3-Manresa [BUSORG CASE DIGESTS]
Benjamin Yu vs. NLRC
Facts:
Benjamin Yu was formerly the Assistant General Manager of
the marble quarrying and export business operated by a
registered partnership with the firm name of "Jade Mountain
Products Company Limited". The partnership was originally
organized with Lea and Rhodora Bendal as general partners
and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all
Taiwanese, as limited partners.
Benjamin Yu was hired by virtue of a Partnership Resolution,
as Assistant General Manager with a monthly salary of
P4,000.00. According to Yu, however, he actually received
only half of his stipulated monthly salary, as promised by
partners that the balance would be paid when the firm shall
have secured additional operating funds from abroad.
Sometime in 1988, without the knowledge of Benjamin Yu, the
general partners Lea and Rhodora Benda and Mr. Yu Chang, a
limited partner, sold and transferred their interests in the
partnership to private respondent Willy Co and to one
Emmanuel Zapanta. The partnership now constituted solely by
Willy Co and Emmanuel Zapanta continued to use the old firm
name of Jade Mountain, though they moved the firm's main
office from Makati to Mandaluyong.
Having learned of the transfer of the firm's main office,
petitioner Benjamin Yu reported to the Mandaluyong office for
work and there he was informed by Willy Co that it was for him
to decide whether or not he was responsible for the obligations
of the old partnership, including petitioner's unpaid salaries.
Petitioner was in fact not allowed to work anymore in the Jade
Mountain business enterprise. His unpaid salaries remained
unpaid.
Benjamin Yu filed a complaint for illegal dismissal and recovery
of unpaid salaries, moral and exemplary damages and
attorney's fees, against Jade Mountain, Mr. Willy Co and the
other private respondents. The partnership and Willy Co
contended that Benjamin Yu was never hired as an employee
by the present or new partnership.
Labor Arbiter: Yu had been illegally dismissed. The Labor
Arbiter decreed his reinstatement and awarded him his claim
for unpaid salaries, backwages and attorney's fees.
NLRC (on appeal): Reversed the decision of the Labor Arbiter
and dismissed petitioner's complaint. It held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel
Zapanta had bought the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his original
position as Assistant General Manager, and that there was no
law requiring the new partnership to absorb the employees of
the old partnership.
Benjamin Yu had not been illegally dismissed by the new
partnership which had simply declined to retain him in his
former managerial position or any other position. Finally, the
NLRC held that Benjamin Yu's claim for unpaid wages should
be asserted against the original members of the preceding
partnership.
Issues:
(1) Whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and
replaced by a new partnerships composed of Willy Co and
Emmanuel Zapanta; and
(2) If indeed a new partnership had come into existence,
whether petitioner Yu could nonetheless assert his rights under
his employment contract as against the new partnership.
Held:
(1) SC agreed with the NLRC. The legal effect of the changes
in the membership of the partnership was the dissolution of the
old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
The applicable law in this connection is Article 1828 of the Civil
Code which provides as follows:
Art. 1828. The dissolution of a partnership is the change
in the relation of the partners caused by any partner
ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
(Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the
partners; XXX
(b) by the express will of any partner, who
must act in good faith, when no definite term
or particular undertaking is specified; XXX
(2) in contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;
In the case at bar, just about all of the partners had sold their
partnership interests, amounting to 82% of the total partnership
interest, to Mr. Willy Co and Emmanuel Zapanta. The
acquisition of 82% of the partnership interest by new partners,
coupled with the retirement or withdrawal of the old partners,
was enough to constitute a new partnership.
The occurrences of events which precipitate the legal
consequence of dissolution of a partnership do not, however,
automatically result in the termination of the legal personality of
the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed.
The legal personality of the expiring partnership persists for the
limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, the business of the old
partnership was simply continued by the new
partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of its
business affairs.
In other words, the new partnership simply took over the
business enterprise owned by the preceding partnership, and
continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of
the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said
 3-Manresa [BUSORG CASE DIGESTS]
assets or most of them and opening a new business
enterprise.
(2) SC did not agree with NLRC. Under Article 1840 above,
creditors of the old Jade Mountain are also creditors of the new
Jade Mountain which continued the business of the old one
without liquidation of the partnership affairs. Indeed, a creditor
of the old Jade Mountain, like petitioner Benjamin Yu in respect
of his claim for unpaid wages, is entitled to priority vis-à-vis any
claim of any retired or previous partner insofar as such retired
partner's interest in the dissolved partnership is concerned. It is
clear to the Court that under Article 1840 above, Benjamin Yu
is entitled to enforce his claim for unpaid salaries, as well as
other claims relating to his employment with the previous
partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new
partnership was entitled to appoint and hire a new general or
assistant general manager. The non-retention of Benjamin Yu
as Assistant General Manager did not therefore constitute
unlawful termination, or termination without just or authorized
cause. We think that the precise authorized cause for
termination in the case at bar was redundancy. The new
partnership had its own new General Manager, apparently Mr.
Willy Co, the principal new owner himself. It follows that
petitioner Benjamin Yu is entitled to separation pay at the rate
of one month's pay for each year of service that he had
rendered to the old partnership, a fraction of at least six (6)
months being considered as a whole year.
Plus Moral Damages of Php 20,000 for Yu’s shabby treatment,
legal interest of 6% per annum for unpaid wages and
separation pay, and attorney’s fees of 10% of to the total
amount due from Jade Mountain.
G.R. No. 413 February 2, 1903
Jose Fernandez vs. Francisco de la Rosa
Facts:
Fernandez and Dela Rosa entered into a verbal agreement to
form a partnership for the purchase of cascoes and hiring the
same in Manila. In their arrangement, each partner will furnish
such amount of money for the purchase of the cascoes with
the profits divided proportionally. Dela Rosa was designated to
buy the cascoes. Thus, Fernandez furnished Dela Rosa 300
pesos for the purchase of casco no. 1515, 300 pesos for its
repairs, and 825 for the purchase of casco no. 2089.
Subsequently, the parties undertook to draw up articles of
partnership but no written agreement was executed because
Dela Rosa allegedly presented a different draft of such articles,
deliberately excluding casco no. 2089 in the partnership. This
prompted Fernandez to demand for an accounting upon him.
Fernandez presented in evidence the following receipt: "I have
this day received from D. Jose Fernandez eight hundred and
twenty-five pesos for the cost of a casco which we are to
purchase in company. Manila, March 5, 1900. Francisco de la
Rosa." The casco being referred to be purchased “in company”
according to the Supreme Court pertains to casco no. 2089,
contrary to the claim of Dela Rosa that the same was for casco
no. 1515.
Dela Rosa admitted receiving 300 pesos as a loan from the
bakery firm co-owned by Fernandez, and 825 pesos from
Fernandez for the purchase of casco no. 1515 (not casco no.
2089) but maintained not receiving anything for the purchase
of casco no. 2089. Verily, Dela Rosa, at some point, returned
the sum of 1,125 pesos to Fernandez.
The lower court ruled in favor of Dela Rosa .
Issue:
WON a partnership exists between Fernandez and Dela Rosa.
Held:
Yes, a partnership exists between the parties.
Partnership is a contract by which 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. (Civil Code, art. 1665). The essential points upon
which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common
stock, and (2) a joint interest in the profits (Civil Code, secs.
1689, 1695.)
As regards the first element, the Supreme Court found that
money was indeed furnished by Fernandez and received by
Dela Rosa with the understanding that it was to be used for the
purchase of the cascoes in question. As regards the second
element, namely, the intention to share profits, appears to be
an unavoidable deduction from the fact of the purchase of the
cascoes in common, in the absence of any other explanation of
the object of the parties in making the purchase in that form,
and, it may be added, in view of the admitted fact that prior to
the purchase of the first casco the formation of a partnership
had been a subject of negotiation between them.
While the Supreme Court was unable to find that there was
any specific verbal agreement of partnership, the same may be
implied from the fact as to the purchase of the casco. It is thus
apparent that a complete and perfect contract of partnership
was entered into by the parties.
As to the absence of a written instrument
The execution of a written agreement was not necessary in
order to give efficacy to the verbal contract of partnership as a
civil contract, the contributions of the partners not having been
in the form of immovables or rights in immovables. (Civil Code,
art. 1667.)
As to the return of Fernandez’s money contribution
The amount returned fell short of that which the plaintiff had
contributed to the capital of the partnership, since it did not
include the sum which he had furnished for the repairs of
casco No. 1515. Moreover, it is quite possible that a profit may
have been realized from the business during the period in
which the defendant have been administering it prior to the
return of the money, and if so he still retained that sum in his
hands. For these reasons the acceptance of the money by the
plaintiff did not have the effect of terminating the legal
existence of the partnership by converting it into a societas
leonine.
There was no intention on the part of the plaintiff in accepting
the money to relinquish his rights as a partner, nor is there any
evidence that by anything that he said or by anything that he
omitted to say he gave the defendant any ground whatever to
believe that he intended to relinquish them. On the contrary he
 3-Manresa [BUSORG CASE DIGESTS]
notified the defendant that he waived none of his rights in the
partnership.
Collective partnership or en comandita
A contract of partnership subject to a suspensive condition,
postponing its operation until an agreement was reached as to
the respective participation of the partners in the profits
Council Red Men vs. Veterans Army
Facts:
This case involves the Veteran Army of the Philippines.
Their Constitution provides for the organization of posts.
Among the posts thus organized is the General Henry W.
Lawton Post, No. 1.
March 1, 1903: a contract of lease of parts of a certain
buildings in the city of Manila was signed by Lewis, Stovall,
and Hayes (as trustees of the Apache Tribe, No. 1, Improved
Order of Red Men) as lessors, and McCabe (citing for and on
behalf of Lawton Post, Veteran Army of the Philippines) as
lessee.
The lease was for the term of two years commencing February
1, 903, and ending February 28, 1905.
The Lawton Post occupied the premises in controversy for
thirteen months, and paid the rent for that time. Thereafter, it
abandoned the premises.
Council Red Men then filed an action to recover the rent for the
unexpired term of the lease.
Judgment was rendered in the court below on favor of the
defendant McCabe, acquitting him of the complaint.
Judgment was rendered also against the Veteran Army of the
Philippines for P1,738.50, and the costs.
It is claimed by the Veterans Army that the action cannot be
maintained by the Council Red Men as this organization did
not make the contract of lease.
It is also claimed that the action cannot be maintained against
the Veteran Army of the Philippines because it never
contradicted, either with the Council Red Men or with Apach
Tribe, No. 1, and never authorized anyone to so contract in its
name.
Issue:
Whether or not Article 1695 of the Civil Code is applicable to
the Veteran Army of the Philippines. NO
Held:
Council Red Men must show that the contract of lease was
authorized by the Veterans Army
The view most favorable to the appellee (Council Red Men) is
the one that makes the appellant (Veterans Army) a civil
partnership. Assuming that is such, and is covered by the
provisions of title 8, book 4 of the Civil Code, it is necessary for
the appellee (Council Red Men) to prove that the contract in
question was executed by some authorized to so by the
Veteran Army of the Philippines.
Article 1695 of the Civil Code is not applicable in this case
Article 1695 of the Civil Code provides as follows:
"Should no agreement have been made with regard to the
form of management, the following rules shall be observed:
1. All the partners shall be considered as agents, and
whatever any one of them may do by himself shall bind
the partnership; but each one may oppose the act of the
others before they may have produced any legal effect."
One partner, therefore, is empowered to contract in the name
of the partnership only when the articles of partnership make
no provision for the management of the partnership business.
The constitution of the Veteran Army of the Philippines makes
provision for the management of its affairs, so that article 1695
of the Civil Code, making each member an agent of the
partnership in the absence of such provision, is not applicable
to that organization.
In the case at bar we think that the articles of the Veteran Army
of the Philippines do so provide. It is true that an express
disposition to that effect is not found therein, but we think one
may be fairly deduced from the contents of those articles. They
declare what the duties of the several officers are. In these
various provisions there is nothing said about the power of
making contracts, and that faculty is not expressly given to any
officer. We think that it was, therefore, reserved to the
department as a whole; that is, that in any case not covered
expressly by the rules prescribing the duties of the officers, the
department were present. It is hardly conceivable that the
members who formed this organization should have had the
intention of giving to any one of the sixteen or more persons
who composed the department the power to make any contract
relating to the society which that particular officer saw fit to
make, or that a contract when so made without consultation
with, or knowledge of the other members of the department
should bind it.
The contract of lease is not binding on the Veterans Army
absent showing that it was authorized in a meeting of the
department
We therefore, hold, that no contract, such as the one in
question, is binding on the Veteran Army of the Philippines
unless it was authorized at a meeting of the department. No
evidence was offered to show that the department had never
taken any such action.
In fact, the proof shows that the transaction in question was
entirely between Apache Tribe, No. 1, and the Lawton Post,
and there is nothing to show that any member of the
department ever knew anything about it, or had anything to do
with it.
Judgment against the appellant is reversed, and the Veteran
Army of the Philippines is acquitted of the complaint. No costs
will be allowed to either party in this court.
NOTE: Whether a fraternal society, such as the Veteran Army
of the Philippines, is a civil partnership is not decided.
 3-Manresa [BUSORG CASE DIGESTS]
Mariano P. Pascual vs. CIR and Court of Tax Appeals
The distinction between co-ownership and an unregistered
partnership or joint venture for income tax purposes is the
issue in this petition.
Facts:
On June 22, 1965, petitioners bought two (2) parcels of land
from Santiago Bernardino, et al. and on May 28, 1966, they
bought another three (3) parcels of land from Juan Roque. The
first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of
land were sold by petitioners to Erlinda Reyes and Maria
Samson on March 19,1970. Petitioners realized a net profit in
the sale made in 1968 in the amount of P165,224.70, while
they realized a net profit of P60,000.00 in the sale made in
1970. The corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax amnesties
granted in the said years.
However, in a letter of then Acting BIR Commissioner Efren I.
Plana, petitioners were assessed and required to pay a total
amount of P107,101.70 as alleged deficiency corporate income
taxes for the years 1968 and 1970.
Respondent Commissioner informed petitioners that in the
years 1968 and 1970, petitioners as co-owners in the real
estate transactions formed an unregistered partnership or joint
venture taxable as a corporation under Section 20(b) and its
income was subject to the taxes prescribed under Section 24,
both of the National Internal Revenue Code that the
unregistered partnership was subject to corporate income tax
as distinguished from profits derived from the partnership by
them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual income tax
liabilities but did not relieve them from the tax liability of the
unregistered partnership. Hence, the petitioners were required
to pay the deficiency income tax assessed.
Issue:
Whether or not petitioners formed an unregistered partnership
subject to corporate income tax. NO!
Held:
Article 1767 of the Civil Code of the Philippines provides:
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.
Pursuant to this article, the essential elements of a partnership
are two, namely: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide
the profits among the contracting parties.
In the present case, there is no evidence that petitioners
entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide the
profits among themselves. Respondent commissioner and/ or
his representative just assumed these conditions to be present
on the basis of the fact that petitioners purchased certain
parcels of land and became co-owners thereof.
In the instant case, petitioners bought two (2) parcels of land in
1965. They did not sell the same nor make any improvements
thereon. In 1966, they bought another three (3) parcels of land
from one seller. It was only 1968 when they sold the two (2)
parcels of land after which they did not make any additional or
new purchase. The remaining three (3) parcels were sold by
them in 1970. The transactions were isolated. The character of
habituality peculiar to business transactions for the purpose of
gain was not present.
Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3,
provides;
(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;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the
returns are derived; xxxx
The sharing of returns does not in itself establish a partnership
whether or not the persons sharing therein have a joint or
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.
In the present case, there is clear evidence of co-ownership
between the petitioners. There is no adequate basis to support
the 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 them partners. They shared in the gross
profits as co- owners and paid their capital gains taxes on their
net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate
income tax, as the respondent commissioner proposes.
And even assuming for the sake of argument that such
unregistered partnership appears to have been formed, since
there is no such existing unregistered partnership with a
distinct personality nor with assets that can be held liable for
said deficiency corporate income tax, then petitioners can be
held individually liable as partners for this unpaid obligation of
the partnership. However, as petitioners have availed of the
benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax
liability arising therefrom.
Estanislao vs. CA, Estanislao and Santiago
Facts:
Petitioner and private respondents are brothers and sisters
who are co-owners of certain lots at Quezon City which were
then being leased to the Shell Company. They agreed to
operate a gas station thereat with an initial investment of P
15,000.00 to be taken from the advance rentals due to them
from SHELL for the occupancy of the said lots owned by them
in common.
They executed a joint affidavit where they agreed to help their
brother, petitioner herein, by allowing him to operate and
 3-Manresa [BUSORG CASE DIGESTS]
manage the gasoline service station of the family. And in order
not to run counter to the policy of Shell of appointing only one
dealer, it was agreed that petitioner would apply for the
dealership.
Thereafter, the parties entered into an Additional Cash Pledge
Agreement which canceled and superseded the Joint Affidavit
previously executed by the co-owners.
For sometime, petitioner submitted financial statements
regarding the operation of the business to private respondents,
but thereafter petitioner failed to render subsequent
accounting. Hence, a demand was made on petitioner to
render an accounting of the profits.
The financial report shows that the business was able to make
a profit of P 87,293.79 for 1968 and P150, 000.00 for 1969 was
realized.
Private respondents filed a complaint in the CFI of Rizal
against petitioner:
1) to execute a public document embodying all the
provisions of the partnership agreement
2) to render a formal accounting
3) to pay the plaintiffs their lawful shares and participation in
the net profits of the business
CFI ruled in favor of private respondents. CA affirmed.
Issue:
Whether a partnership exists between members of the same
family arising from their joint ownership of certain
properties; YES
Held:
Petitioner relies heavily on the provisions of the Joint Affidavit
and the Additional Cash Pledge Agreement (See Full Text for
contents).
Petitioner contends that because of the stipulation in the Cash
Pledge Agreement cancelling and superseding the previous
Joint Affidavit, whatever partnership agreement there was in
said previous agreement had thereby been abrogated.
We find no merit in this argument. Said cancelling provision
was necessary for the Joint Affidavit speaks of P15,000.00
advance rentals starting May 25, 1966 while the latter
agreement also refers to advance rentals of the same amount
starting May 24, 1966.
Further, evidence in the record shows that there was in fact
such partnership agreement between the parties:
1. This is attested by the testimonies of private
respondent Remedios Estanislao and Atty. Angeles.
2. Petitioner submitted to private respondents periodic
accounting of the business.
3. Petitioner gave a written authority to private
respondent Remedies Estanislao, his sister, to
examine and audit the books of their "common
business'.
4. Respondent Remedios assisted in the running of the
business.
There is no doubt that the parties hereto formed a partnership
when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among
themselves.
The sole dealership by the petitioner and the issuance of all
government permits and licenses in the name of petitioner was
in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the
SHELL products.
Ang Pue vs. Sec of Commerce and Industry
Facts:
On May 1, 1953, Ang Pue and Tan Siong, both Chinese
citizens, organized the partnership Ang Pue & Company for a
term of five years from May 1, 1953, extendible by their mutual
consent.
On June 19, 1954 Republic Act No. 1180 was enacted which
provided that a partnership not wholly formed by Filipinos could
continue to engage in the retail business until the expiration of
its term.
Prior to the expiration of the five-year term of the partnership
but after the enactment of the RA 1180, the partners amended
the original articles of part ownership so as to extend the term
of life of the partnership to another five years. When the
amended articles were presented for registration in the Office
of the Securities & Exchange Commission, registration was
refused upon the ground that the extension was in violation of
the aforesaid Act.
Ang Pue & Company filed an action for declaratory relief to
secure judgment "declaring that plaintiffs could extend for five
years the term of the partnership pursuant to the provisions of
plaintiffs' Amendment to the Article of Co-partnership." TC
dismissed the same.
Issue:
Whether the terms of partnership may still be extended for 5
more years; NO
Held:
To organize a corporation or a partnership that could claim a
juridical personality of its own and transact business as such,
is not a matter of absolute right but a privilege which may be
enjoyed only under such terms as the State may deem
necessary to impose.
RA No. 1180 was clearly intended to apply to partnership
already existing at the time of the enactment of the law.
To argue that because the original articles of partnership
provided that the partners could extend the term of the
partnership, the provisions of Republic RA cannot be adversely
affect appellants herein, is to erroneously assume that the
aforesaid provision constitute a property right of which the
partners can not be deprived without due process or without
their consent. The agreement contained therein must be
deemed subject to the law existing at the time when the
partners came to agree regarding the extension.
In the present case, as already stated, when the partners
amended the articles of partnership, the provisions of Republic
Act 1180 were already in force, and there can be not the
slightest doubt that the right claimed by appellants to extend
 3-Manresa [BUSORG CASE DIGESTS]
the original term of their partnership to another five years
would be in violation of the clear intent and purpose of the law
aforesaid.
Obillos vs. CIR & Court of Tax Appeals
Facts:
Jose Obillos, Sr. transferred his rights to his four children, the
petitioners, to enable them to build their residences.
Presumably, the Torrens titles issued to them would show that
they were co-owners of the two lots.
After having held the two lots for more than a year, the
petitioners resold them from which they derived a total profit
of P134,341.88 or P33,584 for each of them. They treated the
profit as a capital gain and paid an income tax of P16,792.
One day before the expiration of the five-year prescriptive
period, the Commissioner of Internal Revenue required the
petitioners to pay corporate income tax in addition to individual
income tax. Further, he considered the share of the profits of
each petitioner as taxable in full and not a mere capital gain of
which ½ is taxable. Petitioners are being held liable for
deficiency income taxes and penalties totaling to P127,781.76.
Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture within the
meaning of sections 24(a) and 84(b) of the Tax Code.
Issue:
Whether petitioners formed an unregistered partnership; NO
It is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply
because they allegedly contributed P178,708.12 to buy the two
lots, resold the same and divided the profit among themselves.
As testified by Jose Obillos, Jr., they had no such intention.
They were co-owners pure and simple. Their original purpose
was to divide the lots for residential purposes. The division of
the profit was merely incidental to the dissolution of the co-
ownership.
Article 1769(3) of the Civil Code provides that "the sharing of
gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right
or interest in any property from which the returns are
derived". There must be an unmistakable intention to form a
partnership or joint venture.
All co-ownerships are not deemed unregistered partnership.—
Co-Ownership who own properties which produce income
should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview
of the income tax law. To hold otherwise, would be to subject
the income of all co-ownerships of inherited properties to the
tax on corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any kind of income
tax, whether the income tax on individuals or the income tax on
corporation.
In the instant case, what the Commissioner should have
investigated was whether the father donated the two lots to the
petitioners and whether he paid the donor's tax.
Lim Tong Lim vs. Philippine Fishing
Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a Contract for the purchase of
fishing nets from the Philippine Fishing Gear Industries, Inc..
Chua and Yao claimed that they were engaged in a business
venture with Lim Tong Lim, who however was not a signatory
to the agreement.
Buyers, however, failed to pay for the fishing nets and the
floats. Private respondents filed a collection suit against Chua,
Yao and Lim Tong Lim. The suit was brought against the three
in their capacities as general partners, on the allegation that
"Ocean Quest Fishing Corporation" was a nonexistent
corporation as shown by a Certification from the Securities and
Exchange Commission.
RTC ruled that defendants are jointly liable to plaintiff, that their
joint liability could be presumed from the equal distribution of
the profit and loss. CA affirmed.
Issue:
Whether by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership; YES
From the factual findings of both lower courts, it is clear that
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 from Jesus Lim who was
petitioner's 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 Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that
any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they
had indeed formed a partnership.
Partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats. The fishing nets and the
floats, both essential to fishing, were obviously acquired in
furtherance of their business.
Defense: Lim disclaims any direct participation in the purchase
of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further
argues that he was a lessor, not a partner, of Chua and Yao,
for the "Contract of Lease.”
We are not convinced by petitioner's argument that he was
merely the lessor of the boats to Chua and Yao, not a partner
in the fishing venture.
He would like this 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 three of them.
No lessor would do what petitioner did. Indeed, his consent to
the sale proved that there was a preexisting partnership among
all three.
 3-Manresa [BUSORG CASE DIGESTS]
The sale of the boats, as well as the division among the three
of the balance remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes, though registered in his
name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties
acquired 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.
Being partner, they are all liable for debts incurred by or on
behalf of the partnership. The liability for a contract entered
into on behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.
Aguila vs. CA & Vda. De Abrogar
Facts:
Petitioner is the manager of A.C. Aguila & Sons, Co., a
partnership engaged in lending activities. Private respondent,
with the consent of her late husband, and A.C. Aguila & Sons,
Co., represented by petitioner, entered into a Memorandum of
Agreement (See full text for details).
A.C Aguila bought the property of private respondent and her
late husband for P200,000. On the same day, parties executed
the deed of absolute sale.
Private respondent failed to redeem the property within the 90-
day period. Hence, petitioner caused the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the
name of A.C. Aguila and Sons, Co.
Thereafter, private respondent was demanded to vacate the
premises within 15 days after receipt of the letter and
surrender its possession peacefully to A.C. Aguila & Sons.
Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case.
MTC ruled in favor of A.C. Aguila & Sons, Co. RTC and CA
affirmed.
Private respondent then filed a petition for declaration of nullity
of a deed of sale with the Regional Trial Court signature of her
husband on the deed of sale was a forgery because he was
already dead when the deed was supposed to have been
executed on June 11, 1991.
RTC ruled in favor of petitioner. CA reversed ruling that
transaction is an equitable mortgage.
Petitioner now contends that he is not the real party in interest
but A.C. Aguila & Co., against which this case should have
been brought.
Issue:
Whether petitioner is a real party in interest; NO
Held:
Under Art. 1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the
partners." The partners cannot be held liable for the obligations
of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent,
unfair, or illegal purposes.
In this case, private respondent has not shown that A.C. Aguila
& Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. and
the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A.C.
Aguila & Sons, Co., represented by petitioner. Hence, it is the
partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its
name.
Ona & Heirs of Bunales vs. CIR
Facts:
Julia Buñales died leaving as heirs her surviving spouse and
her five children. The surviving spouse as administrator of the
estate submitted the project of partition which was approved by
the Court.
Although the project of partition was approved by the Court, no
attempt was made to divide the properties therein listed.
Instead, the properties remained under the management of
Lorenzo T. Oña who used said properties in business by
leasing or selling them and investing the income derived
therefrom and the proceeds from the sales thereof in real
properties and securities. From said investments and
properties petitioners derived such incomes as profits from
installment sales of subdivided lots, profits from sales of
stocks, dividends, rentals and interests.
Commissioner of Internal Revenue decided that petitioners
formed an unregistered partnership subject to the corporate
income tax, pursuant to Section 24, in relation to Section 84(b),
of the Tax Code. Petitioners were assessed for P8,092.00 and
P13,899.00 as corporate income taxes for 1955 and 1956.
Petitioners protested but CIR denied the same.
Issue:
WON petitioners are co-owners of the properties inherited by
them from the deceased Julia Buñales and the profits derived
from transactions involving the same or an unregistered
partnership subject to tax under Sections 24 and 84(b) of the
National Internal Revenue Code;UNREGISTERED
PARTNERSHIP
Held:
Petitioners did not merely limit themselves to holding the
properties inherited by them. Some of the said properties were
sold at considerable profit, and from the said profit were the
purchase and sale of corporate securities. All the profits from
these ventures were divided among petitioners proportionately
in accordance with their respective shares in the inheritance.
From the moment petitioners allowed not only the incomes
from their respective shares of the inheritance but even the
inherited properties themselves to be used by Lorenzo T. Oña
as a common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared by
them proportionally, such act was tantamount to actually
contributing such incomes to a common fund and, in effect,
they thereby formed an unregistered partnership within the
purview of the provisions of the Tax Code.
In cases of inheritance, there should be a period when the
heirs can be considered as co-owners rather than unregistered
 3-Manresa [BUSORG CASE DIGESTS]
co-partners within the contemplation of our corporate tax laws.
Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to all
the heirs, without them becoming thereby unregistered co-
partners, but it does not necessarily follow that such status as
co-owners continues until the inheritance is actually and
physically distributed among the heirs. After knowing their
respective shares in the partition, they might decide to continue
holding said shares under the common management of the
administrator or executor or of anyone chosen by them and
engage in business on that basis.
Co-ownership of inherited properties is automatically converted
into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a
common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding.
Partnerships under the civil code are different from that of
unregistered partnerships which are considered as
"corporations" under sections 24 and 84(b) of the NIRC.
When NIRC includes "partnerships" among the entities subject
to the tax on "corporations", said Code must allude, therefore,
to organizations which are not necessarily "partnerships", in
the technical sense of the term. Section 24 of said Code
exempts from the aforementioned tax "duly registered general
partnerships,"
In section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." The term
"corporation" includes, among others, "joint accounts" and
"associations", none of which has a legal personality of its own,
independent of that of its members.
Kiel vs. Estate of P.S. Sabert
Facts:
In 1907, Albert F. Kiel along with William Milfeil commenced to
work on certain public lands situated in the municipality
of Parang, Province of Cotabato, known as Parang Plantation
Company. Kiel subsequently took over the interest of Milfeil.
In 1910, Kiel and P. S. Sabert entered into an agreement to
develop the Parang Plantation Company. Sabert was to furnish
the capital to run the plantation and Kiel was to manage it.
They were to share and share alike in the property. It seems
that this partnership was formed so that the land could be
acquired in the name of Sabert, Kiel being a German citizen
and not deemed eligible to acquire public lands in the
Philippines.
By virtue of the agreement, from 1910 to 1917, Kiel worked
upon and developed the plantation. During the World War, he
was deported from the Philippines.
On August 16, 1919, five persons, including P. S. Sabert,
organized the Nituan Plantation Company, with a subscribed
capital of P40,000. On April 10, 1922, P. S. Sabert transferred
all of his rights in two parcels of land situated in the
municipality of Parang, Province of Cotabato, embraced within
his homestead application No. 21045 and his purchase
application No. 1048, in consideration of the sum of P1, to
the Nituan Plantation Company.
In this same period, Kiel appears to have tried to secure a
settlement from Sabert. At least in a letter dated June 6,
1918, Sabert wrote Kiel that he had offered "to sell all property
that I have for P40,000 or take in a partner who is willing to
develop the plantation, to take up the K. & S. debt no matter
which way I will straiten out with you."
But Sabert's death came before any amicable arrangement
could be reached and before an action by Kiel against
Sabert could be decided. So these proceedings against the
estate of Sabert.
Issues:
(1) Whether a trust in the land had been established by the
evidence in the case. NO
(2) Whether a co-partnership between Kiel and the deceased
Sabert existed. YES
Held:
It is conceivable, that the facts in this case could have been so
presented to the court by means of allegations in the
complaint, as to disclose characteristics of a resulting trust. But
the complaint as framed asks for a straight money judgment
against an estate. In no part of the complaint did plaintiff
(Kiel) allege any interest in land, claim any interest in land, or
pretend to establish a resulting trust in land. That Kiel did not
care to press such an action is demonstrated by the relation of
the fact of alienage with the rule, that a trust will not be created
when, for the purpose of evading the law prohibiting one from
taking or holding real property, he takes a conveyance thereof
in the name of a third person.
No partnership agreement in writing was entered into by Kiel
and Sabert. The question consequently is whether or not the
alleged verbal copartnership formed by Kiel and Sabert has
been proved, if we eliminate the testimony of Kiel and only
consider the relevant testimony of other witnesses. In
performing this task, we are not unaware of the rule of
partnership that the declarations of one partner, not made in
the presence of his copartner, are not competent to prove the
existence of a partnership between them as against such other
partner, and that the existence of a partnership cannot be
established by general reputation, rumor, or hearsay.
The testimony of the plaintiff's witnesses, together with the
documentary evidence, leaves the firm impression with us
that Kiel and Sabert did enter into a partnership, and that they
were to share equally.
Applying the tests as to the existence of partnership, we feel
that competent evidence exists establishing the partnership.
Even more primary than any of the rules of partnership above
announced, is the injunction to seek out the intention of the
parties, as gathered from the facts and as ascertained from
their language and conduct, and then to give this intention
effect.
(The court remanded the case to the TC to determine how
much Kiel is entitled to as for his share.)
 3-Manresa [BUSORG CASE DIGESTS]
Alicbusan vs. CA
Facts:
Cesar Cordero and Leopoldo Alicbusan were partners in the
operation of Baby’s Canteen located in the Philtranco terminal
in Pasay City. Pursuant to their agreement, Cordero assumed
the position of Managing partner while Alicbusan took care of
accounting, records keeping and other comptrollership
functions.
The partnership was to exist for a fixed term, between July
1981 up to July 1984. Upon expiration of the said period, both
of them continued their relationship under the original term.
On May 11, 1990, Cordero filed a complaint for collection for
various sums totaling P209, 497. 36 which he later on
amended to P309, 681. 51. This represented the collectibles
he had from Philtranco, by virtue of an arrangement whereby
Philtranco employees were allowed to buy goods and items
from Baby’s Canteen on credit, which payments were
subsequently deducted by Philtranco from the employees’
salaries. Philtranco would remit the amount to them 15 days
later.
According to Cordero, the remittances of salary deductions for
the months of February up to May 1990 were withheld by
Philtranco due to Alicbusan’s instigation. He averred that
Alicbusan had done this in bad faith because of business
differences which arose between him and Alicbusan in another
partnership operation in Quezon.
Alicbusan’s defense is to aver that he transferred all his rights
and interests over Baby’s Canteen for the sum of P250,000 as
evidenced by a Deed of Sale and Transfer of Right between
the parties on April 5, 1989. Under the said deed Cordero
allegedly bound himself to pay the downpayment of P50,000,
while the balance would be payable in 20 monthly installments
at P10,000 per month.
RTC ruled in favor of Cordero and Baby’s Canteen, upholding
the existence of a partnership between Cordero and Alicbusan.
CA affirmed the ruling of the RTC.
Issue:
Whether a partnership still exists between Cordero and
Alicbusan. YES
Held:
Cordero argues that the court should not have disregarded the
legal presumptions in favor of the validity of the deed of sale os
his partnership rights, namely:
1. that the private transactions have been fair and regular
2. that the ordinary course of business has been followed
3. there is sufficient consideration for a contract
However, these presumptions are disputable and can be
rebutted by the evidence to the contrary. The calibration of this
evidence and the relative weight accorded to them are within
the exclusive domain of both the trial and appellate courts
which cannot be set aside by the Supreme Court absent any
showing that there is no evidence to support the conclusion
already established.
Contrary to Alicbusan’s assertion, the record is replete with
evidence establishing the fact that the deed of sale was
fictitious and simulated.
First, payments were never made—the downpayment or the
subsequent installments of P10,000. What were presented as
payment were a series of checks with varying amounts.
Second, Alicbusan continued to perform his functions of
comptrollership after the deed was signed. Alicbusan
continued to oversee and check daily sales and report
vouches. He was the approving authority as far as check
vouchers were concerned. Furthermore, the evidence shows
that he subsequently delegated this function to his wife. The
balance sheet lists the Partner’s capital for each of them.
During this time, Alicbusan did not object to his inclusion in the
report as partner of Baby’s Canteen, which he would have if
the sale were not terminated.
Hence Alicbusan is liable to pay Cordero P30,000 as moral
damages.
Yulo vs. Yang Chiao Seng
Facts:
Yang Chiao Seng proposed to form a partnership with Rosario
Yulo to run and operate a theatre on the premises occupied by
Cine Oro, PlazaSta. Cruz, Manila, the principal conditions of
the offer being:
(1) Yang guarantees Yulo a monthly participation of P3,000;
(2) partnership shall be for a period of 2 years and 6 months
with the condition that if the land is expropriated, rendered
impracticable for business, owner constructs a permanent
building, then Yulo’s right to lease and partnership even if
period agreed upon has not yet expired;
(3) Yulo is authorized to personally conduct business in the
lobby of the building; and
(4) after Dec 31, 1947, all improvements placed by partnership
shall belong to Yulo but if partnership is terminated before
lapse of 1 and ½ years, Yang shall have right to
remove improvements.
Parties established, “Yang and Co. Ltd.”, to exist from July
1,1945 – Dec 31, 1947.
The land on which the theater was constructed was leased by
Yulo from owners, Emilia Carrion and Maria Carrion Santa
Marina for an indefinite period but that after 1 year, such lease
may be cancelled by either party upon 90-day notice.
In Apr 1949, the owners notified Yulo of their desire to cancel
the lease contract come July. Yulo and husband brought a
civil action to declare the lease for a indefinite period. Owners
brought their own civil action for ejectment upon Yulo and
Yang.
CFI: Two cases were heard jointly; Complaint of Yulo and
Yang dismissed declaring contract of lease terminated.
CA: Affirmed the judgment.In 1950, Yulo demanded from Yang
her share in the profits of the business. Yang answered saying
he had to suspend payment because of pending ejectment
suit. Yulo filed present action in 1954, alleging the existence of
 3-Manresa [BUSORG CASE DIGESTS]
a partnership between them and that Yang has refused to
pay her shares
Defendant’s Position: The real agreement between plaintiff
and defendant was one of lease and not of partnership; that
the partnership was adopted as a subterfuge to get around the
prohibition contained in the contract of lease between the
owners and the plaintiff against the sublease of the property.
Trial Court: Dismissal. It is not true that a partnership was
created between them because defendant has not actually
contributed the sum mentioned in the Articles of Partnership
or any other amount. The agreement is a lease because
plaintiff didn’t share either in the profits or in the losses of the
business as required by Art 1769 (CC) and because plaintiff
was granted a “guaranteed participation” in the profits belies
the supposed existence of a partnership.
Issue:
Was the agreement a contract a lease or a partnership?
SUBLEASE
Held:
The agreement was a sublease not a partnership.
The following are the requisites of partnership:
1. two or more persons who bind themselves to
contribute money,property or industry to a common
fund;
2. The intention on the part of the partners to divide the
profits among themselves (Article 1761, CC)
Plaintiff did not furnish the supposed P20,000 capital nor did
she furnish any help or intervention in the management of the
theatre. Neither has she demanded from defendant any
accounting of the expenses and earnings of the business. She
was absolutely silent with respect to any of the acts that a
partner should have done; all she did was to receive her share
of P3,000 a month which cannot be interpreted in any manner
than a payment for the use of premises which she had leased
from the owners.
Gatchalian vs. Collector of Internal Revenue
Policy: A partnership is formed when two or more persons
contributed money to buy a sweepstakes ticket with the
intention to divide the prize which they may win.
Facts:
Plaintiffs purchased, in the ordinary course of business, from
one of the duly authorized agents of the National Charity
Sweepstakes Office one ticket for the sum of two pesos (P2),
said ticket was registered in the name of Jose Gatchalian and
Company. The ticket won one of the third-prizes in the amount
of P50,000.
Jose Gatchalian was required to file the corresponding income
tax return covering the prize won. Defendant-Collector made
an assessment against Jose Gatchalian and Co. requesting
the payment of the sum of P1,499.94 to the deputy provincial
treasurer of Pulilan, Bulacan. Plaintiffs, however through
counsel made a request for exemption. It was denied
If a partnership had been formed by A, B, etc. then it was liable
for income tax pursuant to law then in force; if merely a
community of property, then such co-ownership was not liable,
not having a legal personality of its own.
Issue:
Did the plaintiff form a partnership or merely a community of
property? Partnership
Held:
The plaintiff formed a partnership. Hence, they are liable to pay
the income tax.
According to the stipulation facts the plaintiffs organized a
partnership of a civil nature because each of them put up
money to buy a sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win, as they did in
fact in the amount of P50,000.
The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Jose
Gatchalian personally appeared in the office of the Philippines
Charity Sweepstakes, in his capacity as co-partner, as such
collection the prize, the office issued the check for P50,000 in
favor of Jose Gatchalian and company, and the said partner, in
the same capacity, collected the said check. All these
circumstances repel the idea that the plaintiffs organized and
formed a community of property only.
Having organized and constituted a partnership, the entity is
bound to pay the income tax Act No. 2833. Being the
partnership liable to the income tax, the tax must be paid
collectively by the partnership and not by the plaintiffs
individually.
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
FRANCISCA EVANGELISTA, petitioners, vs. THE
COLLECTOR OF INTERNAL REVENUE and THE COURT
OF TAX APPEALS, respondents.
Facts:
Eufemia, Manuela and Fransisca Evangelista were siblings
who bought several (4) real estate properties from 1943-1944.
The money to buy these properties came from a 59k loan from
their father and from their own money.
1945 – they appointed their brother Simeon to “manage their
properties with full power to lease, to collect and receive rents;
to bring suits against defaulting tenants, to sign all letters,
contract, etc.”
The Evangelista sisters leased the properties they bought to
tenants, earning net profits:
1945 – 5.8k
1946 – 7.4k
1947 – 12.6k
In 1954, the CIR demanded the payment of the following taxes:
Income taxes (1945-1949) – 6.1k
Real estate dealer’s fixed tax (1946-9) – 527 pesos
Residence taxes of corporation (1945-9) – 6.8k
 3-Manresa [BUSORG CASE DIGESTS]
The sisters filed a case with the CTA, claiming that they were
not subject to the aforementioned taxes since the said taxes
were imposed upon “corporations” provided for in Section 24 of
Commonwealth Act 84.
Commonwealth Act 84:
SEC. 24. Rate of tax on corporations.—There shall be levied,
assessed, collected, and paid annually upon the total net
income received in the preceding taxable year from all sources
by every corporation organized in, or existing under the laws of
the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (compañias
colectivas), a tax upon such income equal to the sum of the
following:
SEC. 84 (b). The term 'corporation' includes partnerships, no
matter how created or organized, joint-stock companies, joint
accounts (cuentas en participacion), associations or insurance
companies, but does not include duly registered general
copartnerships.
The sisters claim they are mere co-owners and not copartners.
Issue:
Whether the Evangelistas were properly subject to the taxes
assessed by the CIR. YES
HELD:
Ruling summary: The SC upheld the ruling of the CTA
against the Evangelistas because the two elements of a
partnership were present:
1. there was an agreement to contribute money,
property or industy to a common fund
2. they had the intent to divide the profits among the
contracting parties
First element: agreement to contribute MPI
This element is undisputed because the sister pooled their own
money and even borrowed money from their father. The funds
they used to buy the properties were not something they found
already in existence. They created it purposely.
Second element – intent to gain
1. they invested the money in numerous properties
and entered into numerous transactions - strongly
indicative of a pattern or common design that was not
limited to the conservation and preservation of the
aforementioned common fund or even of the property
acquired; instead, the Court was convinced of the
“habitual character” peculiar to business transactions
engaged in the purpose of gain
2. lots they purchased were not residential, but were
leased to tenants
3. appointment of Simeon as manager – Simeon’s
appointment and his functions indicate that the affairs
relative to said properties have been handled as if the
same belonged to a corporation or business and
enterprise operated for profit.
4. ^ the aforementioned conditions have existed for
over 10 years
5. The Evangelistas did not present nor explain their
purpose in creating the set up or the causes for
its continued existence.
The arrangement created by the sisters are covered by the
tax
The tax in question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said
Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term.
Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships”
which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. . Likewise, as defined in
section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized."
Again, pursuant to said section 84(b), the term "corporation"
includes, among other, joint accounts, and "associations,"
none of which has a legal personality of its own,
independent of that of its members.
For purposes of tax on corporations, the NIRC includes
partnerships
Partnerships included: syndicate, group, pool, joint venture or
other unincorporated organization, through or by means of
which any business, financial operation, or venture is carried
on
Partnerships excluded: duly registered general copartnerships
Evangelista sisters also subject to real estate dealer tax
Real estate dealer' includes any person engaged in the
business of buying, selling, exchanging, leasing, or renting
property or his own account as principal and holding himself
out as a full or part time dealer in real estate or as an owner of
rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year.
Reyes vs. CIR
Facts:
Petitioners Florencio and Angel Reyes, father and son,
purchased a lot and building for P 835,000.00. The initial
payment of P 375,000.00 was shared equally by them. The
balance of P 460,000.00 was left, which represents the
mortgage obligation of the vendors with a bank, which
mortgage obligations were assumed by the vendees. At the
time of the purchase, the building was leased to various
tenants, whose rights under the lease contracts with the
original owners, the purchaser, petitioners herein, agreed to
respect. Petitioners divided equally the income of operation
and maintenance. An assessment as to the income tax due
was made against petitioners by the CIR. This assessment
was appealed to the Court of Tax Appeals. The CTA ruled that
petitioners are liable for the income tax due “from the
partnership formed” by petitioners.
The CTA applied the provisions of the NIRC on corporations.
The first cited provision imposes an income tax on corporations
"organized in, or existing under the laws of the Philippines, no
matter how created or organized but not including duly
registered general co-partnerships" a term, which according to
the second provision cited, includes partnerships "no matter
 3-Manresa [BUSORG CASE DIGESTS]
how created or organized, ...," and applying the leading case of
Evangelista v. Collector of Internal Revenue.
Issue:
Whether or not petitioners form a partnership as to make them
liable to the income tax assessed by the CTA - YES
Held:
Petitioners are subject to the tax on corporations as provided
for in the NIRC. Applying the leading case of Evangelista v.
Collector of Internal Revenue, and section 84(b) of the NIRC,
which explicitly provides that the term corporation "includes
partnerships" and to Article 1767 of the Civil Code of the
Philippines, defining what a contract of partnership is, "the
essential elements of a partnership are two, namely:
(a) an agreement to contribute money, property or industry to a
common fund; and
(b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to and did, contribute
money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding
the case, we are fully satisfied that their purpose was to
engage in real estate transactions for monetary gain and then
divide the same among themselves.
Also, the SC said that for purposes of the tax on corporations,
our National Internal Revenue Code, include partnerships —
with the exception only of duly registered general co-
partnerships within the purview of the term "corporation." It is,
therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are
subject to the income tax for corporations.
Navarro vs. CA
CASE: Petition for annulment of judgment: by Sps Navarro;
dismissed by the CA:
Facts:
On July 23, 1976, Olivia V. Yanson filed a complaint against
Lourdes Navarro for "Delivery of Personal Properties With
Damages". The complaint incorporated an application for a writ
of replevin. (*was subsequently amended to include private
respondent's husband, Ricardo B. Yanson, as co-plaintiff, and
petitioner's husband, as co-defendant.)
On July 27, 1976, then Executive Judge Oscar R. Victoriano
approved Yansons’ application for a writ of replevin. By virtue
of the same, Yanson has recovered the subject chattels.
Subsequently, the Presiding judge rendered a decision
disposing that
1. all chattels already recovered by [Yanson] by
virtue of the Writ of Replevin and as listed in the
complaint are sustained to belong to [Yanson]
being the owner of these properties;
2. the motor vehicle (Ford Fiera Jeep) registered in
and which had remain in the possession of the
[Navarro] was likewise declared to belong to
Yanson, however, [Navarro] is ordered to
reimburse [Yanson] the sum of P6,500.00
representing the amount advanced to pay part of
the price for the Jeep.
3. [Navarro] was likewise ordered to return to
[Yanson] such other equipment[s] as were
brought by the latter to and during the operation
of their business as were listed in the complaint
and not recovered as yet by virtue of the previous
Writ of Replevin.
This decision was subsequently declared final and executory.
The trial court issued a writ of execution. The Sheriff's Return
of Service declared that the writ was "duly served and
satisfied". A receipt for the amount of P6,500.00 issued by Mrs.
Lourdes Yanson, co-petitioner in this case, was likewise
submitted by the Sheriff
Sps Navarro filed with the CA a petition for annulment of the
trial court's decision, claiming that the trial judge erred in
declaring the non-existence of a partnership, contrary to
the evidence on record. (Which petition was outrightly
dismissed by the CA due to absence of extrinsic or collateral
fraud, observing further that an appeal was the proper
remedy.)
Sps Navarro claim:
 that the trial judge ignored evidence that would
show that the parties "clearly intended to
form, and (in fact) actually formed a verbal
partnership engaged in the business of Air
Freight Service Agency in Bacolod"; and
 that the decision sustaining the writ of replevin is
void since the properties belonging to the
partnership do not actually belong to any of
the parties until the final disposition and
winding up of the partnership"
Sps Navarro keep on pressing that the idea of a partnership
exists on account of the so-called admissions in judicio.
Issue:
Whether a partnership existed between the parties in the
present case. NO.
Held:
As a premise, Article 1767 of the New Civil Code defines
the contract of partnership:
Art. 1767. By the contract of partnership two or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining
whether a partnership exist as so provided under Article 1769,
to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772
that
 3-Manresa [BUSORG CASE DIGESTS]
1. while a partnership may be constituted in any
form, a public instrument is necessary where
immovables or any rights is constituted.
2. Likewise, if the partnership involves a capitalization of
P3,000.00 or more in money or property, the same
must appear in a public instrument which must be
recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with these requirements shall only affect
liability of the partners to third persons.
In consideration of the above, it is undeniable that both the
plaintiff (Yanson) and the defendant-wife (Navarro) made
admission to have entered into an agreement of operating
this Allied Air Freight Agency of which the Yanson
personally constituted with the Manila Office in a sense that the
Yanson did supply the necessary equipments and money while
her brother Atty. Rodolfo Villaflores was the Manager and the
defendant the Cashier.
It was also admitted that part of this agreement was an equal
sharing of whatever proceeds realized.
Consequently, Yanson brought into this transaction certain
chattels in compliance with her obligation. The same has been
done by the herein brother and Navarro who started to work in
the business.
A cursory examination of the evidences presented no
proof that a partnership, whether oral or written had been
constituted at the inception of this transaction.
True it is that even up to the filing of this complaint those
movables brought by Yanson for the use in the operation of the
business remain registered in her name.
While there may have been co-ownership or co-possession
of some items and/or any sharing of proceeds by way of
advances received by both Yanson and Navarro, these are
not indicative and supportive of the existence of any
partnership between them. Article 1769 of the New Civil
Code is explicit.
In view of the above factual findings of the Court it follows
inevitably therefore that there being no partnership that
existed, any dissolution, liquidation or winding up is
beside the point.
Biglangawa and Espiritu vs. Pastor Constantino
Facts:
January 1950: Biglangawa and Espiritu appointed Constantino
as their exclusive agent to develop the area they owned into a
subdivision and sell them. As compensation they promised
commission (of 30% on the gross sales) and a fee (of 10% on
the collections made by him). He advanced all expenses in the
development, administration and advertisement of such area
October 1951: Constantino was able to dispose more than
half of the area
Later in October 1951: Owners terminated the contract but
acknowledged that they will pay the unpaid commission in
monthly installments (they had a practice of paying
Constantino lesser than what was expressed on the January
1950 contract, such that, when liquidation was made, there
was still a balance on Constantino’s commission)
March 1953: Owners refused to make the necessary
settlement regarding the unpaid commission and the remaining
fees due him
Constantino filed a CIVIL CASE against the owner.
April 1955: Pending such civil case, Constantino filed with the
ROD a notice of LIS PENDENS on the area/property which
was converted into a subdivision
May 1955: Owners sold it to Santos. ROD made annotation of
the LP on owners’ and Santos’ title
June 1955: They filed a PETITION for cancellation of said LP
July 1955: Lower court decided in favor of the owners and
ordered the cancellation of the LP stating that – Constantino’s
civil action was purely and clearly a claim for money
judgment which does not affect the title or the right of
possession of real property annotated with LP and it being a
settled rule in this jurisdiction that a notice of lis pendens may
be invoked as a remedy in cases where the very lis mota of the
pending litigation concerns directly the possession of, or title to
a specific real property
Constantino’s theory: Such holding that his was purely a
money judgement claim is wrong. Instead he is contending that
the agreement whereby he is to be paid commission and fee
actually converted him into a partner and gave him 1/5
participation of the property itself, thus, his suit is one for the
settlement and adjustment of partnership interest or a
partition action or proceeding
Issue:
Whether there is partnership amongst Constantino and
Biglangawa/Espiritu. NONE
RULING:
There is no word nor expression in the contract that suggests
any idea of partnership. On the contrary, Constantino
expressly avers in his complaint that Biglangawa and Espiritu
“appointed him as their EXCLUSIVE AGENT to develop xxx”.
Categorically, he referred to himself as agent, not a partner,
entitled to compensation in the form of commission and/or fee,
not participation and not in the form of share.
It is true that he made advances for the expenses incurred in
the development and administration of the property but this
was never considered as “contributions to business” as to
make him a partner, otherwise, he would have stated that in
his complaint. In fact, after a liquidation of these advances and
the commissions due to appellant at the time of the termination
of the agency, the whole balance was considered as
Biglangawa and Espiritu’s indebtedness.
Hence, the lower court was right. His civil action was not one
affecting the title of right of possession of the real property nor
one to recover possession of real estate, or to quiet title, or to
remove cloud upon title, or for partition, or any similar action
affecting the title, use and occupation of the real estate and its
buildings. Hence LP cannot lie.
 3-Manresa [BUSORG CASE DIGESTS]
FRANCISCO BASTIDA, plaintiff-appellee, vs.MENZI & Co.,
INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
G.R. No. L-35840 March 31, 1933
Facts:
Defendant Menzi & Co., Inc. through its president and general
manager, J.M. Menzi, under the authority of the board of
directors, entered into a contract with the plaintiff to engage in
the business of exploiting prepared fertilizers.
A fertilizer account was opened in the general ledger, and
interest at the rate charged by the Bank of the Philippine
Islands was debited or credited to that account on the daily
balances of the fertilizer business. This was in accordance with
appellant's established practice, to which the plaintiff assented.
The intervention of the plaintiff was limited to supervising the
mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
On May 3, 1924 the plaintiff made a contract with Menzi & Co.,
Inc., to furnish it all the stems and scraps to tobacco that it
might need for its fertilizer business either in the Philippine
Islands or for export to other countries.
White, Page & Co., certified public accountants, audited the
books of Menzi & Co., Inc., every month, and at the end of
each year they prepared a balance sheet and a profit and loss
statement of the fertilizer business. These statements were
delivered to the plaintiff for examination, and after he had had
an opportunity of verifying them he approved them without
objection and returned them to Menzi & Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per
cent of the net profits of the fertilizer business.
Prior to the expiration of the contract, Exhibit A, the manager of
Menzi & Co. Inc., notified the plaintiff that the contract for his
services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer
department of Menzi & Co., Inc., had on hand materials and
ingredients and two Ford trucks of the book value of
approximately P75,000, and accounts receivable amounting to
P103,000. There were claims outstanding and bills to pay.
Before the net profits could be finally determined, it was
necessary to dispose of the materials and equipment, collect
the outstanding accounts for Menzi & Co., Inc., prepared a
balance sheet and a profit and loss statement for the period
from January 1 to April 27, 1927 as a basis of settlement, but
the plaintiff refused to accept it, and filed the present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer
business in question. In October, 1927 it proposed to the
plaintiff that the old and damaged stocks on hand having a
book value of P40,000, which the defendant corporation had
been unable to dispose of, be sold at public or private sale, or
divided between the parties. The plaintiff refused to agree to
this. The defendant corporation then applied to the trial court
for an order for the sale of the remaining property at public
auction, but apparently the court did not act on the petition.
During the liquidation the books of Menzi & Co., Inc., for the
whole period of the contract in question were reaudited by
White, Page & Co.., certain errors of bookkeeping were
discovered by them. After making the corrections they found
the balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon
Thompson, to examine the books and vouchers of Menzi & Co.
Thompson assumed the plaintiff and Menzi & Co., Inc., to be
partners, and that Menzi & Co., Inc., was obliged to furnish free
of charge all the capital the partnership should need. He
naturally reached very different conclusions from those of the
auditors of Menzi Co., Inc.
Issue:
What is the relationship of plaintiff and defendant? Employer-
Employee
Held:
We come now to a consideration of appellant's assignment of
error. After considering the evidence and the arguments of
counsel, we are unanimously of the opinion that under the
facts of this case the relationship established between Menzi &
Co. and by the plaintiff was to receive 35 per cent of the net
profits of the fertilizer business of Menzi & Co., Inc., in
compensation for his services of supervising the mixing of the
fertilizers.
Neither the provisions of the contract nor the conduct of the
parties prior or subsequent to its execution justified the finding
that it was a contract of copartnership. Exhibit A, as appears
from the statement of facts, was in effect a continuation of the
verbal agreement between the parties, whereby the plaintiff
worked for the defendant corporation for one-half of the net
profits derived by the corporation from certain fertilizer
contracts.
Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same
items of expense which he now protests. Plaintiff never made
any objection to defendant's manner of keeping the accounts
or to the charges. The business was continued in the same
manner under the written agreement, Exhibit A, and for four
years the plaintiff never made any objection. On the contrary
he approved and signed every year the balance sheet and the
profit and loss statement. It was only when plaintiff's contract
was about to expire and the defendant corporation had notified
him that it would not renew it that the plaintiff began to make
objections.
The trial court relied on article 116 of the Code of Commerce,
which provides that articles of association by which two or
more persons obligate themselves to place in a common fund
any property, industry, or any of these things, in order to obtain
profit, shall be commercial, no matter what its class may be,
provided it has been established in accordance with the
provisions of this Code; but in the case at bar there was no
common fund, that is, a fund belonging to the parties as joint
owners or partners. The business belonged to Menzi & Co.,
Inc.
The plaintiff was working for Menzi & Co., Inc. Instead of
receiving a fixed salary or a fixed salary and a small
percentage of the net profits, he was to receive 35 per cent of
the net profits as compensation for his services. Menzi & Co.,
Inc., was to advanced him P300 a month on account of his
participation in the profits. It will be noted that no provision was
made for reimbursing Menzi & Co., Inc., in case there should
be no net profits at the end of the year. It is now well settled
 3-Manresa [BUSORG CASE DIGESTS]
that the old rule that sharing profits as profits made one a
partner is overthrown. (Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were
establishing a partnership or intended to become partners.
Great stress in laid by the trial judge and plaintiff's attorneys on
the fact that in the sixth paragraph of Exhibit A the phrase "en
sociedad con" is used in providing that defendant corporation
not engage in the business of prepared fertilizers except in
association with the plaintiff (en sociedad con). The fact is
that en sociedad con as there used merely means en reunion
con or in association with, and does not carry the meaning of
"in partnership with".
The trial judge found that the defendant corporation had not
always regarded the contract in question as an employment
agreement, because in its answer to the original complaint it
stated that before the expiration of Exhibit A it notified the
plaintiff that it would not continue associated with him in said
business. The trial judge concluded that the phrase
"associated with", used by the defendant corporation, indicated
that it regarded the contract, Exhibit A, as an agreement of
copartnership.
In the first place, the complaint and answer having been
superseded by the amended complaint and the answer
thereto, and the answer to the original complaint not having
been presented in evidence as an exhibit, the trial court was
not authorized to take it into account. "Where amended
pleadings have been filed, allegations in the original pleadings
are held admissible, but in such case the original pleadings
can have no effect, unless formally offered in evidence."
(Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil.,
148.)
In the second place, although the word "associated" may be
related etymologically to the Spanish word "socio", meaning
partner, it does not in its common acceptation imply any
partnership relation.
Heirs of Jose Lim vs. Lim
Facts:
In 1980, the heirs of Jose Lim alleged that Jose Lim entered
into a partnership agreement with Jimmy Yu and Norberto Uy.
The three contributed P50,000.00 each and used the funds to
purchase a truck to start their trucking business. A year later
however, Jose Lim died. The eldest son of Jose Lim, Elfledo
Lim, took over the trucking business and under his
management, the trucking business prospered. Elfledo was
able to but real properties in his name. From one truck, he
increased it to 9 trucks, all trucks were in his name however.
He also acquired other motor vehicles in his name.
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a
heart attack. Elfledo’s wife, Juliet Lim, took over the properties
but she intimated to Jimmy and the heirs of Norberto that she
could not go on with the business. So the properties in the
partnership were divided among them.
Now the other heirs of Jose Lim, represented by Elenito Lim,
required Juliet to do an accounting of all income, profits, and
properties from the estate of Elfledo Lim as they claimed that
they are co-owners thereof. Juliet refused hence they sued
her.
The heirs of Jose Lim argued that Elfledo Lim acquired his
properties from the partnership that Jose Lim formed with
Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim
was the partner and not Elfledo Lim. The heirs testified that
Elfledo was merely the driver of Jose Lim.
Issue:
Who is the “partner” between Jose Lim and Elfledo Lim?
Elfledo Lim
HELD:
It is Elfledo Lim based on the evidence presented regardless of
Jimmy Yu’s testimony in court that Jose Lim was the partner. If
Jose Lim was the partner, then the partnership would have
been dissolved upon his death . A partnership is dissolved
upon the death of the partner. Further, no evidence was
presented as to the articles of partnership or contract of
partnership between Jose, Norberto and Jimmy. Unfortunately,
there is none in this case, because the alleged partnership was
never formally organized.
But at any rate, the Supreme Court noted that based on the
functions performed by Elfledo, he is the actual partner.
The following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto:
1.) Cresencia testified that Jose gave Elfledo P50,000.00, as
share in the partnership, on a date that coincided with the
payment of the initial capital in the partnership;
2.) Elfledo ran the affairs of the partnership, wielding absolute
control, power and authority, without any intervention or
opposition whatsoever from any of petitioners herein;
3.) all of the properties, particularly the nine trucks of the
partnership, were registered in the name of Elfledo;
4.) Jimmy testified that Elfledo did not receive wages or
salaries from the partnership, indicating that what he actually
received were shares of the profits of the business; and
5.) none of the heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime.
As repeatedly stressed in the case of Heirs of Tan Eng
Kee, a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show
that the real and personal properties acquired and registered in
the names of Elfledo and Juliet formed part of the estate of
Jose, having been derived from Jose’s alleged partnership with
Jimmy and Norberto.
Elfledo was not just a hired help but one of the partners in the
trucking business, active and visible in the running of its affairs
from day one until this ceased operations upon his demise.
The extent of his control, administration and management of
the partnership and its business, the fact that its properties
were placed in his name, and that he was not paid salary or
other compensation by the partners, are indicative of the fact
that Elfledo was a partner and a controlling one at that. It is
apparent that the other partners only contributed in the initial
capital but had no say thereafter on how the business was ran.
Evidently it was through Elfredo’s efforts and hard work that
the partnership was able to acquire more trucks and otherwise
 3-Manresa [BUSORG CASE DIGESTS]
prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
JOSE MIGUEL ANTON VS. SPOUSES ERNESTO OLIVA
AND CORAZON OLIVA (G.R. NO. 182563 | 2011-04-11)
Facts:
On September 9, 2008 respondents Ernesto and Corazon
Oliva (the Olivas) filed an action for accounting and specific
performance with damages against petitioner spouses Jose
Miguel and Gladys Miriam Anton (the Antons) before the
Regional Trial Court (RTC) of Quezon City.
The Olivas alleged that they entered into three Memoranda of
Agreement (MOA) with Gladys Miriam, their daughter, and
Jose Miguel, their son-in-law, setting up a business partnership
covering three fast food stores, known as "Pinoy Toppings"
that were to be established at SM Megamall, SM Cubao, and
SM Southmall.
Under the MOAs, the Olivas wer,e entitled to 30% share of the
net profits of the SM Megamall store and 20% in the cases of
SM Cubao and SM Southmall stores.
The pertinent portions of the first MOA dated May 2, 1992,
covering the SM Megamall store (see full text).
The pertinent terms of the second MOA dated May 6, 1993,
covering the SM Cubao store (see full text).
The pertinent portions of the third MOA dated April 20, 1995,
covering the SM Southmall Branch (see full text).
The Olivas alleged that while the Antons gave them a total of
P2,547,000.00 representing their monthly shares of the net
profits from the operations of the SM Megamall and SM
Southmall stores, the Antons did not give them their shares of
the net profits from the store at SM Cubao.
Further, Jose Miguel did not render to them an account of the
operations of the three stores. And, beginning November 1997,
the Antons altogether stopped giving the Olivas their share in
the net profits of the three stores.
The Olivas demanded an accounting of partnership funds but,
in response, Jose Miguel terminated their partnership
agreements.
JOSE MIGUEL ALLEGED: that he and his wife, Gladys
Miriam, never partnered with the Olivas in the operations of the
three stores. The Antons merely borrowed money from the
Olivas to finance the opening of those stores. Gladys Miriam,
who managed the operations of the business, remitted to the
Olivas the amounts due them even after the loans had been
paid. If any accounting was needed, it should orily be for the
purpose of ascertaining the correctness the payments made.
GLADYS MIRIAM'S PART: she affirmed having managed the
three stores up until she and Jose Miguel separated. They paid
the Olivas in checks, representing their share in the profits of
the business. Gladys Miriam filed a case for legal separation
against her husband, Jose Miguel, prompting the latter to
terminate their business partnership with her parents.
RTC: no partnership relation existed between the Olivas and
the Antons but Jose Miguel had an obligation to render an
accounting from the start of the business until the termination
of their MOAs and, thereafter, pay the Olivas their share of the
net profits, if any, plus interests.
CA: affirmed and modified the RTC decision.
Issue:
Whether the CA erred in holding that, notwithstanding the
absence of a partnership between the Olivas and the Antons,
the latter have the obligation to pay the former their shares of
the net profits of the three stores plus legal interest on those
shares until they have been paid. NO.
HELD:
The Court will not disturb the finding of both the RTC and the
CA that, based on the terms of the MOAs and the
circumstances surrounding its implementation, the
relationship between the Olivas and the Antons was one of
creditor-debtor, not of partnership.
The finding is sound since, although the MOA denominated the
Olivas as "partners." the amounts they gave did not appear to
be capital contributions to the establishment of the stores.
Indeed, the stores had to pay the amounts back with interests.
Moreover, the MOAs forbade the Olivas from interfering
with the running of the stores. At any rate, none of the
parties has made an issue of the common finding of the courts
below respecting the nature of their relationship.
On Jose Miguel’s contention: since the Olivas were not the
Antons' partners in the stores, they were not entitled to receive
percentage shares of the net profits from the stores'
operations.
But, as the CA correctly held, although the Olivas were mere
creditors, not partners, the Antons agreed to compensate them
for the risks they had taken. The Olivas gave the loans with
no security and they were to be paid such loans only if the
stores made profits. Had the business suffered loses and
could not pay what it owed, the Olivas would have ultimately
assumed those loses just by themselves. Still there was
nothing illegal or immoral about this compensation
scheme. Thus, unless the MOAs are subsequently rescinded
on valid grounds or the parties mutually terminate them, the
same remain valid and enforceable.
It did not matter that the Antons had already paid for two of the
loans and their interests. Their obligation to share net
profits with the Olivas was not extinguished by such
payment. Indeed, the Antons paid the Olivas their share of the
profits from two stores although the loans corresponding to
them had in the meantime been paid. Only after Jose Miguel's
marital relation with Gladys Miriam turned sour in November
1997 did he cease to pay the Olivas their shares of the profits.
The CA also correctly ruled that, since the Olivas were mere
creditors, not partners, they had no right to demand that the
Antons make an accounting of the money loaned out to them.
Still, the Olivas were entitled to know from the Antons how
much net profits the three stores were making annually
since the Olivas were entitled to certain percentages of those
profits. Indeed, the third and second MO A directed the Antons
to provide the Olivas with copies of the monthly sales reports
from the operations of the stores involved, apparently to enable
them to know how much were due them. There is no reason
 3-Manresa [BUSORG CASE DIGESTS]
why the Antons should not furnish the Olivas copies of
similar reports from the operations of the store at SM
Megamall, this merely being a consequence of the Antons'
obligation to share with the Olivas the net profits from that
store.
Jose Miguel also complains that the CA had no basis in
awarding interest on the third loan covering the establishment
of the SM SouthiAall store since the particular MOA did not
provide for such interest. But, actually, the interests that the CA
awarded to the Olivas referred, not to interests on the loans
they gave, but to interest that their unpaid shares of the net
profits of the three stores should earn on account of Jose
Miguel's unjustified refusal to pay them beginning November
1997.
Given that the legal interests that the CA directed the Antons to
pay referred to the Olivas' unpaid shares of the net profits of
the three stores from November 1997, such interests cannot
be regarded as forbearance for money that warrants an
interest of 12% per annum. Rather, they were for unjust
withholding of the Olivas" shares of the net profits from the
Antons' three stores that would warrant an interest of 6% per
annum.
The Court DENIES the petition and AFFIRMS the decision of
the Court of Appeals with MODIFICATIONS.
VICENTE W. PASTOR vs. MANUEL GASPAR, ET AL
G.R. No. L-1256 October 23, 1903
Facts:
In November, 1900, there existed in Manila a partnership
composed of Macario Nicasio and the defendant Gaspar under
the name "Nicasio and Gaspar." It owned the steam
launch Luisa, and its only business was the relating to this
launch.
On November 24, 1900, in its desire to increase this business,
a contract was made between the firm of Nicasio and Gaspar
on one side, and Eguia, Iboleon, and Monserrat, and one
Hermoso on the other side.
This contract recites that Nicasio and Gaspar, by writing of the
same date, have enlarged the business of their partnership;
have bought 6 lorchas, and that, needing money with which to
pay for the lorchas and the necessary repairs thereon, while
Eguia et al. furnished them 28,000 pesos as loan. The firm of
Nicasio and Gaspar then acknowledges the receipt of these
amounts.
The 5th clause of the contract is as follows:
Fifth. The partnership of Nicasio and Gaspar undertakes to
return to the said Eguia, Monserrat, Iboleon, Pastor, and
Hermoso the said total sum of 28,000 pesos within the period
of ten years from the date of the instrument, and to guarantee
the fulfillment of said payment they pledge to said parties the
said lorchas Pepay, Lola, Consuelo, India, Niceta, and
Castellana, in the sums respectively which said parties have
furnished for the purchase and repair of said vessels, as before
stated, ceding and assigning to said parties, in like proportions
the profits and gains which may be realized from the
exploitation of said vessels;
the said vessels to be the property of said Eguia, Monserrat,
Iboleon, Pastor, and Hermoso, and of the parties of the first
part, proportionate with the sums which the said parties have
invested in said vessels;
the management of said vessels during the time in which said
debt remains unpaid to remain with the partnership of Nicasio
and Gaspar, with the understanding that whatever may be the
result of the business of said vessels, neither the said
partnership nor the parties of the first part shall become
responsible for the payment of said debt, except in so far as
the said vessels shall respond therefor, and in no event shall
they respond therefor with any other property;
injuries to and all losses of said lorchas to be shared by all the
parties hereto, as well as crews' expenses and other outlays
necessary for the preservation of said vessels, in the
proportion which corresponds to each party hereto according
to his investment; the parties of the first part binding
themselves not to encumber or pledge said vessels while said
debt remains unsatisfied to the parties of the second part.
The contract entered into on November 24, 1900, was
dissolved and terminated in July, 1901, and the lorchas was
sold by mutual consent.
In its complaint it was set forth that there was actually a
partnership between the parties to the Nov. 24 contract, and
that the consent of the agent of the plaintiff to its dissolution
and the sale of the lorchas was obtained by fraud of the
defendants.
Issue:
Whether Pastor is a partner or a creditor. Creditor
Held:
The opinion of the writer is that held by the court below, viz,
that upon the face of the contract the plaintiff was a
creditor and not a partner. The contract is not clearly drawn,
but the following seem to indicate that the transaction was
rather a loan than a contract of partnership:
(1) In the beginning it is twice stated positively that
Nicasio and Gaspar are the only partners and the only
persons interested in the partnership of Nicasio and
Gaspar. These statements the plaintiff assented to
when he signed the document.
(2) In the 2nd par, and again in the 4th, it is stated, also,
distinctly and positively, that the money has been
furnished as a loan.
(3) In the 5th paragraph, hereinbefore quoted, Nicasio
and Gaspar bind themselves to repay the amount,
something that they would not be bound to do were
the contract one of partnership.
(4) In the same par. Nicasio and Gaspar create in favor
of the plaintiff and his associates a right of pledge
over the lorchas, a thing inconsistent with the idea of
partnership.
This par. should not be construed as transferring the
ownership of the lorchas themselves to the 2nd parties.
Although the words "las cuales" would grammatically refer to
the preceding word "embarcaciones," yet such a construction
would be inconsistent with what has been before stated in the
same par. as to the pledge.
 3-Manresa [BUSORG CASE DIGESTS]
(5) By the same par. Nicasio and Gaspar are to be
considered consignees only as long as they do not
pay the debt. This indicates that they had a right to
pay it.
(6) By the last clause of this par they bind themselves not
to alienate the lorchas until they had paid the debt,
indicating clearly that by paying the debt they could
do so, a thing consistent with the idea of a
partnership.
(7) By the 7th paragraph of this contract it is stated that
the launch Luisa is not included in the contract.
The claim of the plaintiff that by this document he became a
partner in the firm of Nicasio and Gaspar can not in any event
be sustained. That firm was engaged in business with the
launch Luisa. With this the plaintiff and his associates had
nothing to do.
It appears, also, from this contract that when Nicasio and
Gaspar enlarged their business they could devote themselves
not only to the launch Luisa and the 6 lorchas in question but
also to other craft. With such other business the plaintiff would
have nothing to do. The most that he can claim is not that he
was a partner in the firm of Nicasio and Gaspar, but that he
and his associates, in connection with that firm, had formed
another partnership to manage these lorchas.
The fact that the plaintiff was to share in the profits and losses
of the business and that Nicasio and Gaspar should answer for
the payment of the debt only with the lorchas, and not with
their own property, indicates that the plaintiff was a partner. But
these provisions are not conclusive.
As between themselves the parties could make any contract
that pleased them, provided that it was not illegal (art. 1255,
Civil Code). They could, in making this contract, if they chose,
take some provision from the law of partnership and others
from the law of loans. Loans with a right to receive a part of the
profits in lieu of interest are not uncommon. As between the
parties, such contract is not one of partnership.
The question on this case is whether the contract on its face
creates a partnership or not. There can be no doubt as to his
intention in signing this contract. the plaintiff did not believe
that on its face it made him a partner. If he had so believed, he
would not have signed it. If he was willing to sign a contract
which on its face made him a partner, he and his associates
would have joined with Nicasio and Gaspar in the amended
articles of partnership which they signed on this very day, and
this 2nd document would have been entirely unnecessary. The
inference from these facts is so strong that it can not be
overcome by the fact that in subsequent dealings the parties
called themselves partners. The plaintiff undoubtedly wished to
secure, as far as he could, the rights of a partner without
making himself one.
The contract was that Nicasio and Gaspar should take the
money of the other parties to the contract, manage the
business as they saw fit, pay the investors their share of the
profits as long as the business continued, and not to sell the
lorchas until they had been so repaid. Anything more than this
would have made the investors partners according to the
instrument itself, the one thing which they were seeking to
avoid.
It is further claimed by the plaintiff that, even if the contract
itself did not make them partners, there was a verbal
agreement that they should be partners. His exception is
stated as follows in the bill of exceptions: "The plaintiff in his
first testimony attempted to set forth the verbal agreements by
virtue of which he was in reality a partner in the firm of Nicasio
and Gaspar. The court ruled this evidence out for the reason
that the name of the plaintiff does not appear in the articles of
partnership of Nicasio and Gaspar. The plaintiff excepted to
the ruling.
TOCAO vs. CA
OCT. 4, 2000 GR No. 127405
Facts:
Belo, Tocao and Anay entered into a joint venture to distribute
cookware. Belo acted as capitalist, Tocao as president and
general manager and Anay as head of the marketing
department and VP of sales. They operated under the name
Geminesse Enterprise, a sole proprietorship registered in
Marjorie Tocao’s name.
The parties agreed that:
a. Belo’s name should not appear in any documents relating to
their transactions with West Bend Company.
b. Anay would be entitled to 10% of the annual net profits, 6%
overriding commission, 30% of the sales she makes and 2% of
her demonstration services.
The agreement was not reduced to writing.
Anay received her commissions as agreed in 1987. In 1988,
however, she did not receive the same commission, prompting
her to file a complaint for sum of money with damages against
Tocao and Belo.
Tocao and Belo answered that the “alleged agreement” with
Anay that was “neither reduced in writing, nor ratified,” was
“either unenforceable or void or inexistent.” There could not
have been a partnership because Geminesse Enterprise was
the sole proprietorship of Tocao. Also, they alleged that Anay
merely acted as marketing demonstrator of Geminesse
Enterprise for an agreed remuneration, hence was only an
employee.
Trial court and CA ruled in favor of Anay.
Issues:
Whether Anay was a partner or employee in the business?
Partner.
Whether there was dissolution of the partnership? NO.
Held:
st
(1 Issue) They parties entered into a partnership.
There was indeed an “oral partnership agreement between
Tocao, Belo and Anay. It did not matter that the agreement
was not in writing because Article 1771 of the Civil Code
provides that a partnership may be “constituted in any form.”
The fact that Geminesse Enterprise was registered in Tocao’s
name is not determinative of whether or not the business was
managed and operated by a sole proprietor or a partnership.
Indubitably then, the business name Geminesse Enterprise
 3-Manresa [BUSORG CASE DIGESTS]
was used only for practical reasons - it was utilized as the
common name for petitioner Tocao’s various business
activities, which included the distributorship of cookware.
If Tocao was Anay’s employer, it is difficult to believe that they
shall receive the same income in the business. In a
partnership, each partner must share in the profits and losses
of the venture, except that the industrial partner shall not be
liable for the losses. As an industrial partner, Anay had the
right to demand for a formal accounting of the business and to
receive her share in the net profit.
Tocao underscores the fact that the Court of Appeals did not
return the “unaccounted and unremitted stocks of Geminesse
Enterprise amounting to P208,250.00. Obviously a ploy to
offset the damages awarded to Anay, that claim, more than
anything else, proves the existence of a partnership between
them.
nd
(2 Issue) There was unjustified dissolution of the partnership
by Tocao.
In this case, petitioner Tocao’s unilateral exclusion of Anay
from the partnership is shown by her memo to the Cubao office
plainly stating that Anay was no longer the VP for sales of
Geminesse Enterprise. By that memo, Tocao effected her own
withdrawal from the partnership and considered herself as
having ceased to be associated with the partnership in the
carrying on of the business.
The best evidence of the existence of the partnership, which
was not yet terminated (though in the winding up stage), were
the unsold goods and uncollected receivables, which were
presented to the trial court. Since the partnership has not been
terminated, Tocao and Anay remained as co-partners.
Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business. The winding up
of partnership affairs has not yet been undertaken by the
partnership. This is manifest in Tocao’s claim for stocks that
had been entrusted to Anay in the pursuit of the partnership
business.
A mere falling out between partners does not convert the
partnership into a sham organization. The partnership exists
until dissolved under the law. Since the partnership created
has no fixed term and is therefore a partnership at will
predicated on their mutual desire and consent, it may be
dissolved by the will of a partner, by virtue of the principle of
delectus personae.
Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith
can prevent the dissolution of the partnership but that it can
.
result in a liability for damages
An unjustified dissolution by a partner can subject him to action
for damages because by the mutual agency that arises in a
partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily
.
the right to dissolve the partnership
A partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his
due upon the dissolution of the partnership as well as damages
or share in the profits “realized from the appropriation of the
partnership business and goodwill.” An innocent partner thus
possesses “pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership
and assets at the time he was wrongfully expelled.
Sardane vs. CA
Facts:
Acojedo brought an action in the City Court of Dipolog for
collection of a sum of P5,217.25 based on promissory notes
executed by the herein private respondent Nobio Sardane in
favor of the herein petitioner.
It has been established in the trial court that on many
occasions, Acoejdo demanded the payment of the total amount
of P5,217.25. Due to failure to pay upon extrajudicial demand
(demand letter from a lawyer), Acojedo sought to collect by
filing this case.
City Court of Dipolog issued an order dated May 18, 1976
declaring the private respondent in default and allowed the
petitioner to present his evidence ex-parte. The City Court of
Dipolog rendered judgment by default in favor of the petitioner.
Private respondent filed a motion to lift the order of default
which was granted.
CITY COURT OF DIPOLOG After the trial on the merits, the
City Court of Dipolog rendered its decision in favor of Acojedo
and against Sardaje as follows:
(a) Ordering the Sardaje to pay unto the plaintiff the sum of
(P5,217.25) plus legal interest to commence from April 23,
1976 when this case was filed in court;
(b) pay the plaintiff the sum of P200.00 as attorney's fee and to
pay the cost of this proceeding. 3
APPEAL TO CFI: Sardane appealed to the Court of First
Instance of Zamboanga del Norte which reversed the decision.
He said that he is a partner and that the PNotes are
evidence of his share in the common fund. CFI concluded
that the promissory notes involved were merely receipts for the
contributions to said partnership and, therefore, upheld the
claim that there was ambiguity in the promissory notes, hence
parol evidence was allowable to vary or contradict the terms of
the represented loan contract.
CA: Acojedo then sought the review of said decision by
petition to the CA. The issue on whether the oral testimony for
the therein private respondent Sardane that a partnership
existed between him and therein petitioner Acojedo are
admissible to vary the meaning of the abovementioned
promissory notes was raised in this appeal.
CA said that the exceptions to the rule do not apply in this case
as there is no ambiguity in the writings in question, thus the
issue is.
Issue:
Whether a partnership exists between Acojedo and Sardane
primarily based on the Promissory notes presented as
evidence? NO
 3-Manresa [BUSORG CASE DIGESTS]
Held:
ON THE PROMISSORY NOTES: In the case at bar, the
promissory notes containing a promise to pay a sum certain in
money, payable on demand and the promise to bear the costs
of litigation in the event of the private respondent's failure to
pay the amount loaned when demanded extrajudicially.
THE PNotes clearly denote that the Sardane is obliged to
return the sum loaned to him. On their face, nothing appears to
be vague or ambigous, for the terms of the promissory notes
clearly show that it was incumbent upon the private respondent
to pay the amount involved in the promissory notes if and when
the petitioner demands the same.
It was clearly the intent of the parties to enter into a contract of
loan for how could an educated man like the private
respondent be deceived to sign a promissory note yet
intending to make such a writing to be mere receipts of the
petitioner's supposed contribution to the alleged partnership
existing between the parties?
OTHER EVIDENCE: It has been established in the trial court
that, the private respondent has been engaged in business for
quite a long period of time--as owner of the Sardane Trucking
Service, entering into contracts with the government for the
construction of wharfs and seawall; and a member of the City
Council of Dapitan. It indeed puzzles the COURT how Sardane
could have been misled into signing a document containing
terms which he did not mean them to be.
Court of Appeals held, and SC agrees, that even if
evidence aliunde other than the promissory notes may be
admitted to alter the meaning conveyed thereby, still the
evidence is insufficient to prove that a partnership existed
between the private parties hereto.
As manager of the basnig Sarcado he naturally has some
degree of control over the operations, and maintenance thereof
had to be exercised by herein petitioner.
 The fact that he had received 50% of the net
profits does not conclusively establish that he
was a partner of the private respondent herein.
 petitioner had no voice in the management of the
affairs of the basnig.
Article 1769(4) of the Civil Code is explicit that while the
receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the
business, no such inference shall be drawn if such profits
were received in payment as wages of an employee.
In Fortis vs. Gutierrez Hermanos, in denying the claim of the
plaintiff therein that he was a partner in the business of the
defendant, declared:
This contention cannot be sustained. It was a mere contract of
employment. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that the
compensation received by him was to be determined with
reference to the profits made by the defendant in their
business did not in any sense make him a partner therein. ...
Bastida vs. Menzi & Co., Inc., et al. which involved the
same factual and legal milieu.
There are other considerations noted by respondent Court
which negate herein petitioner's pretension that he was a
partner and not a mere employee indebted to the present
private respondent.
 Thus, in an action for damages herein petitioner did
not ask to be joined as a party plaintiff.
 Also, although he contends that herein private
respondent is the treasurer of the alleged partnership,
yet it is the latter who is demanding an accounting.
Among others.
WHEREFORE, the judgment of the respondent Court of
Appeals is AFFIRMED, with costs against herein
petitioner.
Art. 1770. A partnership must have a lawful object or purpose,
and must be established for the common benefit or interest of
the partners. When an unlawful partnership is dissolved by a
judicial decree, the profits shall be confiscated in favor of the
State, without prejudice to the provisions of the Penal Code
governing the confiscation of the instruments and effects of a
crime. (1666a)
Note: This is a digest of the mother case from which this case
was based. Just in case pangutan-on, and dili sad masabtan ni
na case without this backgrounder. 
VICTORIANO BORLASAS, ET AL., plaintiffs-appellants, vs.
VICENTE POLISTICO, ET AL., defendants-appellees.
In the month of April, 1911, the plaintiffs and defendants,
together with several hundred other persons, formed an
association under the name of Turnuhan Polistico & Co.
Vicente Polistico, the principal defendant herein, was elected
president and treasurer of the association, and his house in
Lilio, Laguna, was made its principal place of business. The life
of the association was fixed at fifteen years, and under the by-
laws each member obligated himself to pay to Vicente
Polistico, as president-treasurer, before 3 o'clock in the
afternoon of every Sunday the sum of 50 centavos, except that
on every fifth Sunday the amount was P1, if the president
elected to call this amount, as he always did.
From April, 1911, until April, 1917, the sums of money
mentioned above were paid weekly by all of the members of
the society with few irregularities. The inducement to these
weekly contributions was found in provisions of the by-laws to
the effect that a lottery should be conducted weekly among the
members of the association and that the successful member
should be paid the amount collected each week, from which,
however, the president-treasurer of the society was to receive
the sum of P200, to be held by him as funds of the society.
By virtue of these weekly lotteries Vicente Polistico, as
president-treasurer of the association, received sums of money
amounting to P74,000, more or less, in the period stated,
which he still retains in his power or has applied to the
purchase of real property largely in his own name and partly in
the names of others. Hence this complaint.
ADRIANO ARBES ET AL., plaintiffs-appellees, vs.
VICENTE POLISTICO ET AL., defendants-appellants.
Facts:
Upon reaching the SC (Borlasas vs. Polistico), the case was
remanded back to the trial court (Arbes vs. Polistico). The trial
court ruled that the association "Turnuhan Polistico & Co." is
unlawful, and sentencing the VICENTE POLISTICO ET AL
 3-Manresa [BUSORG CASE DIGESTS]
jointly and severally to return the amount of P24,607.80, as
well as the documents showing the uncollected credits of the
association, to the ADRIANO ARBES ET AL. in this case, and
to the rest of the members of said association represented by
said ADRIANO ARBES ET AL.
Polistico et al allege that because the partnership is considered
unlawful, some charitable institution to whom the partnership
funds may be ordered to be turned over, should be included as
a party defendant, since Article 1666 of the Civil Code, which
provides:
"A partnership must have a lawful object, and must be
established for the common benefit of the partners.
"When the dissolution of an unlawful partnership is decreed,
the profits shall be given to the charitable institutions of the
domicile of the partnership, or, in default of such, to those of
the province."
Issue:
Whether the members of the unlawful partnership have the
right to be reimbursed of the amount of their contributions
made to the unlawful partnership. YES
Held:
According to Manresa: "Ricci holds that the partner who
limits himself to demanding only the amount contributed
by him need not resort to the partnership contract on
which to base his claim or action. And, he adds in
explanation, that the partner makes his contribution, which
passes to the managing partner for the purpose of carrying on
the business or industry which is the object of the partnership;
or, in other words, to breathe the breath of life into a
partnership contract with an object forbidden by the law. And
as said contract does not exist in the eyes of the law, the
purpose for which the contribution was made has not
come into existence, and the administrator of the
partnership holding said contribution retains what
belongs to others, without any consideration; for which
reason he is bound to return it, and he who has paid in his
share is entitled to recover it.
"[The] Code does not state whether, upon the dissolution of the
unlawful partnership, the amounts contributed are to be
returned to the partners, because it only deals with the
disposition of the profits; but the fact that said contributions
are not included in the disposal prescribed for said profits,
shows that in consequence of said exclusion, the general
rules of law must be followed, and hence, the partners
must be reimbursed the amount of their respective
contributions. Any other solution would be immoral, and the
law will not consent to the latter remaining in the possession of
the manager or administrator who has refused to return them,
by denying to the partners the action to demand them."
(Manresa, Commentaries on the Spanish Civil Code, vol. XI,
pp. 262-264.)
Issue:
Whether the members of the unlawful partnership have the
right to be reimbursed of the amount of the
EARNINGS/PROFITS made by the unlawful partnership. NO
Held:
According to Manresa: " this is not the case with regard to
profits earned in the course of the partnership, because they
do not constitute or represent the partner's contribution but are
the result of the industry, business, or speculation, which
is the object of the partnership; and, therefore, in order to
demand the proportional part of said profits, the partner
would have to base his action on the contract, which is
null and void, since this partition or distribution of the profits is
one of the juridical effects thereof. Wherefore, considering this
contract as non-existent, by reason of its illicit object, it cannot
give rise to the necessary action, which must be the basis of
the judicial complaint. Furthermore, it would be immoral and
unjust for the law to permit a profit from an industry prohibited
by it.
"Hence, the distinction made in the second paragraph of this
article of our Code, providing that the profits obtained by
unlawful means shall not enrich the partners, but shall,
upon the dissolution of the partnership, be given to the
charitable institutions of the domicile of the partnership,
or, in default of such, to those of the province.
"This is a new rule, unprecedented in our law, introduced to
supply an obvious deficiency of the former law, which did not
prescribe the purpose to which those profits denied to the
partners were to be applied, nor state what was to be done
with them.
"The profits are so applied, and not the individual
contributions, because this would be an excessive and
unjust sanction for, as we have seen, there is no reason, in
such a case, for depriving the partner of the portion of the
capital that he contributed, the circumstances of the two cases
being entirely different.
Note!!! Just in case pangutan-on: 
Issue:
Whether there is a need to include charitable institutions as
parties to the case. NO
Held:
According to said article, no charitable institution is a
necessary party in the present case for the determination of
the rights of the parties. The action which may arise from said
article, in the case of an unlawful partnership, is that for the
recovery of the amounts paid in by the members from
those in charge of the administration of said partnership,
and it is not necessary for the said partners to base their action
on the existence of the partnership, but on the fact of having
contributed some money to the partnership capital.
The article cited above permits no action for the purpose of
obtaining the earnings made by the unlawful partnership,
during its existence as a result of the business in which it was
engaged, because, for that purpose, as Manresa remarks, the
partner will have to base his action upon the partnership
contract, which is null and without legal existence by reason of
its unlawful object; and it is self-evident that what does not
exist cannot be a cause of action. Hence, paragraph 2 of the
same article provides that when the dissolution of an unlawful
partnership is decreed, the profits cannot inure to the benefit
of the partners, but must be given to some charitable
institution.
 3-Manresa [BUSORG CASE DIGESTS]
THIS IS THE MOTHER CASE.
G.R. No. L-21906 December 24, 1968
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-
appellees, vs. NICANOR CASTEEL and JUAN DEPRA,
defendants, NICANOR CASTEEL, defendant-appellant.
Facts:
Casteel realized the urgent necessity of expanding his
occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters
from usurping the land. But lacking financial resources at that
time, he sought financial aid from his uncle Felipe Deluao who
then extended loans totalling more or less P27,000 with which
to finance the needed improvements on the fishpond. Hence, a
wide productive fishpond was built.
Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to remove all the
improvements which he had introduced on the land, and
ordered that the land be leased through public auction. Failing
to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to the
Secretary of Agriculture and Natural Resources
On November 25, 1949 Inocencia Deluao (wife of Felipe
Deluao) as party of the first part, and Nicanor Casteel as party
of the second part, executed a contract — denominated a
"contract of service"
That the Party of the First Part will finance as she has hereby
financed the sum of TWENTY SEVEN THOUSAND PESOS
(P27,000.00), Philippine Currency, to the Party of the Second
Part who renders only his services for the construction and
improvements of a fishpond at Barrio Malalag, Municipality of
Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole
buyer of all the produce of the fish that will be produced from
said fishpond;
That the Party of the First Part will be the administrator of the
same she having financed the construction and improvement
of said fishpond
Eventually, Casteel acquired some portions of the fishpond
from its prior occupants.
Sometime in January 1951 Nicanor Casteel forbade Inocencia
Deluao from further administering the fishpond, and ejected the
latter's representative (encargado), Jesus Donesa, from the
premises
Alleging violation of the contract of service (exhibit A) entered
into between Inocencia Deluao and Nicanor Casteel, Felipe
Deluao and Inocencia Deluao on April 3, 1951 filed an action in
the Court of First Instance of Davao for specific performance
and damages against Nicanor Casteel and Juan Depra (who,
they alleged, instigated Casteel to violate his contract)
THIS IS THE CASE ON MR.
EN BANC
[G.R. No. L-21906. August 29, 1969.]
INOCENCIA DELUAO and FELIPE DELUAO, plaintiffs-
Deluaos’, vs. NICANOR CASTEEL and JUAN DEPRA,
defendants, NICANOR CASTEEL, defendant-Casteel et al.
Now upon MR, among others, it was alleged that ultimately
what transpired between the parties was a contract of
partnership and that the Deluaos’ submit that Casteel is liable
to the Deluaos for one-half of the fishpond or the actual value
thereof for Casteel's alleged termination of the contract of
partnership.
Deluaos’ further argue entitlement over the beneficial right over
the fishpond in question since it is the "specific partnership
property" contemplated by Art. 1811 of the Civil Code
Issue:
[related to lesson] Assuming there was a partnership existent
between the parties, whether the fishpond may be considered
as "specific partnership property" contemplated by Art. 1811.
Held: No.
A reading of the said provision will show that what is meant is
tangible property, such as a car, truck or a piece of land, but
not an intangible thing such as the beneficial right to a
fishpond. If what the Deluaos’ have in mind is the fishpond
itself, they are grossly in error. A fishpond of the public domain
can never be considered a specific partnership property
because only its use and enjoyment — never its title or
ownership — is granted to specific private persons.
[in case tanungin]
Issue:
Whether there was a contract of partnership between the
parties. IT WAS A TRUST
Held:
The fact that Casteel and Deluao agreed to acquire the
fishpond in question in the name of Casteel alone resulted in a
trust by operation of law (citing Art. 1452, Civil Code) in favor
of the Deluaos’ as regards their on half interest.
A trust is the right, enforceable in equity, to the beneficial
enjoyment of property the legal title to which is in another
(Ulmer v. Fulton, 97 ALR 1170, 129 Ohio St 323, 195 NE 557).
It was held that the second part of the contract of partnership
between the parties to divide the fishpond between them after
the award was illegal and therefore no rights or obligations
could have arisen therefrom. Inescapably, no trust could have
resulted because trust is founded on equity and can never
result from an act violative of the law.
Art. 1452 of the Civil Code does not support the Deluaos' stand
because it contemplates an agreement between two or more
persons to purchase property — capable of private ownership
— the legal title of which is to be taken in the name of one of
them for the benefit of all. In the case at bar, the parties did not
agree to purchase the fishpond, and even if they did, such is
prohibited by law, a fishpond of the public domain not being
susceptible of private ownership.
Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto Chua
Facts:
On June 22, 1992, Lamberto Chua filed with the RTC a
complaint against Lilibeth Sunga Chan and Cecilia Chan,
 3-Manresa [BUSORG CASE DIGESTS]
daughter and wife of the deceased Jacinto Sunga for “Winding
Up of Partnership Affairs, Accounting, Appraisal and Recovery
of Shares and Damages with Writ of Preliminary Attachment.
Lamberto alleged that:
1. He verbally entered into a partnership with Jacinto in
the distribution of Shellane Liquefied Petroleum Gas
(LPG) in Manila;
2. For business convenience, they agreed to register the
business name of their partnership, Shellite Gas
Appliance Center, under the name of Jacinto as a
sole proprietorship;
3. They contributed P 100,000 each with the intention
that the profits would be equally divided between
them;
4. The partnership had Jacinto as manager with a
manager’s fee or remuneration of 10% of the gross
profit; and
5. Upon Jacinto’s death, Lilibeth and Cecilia took over
the operations, control, custody, disposition and
management of Shellite without Lamberto’s consent;
Lilibeth and Cecilia filed their Answer with Compulsory
Counterclaims, contending that they are not liable for
partnership shares and unreceived profits and that it is the
SEC, not the RTC, which has jurisdiction over the action.
RTC ruled in favor of Lamberto, which decision was affirmed
by the CA.
Issues:
(1) Whether a partnership existed between petitioners and
respondent. YES, a partnership existed.
(2) Whether Lamberto’s action has already prescribed. NO
(3) Effect of non-registration with the SEC. RETAIN
JURIDICAL PERSONALITY
1. A partnership may be constituted in any form, except where
immovable property of real rights are contributed thereto, in
which case a public instrument is necessary. Hence, based on
the intention of the parties, as gathered from the facts and
ascertained from their language and conduct, a verbal
contract of partnership may arise. The essential profits that
must be proven so that a partnership was agreed upon are:
(1) Mutual contribution to a common stock; and
(2) Joint interest in the profits.
In view of the absence of the written contract of partnership
between Lamberto and Jacinto, Lamberto resorted to the
introduction of documentary and testimonial evidence to prove
said partnership. The RTC and the CA considered the
evidence for Lamberto as sufficient to prove the formation of
partnership, albeit an informal one. Notably, petitioners did not
present any evidence in their favor during the trial. By the
weight of judicial precedents, a factual matter, like the finding
of the existence of a partnership between respondent and
Jacinto, cannot be inquired into by this Court on review.
In re: Dead Man’s Statute
Lilibeth and Cecilia also argued that the courts were proscribed
from hearing the testimonies of respondent and his witness,
Josephine (Jacinto’s assistant) pursuant to Sec. 23, Rule 130.
The court, however, held that the said rule is not applicable in
the instant case because (1) the witness, Josephine, is not a
party to a case or a person in whose behalf the case was
prosecuted and (2) well entrenched is the rule that when it is
the executor or administrator of the estates that sets up the
counterclaim, the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased to defeat the
counterclaim.
2. CC provides that an action to enforce an oral contract
prescribes in 6 years while the right to demand an accounting
for a partner’s interest accrues at the date of dissolution, in the
absence of any contrary agreement.
In the instant case, respondent filed his action 3 years after
Jacinto’s death. It also bears stressing that while Jacinto’s
death dissolved the partnership, the dissolution did not
immediately terminate the partnership. The CC expressly
provides that upon dissolution, the partnership continues and
its legal personality is retained until the complete winding up of
its business, culminating in its termination.
3. True, Art. 1722 of the CC requires that partnerships with a
capital of P3,000 or more must register with the SEC.
However, this registration requirement is not mandatory. Art.
1768 (CC) provides that the partnership retains its juridical
personality even if it fails to register so long as the contract has
all the essential requisites.
ANTONIA TORRES and EMETERIA BARING, petitioners,
vs.COURT OF APPEALS and MANUEL TORRES,
respondents.
G.R. No. 134559 December 9, 1999
Facts:
Sisters Antonia and Emeteria, herein petitioners, entered into a
joint venture agreement (JVA) with Manuel Torres, herein
respondent, for the development of a parcel of land into a
subdivision. Pursuant thereto, the parties executed a deed of
absolute sale over the petitioners' parcel of land in favor of
Manuel. Manuel obtained a loan secured by a mortgage over
the same parcel of land to Equitable bank. Pursuant to the
JVA, the proceeds of the loan was to be used for the
development of the subdivision. All three of them likewise
agreed to share the proceeds from the sale of the subdivided
lots.
However, the project did not materialize, and the land was
subsequently foreclosed by the bank. Petitioners alleged that
the failure of the project was due to the lack of funds or means
and skills of respondent. The latter however, contends that he
used the proceeds of the loan to implement the agreement and
was able to effect the survey and subdivision of the lots;
construction of roads, curbs and gutters; and the building of 60
low cost housing units; and the setting up of model houses.
CA held that the parties formed a partnership for the
development of the subdivision.
Issues:
(1) Whether the parties formed a partnership. YES
(2) WON JVA is void under Article 1773. NO
Held:
1. Art. 1767. By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing profits
among themselves.
 3-Manresa [BUSORG CASE DIGESTS]
In their Agreement, petitioners would contribute property to the
partnership in the form of land which was to be developed into
a subdivision; while respondent would give, in addition to his
industry, the amount needed for general expenses and other
costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form a
partnership.
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate its
use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the
proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the
roads, the curbs and the gutters of the subdivision and entered
into a contract to construct low-cost housing units on the
property.
Respondent's actions clearly belie petitioners' contention that
he made no contribution to the partnership. Under Article 1767
of the Civil Code, a partner may contribute not only money or
property, but also industry.
2. Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached
to the public instrument.)
First, Article 1773 was intended primarily to protect third
persons.
Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771,
"The execution of a public instrument would be useless if there
is no inventory of the property contributed, because without its
designation and description, they cannot be subject to
inscription in the Registry of Property, and their contribution
cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy
of the guaranty in which the immovables may consist. Thus,
the contract is declared void by the law when no such
inventory is made."
The case at bar does not involve third parties who may be
prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay
them 60 percent of the value of the property. They cannot in
one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent
courts from considering the Joint Venture Agreement an
ordinary contract from which the parties' rights and obligations
to each other may be inferred and enforced.
SECUYA vs. VDA. DE SELMA
Facts:
The present petition is rooted in an action for quieting of title
filed by the Secuyas against Gerarda M. vda. de Selma.
Secuyas asserted ownership over the disputed parcel of land,
alleging the following facts:
The parcel of land subject of this case is a PORTION of Lot
5679 that has an area of 12,750 square meters, more or less.
During the lifetime of Maxima Caballero, vendee and patentee
of Lot 5679, she entered into that AGREEMENT OF
PARTITION with Paciencia Sabellona, whereby the Maxima
bound herself and parted with one-third (1/3) portion of Lot
5679 in favor of the Pacienca. Among others it was stipulated
in said agreement of partition that the said portion of one-third
so ceded will be located adjoining the municipal road;
Paciencia Sabellona took possession and occupation of that
one-third portion of Lot 5679 adjudicated to her. Later, she sold
the three thousand square meter portion thereof to Dalmacio
Secuya for a consideration of P1,850.00, by means of a private
document which was lost. Such sale was admitted and
confirmed by Ramon Sabellona, only heir of Paciencia
Sabellona, per that instrument denominated CONFIRMATION
OF SALE OF UNDIVIDED SHARES.
Ramon Sabellona was the sole voluntary heir of Paciencia
Sabellona, per that Last Will and Testament of Paciencia
Sabellona, executed and acknowledged before s notary public.
Pursuant to such will, Ramon Sabellona inherited all the
properties left by Paciencia Sabellona.
After the purchase by Dalmacio Secuya, the latter, together
with his brothers and sisters took physical possession of the
land and cultivated the same. In 1967, Edilberto Superales
married Rufina Secuya, niece of Dalmacio Secuya. With the
permission and tolerance of the Secuyas, Edilberto Superales
constructed his house on the lot in question;
Subsequently, Dalmacio Secuya died. Thus his heirs —
brothers, sisters, nephews and nieces — are now the
petitioners.
In 1972, defendant-respondent Gerarda Selma bought a 1,000
square-meter portion of Lot 5679. Then on February 19, 1975,
she bought the bigger bulk of Lot 5679, consisting of 9,302
square meters, evidenced by that deed of absolute sale. The
land in question, a 3,000-square meter portion of Lot 5679, is
embraced and included within the boundary of the later
acquisition by respondent Selma.
Defendant-respondent Gerarda Selma lodged a complaint, she
was asserting ownership over the land inherited by plaintiffs-
petitioners from Dalmacio Secuya of which they had long been
in possession . . . in concept of owner.
Issue:
Whether or not there was a valid transfer or conveyance of
one-third (1/3) portion of Lot 5679 by Maxima Caballero in
favor of Paciencia Sabellona, by virtue of [the] Agreement of
Partition. NO
Held:
In the case at bar, petitioners allege that TCT No. 5679-C-120,
issued in the name of Private Respondent Selma, is a cloud on
their title as owners and possessors of the subject property,
 3-Manresa [BUSORG CASE DIGESTS]
which is a 3,000 —square-meter portion of Lot No. 5679-C-120
covered by the TCT. But the underlying question is, do
petitioners have the requisite title that would enable them to
avail themselves of the remedy of quieting of title?
Petitioners anchor their claim of ownership on two documents:
the Agreement of Partition executed by Maxima Caballero and
Paciencia Sabellona and the Deed of Confirmation of Sale
executed by Ramon Sabellona.
The Agreement: An Express Trust, Not a Partition
Notwithstanding its purported nomenclature, this Agreement is
not one of partition, because there was no property to partition
and the parties were not co-owners. Rather, it is in the nature
of a trust agreement.
Trust is the right to the beneficial enjoyment of property, the
legal title to which is vested in another. It is a fiduciary
relationship that obliges the trustee to deal with the property for
the benefit of the beneficiary. Trust relations between parties
may either be express or implied. An express trust is created
by the intention of the trustor or of the parties. An implied trust
comes into being by operation of law.
The present Agreement of Partition involves an express trust.
Under Article 1444 of the Civil Code, no particular words are
required for the creation of an express trust, it being sufficient
that a trust is clearly intended. That Maxima Caballero bound
herself to give one third of Lot No. 5629 to Paciencia Sabellona
upon the approval of the former's application is clear from the
terms of the Agreement. Likewise, it is evident that Paciencia
acquiesced to the covenant and is thus bound to fulfill her
obligation therein.
The Purported Sale to Dalmacio Secuya
Even granting that the express trust subsists, petitioners have
not proven that they are the rightful successors-in-interest of
Paciencia Sabellona.
The Absence of the Purported Deed of Sale
Secuyas insist that Paciencia sold the disputed property to
Dalmacio Secuya on October 20, 1953, and that the sale was
embodied in a private document. However, such document,
which would have been the best evidence of the transaction,
was never presented in court, allegedly because it had been
lost. While a sale of a piece of land appearing in a private deed
is binding between the parties, it cannot be considered binding
on third persons, if it is not embodied in a public instrument
and recorded in the Registry of Property.
Moreover, while petitioners could not present the purported
deed evidencing the transaction between Paciencia Sabellona
and Dalmacio Secuya, petitioners' immediate predecessor-in-
interest, private respondent in contrast has the necessary
documents to support her claim to the disputed property.
LITONJUA, JR. vs. LITONJUA, SR.
G.R. NOS. 166299-300
December 13, 2005
Facts:
Aurelio K. Litonjua, Jr. & Eduardo K. Litonjua, Sr. are brothers.
On December 4, 2002, Aurelio filed a suit against his brother
Eduardo, Robert T. Yang and several corporations for specific
performance and accounting. In his complaint, Aurelio alleged
that, since June 1973, he and Eduardo are into a joint
venture/partnership arrangement in the Odeon Theater
business which had expanded thru investment in Cineplex,
Inc., LCM Theatrical Enterprises, Odeon Realty Corporation
(operator of Odeon I and II theatres), Avenue Realty, Inc.,
owner of lands and buildings, among other corporations.
This joint venture/partnership agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents
and other relatives. It was then agreed upon between Aurelio
and Eduardo that in consideration of Aurelio’s retaining his
share in the remaining family businesses (mostly, movie
theaters, shipping and land development) and contributing his
industry to the continued operation of these businesses,
Aurelio will be given P1 Million or 10% equity in all these
businesses and those to be subsequently acquired by them
whichever is greater. . . .
Annex A-1
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been
married. .I am trying my best to mold you the way I work
so you can follow the pattern . You will be the only one left
with the company, among us brothers and I will ask you to
stay as I want you to run this office every time I am away. I
want you to run it the way I am trying to run it because I
will be all alone and I will depend entirely to you (sic). My
sons will not be ready to help me yet until about maybe
15/20 years from now. Whatever is left in the corporation, I
will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is
greater. We two will gamble the whole thing of what I have
and what you are entitled to. . It will be you and me alone
on this. If ever I pass away, I want you to take care of all of
this. You keep my share for my two sons are ready take
over but give them the chance to run the company which I
have built. Because you will need a place to stay, I will
arrange to give you first ONE HUNDRED THOUSAND
PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so
you can live better there. The rest I will give you in form of
stocks which you can keep. This stock I assure you is
good and saleable. I will also gladly give you the share of
Wack-Wack and Valley Golf because you have been good.
The rest will be in stocks from all the corporations which I
repeat, ten percent (10%) equity.
In a span of 28 years, Aurelio and Eduardo had accumulated in
their joint venture/partnership various assets including but not
limited to the corporate defendants and their respective assets.
In addition, the joint venture/partnership had also acquired
various other assets, but Eduardo caused to be registered
in the names of other parties. Sometime in 1992, the
relations between Aurelio and Eduardo became sour so
that Aurelio requested for an accounting and liquidation of
his share in the joint venture/partnership but these
demands for complete accounting and liquidation were
not heeded.
Eduardo and the corporate respondents denied under oath
the material allegations of the complaint, more particularly
that portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership.
Issue:
 3-Manresa [BUSORG CASE DIGESTS]
Whether or not there was a partnership created by the
actionable document considering it was not a public instrument
and immovable properties were contributed to the partnership?
NO
Held:
A partnership exists when two or more persons agree to place
their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a
proportionate sharing of the profits and losses between
them. A contract of partnership is defined by the Civil Code as
one where two or more persons bound themselves to
contribute money, property, or industry to a common fund with
the intention of dividing the profits among themselves. A joint
venture, on the other hand, is hardly distinguishable from, and
may be likened to, a partnership since their elements are
similar, i.e., community of interests in the business and sharing
of profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on partnership.
Foremost of these are the following provisions of the Civil
Code:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of
three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the
Office of the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding
paragraph shall not affect the liability of the partnership and the
members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached
to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in
tone, but is unsigned and undated. As an unsigned document,
there can be no quibbling that Annex A-1 does not meet the
public instrumentation requirements exacted under Article
1771 of the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving more than
P3,000.00 in money or property, Annex A-1 cannot be
presented for notarization, let alone registered with the
Securities and Exchange Commission (SEC), as called for
under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes
into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry
turns on the nature of petitioners contribution, if any, to the
supposed partnership (immovables & real rights).
The contract-validating inventory requirement under
Article 1773 of the Civil Code applies as long real property
or real rights are initially brought into the partnership. In
context, the more important consideration is that real property
was contributed, in which case an inventory of the contributed
property duly signed by the parties should be attached to the
public instrument, else there is legally no partnership to speak
of. Considering thus the value and nature of petitioners
alleged contribution to the purported partnership, the
Court cannot plausibly extend Annex A-1 the legal effects
that petitioner so desires and pleads to be given. A
partnership may be constituted in any form, save when
immovable property or real rights are contributed thereto
or when the partnership has a capital of at least P3,000.00,
in which case a public instrument shall be necessary. And
if only to stress what has repeatedly been articulated, an
inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to it.
Even assuming in gratia argumenti that Annex A-1 partakes of
a perfected innominate contract, petitioners complaint would
still be dismissible as against Eduardo and, more so, against
Yang. It cannot be over-emphasized that petitioner points to
Eduardo as the author of Annex A-1. The only portion of
Annex A-1 which could perhaps be remotely regarded as
vesting petitioner with a right to demand from respondent
Eduardo the observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this
office everytime I am away. I want you to run it the way I am
trying to run it because I will be alone and I will depend entirely
to you, My sons will not be ready to help me yet until about
maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity,
whichever is greater.
It is at once apparent that what respondent Eduardo imposed
upon himself under the above passage, if he indeed wrote
Annex A-1, is a promise which is not to be performed within
one year from contract execution on June 22, 1973.
Accordingly, the agreement embodied in Annex A-1 is covered
by the Statute of Frauds and ergo unenforceable for non-
compliance therewith. By force of the statute of frauds, an
agreement that by its terms is not to be performed within a
year from the making thereof shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in
writing and subscribed by the party charged. Corollarily, no
action can be proved unless the requirement exacted by the
statute of frauds is complied with.
Petitioner is the intended beneficiary of the P1 Million or 10%
equity of the family businesses supposedly promised by
Eduardo to give in the near future. This angle argues against
the very idea of a partnership, the creation of which requires
two or more contracting minds mutually agreeing to contribute
money, property or industry to a common fund with the
intention of dividing the profits between or among themselves.
We have not ignored the actionable document As a matter of
fact, we emphasized in our decision that insofar as Yang is
concerned, he is not even mentioned in the said actionable
document. We are therefore puzzled how a person not
mentioned in a document purporting to establish a partnership
could be considered a partner.
MAGALONA vs. PESAYCO
G.R. No. L-39607 February 6, 1934
ENCARNACION MAGALONA, ET AL., plaintiffs-appellees, vs.
JUAN PESAYCO, defendant-appellant.
Facts:
Encarnacion Magalona, Juan Sermeno, and the defendant,
Juan Pesayco, formed a partnership for the purpose of
catching "semillas de bañgus o aua" in the sea and rivers
 3-Manresa [BUSORG CASE DIGESTS]
within the jurisdiction of the municipality of San Jose, Antique
Province, for the year 1931.
The defendant managed the business from January 1, 1931,
and with the exception of the two sales above-mentioned,
never gave any account of his catches or sales to his partners,
the plaintiffs. Hence, a complaint was filed praying that a
receiver be appointed by the court.
During trial, it was proven that the defendant obtained and sold
a total of 975,000 "semillas de bañgus" 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.
Defendant however denies that there was a partnership and
depends principally upon the fact that the partnership
agreement was not in writing.
Issue:
Whether a partnership agreement should be in writing? NO.
Held:
Article 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.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.WILLIAM J. SUTER and THE COURT OF TAX APPEALS,
respondents.
G.R. No. L-25532 February 28, 1969
Facts:
A limited partnership, named "William J. Suter 'Morcoin' Co.,
Ltd.," was formed on September 30, 1947 by herein
respondent William J. Suter as the general partner, and Julia
Spirig and Gustav Carlson, as the limited partners. The
partners contributed, respectively, P20,000.00 (Suter),
P18,000.00 (Spirig) and P2,000.00 (Carlson) to the
partnership. On October 1, 1947, the limited partnership was
registered with the Securities and Exchange Commission.
The firm engaged, among other activities, in the importation,
marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement
machines, their parts and accessories. It had an office and
held itself out as a limited partnership, handling and carrying
merchandise, using invoices, bills and letterheads bearing its
trade-name, maintaining its own books of accounts and bank
accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner
Spirig got married and, thereafter, on December 18, 1948,
limited partner Carlson sold his share in the partnership to
Suter and his wife. The sale was duly recorded with the
Securities and Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns
as a corporation, without objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959 when the
latter, in an assessment, consolidated the income of the firm
and the individual incomes of the partners-spouses Suter and
Spirig resulting in a determination of a deficiency income tax
against respondent Suter in the amount of P2,678.06 for 1954
and P4,567.00 for 1955.
Respondent Suter protested the assessment.
Issue:
Whether the marriage of Suter and Spirig dissolved the
partnership and, thus the consolidation of the income of the
firm and individual incomes of the spouses was proper. NO
Held:
The thesis that the limited partnership, William J. Suter
"Morcoin" Co., Ltd., has been dissolved by operation of law
because of the marriage of the only general partner, William J.
Suter to the originally limited partner, Julia Spirig one year after
the partnership was organized is rested by the appellant upon
the opinion of now Senator Tolentino that reads as follows:
"A husband and a wife may not enter into a contract of general
copartnership, because under the Civil Code, which applies in
the absence of express provision in the Code of Commerce,
persons prohibited from making donations to each other are
prohibited from entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing
partnership. (1 Guy de Montella 58)"
However, the CIR failed to observe the fact that the William J.
Suter "Morcoin" Co., Ltd. was NOT a universal partnership ,
but a PARTICULAR PARTNERSHIP. A universal partnership
requires either that the object of the association be ALL the
present property of the partners, as contributed by them to the
common fund, or else ALL that the partners may acquire by the
industry or work during the existence of the partnership.
The William J. Suter "Morcoin" Co., Ltd. was NOT a universal
partnership, since the contributions of the partners were fixed
sums of money and neither one of them is an industrial partner
(NB: Industrial partner is one who contributes only his industry
or personal service). If follows therefore, that William J. Suter
"Morcoin" Co., Ltd. was not a partnership that the Spouses
were forbidden to enter by Article 1677 of the Civil Code of
1889.
Even the subsequent marriage of the partners could NOT
operate to dissolve the partnership, such marriage not being
one of the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
Morevoer, the CIR's view, that by the marriage of both partners
the company became a single proprietorship, is equally
erroneous. The capital contributions of partners William J.
Suter and Julia Spirig were separately owned and contributed
by them before their marriage; and after they were joined in
wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396).
 3-Manresa [BUSORG CASE DIGESTS]
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and
separate from that of its partners, the bypassing of the
existence of the limited partnership as a taxpayer can only be
done by ignoring or disregarding clear statutory mandates and
basic principles of our law. The limited partnership's separate
individuality makes it impossible to equate its income with that
of the component members. True, section 24 of the Internal
Revenue Code merges registered general co-partnerships
(compañias colectivas) with the personality of the individual
partners for income tax purposes. But this rule is exceptional in
its disregard of a cardinal tenet of our partnership laws, and
can not be extended by mere implication to limited
partnerships.
Here, the limited partnership is not a mere business conduit of
the partner-spouses; it was organized for legitimate business
purposes; it conducted its own dealings with its customers prior
to appellee's marriage, and had been filing its own income tax
returns as such independent entity. The change in its
membership, brought about by the marriage of the partners
and their subsequent acquisition of all interest therein, is no
ground for withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income tax. As
far as the records show, the partners did not enter into
matrimony and thereafter buy the interests of the remaining
partner with the premeditated scheme or design to use the
partnership as a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its
income, to require that income to be included in the individual
tax return of respondent Suter is to overstretch the letter and
intent of the law. In fact, it would even conflict with what it
specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a
general copartnership (compañia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus,
the code taxes the latter on its income, but not the former,
because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual
capacities for any dividend or share of the profit derived from
the duly registered general partnership.
Aurbach vs. Sanitary Wares Manufacturing Corporation
Facts:
In 1961, Saniwares, a domestic corporation was incorporated
for the primary purpose of manufacturing and marketing
sanitary wares. One of the incorporators, Mr. Baldwin Young
went abroad to look for foreign partners, European or
American who could help in its expansion plans. On August 15,
1962, ASI, a foreign corporation domiciled in Delaware, United
States entered into an Agreement with Saniwares and some
Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which
would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation
shall initially be "Sanitary Wares Manufacturing Corporation."
At the request of ASI, the agreement contained provisions
designed to protect it as a minority group, including the grant of
veto powers over a number of corporate acts and the right to
designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate
transactions.
The joint enterprise thus entered into by the Filipino investors
and the American corporation prospered. Unfortunately, with
the business successes, there came a deterioration of the
initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due
to their desire to expand the export operations of the company
to which ASI objected as it apparently had other subsidiaries of
joint venture groups in the countries where Philippine exports
were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by
Baldwin Young. The minutes were taken by the Secretary,
Avelino Cruz. After disposing of the preliminary items in the
agenda, the stockholders then proceeded to the election of the
members of the board of directors. The ASI group nominated
three persons namely; Wolfgang Aurbach, John Griffin and
David P. Whittingham. The Philippine investors nominated six,
namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr.
Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar,
who in turn nominated Mr. Charles Chamsay. The chairman,
Baldwin Young ruled the last two nominations out of order on
the basis of section 5 (a) of the Agreement, the consistent
practice of the parties during the past annual stockholders'
meetings to nominate only nine persons as nominees for the
nine-member board of directors, and the legal advice of
Saniwares' legal counsel.
These incidents triggered off the filing of separate petitions by
the parties with the Securities and Exchange Commission
(SEC). The SEC decision led to the filing of two separate
appeals with the Intermediate Appellate Court by Wolfgang
Aurbach, John Griffin, David Whittingham and Charles
Chamsay and by Luciano E. Salazar. The petitions were
consolidated and the appellate court in its decision ordered the
remand of the case to the SEC with the directive that a new
stockholders' meeting of Saniwares be ordered convoked as
soon as possible, under the supervision of the Commission.
Issue(s):
The main issue hinges on who were the duly elected directors
of Saniwares for the year 1983 during its annual stockholders'
meeting held on March 8, 1983. To answer this question the
following factors should be determined:
(1) the nature of the business established by the parties
whether it was a joint venture or a corporation and
(2) whether or not the ASI Group may vote their additional 10%
equity during elections of Saniwares' board of directors.
Held:
The rule is that whether the parties to a particular contract
have thereby established among themselves a joint venture or
some other relation depends upon their actual intention which
is determined in accordance with the rules governing the
interpretation and construction of contracts.
In the instant cases, our examination of important provisions of
the Agreement as well as the testimonial evidence presented
by the Lagdameo and Young Group shows that the parties
 3-Manresa [BUSORG CASE DIGESTS]
agreed to establish a joint venture and not a corporation. The
history of the organization of Saniwares and the unusual
arrangements which govern its policy making body are all
consistent with a joint venture and not with an ordinary
corporation. Section 5 (a) of the agreement uses the word
"designated" and not "nominated" or "elected" in the selection
of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
The legal concept of a joint venture is of common law origin. It
has no precise legal definition but it has been generally
understood to mean an organization formed for some
temporary purpose. It is in fact hardly distinguishable from the
partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a
mutual right of control. The main distinction cited by most
opinions in common law jurisdictions is that the 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. This
observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code).
It would seem therefore that under Philippine law, a joint
venture is a form of partnership and should thus be governed
by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms,
and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture
with others.
Necessarily, the appellate court was correct in upholding the
agreement of the parties as regards the allocation of director
seats under Section 5 (a) of the "Agreement," and the right of
each group of stockholders to cumulative voting in the process
of determining who the group's nominees would be under
Section 3 (a) (1) of the "Agreement." Section 5 (a) relates to
the manner of nominating the members of the board of
directors while Section 3 (a) (1) relates to the manner of voting.
This is the proper interpretation of the Agreement of the parties
as regards the election of members of the board of directors.
Equally important as the consideration of the contractual intent
of the parties is the consideration as regards the possible
domination by the foreign investors of the enterprise in
violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In the
instant case, the foreign Group ASI was limited to designate
three directors. This is the allowable participation of the ASI
Group. Hence, in future dealings, this limitation of six to three
board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board
seats in the 9-man board of directors there are provisions
already agreed upon and embodied in the parties' Agreement
to protect the interests arising from the minority status of the
foreign investors.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R.
No. 75875 are DISMISSED and the petition in G.R. No. 75951
is partly GRANTED. The amended decision of the Court of
Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John
Griffin, David WhittinghamEmesto V. Lagdameo, Baldwin
Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the duly
elected directors of Saniwares at the March 8, 1983 annual
stockholders' meeting. In all other respects, the questioned
decision is AFFIRMED.
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY,respondents.
Facts:
Following the death of Tan Eng Kee on September 13, 1984,
Matilde Abubo, the common-law spouse of the decedent,
joined by their children, collectively known as herein petitioners
HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990. The complaint
was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee
and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of
selling lumber and hardware and construction supplies.
They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein
averred that the business prospered due to the hard work and
thrift of the alleged partners. However, they claimed that in
1981, Tan Eng Lay and his children caused the conversion of
the partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business.
Issue:
Whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. NO!
Held:
A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership for the
exercise of a profession.
Thus, in order to constitute a partnership, it must be
established that:
(1) two or more persons bound themselves to contribute
money, property, or industry to a common fund, and
(2) they intend to divide the profits among themselves.
The agreement need not be formally reduced into writing, since
statute allows the oral constitution of a partnership, save in two
instances:
(1) when immovable property or real rights are contributed, and
(2) when the partnership has a capital of three thousand pesos
or more.
In both cases, a public instrument is required. An inventory to
be signed by the parties and attached to the public instrument
is also indispensable to the validity of the partnership
whenever immovable property is contributed to the partnership.
Undoubtedly, the best evidence would have been the contract
of partnership itself, or the articles of partnership but there is
 3-Manresa [BUSORG CASE DIGESTS]
none. The alleged partnership, though, was never formally
organized. In addition, petitioners point out that the New Civil
Code was not yet in effect when the partnership was allegedly
formed sometime in 1945, although the contrary may well be
argued that nothing prevented the parties from complying with
the provisions of the New Civil Code when it took effect on
August 30, 1950. The net effect, however, is that we are asked
to determine whether a partnership existed based purely on
circumstantial evidence.
A review of the record persuades us that the Court of Appeals
correctly reversed the decision of the trial court. The evidence
presented by petitioners falls short of the quantum of proof
required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away.
Only he, aside from Tan Eng Lay, could have expounded on
the precise nature of the business relationship between them.
In the absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing a
partnership. The testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng Lay.
Besides, it is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan Eng Kee
never asked for an accounting. The essence of a partnership is
that the partners share in the profits and losses. Each has the
right to demand an accounting as long as the partnership
exists.
A demand for periodic accounting is evidence of a
partnership. During his lifetime, Tan Eng Kee appeared never
to have made any such demand for accounting from his
brother, Tang Eng Lay.
Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall
apply:
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish
a partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a
joint or common right or interest in any property which the
returns are derived;
(4) The receipt by a person of a share of the profits of a
business is a prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits
were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that
Tan Eng Kee was only an employee, not a partner. Even if the
payrolls as evidence were discarded, petitioners would still be
back to square one, so to speak, since they did not present
and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the
profits of the enterprise. Petitioners failed to show how much
their father, Tan Eng Kee, received, if any, as his share in the
profits of Benguet Lumber Company for any particular period.
Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between
themselves, which is one of the essential features of a
partnership.
In the instant case, we find private respondent's arguments to
be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may
be such as to support a finding of the existence of the parties'
intent. Yet, in the case at bench, even the aforesaid
circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that
Tan Eng Kee was involved in the operations of Benguet
Lumber, but in what capacity is unclear. We cannot discount
the likelihood that as a member of the family, he occupied a
niche above the rank-and-file employees. There being no
partnership, it follows that there is no dissolution, winding up or
liquidation to speak of. Hence, the petition must fail.
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR.,
and BENJAMIN T. BACORRO, petitioners, vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA,respondents.
Facts:
The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO, its name, was changed to BITO, MISA &
LOZADA on June 7, 1977. On 19 December 1980, [Joaquin L.
Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del
Castillo, Jr., and Benjamin Bacorro, as junior partners.
On 30 June 1988, petitioner filed with this Commission's
Securities Investigation and Clearing Department (SICD) a
petition for dissolution and liquidation of partnership. On 31
March 1989, the hearing officer rendered a decision against
their favor. On appeal, the SEC en banc reversed the decision
of the Hearing Officer. The Court of Appeals, finding no
reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision.
Issues:
(1) Whether or not the Court of Appeals has erred in holding
that the partnership of Bito, Misa & Lozada (now Bito, Lozada,
Ortega & Castillo) is a partnership at will. NO
(2) Whether or not the Court of Appeals has erred in holding
that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith. NO
Held:
1. A partnership that does not fix its term is a partnership at
will. That the law firm "Bito, Misa & Lozada," and now "Bito,
Lozada, Ortega and Castillo," is indeed such a partnership
need not be unduly belabored. The partnership agreement
does not provide for a specified period or undertaking. The
"DURATION" clause simply states, "The partnership shall
continue so long as mutually satisfactory and upon the death
 3-Manresa [BUSORG CASE DIGESTS]
or legal incapacity of one of the partners, shall be continued by
the surviving partners."
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which
necessarily must have a purpose, would all be considered as
partnerships for a definite undertaking. There would therefore
be no need to provide for articles on partnership at will as none
would so exist. Apparently what the law contemplates, is a
specific undertaking or "project" which has a definite or
definable period of completion.
2. The birth and life of a partnership at will is predicated on the
mutual desire and consent of the partners. The right to choose
with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner's capability to give it,
and the absence of a cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith
can prevent the dissolution of the partnership 4 but that it can
result in a liability for damages.
In passing, neither would the presence of a period for its
specific duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an act or
will of a partner. 6 Among partners, 7 mutual agency arises
and the doctrine of delectus personae allows them to have the
power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can
subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of
the parties caused by any partner ceasing to be associated in
the carrying on, as might be distinguished from the winding up
of, the business. 8 Upon its dissolution, the partnership
continues and its legal personality is retained until the
complete winding up of its business culminating in its
termination.
EUFRACIO D. ROJAS, Plaintiff-Appellant,
vs. CONSTANCIO B. MAGLANA,Defendant-Appellee G.R.
No. 30616 : December 10, 1990.
Facts:
On January 14, 1955, Maglana and Rojas executed their
Articles of Co-Partnership called Eastcoast Development
Enterprises (EDE) with only the two of them as partners. The
partnership EDE with an indefinite term of existence was duly
registered on January 21, 1955 with the Securities and
Exchange Commission.
Purpose of the partnership: "apply or secure timber and/or
minor forests products licenses and concessions over public
and/or private forest lands and to operate, develop and
promote such forests rights and concessions.”
Under the said Articles of Co-Partnership, Maglana shall
manage the business affairs of the partnership, including
marketing and handling of cash and is authorized to sign all
papers and instruments relating to the partnership, while
appellant Rojas shall be the logging superintendent and shall
manage the logging operations of the partnership. It is also
provided in the said articles of co-partnership that all profits
and losses of the partnership shall be divided share and share
alike between the partners.
Because of the difficulties encountered, Rojas and Maglana
decided to avail of the services of Pahamotang as industrial
partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang
executed their Articles of Co-Partnership the firm name
EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside
from the slight difference in the purpose of the second
partnership which is to hold and secure renewal of timber
license instead of to secure the license as in the first
partnership and the term of the second partnership is fixed to
thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas
started operation on May 1, 1956, and was able to ship logs
and realize profits. An income was derived from the proceeds
of the logs in the sum of P643,633.07.
On October 25, 1956, Pahamotang, Maglana and Rojas
executed a document entitled "CONDITIONAL SALE OF
INTEREST IN THE PARTNERSHIP, EASTCOAST
DEVELOPMENT ENTERPRISE" agreeing among themselves
that Maglana and Rojas shall purchase the interest, share and
participation in the Partnership of Pahamotang assessed in the
amount of P31,501.12. It was also agreed in the said
instrument that after payment of the sum of P31,501.12 to
Pahamotang including the amount of loan secured by
Pahamotang in favor of the partnership, the two (Maglana and
Rojas) shall become the owners of all equipment contributed
by Pahamotang and the EASTCOAST DEVELOPMENT
ENTERPRISES, the name also given to the second
partnership, be dissolved. Pahamotang was paid in full on
August 31, 1957. No other rights and obligations accrued in the
name of the second partnership.
After the withdrawal of Pahamotang, the partnership was
continued by Maglana and Rojas without the benefit of any
written agreement or reconstitution of their written Articles of
Partnership.
On January 28, 1957, Rojas entered into a management
contract with another logging enterprise, the CMS Estate, Inc.
He left and abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the
partnership for use in the newly acquired area.
The equipment withdrawn were his supposed contributions to
the first partnership and was transferred to CMS Estate, Inc. by
way of chattel mortgage.
On March 17, 1957, Maglana wrote Rojas reminding the latter
of his obligation to contribute, either in cash or in equipment, to
the capital investments of the partnership as well as his
obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he
will not be able to comply with the promised contributions and
he will not work as logging superintendent. Maglana then told
Rojas that the latter's share will just be 20% of the net profits.
Such was the sharing from 1957 to 1959 without complaint or
dispute.
 3-Manresa [BUSORG CASE DIGESTS]
Meanwhile, Rojas took funds from the partnership more than
his contribution. Thus, in a letter dated February 21, 1961
Maglana notified Rojas that he dissolved the partnership.
On April 7, 1961, Rojas filed an action before the Court of First
Instance of Davao against Maglana for the recovery of
properties, accounting, receivership and damages, docketed
as Civil Case No. 3518.
CFI: Partnership was dissolved. Rojas ordered to pay
P69,000.00 the profits he received from the CMS Estate, Inc.
operated by him and credits Maglana the amount of
P85,000.00 the amount he should have received as logging
superintendent, and which was not paid to him, and this should
be considered as part of Maglana's contribution likewise to the
partnership.
Issue:
What is the nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang
retired from the second partnership?
Held:
The lower court is of the view that the second partnership
superseded the first, so that when the second partnership was
dissolved there was no written contract of co-partnership; there
was no reconstitution as provided for in the Maglana, Rojas
and Pahamotang partnership contract. Hence, the partnership
which was carried on by Rojas and Maglana after the
dissolution of the second partnership was a de facto
partnership and at will. It was considered as a partnership at
will because there was no term, express or implied; no period
was fixed, expressly or impliedly.
On the other hand, Rojas insists that the registered partnership
under the firm name of Eastcoast Development Enterprises
(EDE) evidenced by the Articles of Co-Partnership dated
January 14, 1955 has not been novated, superseded and/or
dissolved by the unregistered articles of co-partnership among
appellant Rojas, appellee Maglana and Agustin Pahamotang,
dated March 4, 1956 and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership should
govern the relations between him and Maglana. Upon
withdrawal of Agustin Pahamotang from the unregistered
partnership, the legally constituted partnership EDE continues
to govern the relations between them and it was legal error to
consider a de facto partnership between said two partners or a
partnership at will. Hence, the letter of appellee Maglana dated
February 23, 1961, did not legally dissolve the registered
partnership between them, being in contravention of the
partnership agreement agreed upon and stipulated in their
Articles of Co-Partnership. Rather, appellant is entitled to the
rights enumerated in Article 1837 of the Civil Code and to the
sharing profits between them of "share and share alike" as
stipulated in the registered Articles of Co-Partnership.
After a careful study of the records as against the conflicting
claims of Rojas and Maglana, it appears evident that it was not
the intention of the partners to dissolve the first partnership,
upon the constitution of the second one, which they
unmistakably called an "Additional Agreement". Except for the
fact that they took in one industrial partner; gave him an equal
share in the profits and fixed the term of the second
partnership to thirty (30) years, everything else was the same.
Thus, they adopted the same name, EASTCOAST
DEVELOPMENT ENTERPRISES, they pursued the same
purposes and the capital contributions of Rojas and Maglana
as stipulated in both partnerships call for the same amounts.
Just as important is the fact that all subsequent renewals of
Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and purposes
therefore, the First Articles of Partnership were only amended,
in the form of Supplementary Articles of Co-Partnership which
was never registered. Otherwise stated, even during the
existence of the second partnership, all business transactions
were carried out under the duly registered articles. As found by
the trial court, it is an admitted fact that even up to now, there
are still subsisting obligations and contracts of the latter. No
rights and obligations accrued in the name of the second
partnership except in favor of Pahamotang which was fully paid
by the duly registered partnership.
On the other hand, there is no dispute that the second
partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which continued
to exist. Significantly, Maglana and Rojas agreed to purchase
the interest, share and participation in the second partnership
of Pahamotang and that thereafter, the two (Maglana and
Rojas) became the owners of equipment contributed by
Pahamotang. Even more convincing, is the fact that Maglana
on March 17, 1957, wrote Rojas, reminding the latter of his
obligation to contribute either in cash or in equipment, to the
capital investment of the partnership as well as his obligation to
perform his duties as logging superintendent. This reminder
cannot refer to any other but to the provisions of the duly
registered Articles of Co-Partnership. As earlier stated, Rojas
replied that he will not be able to comply with the promised
contributions and he will not work as logging superintendent.
By such statements, it is obvious that Roxas understood what
Maglana was referring to and left no room for doubt that both
considered themselves governed by the articles of the duly
registered partnership.
Under the circumstances, the relationship of Rojas and
Maglana after the withdrawal of Pahamotang can neither be
considered as a De Facto Partnership, nor a Partnership at
Will, for as stressed, there is an existing partnership, duly
registered.
As to the question of whether or not Maglana can unilaterally
dissolve the partnership in the case at bar, the answer is in the
affirmative.
Hence, as there are only two parties when Maglana notified
Rojas that he dissolved the partnership, it is in effect a notice
of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a
specified term, one partner can cause its dissolution by
expressly withdrawing even before the expiration of the period,
with or without justifiable cause. Of course, if the cause is not
justified or no cause was given, the withdrawing partner is
liable for damages but in no case can he be compelled to
remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in
whatever way he may view the situation, the conclusion is
inevitable that Rojas and Maglana shall be guided in the
liquidation of the partnership by the provisions of its duly
registered Articles of Co-Partnership; that is, all profits and
losses of the partnership shall be divided "share and share
alike" between the partners.
 3-Manresa [BUSORG CASE DIGESTS]
But an accounting must first be made and which in fact was
ordered by the trial court and accomplished by the
commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding
contribution of the partners from 1956-1961 are as follows:
Eufracio Rojas who should have contributed P158,158.00,
contributed only P18,750.00 while Maglana who should have
contributed P160,984.00, contributed P267,541.44. It is a
settled rule that 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 (Article 1786, Civil Code) and for interests and
damages from the time he should have complied with his
obligation (Article 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.
Thus, as reported in the Commissioners' Report, Rojas is not
entitled to any profits. In their voluminous reports which was
approved by the trial court, they showed that on 50-50% basis,
Rojas will be liable in the amount of P131,166.00; on 80-20%,
he will be liable for P40,092.96 and finally on the basis of
actual capital contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the
partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered
partnership and the sharing of profits and losses which should
be on the basis of share and share alike as provided for in the
duly registered Articles of Co-Partnership, no plausible reason
could be found to disturb the findings and conclusions of the
trial court.
As to whether Maglana is liable for damages because of such
withdrawal, it will be recalled that after the withdrawal of
Pahamotang, Rojas entered into a management contract with
another logging enterprise, the CMS Estate, Inc., a company
engaged in the same business as the partnership. He withdrew
his equipment, refused to contribute either in cash or in
equipment to the capital investment and to perform his duties
as logging superintendent, as stipulated in their partnership
agreement. The records also show that Rojas not only
abandoned the partnership but also took funds in an amount
more than his contribution.
In the given situation Maglana cannot be said to be in bad faith
nor can he be liable for damages.
Eastcoast Development Enterprises continued to exist until
liquidated and that the sharing basis of the partners should be
on share and share alike as provided for in its Articles of
Partnership, in accordance with the computation of the
commissioners.
E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W.
Elser, deceased, defendant-appellee.
Facts:
Prior to his death on June 18, 1923, Henry W. Elser was
engaged in buying, selling, and administering real estate. In
several ventures, the plaintiff, E. S. Lyons, had joined with him,
the profits being shared by the two in equal parts. In April,
1919, Lyons, a missionary, went on leave to the United States
and was gone for nearly a year and a half. 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 Elser to manage and
dispose of said properties at will and to represent him fully and
amply, to the mutual advantage of both. During the absence of
Lyons two of the pieces of properties were sold, leaving in his
hands a single piece of property located at Carriedo Street.
In the spring of 1920 the attention of Elser was drawn to a
piece of land, referred to as the San Juan 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 which was obtained
from a Chinese merchant named Uy Siuliong. With this money
and what he already had in bank, Elser purchased the San
Juan Estate. For the purpose of the further development of the
property, a limited partnership had been organized by Elser
and three associates, under the name of J. K. Pickering &
Company.
Take note 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 Elser 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 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 later on, 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.
The case for the plaintiff Lyons 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.
Issue:
Whether Lyons is entitled to the four hundred forty-six and two-
thirds shares of J. K. Pickering & Company. NO
 3-Manresa [BUSORG CASE DIGESTS]
Held:
Elser, in buying the San Juan Estate, was not acting for
any partnership composed of himself and Lyons.
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.
The doctrines of equity operates only where money
belong to one person is used by another for the
acquisition of the property which should belong to both.
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 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.
The mortgaging of the Carriedo property never resulted in
damage to Lyons to the extent of a single cent.
In fact, it was found that when Lyons had arrived in Manila and
in the course of a conversation with Elser, he told the latter to
let the Carriedo mortgage remain on the property. The trial
court was then 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, 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.
Moreover, 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 on his own account.
PIONEER INSURANCE v. CA
Note: Jacob Lim : purchaser of the plane // Maglana,
Cervantes and BORMAHECO: invested funds to purchase the
plane // Pioneer Insurance: insurer of the plane // Japan
Domestic Airlines: vendor of the plane
Facts:
Jacob S. Lim was engaged in the airline business as owner-
operator of Southern Air Lines (SAL) a single proprietorship.
He bought two two DC-3A Type aircrafts and one set of
necessary spare parts from Japan Domestic Airlines. Jacob S.
Lim was able to get funds for payment out of Constancio
Maglana, Francisco and Modesto Cervantes and
BORMAHECO. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand
his airline business.
Contrary to the agreement among the Lim and Maglana,et al.,
Lim in connivance with Pioneer Insurace, signed and executed
the alleged chattel mortgage and surety bond agreement in his
personal capacity as the alleged proprietor of the SAL.
Maglana, Cervantes and Bormaherco learned for the first time
of this trickery and misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage allegedly executed
by defendant Lim, thereby forcing them to file an adverse claim
in the form of third party claim.
Issue:
What legal rules govern the relationship among co-investors
whose agreement was to do business through the corporate
vehicle but who failed to incorporate the entity in which they
had chosen to invest?
Relevance of the issue: If it the law on partnership that
governs, then Maglana, Cervantes and BORMAHECO should
share the loss. But if there is no partnership, Lim must
reimburse them for what they have paid
Held:
There was no de facto partnership formed
The rule is, while it has been held that as between themselves
the rights of the stockholders in a defectively incorporated
association should be governed by the supposed charter and
the laws of the state relating thereto and not by the rules
governing partners, it is ordinarily held that persons who
attempt, but fail, to form a corporation and who carry on
business under the corporate name occupy the position of
partners inter se. Thus, where persons associate themselves
together under articles to purchase property to carry on a
business, and their organization is so defective as to come
short of creating a corporation within the statute, they become
in legal effect partners inter se, and their rights as members of
the company to the property acquired by the company will be
recognized
However, in this case, it was shown that Lim did not have the
intent to form a corporation with Maglana et al. This can be
inferred from acts of unilaterally taking out a surety from
Pioneer Insurance and not using the funds he got from
Maglana et al. The record shows that Lim was acting on his
own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
 3-Manresa [BUSORG CASE DIGESTS]
Tai Tong Chuache & Co. vs. The Insurance Commission
(Note that Tai Tong Chua Che & Co. is different from Tai Tong
Chua Che Inc.)
Facts:
Tai Tong Chua Che & Co. (TTCCC for brevity) acquired from
Rolando Gonzales a parcel of land and a building located at
San Rafael Village, Davao City. They assumed the mortgage
of the building in favor of S.S.S., which building was insured
with S.S.S. Accredited Group of Insurers for P25,000.00.
Azucena Palomo obtained a loan from Tai Tong Chua Che Inc.
in the amount of P100,000. To secure the payment of the loan,
a mortgage was executed over the land and building in favor of
TTCCC. Arsenio Chua, representative of TTCCC insured
TTCCC’s interest with Travellers Multi-Indemnity Corporation
for P100,000 (P70,000 for the building and P30,000 for the
contents thereof).
Pedro Palomo secured with Zenith Insurance Corporation a
Fire Insurance policy covering the building for P50,000. Later
on, another Fire Insurance Policy was procured from Philippine
British assurance Company, covering the same building for
P50,000 and the contents thereof for P70,000.
On July 31, 1975, the building and the contents were totally
razed by fire.
It is the contention of the TTCCC that respondent Insurance
Commission decided an issue not raised in the pleadings of
the parties in that it ruled that a certain Arsenio Lopez Chua is
the one entitled to the insurance proceeds and not Tai Tong
Chuache & Company.
Issue:
Who is entitled to the insurance proceeds. TTCCC
Held:
The Insurance Commission absolved Travellers from liability
on the basis of the certification issued by the then Court of First
Instance of Davao, Branch II, that in a certain civil action
against the Palomos, Arsenio Lopez Chua stands as the
complainant and not Tai Tong Chuache. From said evidence
the Insurance Commission inferred that the credit extended by
TTCCC to the Palomos secured by the insured property must
have been paid. Such is a glaring error which this Court cannot
sanction. Respondent Commission's findings are based upon a
mere inference.
The record of the case shows that the petitioner to support its
claim for the insurance proceeds offered as evidence the
contract of mortgage which has not been cancelled nor
released. It has been held in a long line of cases that when the
creditor is in possession of the document of credit, he need not
prove non-payment for it is presumed. The validity of the
insurance policy taken by TTCCC was not assailed by
Travellers. Moreover, TTCCC's claim that the loan extended to
the Palomos has not yet been paid was corroborated by
Azucena Palomo who testified that they are still indebted to
herein petitioner.
The Insurance Commission argues however, that if the civil
case really stemmed from the loan granted to Azucena Palomo
by TTCCC the same should have been brought by Tai Tong
Chuache or by its representative in its own behalf. From the
above premise respondent concluded that the obligation
secured by the insured property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule
3, Sec. 2 respondent pointed out that the action must be
brought in the name of the real party in interest. We agree.
However, it should be borne in mind that petitioner being a
partnership may sue and be sued in its name or by its duly
authorized representative. The fact that Arsenio Lopez Chua is
the representative of petitioner is not questioned. Petitioner's
declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent
insurance company. Thus Chua as the managing partner of
the partnership may execute all acts of administration including
the right to sue debtors of the partnership in case of their
failure to pay their obligations when it became due and
demandable. Or at the very least, 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. Public respondent's allegation that the
civil case filed by Arsenio Chua was in his capacity as personal
creditor of spouses Palomo has no basis.
Tan vs. Del Rosario
Facts:
These two consolidated special civil actions for prohibition
challenge, in G.R. No. 109289, the constitutionality of Republic
Act No. 7496, also commonly known as the Simplified Net
Income Taxation Scheme ("SNIT"), amending certain
provisions of the National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue
Regulations No. 2-93, promulgated by public respondents
pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the
continued implementation of the amendatory legislation.
The several propositions advanced by petitioners revolve
around the question of whether or not public respondents have
exceeded their authority in promulgating Section 6, Revenue
Regulations No. 2-93, to carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership — The general
professional partnership (GPP) and the partners comprising
the GPP are covered by R. A. No. 7496. Thus, in determining
the net profit of the partnership, only the direct costs mentioned
in said law are to be deducted from partnership income. Also,
the expenses paid or incurred by partners in their individual
capacities in the practice of their profession which are not
reimbursed or paid by the partnership but are not considered
as direct cost, are not deductible from his gross income.
The real objection of petitioners is focused on the
administrative interpretation of public respondents that would
apply SNIT to partners in general professional partnerships.
 3-Manresa [BUSORG CASE DIGESTS]
Held:
The Court should like to correct the apparent misconception
that general professional partnerships are subject to the
payment of income tax or that there is a difference in the tax
treatment between individuals engaged in business or in the
practice of their respective professions and partners in general
professional partnerships. The fact of the matter is that a
general professional partnership, unlike an ordinary business
partnership (which is treated as a corporation for income tax
purposes and so subject to the corporate income tax), is not
itself an income taxpayer. The income tax is imposed not on
the professional partnership, which is tax exempt, but on the
partners themselves in their individual capacity computed on
their distributive shares of partnership profits. Section 23 of the
Tax Code, which has not been amended at all by Republic Act
7496, is explicit:
Sec. 23. Tax liability of members of general professional
partnerships. — (a) Persons exercising a common profession
in general partnership shall be liable for income tax only in their
individual capacity, and the share in the net profits of the
general professional partnership to which any taxable partner
would be entitled whether distributed or otherwise, shall be
returned for taxation and the tax paid in accordance with the
provisions of this Title.
(b) In determining his distributive share in the net income
of the partnership, each partner —
(1) Shall take into account separately his distributive
share of the partnership's income, gain, loss, deduction, or
credit to the extent provided by the pertinent provisions of this
Code, and
(2) Shall be deemed to have elected the itemized
deductions, unless he declares his distributive share of the
gross income undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability
between a person who practices his profession alone or
individually and one who does it through partnership (whether
registered or not) with others in the exercise of a common
profession. Indeed, outside of the gross compensation income
tax and the final tax on passive investment income, under the
present income tax system all individuals deriving income from
any source whatsoever are treated in almost invariably the
same manner and under a common set of rules.
We can well appreciate the concern taken by petitioners if
perhaps we were to consider Republic Act No. 7496 as an
entirely independent, not merely as an amendatory, piece of
legislation. The view can easily become myopic, however,
when the law is understood, as it should be, as only forming
part of, and subject to, the whole income tax concept and
precepts long obtaining under the National Internal Revenue
Code. To elaborate a little, the phrase "income taxpayers" is an
all embracing term used in the Tax Code, and it practically
covers all persons who derive taxable income. The law, in
levying the tax, adopts the most comprehensive tax situs of
nationality and residence of the taxpayer (that renders citizens,
regardless of residence, and resident aliens subject to income
tax liability on their income from all sources) and of the
generally accepted and internationally recognized income
taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine
sources). In the process, the Code classifies taxpayers into
four main groups, namely: (1) Individuals, (2) Corporations, (3)
Estates under Judicial Settlement and (4) Irrevocable Trusts
(irrevocable both as to corpus and as to income).
Partnerships are, under the Code, either "taxable partnerships"
or "exempt partnerships." Ordinarily, partnerships, no matter
how created or organized, are subject to income tax (and thus
alluded to as "taxable partnerships") which, for purposes of the
above categorization, are by law assimilated to be within the
context of, and so legally contemplated as, corporations.
Except for few variances, such as in the application of the
"constructive receipt rule" in the derivation of income, the
income tax approach is alike to both juridical persons.
Obviously, SNIT is not intended or envisioned, as so correctly
pointed out in the discussions in Congress during its
deliberations on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are independently subject
to the payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly
identified as corporations nor even considered as independent
taxable entities for income tax purposes. A general
professional partnership is such an example. 4 Here, the
partners themselves, not the partnership (although it is still
obligated to file an income tax return [mainly for administration
and data]), are liable for the payment of income tax in their
individual capacity computed on their respective and
distributive shares of profits. In the determination of the tax
liability, a partner does so as an individual, and there is no
choice on the matter. In fine, under the Tax Code on income
taxation, the general professional partnership is deemed to be
no more than a mere mechanism or a flow-through entity in the
generation of income by, and the ultimate distribution of such
income to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but
merely confirmed, the above standing rule as now so modified
by Republic Act No. 7496 on basically the extent of allowable
deductions applicable to all individual income taxpayers on
their non-compensation income. There is no evident intention
of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the
income tax treatment of professionals who practice their
respective professions individually and of those who do it
through a general professional partnership.
INVOLUNTARY INSOLVENCY OF CAMPOS, RUEDA & CO
vs. PACIFIC COMMERCIAL CO, ASIATIC PETROLEUM CO,
and INTERNATIONAL BANKING CORP
Facts:
Campos, Rueda & Co, a limited partnership, is indebted to the
Pacific Commercial Co, Asiatic Petroleum Co, and
International Banking Corporation amounting to not less than
P1,000.00 which were not paid more than 30 days prior to the
date of the filing by petitioners of the application for
voluntary insolvency.
The lower court denied their petition (insolvency) on the ground
that it was not proven, nor alleged, that the members of the
firm were insolvent at the time the application was filed. It also
held that the partners are personally and solidarily liable for the
consequences of the transactions of the partnership.
 3-Manresa [BUSORG CASE DIGESTS]
Issue:
Whether a limited partnership which has failed to pay its
obligation with 3 creditors for more than 30 days, may be held
to have committed an act of insolvency, and thereby be
adjudged insolvent against its will. YES
Held:
(While is true that American courts has held that a partnership
may not be adjudged insolvent in an involuntary insolvency
proceeding unless all of its members are insolvent, we have to
take note that in American common law, partnerships have no
juridical personality independent from that of its members; and
if now they have such personality for the purpose of the
insolvency law.)
Philippine statutes, UNLIKE in common law, consider a limited
partnership as a juridical entity for all intents and purposes,
which personality is recognized in all its acts and contracts.
This being so and the juridical personality of a limited
partnership being different from that of its members, it
must, on general principle, answer for and suffer the
consequence of its acts as such an entity capable of being
the subject of rights and obligations.
Under the Insolvency Law of the Philippines, one of the acts of
bankruptcy upon which an adjudication of involuntary
insolvency can be predicated is the failure to pay obligations
(like what happened here).
Thus, it being proven that Campos, Rueda & Co failed to pay
its obligations constitutes an act which is specifically provided
for in the Insolvency Law for declaration of involuntary
insolvency, they have a right to a judicial decree declaring the
involuntary insolvency of said partnership.
Stonehill vs. Diokno
Upon application of the officers of the government, several
judges issued, on different dates, a total of 42 search warrants
against petitioners herein and/or the corporations of which they
were officers, directed to any peace officer, to search the
persons above-named and/or the premises of their offices,
warehouses and/or residences, and to seize and take
possession of the following personal property to wit:
Books of accounts, financial records, vouchers,
correspondence, receipts, ledgers, journals, portfolios, credit
journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements
receipts, balance sheets and profit and loss statements and
Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and
proceeds or fruits of the offense," or "used or intended to be
used as the means of committing the offense," which is
described in the applications adverted to above as "violation of
Central Bank Laws, Tariff and Customs Laws, Internal
Revenue (Code) and the Revised Penal Code."
Issue:
Whether petitioners have cause of action to assail the legality
of the contested warrants and seizure. NO
Held:
The documents, papers, and things seized under the alleged
authority of the warrants in question may be split into two (2)
major groups, namely: (a) those found and seized in the offices
of the aforementioned corporations, and (b) those found and
seized in the residences of petitioners herein.
As regards the first group, petitioners have no cause of action
to assail the legality of the contested warrants and of the
seizures made in pursuance thereof, for the simple reason that
said corporations have their respective personalities, separate
and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of
each of them in said corporations, and whatever the offices
they hold therein may be.
Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired
thereby, and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third
parties. Consequently, petitioners herein may not validly object
to the use in evidence against them of the documents, papers
and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the
admission of said papers in evidence belongs exclusively to
the corporations, to whom the seized effects belong, and may
not be invoked by the corporate officers in proceedings against
them in their individual capacity.
(But if you remember in Crim, ultimately all the warrants were
declared void for being too sweeping.)
Bache & Co. vs. Ruiz
Facts:
A search warrant was issued to be served upon Bache & Co.
by request of the Commission of Internal Revenue.
The search warrant was served at the offices of petitioner
corporation on Ayala Avenue, Makati, Rizal.
Issue:
Whether a corporation is entitled to protection against
unreasonable searches and seizures. YES
Held:
"Although, for the reasons above stated, we are of the opinion
that an officer of a corporation which is charged with a violation
of a statute of the state of its creation, or of an act of Congress
passed in the exercise of its constitutional powers, cannot
refuse to produce the books and papers of such corporation,
we do not wish to be understood as holding that a corporation
is not entitled to immunity, under the 4th Amendment, against
unreasonable searches and seizures. A corporation is, after all,
but an association of individuals under an assumed name and
with a distinct legal entity. In organizing itself as a collective
body it waives no constitutional immunities appropriate to such
body. Its property cannot be taken without compensation. It
can only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed.
652.)
 3-Manresa [BUSORG CASE DIGESTS]
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it
was thought that a different rule applied to a corporation, the
ground that it was not privileged from producing its books and
papers. But the rights of a corporation against unlawful search
and seizure are to be protected even if the same result might
have been achieved in a lawful way." (Silverthorne Lumber
Company, Et. Al. v. United States of America, 251 U.S. 385, 64
L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
recognized the right of a corporation to object against
unreasonable searches and seizures,
"As regards the first group, we hold that petitioners herein have
no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for
the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of
herein petitioners, regardless of the amount of shares of stock
or the interest of each of them in said corporations, whatever,
the offices they hold therein may be. Indeed, it is well settled
that the legality of a seizure can be contested only by the party
whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal
and cannot be availed of by third parties. Consequently,
petitioners herein may not validly object to the use in evidence
against them of the documents, papers and things seized from
the offices and premises of the corporations adverted to above,
since the right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their
individual capacity . . ."
In the Stonehill case only the officers of the various
corporations in whose offices documents, papers and effects
were searched and seized were the petitioners. In the case at
bar, the corporation to whom the seized documents belong,
and whose rights have thereby been impaired, is itself a
petitioner. On that score, petitioner corporation here stands on
a different footing from the corporations in Stonehill.
Bataan Shipyard vs. PCGG
Facts:
Sequestration and takeover orders were issued by the PCGG
against BASECO for being part of Marcos’ ill-gotten wealth.
Issue:
Whether the right of self-incrimination applies to juridical
persons
Held:
BASECO contends that its right against self incrimination and
unreasonable searches and seizures had been transgressed
by the Order of April 18, 1986 which required it "to produce
corporate records from 1973 to 1986 under pain of contempt of
the Commission if it fails to do so." The order was issued upon
the authority of Section 3 (e) of Executive Order No. 1, treating
of the PCGG's power to "issue subpoenas requiring * * the
production of such books, papers, contracts, records,
statements of accounts and other documents as may be
material to the investigation conducted by the Commission, "
and paragraph (3), Executive Order No. 2 dealing with its
power to "require all persons in the Philippines holding * *
(alleged "ill-gotten") assets or properties, whether located in
the Philippines or abroad, in their names as nominees, agents
or trustees, to make full disclosure of the same * *." The
contention lacks merit.
It is elementary that the right against self-incrimination has no
application to juridical persons.
While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not
follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an
abuse of such privileges .
Relevant jurisprudence is also cited by the Solicitor General.
* * corporations are not entitled to all of the constitutional
protections which private individuals have. * * They are not at
all within the privilege against self-incrimination, although this
court more than once has said that the privilege runs very
closely with the 4th Amendment's Search and Seizure
provisions. It is also settled that an officer of the company
cannot refuse to produce its records in its possession upon the
plea that they will either incriminate him or may incriminate it."
(Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186;
emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to
be incorporated for the benefit of the public. It received certain
special privileges and franchises, and holds them subject to
the laws of the state and the limitations of its charter. Its
powers are limited by law. It can make no contract not
authorized by its charter. Its rights to act as a corporation are
only preserved to it so long as it obeys the laws of its creation.
There is a reserve right in the legislature to investigate its
contracts and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having
chartered a corporation to make use of certain franchises,
could not, in the exercise of sovereignty, inquire how these
franchises had been employed, and whether they had been
abused, and demand the production of the corporate books
and papers for that purpose. The defense amounts to this, that
an officer of the corporation which is charged with a criminal
violation of the statute may plead the criminality of such
corporation as a refusal to produce its books. To state this
proposition is to answer it. While an individual may lawfully
refuse to answer incriminating questions unless protected by
an immunity statute, it does not follow that a corporation,
vested with special privileges and franchises may refuse to
show its hand when charged with an abuse of such privileges.
(Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the
Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of
Executive Order No. 14 assures protection to individuals
required to produce evidence before the PCGG against any
possible violation of his right against self-incrimination. It gives
them immunity from prosecution on the basis of testimony or
information he is compelled to present. As amended, said
Section 4 now provides that —
xxx xxx xxx
 3-Manresa [BUSORG CASE DIGESTS]

The witness may not refuse to comply with the order on the
basis of his privilege against self-incrimination; but no
testimony or other information compelled under the order (or
any information directly or indirectly derived from such
testimony, or other information) may be used against the
witness in any criminal case, except a prosecution for perjury,
giving a false statement, or otherwise failing to comply with the
order.

The constitutional safeguard against unreasonable searches

and seizures finds no application to the case at bar either.
There has been no search undertaken by any agent or
representative of the PCGG, and of course no seizure on the
occasion thereof.