraph 7 of the
Corporation Law, empowers a corporation to make by-laws, not
inconsistent with any existing law, for the transferring of its
stock.It follows from said provision, that a by-law adopted by a
corporation relating to transfer of stock should be in harmony
with the law on the subject of transfer of stock. The law on this
subject is found in section 35 of Act No. 1459. Said section
specifically provides that the shares of stock "are personal
property and may be transferred by delivery of the certificate
indorsed by the owner, etc." Said section 35 defines the nature,
character and transferability of shares of stock. Under said
section they are personal property and may be transferred as
therein provided. Said section contemplates no restriction as to
whom they may be transferred or sold. It does not suggest that
any discrimination may be created by the corporation in favor or
against a certain purchaser. The holder of shares, as owner of
personal property, is at liberty, under said section, to dispose of
them in favor of whomsoever he pleases, without any other
limitation in this respect, than the general provisions of law.
Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into
consideration the specific provisions of section 35 of Act No.
1459, and said by-law should be made to harmonize with
said provisions. It should not be inconsistent therewith.
Atty. Paolo Dimayuga
The by-law now in question was adopted under the power
conferred upon the corporation by section 13, paragraph 7,
above quoted; but in adopting said by-law the corporation
has transcended the limits fixed by law in the same section,
and has not taken into consideration the provisions of
section 35 of Act No. 1459.
As a general rule, the by-laws of a corporation are valid if they are
reasonable and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of the
laws of the land.
The only restraint imposed by the Corporation Law upon
transfer of shares is found in section 35 of Act No. 1459, quoted
above, as follows: "No transfer, however, shall be valid, except
as between the parties, until the transfer is entered and
noted upon the books of the corporation so as to show the
names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of
shares transferred." This restriction is necessary in order that
the officers of the corporation may know who are the
stockholders, which is essential in conducting elections of
officers, in calling meeting of stockholders, and for other
purposes. but any restriction of the nature of that imposed in the
by-law now in question, is ultra vires, violative of the property
rights of shareholders, and in restraint of trade.
And moreover, the by-laws now in question cannot have any
effect on the appellee. He had no knowledge of such by-law when
the shares were assigned to him. He obtained them in good faith
and for a valuable consideration. He was not a privy to the
contract created by said by-law between the shareholder Manuel
Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate
to defeat his rights as a purchaser.
17.
LAGUNA TRANSPORTATION CO., INC. vs. SOCIAL SECURITY
SYSTEM
On January 24, 1958, petitioner Laguna Transportation Co., Inc.
filed with the Court of First Instance of Laguna petition praying
that an order be issued by the court declaring that it is not bound
to register as a member of respondent Social Security System
and, therefore, not obliged to pay to the latter the contributions
required under the Social Security Act. To this petition,
respondent filed its answer on February 11, 1958 praying for its
dismissal due to petitioner's failure to exhaust administrative
remedies, and for a declaration that petitioner is covered by said
Act, since the latter's business has been in operation for at least 2
years prior to September 1, 1957. The facts are as follows:
1. That petitioner is a domestic corporation duly organized and
existing under the laws of the Philippines, with principal place of
business at Bian, Laguna;
2. That respondent has served notice upon the petitioner
requiring it to register as member of the System and to remit the
premiums due from all the employees of the petitioner and the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
contribution of the latter to the System beginning the month of
September, 1957;
3. That sometime in 1949, the Bian Transportation Co., a
corporation duly registered with the Securities and Exchange
Commission, sold part of the lines and equipment it operates to
Gonzalo Mercado, Artemio Mercado, Florentino Mata and
Dominador Vera Cruz;
4. That after the sale, the said vendees formed an unregistered
partnership under the name of Laguna Transportation Company
which continued to operate the lines and equipment bought from
the Bian Transportation Company, in addition to new lines
which it was able to secure from the Public Service Commission;
5. That the original partners forming the Laguna Transportation
Company, with the addition of two new members, organized a
corporation known as the Laguna Transportation Company, Inc.,
which was registered with the Securities and Exchange
Commission on June 20, 1956, and which corporation is the
plaintiff now in this case;
6. That the corporation continued the same transportation
business of the unregistered partnership;
7. That prior to November 11, 1957, plaintiff requested for
exemption from coverage by the System on the ground that it
started operation only on June 20, 1956, when it was registered
with the Securities and Exchange Commission but on November
11, 1957, the Social Security System notified plaintiff that it was
covered;
8. On November 14, 1957, plaintiff through counsel sent a letter
to the Social Security System contesting the claim of the System
that plaintiff was covered, . . .
9. On November 27, 1957, Carlos Sanchez, Manager of the
Production Department of the respondent System for and in
behalf of the Acting Administrator, informed plaintiff that
plaintiff's business has been in actual operation for at least two
years, . . .
TC rendered a decision in favor of SSS, it was subject to
compulsory coverage under said law. . . .
From this decision, petitioner appealed directly to us, raising
purely questions of law.
Petitioner claims that the lower court erred in holding that it is
an employer engaged in business as a common carrier which had
been in operation for at least 2 years prior to the enactment of
the Social Security Act and, therefore, subject to compulsory
coverage thereunder. SEC. 9 Compulsory Coverage. Coverage in
the System shall be compulsory upon all employees between the
ages of sixteen and sixty years, inclusive, if they have been for at
least six months in the service of an employer who is a member
of the System. Provided, That the Commission may not compel any
employer to become a member of the System unless he shall have
been in operation for at least two years . . . . (Italics supplied.).
ISSUE: WON Laguna Transportation Co is exempt from SSS
coverage
Held: No
While it is true that a corporation once formed is conferred a
juridical personality separate and district from the persons
composing it, it is but a legal fiction introduced for purposes of
convenience and to subserve the ends of justice. The concept
cannot be extended to a point beyond its reasons and policy, and
Atty. Paolo Dimayuga
when invoked in support of an end subversive of this policy, will
be disregarded by the courts.
To adopt petitioner's argument would defeat, rather than
promote, the ends for which the Social Security Act was enacted.
An employer could easily circumvent the statute by simply
changing his form of organization every other year, and then
claim exemption from contribution to the System as required, on
the theory that, as a new entity, it has not been in operation for a
period of at least 2 years. the door to fraudulent circumvention of
the statute would, thereby, be opened.
Moreover, petitioner admitted that as an employer engaged in
the business of a common carrier, its operation commenced on
April 1, 1949 while it was a partnership and continued by the
corporation upon its formation on June 20, 1956. Unlike in the
conveyance made by the Bian Transportation Company to the
partners Gonzalo Mercado, Artemio Mercado, Florentino Mata,
and Dominador Vera Cruz, no mention whatsoever is made either
in the pleadings or in the stipulation of facts that the lines and
equipment of the unregistered partnership had been sold and
transferred to the corporation, petitioner herein. This omission,
to our mind, clearly indicates that there was, in fact, no transfer
of interest, but a mere change in the form of the organization of
the employer engaged in the transportation business, i.e., from an
unregistered partnership to that of a corporation. As a rule,
courts will look to the substance and not to the form.
Finally, the weight of authority supports the view that where a
corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and
transferred to the corporation for the purpose of continuing its
business, in payment for which corporate capital stock was
issued, such corporation is presumed to have assumed
partnership debts, and is prima facie liable therefor.
18.
Evagelista vs Commissioner of internal revenue
Facts: Petitioners borrowed money from their father and
purchased several lands. For several years, these lands were
leased to tenants by the petitioners. In 1954, respondent
Collector of Internal Revenue demanded from petitioners the
payment of income tax on corporations, real estate dealer's fixed
tax and corporation residence tax for the years 1945-1949. A
letter of demand and corresponding assessments were delivered
to petitioners. Petitioners claim that they should be absolved
from paying said taxes since they are not a corporation.
Issue: Whether 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, as well
as to the residence tax for corporations and the real estate
dealers fixed tax.
Held: Yes. Petitioners are subject to the income tax and residence
tax for corporation.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
As defined in section 84 (b) of the Internal Revenue Code, "the
term corporation includes partnerships, no matter how created
or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard
forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations. Partnership, as has been
defined in the civil code refers to two or more persons who bind
themselves to contribute money, properly, or industry to a
common fund, with the intention of dividing the profits among
themselves. Thus, petitioners, being engaged in the real estate
transactions for monetary gain and dividing the same among
themselves constitute a partnership so far as the Code is
concerned and are subject to income tax for corporation.
Since Sec 2 of the Code in defining corporations also includes
joint-stock company, partnership, joint account, association or
insurance company, no matter how created or organized, it
follows that petitioners, regardless of how their partnership was
created is also subject to the residence tax for corporations.
19.
Lyons v. Rosenstock
FACTS
Prior to his death on June 18, 1923, Henry W. Elser had been a
resident of the City of Manila where he was engaged during the
years with which we are here concerned in buying, selling, and
administering real estate. In several ventures which he had made
in buying and selling property of this kind the plaintiff, E. S.
Lyons, had joined with him, the profits being shared by the two in
equal parts. In April, 1919, Lyons, whose regular vocation was
that of a missionary, or missionary agent, of the Methodist
Episcopal Church, went on leave to the United States and was
gone for nearly a year and a half, returning on September 21,
1920. On the eve of his departure Elser made a written
statements showing that Lyons was, at that time, half owner with
Elser of three particular pieces of real property. Concurrently
with this act Lyons execute in favor of Elser a general power of
attorney empowering him to manage and dispose of said
properties at will and to represent Lyons fully and amply, to the
mutual advantage of both. During the absence of Lyons two of the
pieces of property above referred to were sold by Elser, leaving
in his hands a single piece of property located at 616-618 Carried
Street, in the City of Manila, containing about 282 square meters
of land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece
of land, containing about 1,500,000 square meters, near the City
of Manila, and he discerned therein a fine opportunity for the
promotion and development of a suburban improvement. This
property, which will be herein referred to as the San Juan Estate,
was offered by its owners for P570,000. To afford a little time for
maturing his plans, Elser purchased an option on this property
for P5,000, and when this option was about to expire without his
having been able to raise the necessary funds, he paid P15,000
more for an extension of the option, with the understanding in
both cases that, in case the option should be exercised, the
Atty. Paolo Dimayuga
amounts thus paid should be credited as part of the first
payment. The amounts paid for this option and its extension
were supplied by Elser entirely from his own funds. In the end he
was able from his own means, and with the assistance which he
obtained from others, to acquire said estate. The amount
required for the first payment was P150,000, and as Elser had
available only about P120,000, including the P20,000 advanced
upon the option, it was necessary to raise the remainder by
obtaining a loan for P50,000. This amount was finally obtained
from a Chinese merchant of the city named Uy Siuliong. This loan
was secured through Uy Cho Yee, a son of the lender; and in order
to get the money it was necessary for Elser not only to give a
personal note signed by himself and his two associates in the
projected enterprise, but also by the Fidelity & Surety Company.
The money thus raised was delivered to Elser by Uy Siuliong on
June 24, 1920. With this money and what he already had in bank
Elser purchased the San Juan Estate on or about June 28, 1920.
For the purpose of the further development of the property a
limited partnership had, about this time, been organized by Elser
and three associates, under the name of J. K. Pickering &
Company; and when the transfer of the property was effected the
deed was made directly to this company. As Elser was the
principal capitalist in the enterprise he received by far the
greater number of the shares issued, his portion amount in the
beginning to 3,290 shares.
While these negotiations were coming to a head, Elser
contemplated and hoped that Lyons might be induced to come in
with him and supply part of the means necessary to carry the
enterprise through. In this connection it appears that on May 20,
1920, Elser wrote Lyons a letter, informing him that he had made
an offer for a big subdivision and that, if it should be acquired and
Lyons would come in, the two would be well fixed. On June 3,
1920, eight days before the first option expired, Elser cabled
Lyons that he had bought the San Juan Estate and thought it
advisable for Lyons to resign, meaning that he should resign his
position with the mission board in New York. On the same date
he wrote Lyons a letter explaining some details of the purchase,
and added "have advised in my cable that you resign and I hope
you can do so immediately and will come and join me on the lines
we have so often spoken about. . . . There is plenty of business for
us all now and I believe we have started something that will keep
us going for some time." In one or more communications prior to
this, Elser had sought to impress Lyons with the idea that he
should raise all the money he could for the purpose of giving the
necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any
marked degree to Lyons, and found him averse from joining in
the purchase of the San Juan Estate. In fact upon this visit of
Lyons to the United States a grave doubt had arisen as to whether
he would ever return to Manila, and it was only in the summer of
1920 that the board of missions of his church prevailed upon him
to return to Manila and resume his position as managing
treasurer and one of its trustees. Accordingly, on June 21, 1920,
Lyons wrote a letter from New York thanking Elser for his offer
to take Lyons into his new project and adding that from the
standpoint of making money, he had passed up a good thing.
When Elser was concluding the transaction for the purchase of
the San Juan Estate, his book showed that he was indebted to
Lyons to the extent of, possibly, P11,669.72, which had accrued to
Lyons from profits and earnings derived from other properties;
and when the J. K. Pickering & Company was organized and stock
issued, Elser indorsed to Lyons 200 of the shares allocated to
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
himself, as he then believed that Lyons would be one of his
associates in the deal. It will be noted that the par value of these
200 shares was more than P8,000 in excess of the amount which
Elser in fact owed to Lyons; and when the latter returned to the
Philippine Islands, he accepted these shares and sold them for his
own benefit. It seems to be supposed in the appellant's brief that
the transfer of these shares to Lyons by Elser supplies some sort
of basis for the present action, or at least strengthens the
considerations involved in a feature of the case to be presently
explained. This view is manifestly untenable, since the
ratification of the transaction by Lyons and the appropriation by
him of the shares which were issued to him leaves no ground
whatever for treating the transaction as a source of further
equitable rights in Lyons. We should perhaps add that after
Lyons' return to the Philippine Islands he acted for a time as one
of the members of the board of directors of the J. K. Pickering &
Company, his qualification for this office being derived precisely
from the ownership of these shares.
ISSUE
Whether or not there was a partnership between Elser and
Lyons?
RULING
We now turn to the incident which supplies the main basis of this
action. It will be remembered that, when Elser obtained the loan
of P50,000 to complete the amount needed for the first payment
on the San Juan Estate, the lender, Uy Siuliong, insisted that he
should procure the signature of the Fidelity & Surety Co. on the
note to be given for said loan. But before signing the note with
Elser and his associates, the Fidelity & Surety Co. insisted upon
having security for the liability thus assumed by it. To meet this
requirements Elser mortgaged to the Fidelity & Surety Co. the
equity of redemption in the property owned by himself and
Lyons on Carriedo Street. This mortgage was executed on June
30, 1920, at which time Elser expected that Lyons would come in
on the purchase of the San Juan Estate. But when he learned from
the letter from Lyons of July 21, 1920, that the latter had
determined not to come into this deal, Elser began to cast around
for means to relieve the Carriedo property of the encumbrance
which he had placed upon it. For this purpose, on September 9,
1920, he addressed a letter to the Fidelity & Surety Co., asking it
to permit him to substitute a property owned by himself at 644
M. H. del Pilar Street, Manila, and 1,000 shares of the J. K.
Pickering & Company, in lieu of the Carriedo property, as
security. The Fidelity & Surety Co. agreed to the proposition; and
on September 15, 1920, Elser executed in favor of the Fidelity &
Surety Co. a new mortgage on the M. H. del Pillar property and
delivered the same, with 1,000 shares of J. K. Pickering &
Company, to said company. The latter thereupon in turn executed
a cancellation of the mortgage on the Carriedo property and
delivered it to Elser. But notwithstanding the fact that these
documents were executed and delivered, the new mortgage and
the release of the old were never registered; and on September
25, 1920, thereafter, Elser returned the cancellation of the
mortgage on the Carriedo property and took back from the
Fidelity & Surety Co. the new mortgage on the M. H. del Pilar
property, together with the 1,000 shares of the J. K. Pickering &
Company which he had delivered to it.
Atty. Paolo Dimayuga
The explanation of this change of purpose is undoubtedly to be
found in the fact that Lyons had arrived in Manila on September
21, 1920, and shortly thereafter, in the course of a conversation
with Elser told him to let the Carriedo mortgage remain on the
property ("Let the Carriedo mortgage ride"). Mrs. Elser
testified to the conversation in which Lyons used the words
above quoted, and as that conversation supplies the most
reasonable explanation of Elser's recession from his purpose of
relieving the Carriedo property, the trial court was, in our
opinion, well justified in accepting as a proven fact the consent of
Lyons for the mortgage to remain on the Carriedo property. This
concession was not only reasonable under the circumstances, in
view of the abundant solvency of Elser, but in view of the further
fact that Elser had given to Lyons 200 shares of the stock of the J.
K. Pickering & Co., having a value of nearly P8,000 in excess of the
indebtedness which Elser had owed to Lyons upon statement of
account. The trial court found in effect that the excess value of
these shares over Elser's actual indebtedness was conceded by
Elser to Lyons in consideration of the assistance that had been
derived from the mortgage placed upon Lyon's interest in the
Carriedo property. Whether the agreement was reached exactly
upon this precise line of thought is of little moment, but the
relations of the parties had been such that it was to be expected
that Elser would be generous; and he could scarcely have failed
to take account of the use he had made of the joint property of
the two.
As the development of the San Juan Estate was a success from the
start, Elser paid the note of P50,000 to Uy Siuliong on January 18,
1921, although it was not due until more than five months later.
It will thus be seen that the mortgaging of the Carriedo
property never resulted in damage to Lyons to the extent of a
single cent; and although the court refused to allow the
defendant to prove the Elser was solvent at this time in an
amount much greater than the entire encumbrance placed upon
the property, it is evident that the risk imposed upon Lyons was
negligible. It is also plain that no money actually deriving from
this mortgage was ever applied to the purchase of the San Juan
Estate. What really happened was the Elser merely subjected the
property to a contingent liability, and no actual liability ever
resulted therefrom. The financing of the purchase of the San Juan
Estate, apart from the modest financial participation of his three
associates in the San Juan deal, was the work of Elser
accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a
mortgage for P50,000 upon the equity of redemption in the
Carriedo property, Lyons, as half owner of said property, became,
as it were, involuntarily the owner of an undivided interest in the
property acquired partly by that money; and it is insisted for him
that, in consideration of this fact, he is entitled to the four
hundred forty-six and two-thirds shares of J. K. Pickering &
Company, with the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that
the money obtained from Uy Siuliong in the manner already
explained had been used to held finance the purchase of the San
Juan Estate. He seems to have supposed that the Carried property
had been mortgaged to aid in putting through another deal,
namely, the purchase of a property referred to in the
correspondence as the "Ronquillo property"; and in this
connection a letter of Elser of the latter part of May, 1920, can be
quoted in which he uses this language:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
As stated in cablegram I have arranged for P50,000 loan
on Carriedo property. Will use part of the money for
Ronquillo buy (P60,000) if the owner comes through.
Other correspondence shows that Elser had apparently been
trying to buy the Ronquillo property, and Lyons leads us to infer
that he thought that the money obtained by mortgaging the
Carriedo property had been used in the purchase of this
property. It doubtedless appeared so to him in the retrospect, but
certain consideration show that he was inattentive to the
contents of the quotation from the letter above given. He had
already been informed that, although Elser was angling for the
Ronquillo property, its price had gone up, thus introducing a
doubt as to whether he could get it; and the quotation above
given shows that the intended use of the money obtained by
mortgaging the Carriedo property was that only part of the
P50,000 thus obtained would be used in this way, if the deal went
through. Naturally, upon the arrival of Lyons in September, 1920,
one of his first inquiries would have been, if he did not know
before, what was the status of the proposed trade for the
Ronquillo property.
Elser's widow and one of his clerks testified that about June 15,
1920, Elser cabled Lyons something to this effect;: "I have
mortgaged the property on Carriedo Street, secured by my
personal note. You are amply protected. I wish you to join me in
the San Juan Subdivision. Borrow all money you can." Lyons says
that no such cablegram was received by him, and we consider
this point of fact of little moment, since the proof shows that
Lyons knew that the Carriedo mortgage had been executed, and
after his arrival in Manila he consented for the mortgage to
remain on the property until it was paid off, as shortly occurred.
It may well be that Lyons did not at first clearly understand all
the ramifications of the situation, but he knew enough, we think,
to apprise him of the material factors in the situation, and we
concur in the conclusion of the trial court that Elser did not act in
bad faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of the appellant
is, in our opinion, untenable. If Elser had used any money actually
belonging to Lyons in this deal, he would under article 1724 of
the Civil Code and article 264 of the Code of Commerce, be
obligated to pay interest upon the money so applied to his own
use. Under the law prevailing in this jurisdiction a trust does not
ordinarily attach with respect to property acquired by a person
who uses money belonging to another. Of course, if an actual
relation of partnership had existed in the money used, the
case might be difference; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of
partnership, under article 1678 of the Civil Code. It is clear
that Elser, in buying the San Juan Estate, was not acting for
any partnership composed of himself and Lyons, and the law
cannot be distorted into a proposition which would make
Lyons a participant in this deal contrary to his express
determination.
It seems to be supposed that the doctrines of equity worked out
in the jurisprudence of England and the United States with
reference to trust supply a basis for this action. The doctrines
referred to operate, however, only where money belonging to
one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment
to see that the situation here involved is not one for the
application of that doctrine, for no money belonging to Lyons
Atty. Paolo Dimayuga
or any partnership composed of Elser and Lyons was in fact
used by Elser in the purchase of the San Juan Estate. Of
course, if any damage had been caused to Lyons by the placing of
the mortgage upon the equity of redemption in the Carriedo
property, Elser's estate would be liable for such damage. But it is
evident that Lyons was not prejudice by that act.
20.
G.R. No. L-27741 July 29, 1968
R.B. INDUSTRIAL DEVELOPMENT COMPANY, LIMITED, and
RAY N. KITTILSTVEDT, petitioners,
vs.
HON. MANUEL LOPEZ ENAGE, Judge of the Court of First
Instance of Agusan, Branch II, and EASTERN TIMBER
CORPORATION, respondents.
Facts:
On January 22, 1959, Ray Kittilstvedt was granted by the Bureau
of Forestry a forest concession involving 6,850 hectares located
in Cabadbaran, Agusan. The license was non-transferable and
was to expire on June 30, 1959. On December 22, 1959, more
than five months after the license expired, Kittilsvedt assigned
said license to Eastern Timber Corporation for 400 shares of
stocks with a par value of Php 40,000 and was made vice-
president of the corporation. Soon thereafter, Kittilsvedt sold his
400 shares to Democrito O. Plaza for the same consideration.
Kittilstvedt's timber license was extended on March 6, 1963, and
was again renewed, likewise in his name, on October 27, 1965.
While the license appears in Kittilstvedt's name, averment is
made by Eastern that the expenses for the renewal and other
incidental expenses were paid for by Eastern.
The day following the issuance of the last renewal license, or on
October 28, 1965, Kittilstvedt transferred the same to Industrial.
Industrial thus obtained its own Ordinary Timber License 981-
103166 (New).
On December 21, 1965, Eastern lodged a complaint with the
Director of Forestry against R.B. Mining Co., Ltd. (instead of
Industrial) and Kittilstvedt, praying for (1) the cancellation of
Industrials ordinary timber license and (2) the issuance in lieu
thereof of another license in the name of Eastern; and (3) in the
meantime, for an order stopping Industrial from conducting
logging operations within the forest area. But the remedy
pursued in the Bureau of Forestry was thereafter abandoned.
On February 4, 1966 Eastern filed a case against Kittilstvedt and
Industrial before the CFI of Agusan asking for the following
reliefs: (1) preliminary injunction to stop logging operations in
the area under Industrial's timber license; (2) nullification of the
transfer of Kittilstvedt to Industrial; (3) declaration that plaintiff
is the owner of the said timber license appearing in the name of
Industrial; (4) directing defendants to transfer said license in
Eastern's name; and, (5) accounting by defendants of logs and
forest products, damages, attorneys' fees, and costs.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
The defendants filed motion to dismiss saying that Eastern has no
cause of action against them and that the court has no
jurisdiction over the said case. The court held in abeyance
resolution on the motion to dismiss. Defendants moved to
reconsider. On May 2, 1967, the trial court issued an order (1)
denying the motion to reconsider; (2) denying plaintiff's ex-
parte motion to declare defendants in default; (3) ordering
defendants to answer the complaint within the reglementary
period; and (4) setting for on June 5, 1967 plaintiff's urgent
motion for preliminary injunction.
On June 1, 1967, defendants went to the Court of Appeals
on certiorari. Since jurisdiction was the main question involved
therein, cognizable only by the Supreme Court, the Court of
Appeals, on June 14, 1967, dismissed the petition.
Meanwhile, on June 5, 1967, at a time when the certiorari petition
was pending consideration by the Court of Appeals, respondent
judge issued two orders: the first, declaring defendants in default
and denying their counsel's request to defer the proceedings, and
giving leave to plaintiff to present evidence before the deputy
clerk of court; the second, authorizing the deputy clerk of court to
receive plaintiff's evidence in connection with the latter's
(Eastern's) application for a preliminary injunction, hence this
petition.
Issue: WON Eastern has a cause of action against Industrial and
WON the court has jurisdiction to try the case
On the first issue, the Court ruled that Eastern has no cause of
action against the defendants. First, the license had already
expired, thus, there was no license to transfer. Second, the license
itself says that it was non-transferable. Third, the conveyance
was illegal as provided for in Forestry Administrative Order No.
21 (Sept. 18, 1954) which expressly prohibits such transfer.
The transfer, sale or conveyance of any license, permit
or lease issued by the Director of Forestry, now or
hereafter authorized under the forest laws, rules and
regulations in favor of any individual, companies or
private corporations within the period of three years
after the issuance of such license, permit or lease, or any
transaction under any guise which will allow or permit
others to enjoy the privilege granted therein, is hereby
prohibited.
After the period of three years from the issuance of the
license, permit or lease, the licensee, permittee or lessee
may, with the approval of the Secretary of Agriculture
and Natural Resources, be allowed to transfer, sell or
convey his license, permit or lease in favor of qualified
persons, companies or corporations, provided that the
licensee, permittee or lessee has fully complied with all
the requirements of the law and the rules and
regulations thereunder promulgated by the Director of
Forestry; and provided further, that there is no evidence
that such transfer, sale or conveyance is being made for
purposes of speculation.
Eastern seeks relief in the court below upon a deed of
conveyance of a forest license 11 months after the issuance
thereof, and after its term has expired. This is contrary to the
prohibition in Forestry Administrative Order No. 21. It is illegal.
Eastern cannot compel Kittilstvedt to comply with the terms of
Atty. Paolo Dimayuga
that contract. For, there is no duty where the law forbids. And
even if we concede that the transfer were valid, the same would
not produce any effect until and unless approved by the Director
of Forestry and the Secretary of Agriculture and Natural
Resources. The suit below being one for specific performance of
an illegal conveyance will not prosper for lack of cause of action.
On the second issue, the Court ruled that the court has
no jurisdiction to try the case, the jurisdiction being lodged with
the Bureau of Forestry. The thrust of the reliefs sought by Eastern
is that it be, declared owner of the timber license now in the
name of Industrial, and that, in consequence, the transfer thereof
by Kittilstvedt to Industrial be annulled. But the question of
whether or not Industrial's timber license should be cancelled
and a new one issue in Eastern's name in lieu thereof is one, upon
the facts of record, beyond the reach of the courts. Such a
prerogative is vested in the Bureau of Forestry by Section 1816 of
the Revised Administrative Code. This codal provision reads:
SEC. 1816. Jurisdiction of Bureau of Forestry. The
Bureau of Forestry shall have jurisdiction and authority
over the demarcation protection, management,
reproduction, reforestation, occupancy, and use of all
public forests and forest reserves and over the granting
of licenses for game, and fish, and for the taking of
forest products, including stone and earth, therefrom.
A doctrine long recognized is that where the law
confines in an administrative office the power to determine
particular questions or matters, upon the facts to be presented,
the jurisdiction of such office shall prevail over the
courts. Respondent Eastern had gone to the Bureau of Forestry. It
withdrew its complaint. Eastern may not go to the courts of
justice which have no jurisdiction in the first instance to approve
the alleged transfer and to direct the issuance of the license in
favor of Eastern. At this stage, the jurisdiction of the court may
not be invoked.
The petition for certiorari and prohibition was granted;
the writ of preliminary injunction was made permanent; and the
respondent judge was directed to dismiss Civil Case 1087 of the
Court of First Instance of Agusan entitled "Eastern Timber
Corporation, Plaintiff, vs. Ray N. Kittilstvedt and R. B. Industrial
Development Company, Limited, Defendants".
21.
G.R. No. L-929 October 8, 1903 WILLARD, J.:
THUNGA CHUI vs. QUE BENTEC
FACTS:
THUNGA CHUI contributed to the partnership P1,000 and
QUE BENTEC gave P2,000
QUE BENTEC claims that:
1) their case falls under Article 1280 (All other
contracts, on which the amount of the prestaciones of one
or the two contracting parties exceed 1,500 pesetas, must
also be drawn in writing, even when they are private
documents), and
2) Before the plaintiff can maintain any action
on the verbal contract he must proceed under Article
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
1279 to compel the defendant to reduce it to writing
from the moment in which consent and the other
requirements, necessary for their validity, have taken
place.
On May 3, 1897, the trial court held that, Article 1279 does
not impose an obligation, but confers a privilege upon
both contracting parties, and the fact that plaintiff has not
made use of same does not bar his action.
On Oct 19, 1901, the Audiencia ruled in favor of the plaintiff,
Doa Ana Laborda, who agreed verbally with the defendant,
Don Nemesio Alamanzon, to leave the employment which
she then had and to enter the defendant's service, and he
agreed that if she left his service he would pay her during life
an annuity equal to the salary which she was receiving in her
former employment. Having been dismissed, she sued for
several months' salary and the annuity.
ISSUE:
WON THE COURT HAD INFRINGED ART. 1280 WHICH
REQUIRED THAT THE PARTNERSHIP CONTRACT BE IN
WRITING.
HELD: NO, even supposing that the contract upon which this
case turns is one of the class which should be reduced to
writing.
General rule, Art. 1278: Contracts are binding and therefore
enforceable reciprocally by the contracting parties, whatever
may be the form in which the contract has been entered into,
provided that the essential conditions for their validity are
present,which is not in opposition with the following:
1) Art. 1279, which is far from making the enforceability
of the contract dependent upon any special extrinsic form. It
recognizes its enforceability by the mere act of granting to
the contracting parties an adequate remedy whereby to
compel the execution of a public writing, or any other special
form, whenever such form is necessary in order that the
contract may produce the effect which is desired, according
to whatever may be its object.
2) Art. 1280, which is limited to an enumeration of the
acts contracts which should be reduced to writing, in a
public or private document.
Those provisions establishes an implied condition of every
contract that these formal requisites shall be complied with,
notwithstanding the absence of any express agreement by
the contracting parties to that effect, but does not
subordinate the principal action for the enforcement of
the agreement to the bringing of the secondary action
concerning the form. Such subordination would be
unnecessary, as the cause of action would be the same in
both cases, i.e., the existence of a valid contract.
On June 18, 1902 the court laid down same doctrine: The
enforceability of contracts does not depend upon their
extrinsic form, but solely upon the presence of the
conditions necessary for their validity which it is not
denied are present in the contract in question that
contracts are binding whatever may be the form of their
celebration. The reduction to writing in a public or private
document, required by the law with respect to certain
contracts, is not an essential requisite of their existence, but is
simply a coercive power granted to the contracting parties
by which they can reciprocally compel the observance of
these formal requisites.
The appellant, however, assigns as error the infringement of
articles 119 and 51 of the Code of Commerce. Article 117 of
the Code of Commerce is as follows: The contract of
mercantile partnership entered into with the essential
Atty. Paolo Dimayuga
requisites of the law shall be valid and binding upon the
parties thereto, whatever may be its form, or whatever
lawful and fair conditions and combinations may enter into it,
provided they are not expressly prohibited by this Code . . . .
We hold that under this article a verbal contract of
partnership is good as between the parties themselves. The
phrase "essential requisites of the law" means those
general requirements of the law which are of the essence
of every contract, namely, parties who are capable of
contracting, the meeting of the minds, the absence of fraud,
and those enumerated in article 1261 of the Civil Code.
"Form" refers to the manner in which the contract is made,
whether by parol or in writing, and not the class to which it
may belong as general, limited, or corporate. Article, 117, is
expressly limited to partners, and as to them it is declared
that a verbal contract is sufficient. But when third persons
are involved, the Code has established a different rule,
Article 118 and 119.
There being no provision of the Code of Commerce which
requires the contract of partnership to be in any particular
form as between the partners, this case does not fall within
the terms of article 52 of this Code, and that article is not
applicable.
Article 117, expressly authorizing, as we hold, a verbal
contract of partnership as between the partners, such a
contract is thereby excepted from the operations of article
51. The case at bar is covered by Art. 117.
Whether, therefore, this be a civil partnership (oral
contract of partnership under the Civil Code is valid and
binding between the parties, even if the amount of capital
contributed is in excess of P1500) and so governed by the
Civil Code, or a commercial partnership (by which, to affect
persons, must be reduced to writing and recorded in
mercantile registry, a verbal contract of partnership is good
between the parties themselves) and so governed by the Code
of Commerce, in neither case can the objections made by
the appellant be sustained.
22.
ENCARNACION MAGALONA, ET AL., vs. JUAN PESAYCO
FACTS:
The plaintiffs, Encarnacion, Magalona, Juan Sermeno,
and the defendant, Juan Pesayco, formed a partnership
for the purpose of catching semilias de bangus o aua
in San Jose, Antique.
It was agreed that the defendant should put in a bid for
this privilege and that the partners should each supply
one third of the capital in case the defendant was
awarded the desired privilege.
The defendant having had experience in this line, was to
be the manager in case his bid was accepted.
The defendant offered the sum of P5,550.09. This bid
being the highest, the privilege was awarded to the
defendant. The latter entered upon his duties under the
contract and gave an account of two sales of semilias
de bangus, to TiburcioLutero as representative of the
plaintiff Magalona.
The defendant managed the business from January 1,
1931 and with the exception of the two sales above
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

mentioned, never gave any account of his catches or

sales to his partners.
A complaint was filed, in which it was prayed that a
receiver be appointed by the court to take charge of the
funds of the partnership and the management of its
affairs; that the defendant be ordered to render an
account of his management and to pay to the plaintiff
their participation in the profits thereof; that the
defendant be required to turn over to the receiver all of
the funds of the partnership and that the defendant be
condemned to pay the costs.
The plaintiff put up a bond of P5,000 and a receiver was
appointed who also put up a bond for the same amount.
The receiver took over the management and took
possession of all the devices and implements used in the
catching of semillias de bangus.
At the trial, it was proven that before April 20, 1931, the
defendant obtained and sold a total of 975,000
semillias de bangus the market value of which was P3
per thousand. The defendant made no report of this nor
did he pay the plaintiffs any part of the P2,925 realized
by him on the sales thereof. This was not denied.
Defendant denies that there was a partnership and
depends principally upon the fact that the partnership
agreement was not in writing.
The partnership was conclusively proven by the oral
testimony of the plaintiffs and other witnesses.

ISSUE:

Whether or not there was a partnership between the

parties despite the fact that the said partnership
agreement was not in writing.
RULING:

YES.
The court ruled that it cannot agree with the appellant
that one of the requisites of a partnership agreement
such as the one under consideration, is that it should be
in writing.
Art. 1667 of the Civil Code provides that;
Civil partnerships may be established in any
form whatever, unless real property or real
rights are contributed to the same, in which
case a public instrument shall be necessary.
Articles of partnership are not required to be in writing
except in the cases mentioned in article 1667, Civil
Code, which controls article 1280 of the same Code.
(Fernandez vs. Dela Rosa, 1 Phil., 671.)
A verbal partnership agreement is valid between the
parties even though more than 1,500 pesetas are
involved and can be enforced without bringing action
under article 1279, Civil Code, to compel execution of a
written instrument. (Arts. 1261, 1278-1280, 1667, Civil
Code; arts. 116-119, 51, Code of Commerce.) Thunga
Chui vs. QueBentec.