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[G.R. No. 142293.

February 27, 2003] HELD

TRUCKING CORPORATION, petitioners, vs. HON. COURT OF APPEALS and JAIME The SC held that although illness can be a valid ground for terminating an employee, the
SAHOT, respondents. dismissal was invalid. Article 284 of the Labor Code authorizes an employer to terminate an
employee on the ground of disease. However, in order to validly terminate employment on this
FACTS ground, Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of the Labor Code
Private respondent Jaime Sahot started working as a truck helper for petitioners’ family-owned
trucking business named Vicente Sy Trucking. Throughout all the changes in names and for 36 Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his
years, private respondent continuously served the trucking business of petitioners. When Sahot continued employment is prohibited by law or prejudicial to his health or to the health of his co-
was already 59 years old, he had been incurring absences as he was suffering from various employees, the employer shall not terminate his employment unless there is a certification by
ailments. Particularly causing him pain was his left thigh, which greatly affected the performance competent public health authority that the disease is of such nature or at such a stage that it cannot
of his task as a driver. Sahot had filed a week-long leave sometime in May 1994. On May 27th, be cured within a period of six (6) months even with proper medical treatment. If the disease or
he was medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II), ailment can be cured within the period, the employer shall not terminate the employee but shall
HPM, UTI, Osteoarthritis and heart enlargement. On said grounds, Belen Paulino of the SBT ask the employee to take a leave. The employer shall reinstate such employee to his former
Trucking Service management told him to file a formal request for extension of his leave. At the position immediately upon the restoration of his normal health.
end of his week-long absence, Sahot applied for extension of his leave for the whole month of
June, 1994. It was at this time when petitioners allegedly threatened to terminate his employment The requirement for a medical certificate under Article 284 of the Labor Code cannot be
should he refuse to go back to work. They carried out their threat and dismissed him from work, dispensed with; otherwise, it would sanction the unilateral and arbitrary determination by the
effective June 30, 1994. He ended up sick, jobless and penniless. employer of the gravity or extent of the employee’s illness and thus defeat the public policy in the
protection of labor.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for In the case at bar, the employer clearly did not comply with the medical certificate requirement
illegal dismissal for recovery of separation pay against Vicente Sy and Trinidad Paulino-Sy, Belen before Sahot’s dismissal was effected. Since the burden of proving the validity of the dismissal of
Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6B’s Trucking and SBT Trucking, the employee rests on the employer, the latter should likewise bear the burden of showing that the
herein petitioners. requisites for a valid dismissal due to a disease have been complied with. In the absence of the
required certification by a competent public health authority, this Court has ruled against the
Petitioners, on their part, claimed that sometime prior to June 1, 1994, Sahot went on leave and validity of the employee’s dismissal. It is therefore incumbent upon the private respondents to
was not able to report for work for almost seven days. On June 1, 1994, Sahot asked permission prove by the quantum of evidence required by law that petitioner was not dismissed, or if
to extend his leave of absence until June 30, 1994. It appeared that from the expiration of his dismissed, that the dismissal was not illegal; otherwise, the dismissal would be unjustified. This
leave, private respondent never reported back to work nor did he file an extension of his leave. Court will not sanction a dismissal premised on mere conjectures and suspicions, the evidence
Instead, he filed the complaint for illegal dismissal against the trucking company and its owners. must be substantial and not arbitrary and must be founded on clearly established facts sufficient to
Petitioners add that due to Sahot’s refusal to work after the expiration of his authorized leave of warrant his separation from work.
absence, he should be deemed to have voluntarily resigned from his work. They contended that
Sahot had all the time to extend his leave or at least inform petitioners of his health condition. In addition, we must likewise determine if the procedural aspect of due process had been
complied with by the employer. From the records, it clearly appears that procedural due process
The Labor Arbiter ruled in favor of the company. It held that Sahot failed to return to work. was not observed in the separation of private respondent by the management of the trucking
However, upon appeal, the NLRC modified the LA’s decision, ruling that Sahot did not abandon company. The employer is required to furnish an employee with two written notices before the
his job but his employment was terminated on account of his illness, pursuant to Article 284 of latter is dismissed: (1) the notice to apprise the employee of the particular acts or omissions for
the Labor Code. which his dismissal is sought, which is the equivalent of a charge; and (2) the notice informing
the employee of his dismissal, to be issued after the employee has been given reasonable
ISSUE opportunity to answer and to be heard on his defense. These, the petitioners failed to do, even
only for record purposes. What management did was to threaten the employee with dismissal,
Whether or not there was valid termination of employment due to his illness. then actually implement the threat when the occasion presented itself because of private
respondent’s painful left thigh.

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All told, both the substantive and procedural aspects of due process were violated. Clearly, The Petition has merit. Both the trial and the appellate courts found that a partnership had indeed
therefore, Sahot’s dismissal is tainted with invalidity. existed, and that it was dissolved on March 1, 1987. They found that the dissolution took place
Petition is denied. when respondents informed petitioners of the intention to discontinue. Respondents consequently
demanded from petitioners the return of their one-third equity in the partnership. We hold that
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO respondents have no right to demand from petitioners the return of their equity share. Except as
JOSE, petitioners,
 managers of the partnership, petitioners did not personally hold its equity or assets. “The
 partnership has a juridical personality separate and distinct from that of each of the
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. partners.” Since the capital was contributed to the partnership, not to petitioners, it is the
RAMIREZ,respondents. partnership that must refund the equity of the retiring partners.
G.R. No. 144214 July 14, 2003 The amount to be refunded is necessarily limited to its total resources. In other words, it can only
Subject: BusOrg 1 pay out what it has in its coffers, which consists of all its assets. However, before the partners can
A share in a partnership can be returned only after the completion of the latter’s dissolution, be paid their shares, the creditors of the partnership must first be compensated. After all the
liquidation and winding up of the business. creditors have been paid, whatever is left of the partnership assets becomes available for the
Facts: payment of the partners’ shares.
Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of Evidently, in the present case, the exact amount of refund equivalent to respondents’ one-third
P750,000 for the operation of a restaurant and catering business under the name “Aquarius Food share in the partnership cannot be determined until all the partnership assets will have been
House and Catering Services.” Villareal was appointed general manager and Carmelito Jose, liquidated.
operations manager. Respondent Donaldo Ramirez joined as a partner on September 5, 1984 with Tocao and Belo vs Court of Appeals and Anay
a capital contribution of P250,000 which was paid by his parents, Respondents Cesar and Business Organization – Partnership, Agency, Trust – Dissolution of the Partnership
Carmelita Ramirez. Jesus Jose withdrew from the partnership and his capital contribution of William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form
P250,000 was refunded to him in cash by agreement of the partners. a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao also
In the same month, without prior knowledge of respondents, petitioners closed down the contributed some cash and she shall also act as president and general manager; and Anay shall be
restaurant, allegedly because of increased rental. The restaurant furniture and equipment were in charge of marketing. Belo and Tocao specifically asked Anay because of her experience and
deposited in the respondents’ house for storage. On March 1, 1987, respondent spouses wrote connections as a marketer. They agreed further that Anay shall receive the following:
petitioners, saying that they were no longer interested in continuing their partnership or in 1. 10% share of annual net profits
reopening the restaurant, and that they were accepting the latter’s offer to return their capital 2. 6% overriding commission for weekly sales
contribution. Respondent wrote another letter informing petitioners of the deterioration of the 3. 30% of sales Anay will make herself
restaurant furniture and equipment stored in their house. She also reiterated the request for the 4. 2% share for her demo services
return of their one-third share in the equity of the partnership. The repeated oral and written They operated under the name Geminesse Enterprise, this name was however registered as a sole
requests were, however, left unheeded. proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement was
Respondents filed before the RTC for the collection of a sum of money from petitioners. not reduced to writing because Anay trusted Belo’s assurances.
Petitioners contended that respondents had expressed a desire to withdraw from the partnership The venture succeeded under Anay’s marketing prowess.
and had called for its dissolution under Articles 1830 and 1831; that respondents had been paid, But then the relationship between Anay and Tocao soured. One day, Tocao advised one of the
upon the turnover to them of furniture and equipment worth over P400,000; and that the latter had branch managers that Anay was no longer a part of the company. Anay then demanded that the
no right to demand a return of their equity because their share, together with the rest of the capital company be audited and her shares be given to her.
of the partnership, had been spent as a result of irreversible business losses. ISSUE: Whether or not there is a partnership.
In their Reply, respondents alleged that had not received any regular report or accounting from the HELD: Yes, even though it was not reduced to writing, for a partnership can be instituted in any
latter, who had solely managed the business. Respondents also alleged that they expected the form. The fact that it was registered as a sole proprietorship is of no moment for such registration
equipment and the furniture stored in their house to be removed by petitioners as soon as the latter was only for the company’s trade name.
found a better location for the restaurant. RTC 17 ruled that the parties had voluntarily entered Anay was not even an employee because when they ventured into the agreement, they explicitly
into a partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it agreed to profit sharing this is even though Anay was receiving commissions because this is only
when they stopped operating the restaurant. Hence, the trial court rendered a judgment in favor of incidental to her efforts as a head marketer.
respondents and ordering the petitioners to pay jointly and severally. The Supreme Court also noted that a partner who is excluded wrongfully from a partnership is an
Issue: WON petitioners are liable to respondents for the latter’s share in the partnership innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the

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partnership as well as damages or share in the profits “realized from the appropriation of the 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like
partnership business and goodwill.” An innocent partner thus possesses “pecuniary interest in credit or industry. That the parties agreed that any loss or profit from the sale and operation of the
every existing contract that was incomplete and in the trade name of the co-partnership and assets boats would be divided equally among them also shows that they had indeed formed a
at the time he was wrongfully expelled.” partnership.
An unjustified dissolution by a partner can subject him to action for damages because by the Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his
have the power, although not necessarily the right to dissolve the partnership. boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao
Tocao’s unilateral exclusion of Anay from the partnership is shown by her memo to the Cubao decided to form a corporation. Although it was never legally formed for unknown reasons, this
office plainly stating that Anay was, as of October 9, 1987, no longer the vice-president for sales fact alone does not preclude the liabilities of the three as contracting parties in representation of it.
of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by
partnership and considered herself as having ceased to be associated with the partnership in the it, knowing it to be without valid existence, are held liable as general partners.
carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues
until the winding up of the business. EVANGELISTA & CO. v. ABAD SANTOS
G.R. No. L-31684; June 28, 1973
NOTE: Motion for Reconsideration filed by Tocao and Belo decided by the SC on September Ponente: J. Makalintal
20, 2001.
Belo is not a partner. Anay was not able to prove that Belo in fact received profits from the FACTS:
company. Belo merely acted as a guarantor. His participation in the business meetings was not as
a partner but as a guarantor. He in fact had only limited partnership. Tocao also testified that Belo On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co."
received nothing from the profits. The Supreme Court also noted that the partnership was yet to On June 7, 1955 the Articles of Co-partnership were amended so as to include herein respondent,
be registered in the Securities and Exchange Commission. As such, it was understandable that Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Belo, who was after all petitioner Tocao’s good friend and confidante, would occasionally Leonarda Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners,
participate in the affairs of the business, although never in a formal or official capacity. remaining in that capacity, with a contribution of P17,500 each
Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.
On December 17, 1963 herein respondent filed suit against the three other partners, alleging
Business Organization – Partnership, Agency, Trust – Corporation by Estoppel that the partnership, which was also made a party-defendant, had been paying dividends to the
It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with partners except to her; and that notwithstanding her demands the defendants had refused and
him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not continued to refuse to let her examine the partnership books or to give her information regarding
have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again the partnership affairs or to pay her any share in the dividends declared by the partnership
borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing The defendants, in their answer, denied ever having declared dividends or distributed
Corporation” (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the profits of the partnership; denied likewise that the plaintiff ever demanded that she be allowed to
purchase of fishing nets amounting to more than P500k. examine the partnership books; and by way of affirmative defense alleged that the amended
They were however unable to pay PFGI and so they were sued in their own names because Articles of Co-partnership did not express the true agreement of the parties, which was that the
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time plaintiff was not an industrial partner; that she did not in fact contribute industry to the
to pay. Yao waived his rights. Lim Tong Lim however argued that he’s not liable because he was partnership.
not aware that Chua and Yao represented themselves as a corporation; that the two acted without
his knowledge and consent. ISSUE:
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim Whether Abad Santos is entitled to see the partnership books because she is an industrial
had decided to engage in a fishing business, which they started by buying boats worth P3.35 partner in the partnership
million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, HELD:
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 Article Yes, Abad Santos is entitled to see the partnership books.

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or failure of the venture. Since the venture was a failure, Pecson is not entitled to the P8k
The Supreme Court ruled that according to commission.
As for the P7k award as return for Pecson’s investment, the CA erred in his ruling too. Though the
ART. 1299. Any partner shall have the right to a formal account as to partnership affairs: venture failed, it did took off the ground as evidenced by the 2,000 posters printed. Hence, return
of investment is not proper in this case. There are risks in any business venture and the failure of
(1)If he is wrongfully excluded from the partnership business or possession of its property by his the undertaking cannot entirely be blamed on the managing partner alone, specially if the latter
co-partners; exercised his best business judgment, which seems to be true in this case.
(2)If the right exists under the terms of any agreement; Moran must however return the unused P6k of Pecson’s contribution to the partnership plus P3k
(3)As provided by article 1807; representing Pecson’s profit share in the sale of the printed posters. Computation of P3k profit
(4)Whenever other circumstances render it just and reasonable." share is as follows: (P10k profit from the sale of the 2,000 posters printed) – (P4k expense in
printing the 2k posters) = (P6k profit); Profit ÷ 2 = P3k each.
In the case at hand, the company is estopped from denying Abad Santos as an industrial partner
because it has been 8 years and the company never corrected their agreement in order to show G.R. L-68118 Obillos v. CIR
their true intentions. The company never bothered to correct those up until Abad Santos filed a
complaint. Facts:

Isabelo Moran vs Court of Appeals In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan. The next
day, he transferred his rights to his four children for them to build their own residences. The
Business Organization – Partnership, Agency, Trust – Profit and Loss Sharing – Speculative Torrens title would show that they were co-owners of the two lots. However, the petitioners resold
Damages them to Walled City Securities Corporation and Olga Cruz Canda for P313k or P33k for each of
In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership agreement where them. They treated the profit as capital gains and paid an income tax of P16,792.00
they agreed to contribute P15k each for the purpose of printing 95k posters of the delegates to the
then 1971 Constitutional Commission. Moran shall be in charge in managing the printing of the The CIR requested the petitioners to pay the corporate income tax of their shares, as this entire
posters. It was further agreed that Pecson will receive a commission of P1k a month starting from assessment is based on the alleged partnership under Article 1767 of the Civil Code; simply
April 1971 to December 1971; that the partnership is to be liquidated on December 15, 1971. because they contributed each to buy the lots, resold them and divided the profits among them.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in favor of the
partnership. He gave the P10k to Moran as the managing partner. Moran however did not add But as testified by Obillos, they have no intention to form the partnership and that it was merely
anything and, instead, he only used P4k out of the P10k in printing 2,000 posters. He only printed incidental since they sold the said lots due to high demand of construction. Naturally, when they
2,000 posters because he felt that printing all 95k posters is a losing venture because of the delay sell them as co-partners, it will result to the share of profits. Further, their intention was to divide
by the COMELEC in announcing the full delegates. All the posters were sold for a total of P10k. the lots for residential purposes.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of Appeals
affirmed the decision of the trial court but modified the same as it ordered Moran to pay P47.5k Issue:
for unrealized profit; P8k for Pecson’s monthly commissions; P7k as return of investment because
the venture never took off; plus interest. Was there a partnership, hence, they are subject to corporate income taxes?
ISSUE: Whether or not the CA judgment is correct.
HELD: No. The award of P47.5k for unrealized profit is speculative. There is no evidence Court Ruling:
whatsoever that the partnership between the Moran and Pecson would have been a profitable
venture (because base on the circumstances then i.e. the delay of the COMELEC in proclaiming Not necessarily. As Article 1769 (3) of the Civil Code provides: the sharing of gross returns does
the candidates, profit is highly unlikely). In fact, it was a failure doomed from the start. There is not in itself establish a partnership, whether or not the persons sharing them have a joint or
therefore no basis for the award of speculative damages in favor of Pecson. Further, there is common right or interest in any property from which the returns are derived. There must be an
mutual breach in this case, Pecson only gave P10k instead of P15k while Moran gave nothing at unmistakeable intention to form a partnership or joint venture.
As for the P8k monthly commission, this is without basis. The agreement does not state the basis In this case, the Commissioner should have investigated if the father paid donor's tax to establish
of the commission. The payment of the commission could only have been predicated on relatively the fact that there was really no partnership.
extravagant profits. The parties could not have intended the giving of a commission inspite of loss

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Pascual and Dragon v. CIR, G.R. No. 78133, October 18, 1988 G.R. No. L-55397 February 29, 1988

Petitioners bought two (2) parcels of land and a year after, they bought another three (3) parcels
of land. Petitioners subsequently sold the said lots in 1968 and 1970, and realized net profits. The • Azucena Palomo bought a parcel of land and building from Rolando Gonzales and
corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax assumed a mortgage of the building in favor of S.S.S. which was insured with S.S.S.
amnesties granted in the said years. However, the Acting BIR Commissioner assessed and Accredited Group of Insurers
required Petitioners to pay a total amount of P107,101.70 as alleged deficiency corporate income • April 19, 1975: Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the
taxes for the years 1968 and 1970. Petitioners protested the said assessment asserting that they amount of P100,000 and to secure it, the land and building was mortgaged
had availed of tax amnesties way back in 1974. In a reply, respondent Commissioner informed • June 11, 1975: Pedro Palomo secured a Fire Insurance Policy covering the building for
petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions P50,000 with Zenith Insurance Corporation
formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) • July 16, 1975: another Fire Insurance policy was procured from Philippine British
and its income was subject to the taxes prescribed under Section 24, both of the National Internal Assurance Company, covering the same building for P50,000 and the contents thereof for
Revenue Code that the unregistered partnership was subject to corporate income tax as P70,000
distinguished from profits derived from the partnership by them which is subject to individual • Before the occurrence of the peril insured against the Palomos had already paid their
income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners credit due the
relieved petitioners of their individual income tax liabilities but did not relieve them from the tax • July 31, 1975: building and the contents were totally razed by fire
liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency • Palomo was able to claim P41,546.79 from Philippine British Assurance Co., P11,877.14
income tax assessed. from Zenith Insurance Corporation and P5,936.57 from S.S.S. Group of Accredited
ISSUE: Insurers but Travellers Multi-Indemnity refused so it demanded the balance from the other
Whether the Petitioners should be treated as an unregistered partnership or a co-ownership for the three but they refused so they filed against them
purposes of income tax. • Insurance Commission, CFI: absolved Travellers on the basis that Arsenio Cua was
claiming and NOT Tai Tong Chuache
RULING: • Palomo Appealed
The Petitioners are simply under the regime of co-ownership and not under unregistered • Travellers reasoned that the policy is endorsed to Arsenio Chua, mortgage
partnership. creditor
By the contract of partnership two or more persons bind themselves to contribute money, • Tai Tong Chuache & Co. filed a complaint in intervention claiming the
property, or industry to a common fund, with the intention of dividing the profits among proceeds of the fire Insurance Policy issued by travellers
themselves (Art. 1767, Civil Code of the Philippines). In the present case, there is no evidence • affirmative defense of lack of insurable interest that before the occurrence of
that petitioners entered into an agreement to contribute money, property or industry to a common the peril insured against the Palomos had already paid their credit due the
fund, and that they intended to divide the profits among themselves. The sharing of returns does petitioner
not in itself establish a partnership whether or not the persons sharing therein have a joint or ISSUE: W/N Tai Tong Chuache & Co. has insurable interest
common right or interest in the property. There must be a clear intent to form a partnership, the
existence of a juridical personality different from the individual partners, and the freedom of each
party to transfer or assign the whole property. Hence, there is no adequate basis to support the HELD: YES. Travellers Multi-Indemnity Corporation to pay Tai Tong Chuache & Co.
proposition that they thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter did not thereby make • when the creditor is in possession of the document of credit, he need not prove non-
them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on payment for it is presumed
their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be • The validity of the insurance policy taken b petitioner was not assailed by
considered to have formed an unregistered partnership which is thereby liable for corporate private respondent. Moreover, petitioner's claim that the loan extended to the
income tax, as the respondent commissioner proposes. Palomos has not yet been paid was corroborated by Azucena Palomo who
testified that they are still indebted to herein petitioner
Ai Tong Chuache & Co. V. Insurance Commission (1988) • Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he acted for and in behalf of the firm

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• Upon its failure to prove the allegation of lack of insurable interest on the part of the aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts were foreclosed
petitioner, Travellers must be held liable by Pioneer Insurance.
It was established that no corporation was formally formed between Lim and Maglana et al.
Antonia Torres vs Court of Appeals ISSUE: Whether or not Maglana et al must share in the loss as general partners.
Business Organization – Partnership, Agency, Trust – Sharing of Loss in a Partnership – Industrial HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do
Partner business through a corporation but failed to incorporate, a de facto partnership would have been
In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with formed, and as such, all must share in the losses and/or gains of the venture in proportion to their
Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel contribution. But in this case, it was shown that Lim did not have the intent to form a corporation
over a parcel of land, the sisters received no cash payment from Manuel but the promise of profits with Maglana et al. This can be inferred from acts of unilaterally taking out a surety from Pioneer
(60% for the sisters and 40% for Manuel) – said parcel of land is to be developed as a Insurance and not using the funds he got from Maglana et al. The record shows that Lim was
subdivision. acting on his own and not in behalf of his other would-be incorporators in transacting the sale of
Manuel then had the title of the land transferred in his name and he subsequently mortgaged the the airplanes and spare parts.
property. He used the proceeds from the mortgage to start building roads, curbs and gutters.
Manuel also contracted an engineering firm for the building of housing units. But due to adverse
claims in the land, prospective buyers were scared off and the subdivision project eventually
The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value of
the property, which according to the sisters, is what’s due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where they argued that there is no partnership
between them and Manuel because the joint venture agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a partnership
agreement whereby they agreed to contribute property (their land) which was to be developed as a
subdivision. While on the other hand, though Manuel did not contribute capital, he is an industrial
partner for his contribution for general expenses and other costs. Furthermore, the income from
the said project would be divided according to the stipulated percentage (60-40). Clearly, the
contract manifested the intention of the parties to form a partnership. Further still, the sisters
cannot invoke their right to the 60% value of the property and at the same time deny the same
contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to
Manuel (the sisters on their appeal did not show evidence as to Manuel’s fault in the failure of the
partnership). The sisters must then bear their loss (which is 60%). Manuel does not bear the loss
of the other 40% because as an industrial partner he is exempt from losses.
Pioneer Insurance & Surety Corporation vs Court of Appeals
175 SCRA 668 –Business Organization – Corporation Law – When De Facto Partnership Does
Not Exist
Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border Machinery and Heavy
Equipment Company (BORMAHECO) to contribute funds and to buy two aircrafts which would
form part a corporation which will be the expansion of Southern Air Lines. Maglana et al then
contributed and delivered money to Lim.
But instead of using the money given to him to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to insure the
two aircrafts which were brought in installment from Japan Domestic Airlines (JDA) using said

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