Bgn Digests

Civil Law Partnership

ART. 1767 (Definition of Partnership)

PARTNERSHIP Partnership and joint venture are similar, except that partnerships are generally
continuing in nature, while joint ventures are temporary. ........................ 7
ART. 1767, NCC. 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. Notes:

Two or more persons may also form a partnership for

the exercise of a profession.

Contents

JARANTILLA JR. VS JARANTILLA (2010) .................. 2

Essential elements of partnership:
.............................................. 2
a. Agreement to contribute money, property, or industry to a common fund .. 2

b. Intent to divide the profits among the contracting parties ................... 2

Other elements constituting partnership:

....................................... 2
a. Clear intent to form partnership ............................................ 2

b. Existence of a separate juridical personality ............................... 2

c. Freedom to transfer or assign any interest in the property by one with the
consent of others. .................................................................. 2

SY VS CA (2003) ............................................................ 3
A 23-year old working as truck helper could not be considered an industrial partner,
but rather an employee. ............................................................ 3

TORRES VS CA (1999) .................................................. 4

Contribution may be in the form of industry.
..................................... 4
Cause or consideration may be in the form of prestation or promise of a thing or
service by another (e.g. the expectation of profits from the subdivision project).
.. 4
LIM TONG LIM VS PHIL FISHING GEAR INDUSTRIES
(1999) .............................................................................. 5
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. ............................................................................... 5

Their contribution may be in the form of credit or industry, not necessarily cash or
fixed assets. ........................................................................ 5

AFISCO INSURANCE ET.AL. VS CA (1999) ................ 6

An insurance pool is deemed a partnership, which is taxable as corporations. ... 6
Requisites of partnership:
........................................................ 6
a. Mutual contribution to a common stock .................................... 6
b. Joint interest in the profits .................................................. 6

PHILEX MINING CORP VS CIR (2008) ......................... 7

A corporation cannot generally enter into partnerships, except when so provided by
law or its charters, or when it enters into a Joint Venture. .......................... 7

1

JARANTILLA JR. VS JARANTILLA (2010)
Essential elements of partnership:
a. Agreement to contribute money, property, or industry to a
common fund
b. Intent to divide the profits among the contracting parties
Other elements constituting partnership:
a. Clear intent to form partnership
b. Existence of a separate juridical personality
c. Freedom to transfer or assign any interest in the property by
one with the consent of others.
FACTS:
1. JARANTILLA-HEIRS extrajudicially partitioned the
real property of their deceased parents; thereby
making them co-owners thereof.
2. Later, CONCHITA (one of the heirs), with her
husband BUENAVENTURA, executed an
Acknowledgment of Participating Capital stating that
ANTOINETA & Petitioner FEDERICO JR. had 8%
and 6% shares, respectively, in the capital of 3
specific businesses.
3. 1987, ANTOINTETA filed complaint for the
accounting of the assets and income of the co-
ownership, for its partition, and the delivery of the
share.
4. Petitioner FEDERICO JR. entered into a
Compromise Agreement with Antoineta and
supported her claims.
5. RTC ruled in favor of ANTOINETA (and similarly with
FEDERICO JR.); that she is entitled to her share in
the 3 businesses specified, as well as with the real
properties subsequently acquired in relation to the
businesses.
6. CA, however, modified to limit the share only to the 3
businesses specified in the acknowledgment, thereby
excluding the properties claimed.
7. Hence, the petition.
FEDERICO JR. asserts that from the partnership
established under the Acknowledgment, several
other corporation and businesses were
established and several real properties were
acquired.
Thus, FEDERICO JR. asks for his 6% share also
in the real properties.
ISSUE: WON Federico Jr. has right over the real
properties by virtue of the partnership under the
Acknowledgment, which allegedly funded the acquisition
of the real properties. (NO)
Bgn Digests
Civil Law Partnership
ART. 1767 (Definition of Partnership)
HELD: NO. FEDERICO JR. is not entitled to the share
over the real properties.
PARTNERSHIP EXISTS.
1. Does the fact of co-ownership automatically
creates partnership? (NO)
ART. 1769 (2). Co-ownership or co-possession does not 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.
The fact that those who agree to form a co-ownership
or do not share any profits made by the use of the
property held in common does not convert their
venture into a partnership. The presence of other
elements constituting partnership is necessary.
Other elements constituting partnership:
a. Clear intent to form partnership
b. Existence of a separate juridical personality
c. Freedom to transfer or assign any interest in the
property by one with the consent of others
2. Does partnership exists? (YES)
Essential elements of partnership:
a. Agreement to contribute money, property, or industry
to a common fund
b. Intent to divide the profits among the contracting
parties
These elements are attendant:
a. The parties admittedly have agreed to, and did,
contribute money and property to a common
fund.
b. All the parties have agreed to contribute capital to
a common fund to be able to later on share its
profits, AEB: Acknowledgment of Participating
Capital.
3. What is the extent of Federico Jr.s share?
He is only entitled to 6% share in the 3 businesses as
specified in the APC; and excluding the other
business and the rest of the assets/real properties.
ART. 1797. The losses and profits shall be distributed in conformity with the
agreement. XXX
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the industrial
partner shall not be liable for the losses.
WHEREFORE, the petition is hereby DENIED and the Decision of the CA is AFFIRMED.
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 Bgn Digests
Civil Law Partnership
ART. 1767 (Definition of Partnership)

d. Neither is there any proof that he had actively

SY VS CA (2003) participated in the management, administration,
A 23-year old working as truck helper could not be considered an and adoption of policies of the business.
industrial partner, but rather an employee.
Hence, he is not an industrial partner but an
employee.
FACTS:
1. Respondent JAIME SAHOT worked for 36 years in WHEREFORE, the petition is DENIED and the decision of the CA is AFFIRMED.
the trucking business of Petitioner in the ff. manner: Petitioners must pay private respondent Jaime Sabot his separation pay for 36 years of
a. 1958 as truck helper of Vicente Sy Trucking service at the rate of monthly pay for every year of service, xxx
b. 1965 as truck driver of renamed T. Paulo
Trucking
c. 1985 as truck driver of renamed 6Bs
Trucking
d. 1994 truck driver of renamed SBT Trucking
2. 1994, SAHOT suffered various ailments, particularly
at his thigh which greatly affected his work. Because
of this, he filed a week-long leave, which was
extended per advice.
3. However, later, SAHOT was threatened of dismissal.
But SAHOT thought that he could not yet retire on
pension since Petitioner failed to pay him the correct
SSS premiums.
4. Nevertheless, SAHOT was dismissed, prompting him
to file an Action fo Illegal Dismissal.
5. PETITIONER-COMPANY alleged the defense that
Sahot was merely an industrial partner until 1994.
6. LA ruled in favor of petitioner; that Sahot is an
industrial partner; hence, there is no illegal dismissal.
7. NLRC REVERSED; that Sahot was an employee
from the start, and not an industrial partner.
8. CA AFFIRMED NLRC.

ISSUE: WON Sahot was an industrial partner, and

thereby cannot be illegally dismissed. (NO)

HELD: NO. Sahot was not an industrial partner, but an

employee.

A computation of the Sahots age shows that he was only

23 y/o when he started working as truck helper. The Court
finds it illogical for someone in his young age to become
an industrial partner; hence, he must only be an
employee.

Also, none of the circumstances essential to a partnership

as defined in ART. 1767 is present in the case.
a. No written agreement exists to prove the
partnership between the parties.
b. Sahot did not contribute money, property, or
industry for the purpose of engaging in the
supposed business.
c. There is no proof that he was receiving a share in
the profits as a matter of course, during the period
when the trucking business was under operation.

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 Bgn Digests
Civil Law Partnership
ART. 1767 (Definition of Partnership)

b. He developed roads, curbs, gutter; and

TORRES VS CA (1999)
Contribution may be in the form of industry.
Cause or consideration may be in the form of prestation or promise of a
thing or service by another (e.g. the expectation of profits from the
subdivision project).
FACTS:
1. Petitioners ANTONIA TORRES & EMETERIA
BARING entered into a Joint Venture Agreement with
Respondent MANUEL TORRES for the development
of a parcel of land intro a subdivision.
2. Consequently, Petitioners executed a Deed of Sale in
favor of Manuel, and registered the property in
Manuels name to facilitate its use.
3. Thereafter, Manuel mortgaged the property to the
bank to obtain P40K loan for the development of the
subdivision.
4. However, the project did not push through, and the
property was foreclosed by the bank.
5. This prompted Petitioners to file a criminal case of
estafa against Manuel.
6. LC DISMISSED the case.
7. CA AFFIRMED; that there was partnership and all 3
parties should bear the loss in proportion to their
share.
8. Hence, the petition. Petitioners denied the existence
of partnership since the JVA is void.
c. He entered into a contract to construct low
cost housing units.
2. PARTNERSHIP AGREEMENT IS VALID.
Petitioners defense is under ART. 1773, that
there was no inventory made; hence null and
void. This lacks merit.
SC ruled that inventory is not required if it does
not involve third persons as in the instant case
where only the contracting parties assail the
validity of the joint venture.
3. THERE IS CONSIDERATION.
Cause or consideration may be in the form of
prestation or promise of a thing or service by
another.
In this case, there is consideration, i.e. the
expectation of profits from the subdivision project.
WHEREFORE, the petition is hereby DENIED and the challenged Decision AFFIRMED.
Costs against petitioners.

ISSUES:
1. WON Partnership exists. (YES)
2. WON the partnership agreement is valid. (YES)
3. WON there is lack of consideration, thereby
nullifying the agreement. (NO)

HELD:
1. PARTNERSHIP EXISTS.

The JVA clearly shows the intention of the parties

to form a partnership pursuant to ART. 1767:
a. That petitioners would contribute property in
the form of land;
b. That respondent would contribute, in addition
to his industry, the amount needed for
general expenses and other costs; and
c. That the income would be divided according
to the stipulated percentage.

It should be noted that what MANUEL contributed

here is his industry, as manifested by the ff. acts:
a. He mortgaged the land and the proceeds
were used for the survey and subdivision of
the land;

4

LIM TONG LIM VS PHIL FISHING GEAR INDUSTRIES (1999)
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.
FACTS:
1. Antonio CHUA & Peter YAO, in behalf of Ocean
Quest Fishing Corp. entered into a Contract for the
purchase of fishing nets from Respondent PFGI.
They claimed that they were engaged in a business
venture with Petitioner LIM TONG LIM, who however
was not a signatory to the agreement.
2. CHUA & YAO however failed to pay; prompting
Respondent PFGU to file a Collection Suit against
Chua, Yao, AND PETITIONER LIM, in their
capacities as general partners, on the allegation that
Ocean Quest Fishing Corp. was a non-existent
corporation.
3. Petitioner LIM opposed.
4. TC ruled in favor of PFGI; that a partnership existed
between Chua, Yao, and LIM based on the:
a. Testimonies of the witnesses; and
b. Compromise Agreement executed by the 3,
where there was joint liability presumed from
the equal distribution of the profit and loss.
5. CA AFFIRMED.
6. Hence, the petition.
ISSUE: WON partnership exists. (YES)
HELD: Partnership exists.
From the factual findings of both lower courts, it is clear
the Chua, Yao, and Lim had decided to engage in a
fishing business, which they started by buying boats worth
P3.35 million, financed by a loan secured by Petitioner
Lims brother.
In their 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 borrowed money, fell under the term
common fund under ART. 1767. The contribution to
such fund need not be cash or fixed assets; it can be
an intangible like credit or industry.
Bgn Digests
Civil Law Partnership
ART. 1767 (Definition of Partnership)
There was indeed partnership to engage in the fishing
business. They purchased the boats, which constituted
the main assets of the partnership, and they agreed that
the proceeds from the sales and operation thereof would
be divided among them.
OTHER DEFENSES RAISED BY PETITIONER:
A. The Compromise Agreement is not the sole basis of ownership.
(LACKS MERIT)
The agreement was but an embodiment of the relationship
extant among the parties prior to its execution. Petitioner fails
to appreciate that that CA and the RTC delve into the history of
the document and explored all the possible consequential
combination in harmony with law, logic, and fairness.
B. Petitioner was a Lessor, not a partner. (LACKS MERIT)
In effect, he would like the Court to believe that he consented
to the sale of his own boats to pay a debt of Chua and Yao, with
the excess of the proceeds to be divided among the 3 of them.
No lessor would do what petitioner did. Indeed his consent to
the sale proved that there was a pre-existing partnership among
all three.
The sale of the boats, as well as the division among the 3 of the
balance remaining after the payment, provides that the boat,
though registered in his name, was not his own property but an
asset of the partnership. It is not uncommon to register the
properties required from a loan in the name of the person the
lender trusts, who in this case is the petitioner himself. After all,
he is the brother of the creditor, Jesus Lim.
C. Corporation by estoppel. (LACKS MERIT)
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
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 Bgn Digests
Civil Law Partnership
ART. 1767 (Definition of Partnership)

AFISCO INSURANCE ET.AL. VS CA (1999) a. The pool has a common fund, consisting of
money and other valuables that are deposited in
An insurance pool is deemed a partnership, which is taxable as
the name and credit of the pool. This common
corporations. fund pays for the administration and operation
expenses of the pool.
Requisites of partnership:
b. The pool functions through an executive board,
a. Mutual contribution to a common stock which resembles the board of directors of a
corporation, composed of one representative for
b. Joint interest in the profits
each of the ceding companies.
c. True, the pool itself is not a reinsurer and does
FACTS: not issue any insurance policy; however, its work
1. Petitioners are 41 non-life insurance corporations is indispensable, beneficial, and economically
who entered into Reinsurance Treaties with Munich, useful to the business of the ceding companies
a non-resident foreign insurance corporation. Said and Munich, because without it they would not
treaties required petitioners to form a pool. have received their premiums.
2. Once formed, the pool of machinery insurers
submitted a financial statement and filed an Profit motive or business is therefore the
information Return of Organization Exempt from primordial reason (cause) for the pools
Income Tax. formation.
3. CIR, however, assessed deficiency corporate taxes.
4. Petitioners protested, but was denied. Also, the CA did not err in applying Evangelista
5. When it reached the CA, it affirmed the CIR; that the case, which involved a partnership that engaged
pool of machinery insurers was a partnership taxable in a series of transactions spanning more than 10
as corporations. years, as in the instant case.
6. Hence, the petition.
Being a partnership, it is taxable as corporation
PETITIONERS DEFENSE: Denies partnership because: under the NIRC.
a. They, the reinsurers, did not share the same risk
WHEREFORE, the petition is DENIED. The Resolutions of the CA are hereby
or solidary liability
AFFIRMED. Costs against petitioner.
b. There was no common fund
c. The executive board of the pool did not exercise
control and management of its funds
d. The pool or clearing house was not and could not
possibly have engaged in the business of
reinsurance from which it could have derived
income for itself.

ISSUE: WON the pool of machinery insurers was a

partnership, thereby taxable as corporations. (YES)

HELD: Partnership exists in the pool of machinery.

Requisites of a partnership:
1. Mutual contribution to a common stock; and
2. Joint interest in the profits.

Partnership is formed when persons contract to devote to a common

purpose either money, property, or labor with the intention of dividing the
profits between themselves.

In the instant case, the ceding companies entered into a

Pool Agreement or an association, that would handle all
the insurance business covered under their reinsurance
treaties with Munich. The ff. indicates partnership:

6

PHILEX MINING CORP VS CIR (2008)
A corporation cannot generally enter into partnerships, except when so
provided by law or its charters, or when it enters into a Joint Venture.
Partnership and joint venture are similar, except that partnerships are
generally continuing in nature, while joint ventures are temporary.
FACTS:
1. Petitioner PHILEX Mining entered into an agreement,
denominated as Power of Attorney with BAGUIO
GOLD for the former to manage and operate the
latters mining claim, known as the Sto. Nino mine.
2. In the course of managing and operating the project,
PHILEX made advances of cash and property for the
Sto. Nino mine project.
3. However, the mine suffered continuing losses, which
resulted PHILEXs withdrawal as manager and the
eventual cessation of the mine operations.
4. Thereafter, the parties executed a Compromise with
Dation in Payment, which was later amended,
wherein BAGUIO GOLD admitted its indebtedness
and agreed to pay Petitioner in segments.
5. Subsequently, PHILEX wrote off in its 1982 books of
account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000 to allowances
xxx.
6. In its 1982 annual ITR, PHILEX deducted from its
gross income said amount of P112,136,000 as loss
on settlement of receivables.
7. BIR, however, disallowed the amount as deduction
for bad debt and assessed PHILEX deficiency taxes.
8. PHILEX protested; which was denied.
9. PHILEX appealed before the CTA, asserting that the
advances made for the Sto. Nino mine were in the
nature of a loan; hence, deductible as bad debt.
10. CTA rejected Philexs assetion, ruling that the
advances were petitioners investment in a
partnership with Baguio Gold for the development
and exploitation of the Sto. Nino mine; that the Power
of Attorney was actually a partnership agreement;
hence, not deductible as bad debt.
ISSUE: WON the advances made for Sto. Nino mine were
investments in the partnership. OR simply put, does
partnership exist? (YES)
HELD: Partnership exists. The advances were
investments.
An examination of the Power of Attorney reveals that a
partnership or joint venture was indeed intended.
Bgn Digests
Civil Law Partnership
ART. 1767 (Definition of Partnership)
While a corporation, like PHILEX, cannot generally enter into a contract of
partnership unless authorized by law or its charter, it has been held that it
may enter into a joint venture which is akin to a particular partnership.
A joint venture and partnership are similar in the ff. elements:
a. community of interest in the business
b. sharing of profits and losses
c. mutual right of control
The main distinction is that a partnership contemplates a general business
with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature.
The Power of Attorney indicates that the parties had
intended to create a partnership and establish a
common fund for the purpose. They also had a joint
interest in the profits of the business as shown by a 50-
50 sharing in the income of the mine.
Under the Power of Attorney, petitioner and Baguio Gold
undertook to contribute money, property, and industry
to the common fund known as the Sto. Nino mine:
a. Baguio Gold would contribute:
a. P11M under its owners account
b. Any income that is left in the project
c. Its actual mining claim
b. PHILEX would contribute:
a. Its expertise in the management and operation of mines
b. Managers account comprised of P11M in funds and property
c. Compensation as manager that cannot be paid in cash.
The strongest indication that PHILEX was a partner in the
Sto. Nino mine is the fact that it would receive 50% of the
net profits as compensation, which is actually its share
in the income of the joint venture.
ART. 1769 (4). receipt by a person of a share in the profits of a business
is prima facie evidence that he is a partner in the business.
Petitioner asserts that profits received as compensation were in the nature of wages of
an employee. SC rejects. It is not merely an employee but the manager of the project
and had put substantial sums into the venture in order to ensure its viability and
profitability. By pegging its compensation to profits, petitioner also stood not to be
remunerated in case the mine had no income. It is hard to believe that petitioner would
take the risk of not being paid at all for its services, if it were truly just an ordinary
employee.
Thus, the advances were not debts of Baguio Gold to
petitioner. Hence, petitioner cannot claim the advances as
bad debt deduction from its gross income.
WHEREFORE, the petition is DENIED. XXX