COMPILED CASE DIGEST IN PARTNERSHIP

ART 1767

In The Matter of the Petition for Authority to Continue Use of the Firm Name “Ozaeta,Romulo, De
Leon…” etc.92 SCRA 1July 30, 1979
Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA, SEC and Joaquin
Misa; G.R. No. 109248 July 3, 1995; Vitug, J.
Facts:
On December 19, 1980, respondent Misa associated himself together, as senior partner with
petitioners Ortega, del Castillo, Jr., and Bacorro, as junior partners.
On Feb. 17, 1988, respondent Misa wrote a letter stating that he is withdrawing and retiring from
the firm and asking for a meeting with the petitioners to discuss the mechanics of the liquidation.
On June 30, 1988, petitioner filed a petition to the Commision's Securities Investigation and
Clearing Department for the formal dissolution and liquidation of the partnership.
On March 31, 1989, the hearing officer rendered a decision ruling that the withdrawal of the
petitioner has not dissolved the partnership.
On appeal, the SEC en banc reversed the decision and was affirmed by the Court of Appeals.
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;
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; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for
the dissolution of the partnership so that he can get a physical partition of partnership was not
made in bad faith;
Held:
1. Yes. A partnership that does not fix its term is a partnership at will. Here, the partnership
agreement (amended articles of 19 August 1948) does not provide for a specified period or
undertaking.
2. No. 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.
3. No. For as long as the reason for withdrawal of a partner is not contrary to the dictates of justice
and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad
faith cannot be said to characterize the act. Here, public respondents viewed his withdrawal to
have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree,
to let any of the partners remain in the partnership under such an atmosphere of animosity;
certainly, not against their will.

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TOCAO V. COURT OF APPEALS342 SCRA 20 (2000)
Facts:
Petitioner William T. Bello introduced private respondent Nenita Anay to petitioner Tocao, who
conveyed her desire to enter into a joint venture with her for the importation and local distribution
of kitchen cookwares.
Belo acted the capitalist, Tocao as president and general manager, and Anay as head of the
marketing department (considering her experience and established relationship with West Bend
Company, (manufacturer of kitchen wares in Wisconsin, U.S.A) and later, vice-president for sales.
The parties agreed further that Anay would be entitled to:(1) ten percent (10%) of the annual net
profits of the business;(2) overriding commission of six percent (6%) of the overall weekly
production;(3) thirty percent (30%) of the sales she would make; and(4) two percent (2%) for her
demonstration services. The same was not reduced to writing on the strength of Belo’s
assurances.
Later, Anay was able to secure the distributorship of cookware products from the West Bend
Company. They operated under the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao’s name.
Due to Anay’s excellent job performance she was given a plaque of appreciation. Also, in a memo
signed by Belo, Anaywas given 37% commission for her personal sales "up Dec31/87,” apart from
the 10% share in profits. However, on October 1987, Anay learned that Marjorie Tocao terminated
her as vice-president of Geminesse Enterprise. Anay attempted to contact Belo but all attempts
failed. But, Anay still received her five percent (5%) overriding commission up to December 1987.
The following year, 1988, she did not receive the same commission although the company netted
a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed a complaint for sum of money with damages against Tocao
and Belo before the RTC of Makati. The plaintiff also prayed for an audit of the finances of
Geminesse Enterprise from the inception of its business operation until she was “illegally
dismissed” to determine her ten percent (10%) share in the net profits. She further prayed that she
be paid the five percent (5%) “overriding commission“ on the remaining 150 West Bend cookware
sets before her “dismissal.”
On their answer, Tocao and Belo asserted that the alleged agreement was not reduced to writing
nor ratified, hence, unenforceable, void, or nonexistent.
Both trial court and court of appeals ruled that a business partnership existed and ordered
the defendants to pay.
Issue:
1. Whether or not a partnership existed.
2. Whether or not the parties are entitled to damages.

Held:
1. Yes. To be considered a juridical personality, a partnership must fulfill these requisites: (1)
two or more persons bind themselves to contribute money, property or industry to a common fund;
and (2) intention on the part of the partners to divide the profits among themselves. It may be
constituted in any form; a public instrument is necessary only where immovable property or real
rights are contributed thereto. This implies that since a contract of partnership is consensual, an
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oral contract of partnership is as good as a written one. Here, private respondent Anay contributed
her expertise in the business of distributorship of cookware to the partnership and hence, under
the law, she was the industrial or managing partner.

2. Yes. 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. In this case, petitioner
Tocao’s unilateral exclusion of private respondent from the partnership is shown by her memo to
the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise is considered unjustified. Hence, private
defendant, Anay, is entitled for damages.

TUASON VS. BOLANOSGR. No. L-4935. May 28, 195495 Phil. 106
Facts:
Plaintiff’s complaint against defendant was to recover possession of a registered land. In the
complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc., another
corporation.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive
and public and notorious possession under claim of ownership, adverse to the entire world by
defendant and his predecessors in interest" from "time immemorial".
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any
right to the land in question and ordering him to restore possession thereof to plaintiff and to pay
the latter a monthly rent.
Defendant appealed directly to the Supreme Court and contended, among others, that Gregorio
Araneta, Inc. cannot act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership.
Issue:
Whether or not a corporation may enter into a joint venture with another corporation.
Ruling:
Yes. The true rule is that "though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature of that venture is in line with
the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R.,
1043, citing 2.Fletcher Cyc. of Corp., 1082.). Here, there is nothing in the record to indicate that
the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is
not in line with the corporate business of either of them.

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WOLFGANG AURBACH v. SANITARY WARES MANUFACTURING CORPORATION, GR No.
75875, 1989-12-15
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.
On March 8, 1983, the annual stockholders' meeting proceeded to the election of the members of
the board of directors. During the election, 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 two separate petitions by the parties with the Securities
and Exchange Commission (SEC).
One was for preliminary injunction filed by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul
A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay.
As a reaction a quo warranto and application for receivership was filed by Wolfgang Aurbach,
John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of
Young and Lagdameo and Avelino F. Cruz.
The hearing officer (SEC) who rendered a decision upholding the election of the Lagdameo Group
and dismissing the quo warranto petition of Salazar and Chamsay.
The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing
officer's decision.
Petitioners appealed to IAC which ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission. But, it was amended
upon a motion for reconsideration filed by the appellees Lagdameo Group.
On the basis of the decision of IAC, the petitioners filed its petition to the SC.
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.

Issue:
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Whether it was a joint venture or a corporation.

Held:
Yes. 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.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales
Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
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 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.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young
also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be
construed to constitute any of the parties hereto partners or joint venturers in respect of any
transaction hereunder" was merely to obviate the possibility of the enterprise being treated as
partnership for tax purposes and liabilities to third parties.

City of Manila v Francisco Gambe, et al; G.R. L-No. 3666 ; August 17, 1909
Facts:
The plaintiff commenced an action in the Court of First Instance of the city of Manila against the
defendants, Francisco Gambe, Manuel Perez, Antonio Herranz, and Florencio Garriz, who
constitute the commercial firm of Herranz & Garriz, for the purpose of recovering the sum of five
thousand dollars ($5,000), United States currency, for certain damages occasioned by the
steamship Alfred to the "Spanish Bridge" in the city of Manila.
After a consideration of the facts adduced during the trial, the Honorable Judge Rohde, then one
of the judges of the Court of First Instance of the city of Manila, rendered a judgment against the
said Francisco Gambe, for the sum of $1,300, United States currency, and for the costs.
Francisco Gambe was a pilot and member of the Pilot's Association of Manila and was at the time
of the alleged accident and injury in charge of said steamship Alfred. Judge Rohde dismissed the
cause as to the other defendants.
An appealed was made to the SC but it was denied and the execution of the decision of the lower
court was ordered but it was returned unsatisfied.
In accordance with the provisions of section 431 of the Code of Procedure in Civil Actions, the
plaintiff attempted to attach whatever money or effects which the defendant had in the said Pilots'
Association of Manila. These attachments were directed to the Hongkong and Shanghai Banking
Corporation, the Hon. W. Morgan Shuster, Collector of Customs, as well as Francisco Aguado,
who was the chief of the said Pilot's Association. The petition for these attachments was filed in
the court of first instance of Manila which was denied on the ground that the above-named
respondents, either as officers of the association or members thereof, have not in their control, nor
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do they possess any property, money, or effects which would be the subject of a levy under
execution against said Gambe.
Because of this decision, the plaintiff appealed to this court on the ground that the court below
erred in not ordering the respondents, as officers or members of the Pilots' Association, to deliver
to the plaintiff, the city of Manila, the P800, Philippine currency, which the said defendant Gambe,
against whom the plaintiff has an execution pending for the sum of P2,670, Philippine currency,
has in the treasury of the association.
Issue:
Whether or not the said Pilots' Association had debts, credits, or personal property, not capable of
manual delivery, in its possession or under its control, belonging to the defendant.
Held:
No. The association has a distinct and separate entity from the individual members who make it
up. From the evidence that was adduced before the lower court we are of the opinion, and so hold,
that the said association had no debts, credits, or personal property, not capable of manual
delivery, in its possession, belonging to the defendant (Gambe), which are subject to be attached
in accordance with the provisions of section 431. It is, therefore, hereby ordered that the plaintiff
take nothing in this action and that the plaintiff be charged with the costs of both instances.

LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.317 SCRA 728, G.R. No.
136448, Nov. 3, 1999, Panganiban, J.
FACTS:
Antonio Chua and Peter Yap bought nets of various sizes and floats from Philippine Fishing Gear
(PFG) for Ocean Quest Fishing Corporation (OQF), saying that petitioner was also involved with
OQF despite not being a signatory to the agreement. The total price of the nets amounted to
P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.
They failed to pay the purchase price, hence PFG filed a collection case against OQF.
PFG also alleged that OQF is a non-existent corporation by virtue of a certification by the SEC.
RTC issued the writ of attachment on the nets, and was sold at a public auction with the proceeds
deposited to the court.
RTC ruled that partnership existed between the three (Chua, Yao, Lim) based (1) on the
testimonies of the witnesses presented and (2) on the Compromise Agreement executed by the
three.
On appeal, CA affirmed.
ISSUE:
Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
HELD:

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Yes. Art 1767 of the NCC provides that “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.”
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.
Moreover, it is clear that the 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. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the
main assets of the partnership, and they agreed that the proceeds from the sales and operations
thereof would be divided among them.

EVANGELISTA & Co. vs. ABAD SANTOS

Facts:
In 1955, A co-partnership was formed under the name of "Evangelista & Co" between Estrella
Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo
Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that
capacity, with a contribution ofP17,500 each. And that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among
them equally; and 30% for the fourth partner Estrella Abad Santos."
Note that at this time, she was and still a Judge of the City Court of Manila when the that
partnership was formed.
Several years thereafter (1963), respondent filed suit against the three other partners in the Court
of First Instance of Manila, alleging that the partnership, which was also made a party-defendant,
had been paying dividends to the partners except to her; and that notwithstanding her demands
the defendants had refused and continued to refuse and let her examine the partnership books or
to give her information regarding the partnership affairs to pay her any share in the dividends
declared by the partnership. She therefore prayed that the defendants be ordered to render
accounting to her of the partnership business and to pay her corresponding share in the
partnership profits after such accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the
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partnership books; and byway of affirmative defense alleged that the amended Articles of Co-
partnership did not express the true agreement of the parties, which was that the plaintiff was not
an industrial partner; that she did not in fact contribute industry to the partnership; and that her
share of 30% was to be based on the profits which might be realized by the partnership only until
full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance
Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker
and mortgaged her property as security.
Issue:
Whether the plaintiff-appellee (respondent here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership
from June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be
fully paid, as claimed by appellants (herein petitioners)."

Held:
Yes. Article 1767 of the New Civil Code which provides that "By 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, 'does not specify the kind of industry that a
partner may thus contribute, hence the said services may legitimately be considered as appellee's
contribution to the common fund.
Another article of the same Code relied upon appellants reads:' ART. 1789. An industrial partner
cannot engage in business for himself, unless the partnership expressly permits him to do so; and
if he should do so, the capitalist partners may either exclude him from the firm or avail themselves
of the benefits which he may have obtained in violation of this provision, with a right to damages in
either case.'
It is not disputed that the provision against the industrial partner engaging in business for himself
seeks to prevent any conflict of interest between the industrial partner and the partnership, and to
insure faithful compliance by said partner with this prestation. There is no pretense, however, even
on the part of the appellee is engaged in any business antagonistic to that of appellant company,
since being a Judge of one of the branches of the City Court of Manila can hardly be characterized
as a business and that the appellee has faithfully complied with her prestation.
It is clear that even as she was and still is a Judge of the City Court of Manila, she has rendered
services for appellants without which they would not have had the wherewithal to operate the
business for which appellant company was organized.

Fernandez v De La Rosa; 1 Phil. 671; G.R. No. 413, February 02, 1903.
Facts:
The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the .defendant
to form a partnership for the purchase of cascoes and the carrying on of the business of letting the
same for hire in Manila, the defendant to buy the cascoes and each partner to furnish for that
purpose such amount of money as he could, the profits to be divided proportionately; that in the
8
same January the plaintiff furnished the defendant 300 pesos to purchase a casco, which the
defendant did purchase for 500 pesos of Dona Isabel Vales, taking the title in his own name;
The plaintiff furnished further sums aggregating about 300 pesos for repairs on this casco; that on
the fifth of the following March he furnished the defendant 825 pesos to purchase another casco,
which the defendant did purchase for 1,000 pesos of Luis R. Yangco, taking the title to this casco
also in his own name;
That in April the parties undertook to draw up articles of partnership but they failed to arrive in an
agreement for the contents of it. Hence, no written agreement was executed.
The defendant having in the meantime had the control and management of the two cascoes.
The plaintiff made a demand for an accounting upon him, which the defendant refused to render,
denying the existence of the partnership altogether.
At some time subsequently to the failure of the attempt to agree upon partnership articles and after
the defendant had been operating the cascoes for some time, the defendant returned to the
plaintiff 1,125 pesos, in two different sums, one of 300 and one of 825 pesos.
Issues:
(1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a result of the act of the defendant in receiving
back the 1,125 pesos?
Held:
(1) Yes. 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. If the contract contains these two elements the partnership relation results, and the law
itself fixes the incidents of this relation if the parties fail to do so. (Civil Code, sees. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the cascoes in
question. This establishes the first element of the contract, namely, mutual contribution to a
common stock. 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.

It is thus apparent that a complete and perfect contract of partnership was entered into by the
parties. 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.)

(2) No. 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 notified the defendant that he waived none of his rights in the
partnership. Nor was the acceptance of the money an act which was in itself inconsistent with the
9
continuance of the partnership relation, as would have been the case had the plaintiff withdrawn
his entire interest in the partnership.
There is, therefore, nothing upon which a waiver, either express or implied, can be predicated.
The defendant might have himself terminated the partnership relation at any time, if he had
chosen to do so, by recognizing the plaintiff's right in the partnership property and in the profits.
Having failed to do this he can not be permitted to force a dissolution upon his copartner upon
terms which the latter is unwilling to accept.

Council Red Men vs. Veterans Army; G.R. No. 3186 ; March 7, 1907
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, 1903, 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 acquitting Mc Cabe but finding Veteran Army of the Philippines liable to
pay for the unexpired term.
It is claimed by the Veterans Army that the action cannot be maintained by the Council Red Men
because it never contracted, either with the Council Red Men or with Apache 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.
Held:
No. 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."
In this case, 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.
Moreover, the contract of lease is not binding on the Veterans Army absent showing that it was
authorized in a meeting of the department. Here, no evidence was offered to show that the
department had never taken any such action. In fact, the proof shows that the transaction in

10
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.
We, therefore, hold that no contract, such as the one in question, is binding on the Veteran Army
of the Philippines.

ARTICLE 1768
TOCAO V. COURT OF APPEALS
342 SCRA 20 (2000)
FACTS:

William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three
agreed to form a joint venture for the sale of cooking wares. Belo was to contribute
P2.5 million; Tocao also contributed some cash and she shall also act as president
and general manager; and Anay shall be in charge of marketing. Belo and Tocao
specifically asked Anay because of her experience and connections as a marketer.
They agreed further that Anay shall receive the following:
 10% share of annual net profits
 6% overriding commission for weekly sales
 30% of sales Anay will make herself
 2% share for her demo services

They operated under the name Geminesse Enterprise, this name was however
registered as a sole proprietorship with the Bureau of Domestic Trade under Tocao.
The joint venture agreement was not reduced to writing because Anay trusted Belo’s
assurances.

The venture succeeded under Anay’s marketing prowess. But then the relationship
between Anay and Tocao soured. One day, Tocao advised one of the branch
managers that Anay was no longer a part of the company. Anay then demanded that
the company be audited and her shares be given to her.

ISSUE:

WON there is a partnership.

HELD:

YES. The Supreme Court held that to be considered a juridical personality, a

partnership must fulfill these requisites: (1) two or more persons bind themselves to
contribute money, property or industry to a common fund; and (2) intention on the
part of the partners to divide the profits among themselves.

It may be constituted in any form; a public instrument is necessary only where

immovable property or real rights are contributed thereto. This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a
written one.
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In this case, Private respondent Anay contributed her expertise in the business of
distributorship of cookware to the partnership and hence, under the law, she was the
industrial or managing partner. Petitioner Belo had a proprietary interest. He presided
over meetings regarding matters affecting the operation of the business. Moreover,
his having authorized in writing giving Anay 37% of the proceeds of her personal
sales, could not be interpreted otherwise than that he had a proprietary interest in
the business. This is inconsistent with his claim that he merely acted as a guarantor.

Even though it was not reduced to writing, for a partnership can be instituted in any
form. The fact that it was registered as a sole proprietorship is of no moment for such
registration was only for the company’s trade name.

Anay was not even an employee because when they ventured into the agreement,
they explicitly agreed to profit sharing this is even though Anay was receiving
commissions because this is only incidental to her efforts as a head marketer.

The Supreme Court also noted that 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.”

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.

Tocao’s unilateral exclusion of Anay from the partnership is shown by her memo to
the Cubao office plainly stating that Anay was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise. By that memo, petitioner 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.
Nevertheless, the partnership was not terminated thereby; it continues until the
winding up of the business.

CAMPOS, RUEDA & CO VS. PACIFIC COMMERCIAL

44 PHIL 916

FACTS:

Campos, Rueda & Co., a limited partnership, is indebted to the appellants: 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).

12
The trial court denied their petition 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.

ISSUE:

WON a limited partnership which has failed to pay its obligation with three creditors
for more than thirty days may be held to have committed an act of insolvency and
thereby be adjudged insolvent against its will.

HELD:
YES. The Supreme Court said that a limited partnership is a juridical entity for all
intents and purposes, which personality is recognized in all its acts and contracts. This
juridical personality of a limited partnership being different from that of its members
must, answer for, and suffer, the consequence of its acts as such an entity capable of
being the subject of rights and obligations.
If the limited partnership of Campos Rueda & Co. failed to pay its obligations with
three creditors for a period of more than thirty days, which failure constitutes, under
our Insolvency Law, one of the acts of bankruptcy upon which an adjudication of
involuntary insolvency can be predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent.
It having been proven that the partnership Campos Rueda & Co. failed for more than
thirty days to pay its obligations to the petitioners the Pacific Commercial Co. the
Asiatic Petroleum Co. and the International Banking Corporation, the case comes
under paragraph 11 of section 20 of Act No. 1956, and consequently the petitioners
have the right to a judicial decree declaring the involuntary insolvency of said
partnership. The limited partnership Campos Rueda & Co. is and was on December
28, 1921, insolvent and liable for having failed for more than thirty days to meet its
obligations with the three petitioners herein.

VARGAS & CO. VS. CHAN HANG CHIU

29 Phil 446 (1915)

FACTS:

On the 19th day of August, 1911, an action was begun by Chan Hang Chiu against
the plaintiff in this case as a mercantile association duly organized under the laws of
the Philippine Islands, to recover a sum of money.

The summons and complaint were placed in the hands of the sheriff, delivering to and
leaving with one Jose Macapinlac personally true copies thereof, he being the
managing agent of said Vargas & Co. at the time of such service.

On July 2, 1912, the justice's court rendered judgment against Vargas & Co. for the
sum of 372.28. It is plaintiff’s contention that Vargas & Co. being a partnership, it is
necessary, in bringing an action against it, to serve the summons on all of the
partners, delivering to each one of them personally a copy thereof; and that the
13
summons in this case having been served on the managing agent of the company
only, the service was of no effect as against the company and the members thereof
and the judgment entered by virtue of such a service was void.

ISSUE:

WON it is indispensable in bringing an action to a partnership to serve summons to all

parties thereof.

HELD:

NO. It is dispensable. The Supreme Court ruled that it has been the universal practice
in the Philippine Islands since American occupation, and was the practice prior to that
time, to treat companies of the class to which the plaintiff belongs as legal or juridical
entities and to permit them to sue and be sued in the name of the company, the
summons being served solely on the managing agent or other official of the company
specified by the section of the Code of Civil Procedure referred to.

The plaintiff brings this action in the company name and not in the name of the
members of the firm. Actions against companies of the class to which plaintiff belongs
are brought, according to the uninterrupted practice, against such companies in their
company names and not against the individual partners constituting the firm. In case
the individual members of the firm must be separately served with process, the rule
also prevails that they must be parties to the action, either plaintiffs or defendant,
and that the action cannot be brought in the name of or against the company itself.

If it is necessary to serve the partners individually, they are entitled to be heard

individually in the action and they must, therefore, be made parties thereto so that
they can be heard. It would be idle to serve process on individual members of a
partnership if the litigation were to be conducted in the name of the partnership itself
and by the duly constituted officials of the partnership exclusively. In this case, is
apparent that the plaintiff is acting contrary to its own contention by bringing the
action in the name of the company. If not served with process, then the action should
be brought in the individual names of the partners and not in the name of the
company itself.

NGO TIAN TEK VS. PHIL. EDUCATION CO.

78 PHIL. 275 (1947)

FACTS:

The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of
Manila an action against the defendants, Vicente Tan alias Chan Sy and the
partnership of Ngo Tian Tek and Ngo Hay, for the recovery of some P16,070.14,
unpaid cost of merchandise purchased by Lee Guan Box Factory from the plaintiff and
14
five other corporate entities which, though not parties to the action, had previously
assigned their credits to the plaintiff, together with attorney's fees, interest and costs.
/by agreement of the parties, the case was heard before a referee, Attorney Francisco
Dalupan, who in due time submitted his report holding the defendants jointly and
severally liable to the plaintiff for the sum of P16, 070.14 plus attorney's fees and
interest at the rates specified in the report. On March 6, 1939, the Court of First
Instance of Manila rendered judgment was affirmed by the Court of Appeals in its
decision of January 31, 1941, now the subject of our review at the instance of the
partnership Ngo Tian Tek and Ngo Hay, petitioner herein.

ISSUE:

WON the death of any of the partner in a partnership is a ground for the dismissal of
a pending case.

RULING:

NO. The Supreme Court said that regarding the suggestion in petitioner's
memorandum that this case should be dismissed because of the death of Ngo Hay, it
is sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a
partnership possessing a personality distinct from any of the partners.

TAI TONG CHUACHE VS. INSURANCE COMMISSION

158 SCRA 336 (1988)

FACTS:

Complainants Palomo acquired a parcel of land and a building located in Davao City.
They assumed the mortgage of the building in favor of SSS, which building was
insured with respondent SSS Accredited Group of Insurers for P25K.

On April 19, 1975, Azucena Palomo obtained a P100K loan from Tai Tong Chuache
Inc. (TTCC) and executed a mortgage over the land and the building in favor of Tai
Tong Chuache & Co. as security of payment. On April 25, 1975, Arsenio Chua,
representative of TTCC insured the latter's interest with Travellers Multi-Indemnity
Corporation (Travellers) for P100K (P70K for bldg and P30K for the contents thereof).

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy, covering the
building for P50K with respondent Zenith Insurance Corporation (ZIC). Another Fire
Insurance Policy was later procured from respondent Philippine British Assurance
Company (PBAC), covering the same building for P50K and contents thereof for P70K.
On July 31, 1975, the building and the contents were totally razed by fire.

Based on the computation of the loss, including the Travellers, respondents, ZIC,
PBAC, and SSS paid their corresponding shares of the loss. Complainants were paid
the following: P41,546.79 by PBAC, P11,877.14 by ZIC, and P5,936.57 by SSS.
Demand was made from respondent Travellers for its share in the loss but was
refused. Hence, complainants demanded from the other 3 respondents the balance of
each share in the loss based on the computation excluding Travellers Multi-Indemnity

15
in the amount of P30,894.31 (P5,732.79-ZIC: P22,294.62, PBAC: and P2,866.90,
SSS) but was refused, hence, this action.

ISSUE:

WON petitioner Tai Tong has insurable interest in the said policy. YES.
WON Arsenio Lopez Chua acts as the managing partner of the partnership. YES.

HELD:

YES. First, respondent insurance commission based its findings on mere inference.
Respondent Insurance Commission absolved respondent insurance company from
liability on the basis of the certification issued by the then CFI, that in a certain civil
action against the Palomos, Arsenio Lopez Chua stands as the complainant and not
Tai Tong Chuache. From said evidence respondent commission inferred that the
credit extended by herein petitioner to the Palomos secured by the insured property
must have been paid. Such is a glaring error which this Court cannot sanction.

Second, 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 petitioner was not assailed by private
respondent. Moreover, petitioner'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. So at the time of the fire, petitioner as mortgagee
still had insurable interest therein.

And third, 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 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.

AGUILA, JR. VS. COURT OF APPEALS

316 SCRA 246 (1999)

FACTS:

Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C. Aguila & Sons, Co., a
partnership engaged in lending activities. Felicidad S. Vda. de Abrogar (private
respondent) and her late husband, Ruben M. Abrogar, were the registered owners of
a house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina,
Metro Manila.

On April 18, 1991, private respondent, with the consent of her late husband, and A.C.
Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of
Agreement which provided that A.C. Aguila & Sons, Co. shall buy the property from
private respondent for P200,000 subject to an option to repurchase for P230,000
16
(valid for 90 days), etc. On the same day, the parties likewise executed a deed of
absolute sale, dated June 11, 1991, wherein private respondent, with the consent of
her late husband, sold the subject property to A.C. Aguila & Sons, Co., represented
by petitioner, for P200,000,00.

In a special power of attorney dated the same day, April 18, 1991, private respondent
authorized petitioner to cause 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., in the event she
failed to redeem the subject property as provided in the Memorandum of Agreement.
Private respondent failed to redeem the property. Pursuant to the special power of
attorney mentioned above, 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.
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the
premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co.

Otherwise, the latter would bring the appropriate action in court. Upon the refusal of
private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an
ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro
Manila. MeTC, Marikina, MM (April 3, 1992): Ruled in favor of A.C. Aguila & Sons, Co.
Private respondent appealed to RTC Pasig, CA, and then SC but she still lost. Private
respondent then filed a petition for declaration of nullity of a deed of sale filed by
Felicidad S. Vda. de Abrogar against Alfredo N. Aguila, Jr. She alleged that the
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.
On April 11, 1995, the RTC, Marikina, MM dismissed the case.

On November 29,1990, the CA reversed the ruling of the RTC. Hence, this petition for
review on certiorari. Petitioner now contends that: (1) he is not the real party in
interest but A.C. Aguila & Co., against which this case should have been brought; (2)
the judgment in the ejectment case is a bar to the filing of the complaint for
declaration of nullity of a deed of sale in this case; and (3) the contract between A.C.
Aguila & Sons, Co. and private respondent is a pacto de retro sale and not an
equitable mortgage as held by the appellate court.

ISSUE:

WON the real party in interest is A.C. Aguila & Co. and not petitioner.

HELD:

YES. 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
17
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. A violation of this rule will
result in the dismissal of the complaint.

ANG PUE & COMPANY, ET AL., VS.

SECRETARY OF COMMERCE AND INDUSTRY
5 SCRA 645 (1962)

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. Prior to the expiration of the
five-year term, the partners amended the original articles of partnership so as to
extend the term of life of the partnership to another five years. However, when the
amended articles were presented for registration in the Office of the SEC, registration
was refused upon the ground that the extension was in violation of RA 1180 –an act
prohibiting the extension of the term of a partnership not wholly formed by Filipinos.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business.
It provided, among other things that, after its enactment, a partnership not wholly
formed by Filipinos could continue to engage in the retail business until the expiration
of its term. The partners agreed to extend the partnership for another five years.
However, the Securities & Exchange Commission refused registration because it
violates R.A. No. 1180.

ISSUE:
WON the right to organize a partnership is an absolute right, hence, the partners
have the right to extend the original term of their partnership notwithstanding R.A.
No. 1180.

HELD:

NO. The Supreme Court stated that “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.”

Moreover, even if it was provided in the original articles of partnership that the
partners could extend the term of the partnership, R.A. No. 1180 applies to them.
According to the Supreme Court, 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 the
original term of their partnership to another five years would be in violation of the
clear intent and purpose of the law aforesaid.

18
ARTICLE 1769

HEIRS OF TAN ENG KEE V. COURT OF APPEALS

341 SCRA 740 (2000)

FACTS:

The heirs of Tan Eng Kee filed a suit against the decedent’s brother Tan Eng Lay. The
complaint alleged that after the Second World War, the brothers, pooling their
resources and industry together, entered into a partnership engaged in the selling of
lumber and hardware and construction supplies. They named their enterprise
“Benguet Lumber” which they jointly managed until Tan Kee’s death. Petitioners
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. Petitioners
prayed for accounting of the partnership assets, and the dissolution, and winding up
of the alleged partnership formed after the World War II between Tan Eng Kee and
Tan Eng Lay.

The Regional Trial court found that Benguet Lumber is a joint venture which is akin to
a particular partnership, and declared that the assets of Benguet Lumber are the
same assets turned over to Benguet lumber Co. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to share in the said
assets. The Court of Appeals reversed the judgment of the Trial Court.

ISSUE:

WON a partnership existed between Tan Eng Kee and Tan Eng Lay.

HELD:

NO. 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 best evidence
of the partnership’s existence would have been the contract of partnership itself, or
the articles of partnership but there is 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. 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. It is indeed odd, if not unnatural, that despite the
19
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. This brings us to the matter of Exhibits “4” to “4-U” for
private respondents, consisting of payrolls purporting to show that Tan Eng Kee was
an ordinary employee of Benguet Lumber, as it was then called. Exhibits “4” to “4-U”
in fact shows that Tan Eng Kee received sums as wages of an employee.

In connection therewith, Article 1769 of the Civil Code provides: In determining

whether a partnership exists, these rules shall apply: XXX (4) 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, 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; (b) 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.
Nevertheless, petitioners would still want us to infer or believe the alleged existence
of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee
were commanding the employees; that both were supervising the employees; that
both were the ones who determined the price at which the stocks were to be sold;
and that both placed orders to the suppliers of the Benguet Lumber Company. They
also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at
the Benguet Lumber Company compound, a privilege not extended to its ordinary
employees.

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. He would have enjoyed liberties otherwise unavailable were he not kin,
such as his residence in the Benguet Lumber Company compound. He would have
moral, if not actual, superiority over his fellow employees, thereby entitling him to
exercise powers of supervision. It may even be that among his duties is to place
orders with suppliers. Again, the circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired; these are not inconsistent with the
20
powers and duties of a manager, even in a business organized and run as informally
as Benguet Lumber Company.

PASCUAL VS. COMMISSIONER OF INTERNAL REVENUE

166 SCRA 560 (1988)

FACTS:

On June 22, 1965, petitioners Mariano Pascual and Renato Dragon 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 to Marenir 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. Petitioners protested the said
assessment asserting that they had availed of tax amnesties way back in 1974.

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 the National Internal
Revenue Code.

ISSUE:

WON respondent is correct in its presumptive determination that petitioners formed

an unregistered partnership thus subject to corporate income tax.

HELD:

NO. The Supreme Court held that 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 Evangelista, there was a series of transactions where petitioners purchased

twenty-four (24) lots showing that the purpose was not limited to the conservation or
preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the purpose
of gain was present.

21
Reliance of the lower court to the case of Evangelista v. Collector is untenable. In
order to constitute a partnership interest there must be: (a) An intent to form the
same; (b) generally participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party to
make contract, manage the business, and dispose of the whole property. 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.

OÑA VS. COMMISSIONER OF INTERNAL REVENUE

45 SCRA 74 (1972)

FACTS:

Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five
children. A civil case was instituted for the settlement of her state, in which Oña was
appointed administrator and later on the guardian of the three heirs who were still
minors when the project for partition was approved. This shows that the heirs have
undivided ½ interest in 10 parcels of land, 6 houses and money from the War
Damage Commission.

Although the project of partition was approved by the Court, no attempt was made to
divide the properties and they remained under the management of 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. As a result, petitioners’ properties and investments gradually increased.
Petitioners returned for income tax purposes their shares in the net income but they
did not actually receive their shares because this left with Oña who invested them.

Based on these facts, CIR decided that petitioners formed an unregistered partnership
and therefore, subject to the corporate income tax, particularly for years 1955 and
1956. Petitioners asked for reconsideration, which was denied hence this petition for
review from CTA’s decision.

ISSUE:

W/N there was a co-ownership or an unregistered partnership.

W/N the petitioners are liable for the deficiency corporate income tax.

HELD:

There was an unregistered partnership. The Tax Court found that instead of actually
distributing the estate of the deceased among themselves pursuant to the project of
partition, the heirs allowed their properties to remain under the management of Oña
and let him use their shares as part of the common fund for their ventures, even as
they paid corresponding income taxes on their respective shares.

YES. For tax purposes, the co-ownership of inherited properties is automatically

converted into an unregistered partnership the moment the said common properties
22
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. The
reason is simple. From the moment of such partition, the heirs are entitled already to
their respective definite shares of the estate and the incomes thereof, for each of
them to manage and dispose of as exclusively his own without the intervention of the
other heirs, and, accordingly, he becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to be held in common with his
co-heirs under a single management to be used with the intent of making profit
thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at least, an
unregistered partnership is formed.

For purposes of the tax on corporations, our National Internal Revenue Code includes
these partnerships —

The term “partnership” includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on… (8 Merten’s Law of Federal Income Taxation, p.
562 Note 63; emphasis ours.)

with the exception only of duly registered general copartnerships — 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. Judgment affirmed.

JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.THE COLLECTOR OF INTERNAL

REVENUE, defendant-appellee.

FACTS OF THE CASE:

That plaintiff are all residents of the municipality of Pulilan, Bulacan. Prior to December 15, 1934
plaintiffs, in order to enable them to purchase one sweepstakes ticket valued at two pesos (P2), subscribed and
paid therefor the amounts as follows:

Jose Gatchalian P0.18; . Gregoria Cristobal .18; Saturnina Silva .08; Guillermo Tapia .13; Jesus Legaspi
.15; Jose Silva .07; Tomasa Mercado .08; Julio Gatchalian .13; Emeliana Santiago .13; Maria C. Legaspi .16;
Francisco Cabral .13; Gonzalo Javier .14; Maria Santiago .17; Buenaventura Guzman . 13 and Mariano Santos
.14, totaled P2.00.

That immediately thereafter, plaintiffs purchased from one of the duly authorized agents of the National
Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2) and that the said ticket
was registered in the name of Jose Gatchalian and Company;

That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket
bearing No. 178637 won one of the third prizes in the amount of P50,000 in favor of Jose Gatchalian &
Company.

That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to
said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount of P1,499.94, a
copy of which letter marked Exhibit B is enclosed and made a part hereof.

23
SSUE;

Whether or not the plaintiff organized a partnership and said entity is bound to pay income tax.

Held:

YES. 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 (article 1665, Civil Code). 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,

Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay
the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as amended by
section 2 of Act No. 3761.

FLORENCIO REYES and ANGEL REYES, petitioners,

vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS, respondents.

FACTS OF THE CASE:

Father and son, purchased a lot and building, known as the Gibbs Building, situated at 671 Dasmariñas
Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving a balance of P460,000.00,
representing the mortgage obligation of the vendors with the China Banking Corporation, which mortgage
obligations were assumed by the vendees. The initial payment of P375,000.00 was shared equally by
petitioners. At the time of the purchase, the building was leased to various tenants, whose rights under the lease
contracts with the original owners, the purchasers, petitioners herein, agreed to respect. The administration of
the building was entrusted to an administrator who collected the rents; kept its books and records and rendered
statements of accounts to the owners; negotiated leases; made necessary repairs and disbursed payments,
whenever necessary, after approval by the owners; and performed such other functions necessary for the
conservation and preservation of the building. Petitioners divided equally the income of operation and
maintenance. The gross income from rentals of the building amounted to about P90,000.00 annually. The
respondent Court of Tax Appeals applying the appropriate provisions of the National Internal Revenue Code, the
first of which imposes an income tax on corporations

ISSUE:

Whether or not the petitioner formed a partnership and is subject to tax on corporations provided for in
`Sec. 24 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code24 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code

HELD:

YES. As penned by the present Chief Justice, "9 After referring to another section of the National Internal
Revenue Code, which explicitly provides that the term corporation "includes partnerships" and then to Article
1767 of the Civil Code of the Philippines, defining what a contract of partnership is, the opinion goes on to state
that "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
24
consideration of all the facts and circumstances surrounding the case, are fully satisfied that their purpose was
to engage in real estate transactions for monetary gain and then divide the same among themselves, . It is,
therefore, clear that petitioners herein constitute a partnership, insofar as said Code is concerned, and are
subject to the income tax for corporations.."10

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers
and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

FACTS OF THE CASE:

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of
1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his
four children, the petitioners, to enable them to build their residences. The company sold the two lots to
petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to
them would show that they were co-owners of the two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City
Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from
the sale 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 on one-half thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal
Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50%
fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56. He considered the
share of the profits of each petitioner in the sum of P33,584

as a " taxable in full (not a mere capital gain of which ½ is taxable) and required them to pay deficiency income
taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.

ISSUE: Did the petitioners form a partnership under Article 1967?

HELD: NO. Division of Profits was merely incidental. They were co-owners pure and simple. To consider them
as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not
engaged in any joint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build
their residences on the lots because of the high cost of construction, then they had no choice but to resell the
same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had to be terminated sooner or later.

ADOLFO CRUZ AZNAR VS. GARCIA

FACTS OF THE CASE:

Edward E. Christensen, an American citizen who was already residing in Davao, became the
manager of the Mindanao Estates in Padada. A group of laborers recruited from Argao, Cebu, arrived to
work in the said plantation. Among the group was, Bernarda Camporedondo, who became an assistant to
the cook. Thereafter, this girl and Edward E. Christensen, who was also unmarried started living together
as husband and wife and although the records failed to establish the exact date when such relationship
commenced, the lower court found the same to have been continuous for over 30 years until the death of
Christensen occurred on April 30, 1953. Out of said relations, 2 children, Lucy and Helen Christensen, were
25
allegedly born.

Upon the demise of the American, who had left a considerable amount of properties, his will naming Adolfo
Cruz Aznar as executor was duly presented for probate in court and became the subject of Special
Proceedings No. 622 of the Court of First Instance of Davao which he declares that he has one (1) child
named MARIA LUCY CHRISTENSEN (now Mrs. Bernard Daney) and further declare that I now have no
living ascendants and no descendants except my above named daughter MARIA LUCY CHRISTENSEN
DANEY.and give all the income from the rest, remainder, and residue of my property and estate, real,
personal and/or mixed, of whatsoever kind or character, and wheresoever situated, of which he may be
possessed.

ISSUE:
Whether or not in their cohabitation, an informal civil partnership exist and have an equal interest in
the properties acquired during said union and is entitled to participate therein if said properties were the
product of their joint effort.

HELD:
NO. — Before Republic Act No. 386 (Civil Code of the Philippines) went into operation on August
30, 1950, this court had already that where a man and a woman, not suffering from any impediment to
contract marriage, live together as husband and wife, an informal civil partnership exists, and each of them
has an equal interest in the properties acquired during said union and is entitled to participate therein if said
properties were the product of their JOINT effort (Marata v. Diono G.R. No. 24449, December 31, 1925)

In the case at bar, aside from the observation of the trial court that appellee was an illiterate woman,
there appears no evidence to prove appellee’s contribution or participation in the acquisition of the
properties involved; therefore, following the aforecited ruling of this Court, appellee’s claim for 1/2 of the
properties cannot be granted. Even assuming for the sake of argument that this case falls under the
provisions of Article 144 of the Civil Code which recognizes the parties as co-owners of the properties
acquires during the union, the law would be applicable only as far as properties acquired after the Act are
concerned and to no other, for such law cannot be given retroactive effect to govern those already
possessed before August 30, 1950.

[G.R. No. L-47045. November 22, 1988.]

NOBIO SARDANE, Petitioner, v. THE COURT OF APPEAL and ROMEO J. ACOJEDO

FACTS OF THE CASE:

Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.26 based
on promissory notes executed by the herein private respondent Nobio Sardane in favor of the herein
petitioner. Petitioner bases his right to collect on Exhibits B, C, D, E, F, and G executed on different dates
and signed by private respondent Nobio Sardane.

"It has been established in the trial court that on many occasions, the petitioner demanded the payment of
the total amount of P5,217.25. The failure of the private respondent to pay the said amount prompted the
petitioner to seek the services of lawyer who made a letter (Exhibit 1) formally demanding the return of the
sum loaned. Because of the failure of the private respondent to heed the demands extra judicially made by
the petitioner, the latter was constrained to bring an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an answer. On
motion by the petitioner, the 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. Based on petitioner’s
26
evidence, the City Court of Dipolog rendered judgment by default in favor of the petitioner.

Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte,which
based on 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, reversed the decision of the lower court by dismissing the complaint and ordered the plaintiff-
appellee Acojedo to pay said defendant-appellant P500.00 each for actual damages, moral damages,
exemplary damages and attorney’s fees, as well as the costs of suit. Plaintiff-appellee then sought the
review of said decision by petition to the respondent Court.
ISSUE: Whether or not partnership existed between the two the petitioner and the respondent.
RULING:
The fact that he had received 50% of the net profits does not conclusively establish that he was a
partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by
a person of a share of the profits of a business is prima facie evidence that he is a partner in the business,
no such inference shall be drawn if such profits were received in payment as wages of an employee.
Furthermore, herein petitioner had no voice in the management of the affairs of the basnig. Under similar
facts, this Court in the early case of Fortis v. Gutierrez Hermanos, denied the claim of the plaintiff therein
that he was a partner in the business of the defendant. The same rule was reiterated in Bastida v. Menzi &
Co., Inc., Et. Al. which involved the same factual and legal milieu.

G.R. No. 5837 September 15, 1911

CATALINO GALLEMIT, plaintiff-appellant, vs.CEFERINO TABILIRAN, defendant-appellee.

This suit concerns the partition of a piece of land held pro indiviso which the plaintiff and the
defendant had acquired in common from its original owner. By the refusal of the defendant to
divide the property, the plaintiff was compelled to bring the proper action for the enforcement of
partition, referred to in section 181 and following of the Code of Civil Procedure.
The record shows it to have been duly proved that Catalino Gallemit and Ceferino Tabiliran by
mutual agreement acquired by purchase the land concerned, situate in Tangian, municipality of
Dapitan, from its original owner, Luis Ganong, for the sum of P44. It was stipulated between the
purchasers that they each should pay one-half of the price and that the property should be divided
equally between them. The vendor testified under oath that the plaintiff Gallemit paid him the sum
of P22, one-half of the price that it was incumbent upon him to pay, and that four months
afterwards the defendant paid his part of the price, although, owing to the refusal of the defendant,
who was then the justice of the peace of the pueblo, to comply with the stipulation made, the deed
of sale was not executed, nor was a partition effected of the land which they had acquired. The
defendant, instead of delivering to the plaintiff the share that belonged to the latter, the
proportionate price for which the plaintiff had already paid, kept all the land which belonged to
them in common, in violation of the stipulations agreed upon, notwithstanding that he paid the
vendor only one-half of the price thereof.
*note that the plaintiff alleges that their agreement is a contract of partnership*
The RTC rendered a judgment in favor of the defendant. Hence, this petition to the Supreme
Court.

27
ISSUE: Whether or not the agreement was a contract of partnership.
Ruling: NO.
Considering the terms of the claim made by the plaintiff and those of the defendant's answer, and
the relation of facts contained in the judgment appealed from, it does not appear that any contract
of partnership whatever was made between them for the purposes expressed in article 1665 of the
Civil Code, for the sole transaction performed by them was the acquisition jointly by mutual
agreement of the land in question, since it was undivided, under the condition that they each
should pay one-half of the price thereof and that the property so acquired should be divided
between the two purchasers; and as, under this title, the plaintiff and the defendant are the co-
owners of the said land, the partition or division of such property held in joint tenancy must of
course be allowed, and the present possessor of the land has no right to deny the plaintiff's claim
on grounds or reasons unsupported by proof.
*There is community of property when the ownership of a thing belongs to different persons undividedly. (Art. 392, Civil Code.) No
co-ownership shall be obliged to remain a party to the community. Each of them may ask at any time the division of the thing
owned in common. (Art. 400 of the same code.)

G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant, vs.FRANCISCO DE LA ROSA, defendant-appellee.

The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the defendant
to form a partnership for the purchase of cascoes and the carrying on of the business of letting the
same for hire in Manila, the defendant to buy the cascoes and each partner to furnish for that
purpose such amount of money as he could, the profits to be divided proportionately; that in the
same January the plaintiff furnished the defendant 300 pesos to purchase a casco designated as
No. 1515, which the defendant did purchase for 500 pesos of Doña Isabel Vales, taking the title in
his own name; that the plaintiff furnished further sums aggregating about 300 pesos for repairs on
this casco; that on March 5th he furnished the defendant 825 pesos to purchase another casco
designated as No. 2089, which the defendant did purchase for 1,000 pesos of Luis R. Yangco,
taking the title to this casco also in his own name; that in April the parties undertook to draw up
articles of partnership for the purpose of embodying the same in an authentic document, but that
the defendant having proposed a draft of such articles which differed materially from the terms of
the earlier verbal agreement, and being unwillingly to include casco No. 2089 in the partnership,
they were unable to come to any understanding and no written agreement was executed; that the
defendant having in the meantime had the control and management of the 2 cascoes, the plaintiff
made a demand for an accounting upon him, which the defendant refused to render, denying the
existence of the partnership altogether.
The defendant admits that the project of forming a partnership in the casco business in which he
was already engaged to some extent individually was discussed between himself and the plaintiff
in January, 1900, and earlier, one Marcos Angulo, who was a partner of the plaintiff in a bakery
business, being also a party to the negotiations, but he denies that any agreement was ever
consummated. He denies that the plaintiff furnished any money in January, 1900, for the purchase
of casco No. 1515, or for repairs on the same, but claims that he borrowed 300 pesos on his
individual account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and
Antonio Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he claims
was for the purchase of casco No. 1515, which he alleged was bought March 12, and he alleges
that he never received anything from the defendant toward the purchase of casco No. 2089. He
28
claims to have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the
second one.
Issue: Whether or not a partnership exist between the parties.
Ruling: YES.

"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. If
the contract contains these two elements the partnership relation results, and the law itself fixes
the incidents of this relation if the parties fail to do so. (Civil Code, secs. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the defendant
with the understanding that it was to be used for the purchase of the cascoes in question. This
establishes the first element of the contract, namely, mutual contribution to a common stock. 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.

Under other circumstances the relation of joint ownership, a relation distinct though perhaps not
essentially different in its practical consequence from that of partnership, might have been the
result of the joint purchase. If, for instance, it were shown that the object of the parties in
purchasing in company had been to make a more favorable bargain for the two cascoes that they
could have done by purchasing them separately, and that they had no ulterior object except to
effect a division of the common property when once they had acquired it, the affectio
societatiswould be lacking and the parties would have become joint tenants only; but, as nothing
of this sort appears in the case, we must assume that the object of the purchase was active use
and profit and not mere passive ownership in common.

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.) The special provision cited,
requiring the execution of a public writing in the single case mentioned and dispensing with all
formal requirements in other cases, renders inapplicable to this species of contract the general
provisions of article 1280 of the Civil Code.
The result is that we hold and declare that a partnership was formed between the parties in
January, 1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515
and 2089 constitute partnership property, and that the plaintiff is entitled to an accounting of the
defendant's administration of such property, and of the profits derived therefrom.

Afisco Insurance Corporation vs Court of Appeals

G.R. No. 112675 January 25, 1999

FACTS:
29
The petitioners are 41 non-life insurance corporations, organized and existing under the laws of
the Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and
Contractors' All Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota
Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener
Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance
corporation. The reinsurance treaties required petitioners to form a pool. Accordingly, a pool
composed of the petitioners was formed on the same day.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an
"Information Return of Organization Exempt from Income Tax" for the year ending in 1975, on the
basis of which it was assessed by the Commissioner of Internal Revenue deficiency corporate
taxes in the amount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and
P89,438.68 on dividends paid to Munich and to the petitioners, respectively. These assessments
were protested by the petitioners through its auditors Sycip, Gorres, Velayo and Co.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the
petitioners, assessed as "Pool of Machinery Insurers," to pay deficiency income tax, interest, and
withholding tax.

The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a
corporation, and that the latter's collection of premiums on behalf of its members, the ceding
companies, was taxable income. It added that prescription did not bar the Bureau of Internal
Revenue (BIR) from collecting the taxes due, because "the taxpayer cannot be located at the
address given in the information return filed." Hence, this Petition for Review before us

Issue: Whether or not the Clearing House, acting as a mere agent and performing strictly
administrative functions, and which did not insure or assume any risk in its own name, was a
partnership or association subject to tax as a corporation.
Ruling: YES.
The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is
taxable as a corporation.
Petitioners contend that the Court of Appeals erred in finding that the pool of clearing house was
an informal partnership, which was taxable as a corporation under the NIRC. They point out that
the reinsurance policies were written by them "individually and separately," and that their liability
was limited to the extent of their allocated share in the original risk thus reinsured.
Petitioners belie the existence of a partnership in this case, because (1) they, the reinsurers, did
not share the same risk or solidary liability, (2) there was no common fund; (3) the executive board
of the pool did not exercise control and management of its funds, unlike the board of directors of a
corporation; and (4) the pool or clearing house "was not and could not possibly have engaged in
the business of reinsurance from which it could have derived income for itself."
The Court is not persuaded.

Art. 1767 of the Civil Code recognizes the creation of a contract of partnership when "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." Its requisites are: "(1) mutual contribution to a
common stock, and (2) a joint interest in the profits." In other words, a partnership is formed when
persons contract "to devote to a common purpose either money, property, or labor with the
intention of dividing the profits between

30
themselves." Meanwhile, an association implies associates who enter into a "joint enterprise . . .
for the transaction of business."

In the case before us, the ceding companies entered into a Pool Agreement or an association that
would handle all the insurance businesses covered under their quota-share reinsurance treaty and
surplus reinsurance treaty with Munich. The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC:

(1) The pool has a common fund, consisting of money and other valuables that are deposited in
the name and credit of the pool. This common fund pays for the administration and operation
expenses of the pool.

(2) The pool functions through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding companies.

(3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its
work is indispensable, beneficial and economically useful to the business of the ceding companies
and Munich, because without it they would not have received their premiums. The ceding
companies share "in the business ceded to the pool" and in the "expenses" according to a "Rules
of Distribution" annexed to the Pool Agreement. Profit motive or business is, therefore, the
primordial reason for the pool's formation. As aptly found by the CTA:

. . . The fact that the pool does not retain any profit or income does not obliterate an
antecedent fact, that of the pool being used in the transaction of business for profit. It
is apparent, and petitioners admit, that their association or coaction was
indispensable [to] the transaction of the business, . . . If together they have
conducted business, profit must have been the object as, indeed, profit was earned.
Though the profit was apportioned among the members, this is only a matter of
consequence, as it implies that profit actually resulted.

ARTICLE 1770

DELUAO v. CASTEEL
G.R. No. L-21906; December 24, 1968
Ponente: J. Castro

FACTS:

In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy land,
178.76 hectares, in the then sitio of Malalag, municipality of Padada, Davao for 3 consecutive
times because the Bureau of Fisheries did not act upon his previous applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat poised upon his
position by the other applicants who entered upon and spread themselves within the area, Casteel
realized the urgent necessity of expanding his occupation thereof by constructing dikes and
cultivating marketable fishes. But lacking financial resources at that time, he sought financial aid
from his uncle Felipe Deluao.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival
applicants, Casteel immediately filed a protest. Consequently, two administrative cases ensued
involving the area in question.

However, despite the finding made in the investigation of the above administrative cases, the
Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required
31
him to remove all the improvements which he had introduced on the land, and ordered that the
land be leased through public auction

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". On the same date the above contract was entered into, Inocencia Deluao executed a
special power of attorney in favor of Jesus Donesa

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on
November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in
the two administrative cases and asked for reinvestigation of the application of Nicanor Casteel
over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel to be
reinstated in the area and that he shall pay for the improvement made thereupon.
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.

ISSUE:
Whether the reinstatement of Casteel over the subject land constitute a dissolution of the
partnership between him and Deluao

HELD:

Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

The Supreme Court ruled that the arrangement under the so-called "contract of service" continued
until the decision both dated Sept. 15, 1950 were issued by the Secretary of Agriculture and
Natural Resources in DANR Cases 353 and 353-B.

This development, by itself, brought about the dissolution of the partnership. Since the partnership
had for its object the division into two equal parts of the fishpond between the appellees and the
appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one half thereof to parties other than the applicant Casteel, it was
dissolved by the approval of his application and the award to him of the fishpond.

The approval was an event which made it unlawful for the members to carry it on in partnership.
Moreover, subsequent events likewise reveal the intent of both parties to terminate the partnership
because each refused to share the fishpond with the other.

G.R. No. 31057 September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,vs.VICENTE POLISTICO, ET

AL., defendants-appellants.

32
FACTS:

This is an action to bring about liquidation of the funds and property of the association called "Turnuhan
Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as
president-treasurer, directors and secretary of said association.

This case is brought for 2nd time. In the 1st one, the court held then that in an action against the officers of
a voluntary association to wind up its affairs and enforce an accounting for money and property in their
possessions, it is not necessary that all members of the association be made parties to the action. The
court appointed commissioner of Insular Auditor's Office, to examine all the books, documents, and
accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence. Commissioner's report show a
balance of P24, 607.80 cash on hand.
Despite defendant’s objection to the report, the trial court rendered judgment holding said association is
unlawful. And sentenced defendants jointly and severally to return the amount and documents to the
plaintiffs and members of the association. The Appellant alleged that the association being unlawful, some
charitable institution to whom the partnership funds may be ordered to be turned over, should be included,
as a party defendant. Referring to Article 1666 of the Civil Code which provides that :

“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 charitable
institutions of the domicile of the partnership, or, in default of such, to those of the province.”

ISSUE: Whether or not charitable institution is a necessary party to this case.

Ruling: No.

No charitable institution is a necessary party in the present case of determination of the rights of the
parties. The action which may arise from said article, in the case of unlawful partnership, is that for the
recovery of the amounts paid by the member from those in charge of the administration of said partnership,
and it is not necessary for the said parties to base their action to the existence of the partnership, but on the
fact that of having contributed some money to the partnership capital. And hence, the charitable institution
of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties
in this case.

The article cited permits no action for the purpose of obtaining the earnings made by the unlawful
partnership, during its existence as result of the business in which it was engaged, because for the
purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which
is to annul 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 the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but
must be given to some charitable institution. The profits are so applied, and not the 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.

Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any
profits derived by him without the consent of the other partners from any transaction connected with the
formation, conduct, or liquidation of the partnership or from any use by him of its property.

ARTICLE 1771

G.R. No. 21639 September 25, 1924

ALBERT F. KIEL, plaintiff-appellee, vs.ESTATE OF P. S. SABERT, defendant-appellant.

33
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.

Issue: Whether or not co-partnership existed between plaintiff and deceased Sabert.
Ruling: NO.

No partnership agreement in writing was entered into by Kiel and Sabert. The question
consequently is whether or not the alleged verbal co-partnership 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.

G.R. No. 19892 September 6, 1923

TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,

34
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

Following the presentation of an application to be adjudged an insolvent by the "Sociedad

Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piñol &
Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the Court was
prayed to enter an order: "(A) Declaring the individual partners; (B) to require each of said partners
to file an inventory of his property in the manner required by section 51 of Act No. 1956; and (C)
that each of said partners be adjudicated insolvent debtors in this proceeding." The trial judge first
granted the motion, but, subsequently, on opposition being renewed, denied it. It is from this last
order that an appeal was taken in accordance with section 82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of some importance and
of some intricacy. The issue in the case relates to a determination of the nature of the mercantile
establishment which operated under the name of Teck Seing & co., Ltd., and this issue requires us
to look into, and analyze, the document constituting Teck Seing & Co.,

Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a
corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is accidental
partnership denominated cuenta en participacion (joint account association).

Issue: WON the partnership contract created a limited partnership.

Ruling: No.

The contract created was not a limited partnership but a general partnership even if “Ltd.” Was
used in the firm’s name to avoid liability for possible losses. The general rule is that those who seek to
avail themselves of the protection of laws permitting the creation of limited partnerships must show
a substantially full compliance with such laws. A limited partnership that has NOT complied with
the law of its creation is not considered a limited partnership at all, but a GENERAL partnership in
which all the members are liable.

To establish a limited partnership there must be, at least, one general partner and the name of the
least one of the general partners must appear in the firm name. (Code of Commerce, arts.122 [2],
146, 148.) But NEITHER of these requirements have been fulfilled.

Article 125 of the Code of Commerce provides that the articles of general co-partnership must
state the names, surnames, and domiciles of the partners; the firm name; the names, and
surnames of the partners to whom the management of the firm and the use of its signature is
instrusted; the capital; the duration of the co-partnership; and the amounts which, in a proper case,
are to be given to each managing partner annually for his private expenses, while the succeeding
article of the Code provides that the general co-partnership must transact business under the
name of all its members, of several of them, or of one only. It should be noted that all of the
requirements of the Code have been met, with the sole EXCEPTION of that relating to the
composition of the firm name.

What is said in Article 126 of the Code of Commerce relating to the general co-partnership
transacting business under the name of all its members or of several of them or of one only, is
wisely included in our commercial law for the protection of the creditors than of the partners
themselves.

The one object of the act is manifestly to protect the public against imposition and fraud,
prohibiting persons from concealing their identity by doing business under an assumed name,
35
making it unlawful to use other than their real names in transacting business without a public
record of who they are.

On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain
the name of all or any of the partners as prescribed by the Code of Commerce prevents the
creation of a general partnership, Professor Jose A. Espiritu, as amicus curiæ, states:

…If they intend to do a thing which in law constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such relation. Here, the intention of the persons making
up Teck Seing & co., Ltd. was to establish a partnership which they erroneously denominated a
limited partnership. If this was their purpose, all subterfuges resorted to in order to evade liability
for possible losses, while assuming their enjoyment of the advantages to be derived from the
relation, must be disregarded. The partners, who have disguised their identity under a designation
distinct from that of any of the members of the firm should be penalized, and not the creditors who
presumably have dealt with the partnership in good faith.

Articles 127 and 237 of the Code of Commerce make all the members of the general co-
partnership liable personally and in solidum with all their property for the results of the transactions
made in the name and for the account of the partnership. Section 51 of the Insolvency Law,
likewise, makes all the property of the partnership and also all the separate property of each of
the partners liable. In other words, if a firm be insolvent, but one or more partners thereof are
solvent, the creditors may proceed both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before seizing the property of the partners.

The court reach the conclusion that the contract of partnership found in the document established
a general partnership or, to be more exact, a partnership as this word is used in the Insolvency
Law.
Wherefore, the order appealed from is reversed, and the record shall be returned to the court of
origin for further proceedings pursuant to the motion presented by the creditors, inconformity with
the provisions of the Insolvency Law

ARTICLE 1773

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA

BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

Facts:

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of
land in favor of respondent, who then had it registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture

36
Agreement, was to be used for the development of the subdivision. 4 All three of them also agreed
to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and
skills." They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With
the said amount, he was able to effect the survey and the subdivision of the lots. He secured the
Lapu Lapu City Council's approval of the subdivision project which he advertised in a local
newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into
a contract with an engineering firm for the building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision lots. He did all of these for a total expense of
P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed the present civil case which, upon respondent's
motion, was later dismissed by the trial court. On appeal, however, the appellate court remanded
the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as
earlier stated, was affirmed by the CA.

Hence, this Petition.

Issue: Whether or not the joint venture agreement is void under article 1773 of the Civil code.

Ruling: NO.

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

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

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

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

We clarify. 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.
37
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.

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,vs.SEVERINO MABATO and MABATO and AGAD

COMPANY, defendants-appellees.

Facts:

This is an appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First
Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil
Code to the contract of partnership on which the complaint is based.

Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated
August 29, 1952, " — partners in a fishpond business, to the capital of which Agad contributed
P1,000, with the right to receive 50% of the profits; that from 1952 up to and including 1956,
Mabato who handled the partnership funds, had yearly rendered accounts of the operations of the
partnership; and that, despite repeated demands, Mabato had failed and refused to render
accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato &
Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him
(Agad) the sum of P14,000, as his share in the profits of the partnership for the period from 1957
to 1963, in addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as
well as the winding up of its affairs by a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of
said partnership, upon the ground that the contract therefore had not been perfected, despite the
execution of the instrument, because Agad had allegedly failed to give his P1,000 contribution to
the partnership capital.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no
cause of action and that the lower court had no jurisdiction over the subject matter of the case,
because it involves principally the determination of rights over public lands. After due hearing, the
court issued the order appealed from, granting the motion to dismiss the complaint for failure to
state a cause of action.

Issue: Whether or not "immovable property or real rights" have been contributed to the
partnership under consideration.

Ruling: NO.

38
 It should be noted, however, that, as stated in the instrument " the partnership was established
"to operate a fishpond", not to "engage in a fishpond business". Moreover, none of the
partners contributed either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed, Paragraph 4 of the instrument provides:

That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino
Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.

xxx xxx xxx

The operation of the fishpond mentioned in the public instrument, was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the partnership or
became part of the capital thereof, even if a fishpond or a real right thereto could become part of
its assets.

WHEREFORE, the court finds that said Article 1773 of the Civil Code is not in point.

G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.WILLIAM J. SUTER and THE COURT

OF TAX APPEALS, respondents.

FACTS:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September
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, P18,000.00
and P2,000.00 to the partnership. On 1 October 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
18 December 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, and requested its cancellation and withdrawal, as
not in accordance with law, but his request was denied. Unable to secure a reconsideration, he
appealed to the Court of Tax Appeals, which court, after trial, rendered a decision, on 11
November 1965, reversing that of the Commissioner of Internal Revenue.

39
Issue: Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the
remaining partner, Gustav Carlson.
Ruling: NO.

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 in Commentaries and Jurisprudence on
Commercial Laws of the Philippines, 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. It follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing partnership.

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin"
Co., Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and
1675 of the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was
organized in 1947), 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 their industry or work during the existence of the partnership". William
J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig
and neither one of them was an industrial partner. It follows that William J. Suter "Morcoin" Co.,
Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code
of 1889.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being
one of the causes provided for that purpose either by the Spanish Civil Code or the Code of
Commerce.

The appellant'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):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948

The Insular Life vs. Ebrado

G.R. No. L-44059 October 28, 1977

Facts:

40
Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., a Policy for a life
insurance with a rider for Accidental, Buenaventura C. Ebrado designated T. Ebrado as the
revocable beneficiary in his policy. He to her as his wife.

Buenaventura C. Ebrado died as a result of when he was hit by a falling branch of a tree. As
the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage amount
representing the face value of the policy.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the
designated beneficiary therein, although she admits that she and the insured Buenaventura
C. Ebrado were merely living as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She
asserts that she is the one entitled to the insurance proceeds, not the common-law wife,
Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life
Assurance Co., Ltd. commenced an action for Interpleader.

Issue: Whether or not a common-law wife named as beneficiary in the life insurance policy of
a legally married man can claim the proceeds thereof in case of death of the latter.

Held: No, the SC held that the following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time
of donation;
2. Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his
office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the
spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of
evidence in the same action.

In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured pays
out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should equally operate in
life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who
cannot receive a donation cannot be named as beneficiary in the life insurance policy of the
person who cannot make the donation. Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a
will and determine the effect of a clause designating the beneficiary by rules under which
wins are interpreted.

Policy considerations and dictates of morality rightly justify the institution of a barrier
between common law spouses in record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the legitimate family There is every reason to
hold that the bar in donations between legitimate spouses and those between illegitimate
ones should be enforced in life insurance policies since the same are based on similar
consideration As above pointed out, a beneficiary in a fife insurance policy is no different from
a donee. Both are recipients of pure beneficence. So long as manage remains the threshold of
family laws, reason and morality dictate that the impediments imposed upon married couple
41
should likewise be imposed upon extra-marital relationship. If legitimate relationship is
circumscribed by these legal disabilities, with more reason should an illicit relationship be
restricted by these disabilities.

COMMISSIONER OF INTERNAL REVENUE, vs. WILLIAM J. SUTER and THE COURT OF

TAX APPEALS;
G.R. No. L-25532 February 28, 1969

FACTS:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by William J.
Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners.
The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. In 1948, however, general partner Suter and limited partner Spirig got married
and, thereafter, on 18 December 1948, limited partner Carlson sold his share in the
partnership to Suter and his wife. Commissioner of Internal Revenue, on 1959 assessed and
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.

CIR Contention: The marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the limited partnership,
and if they did not, the fiction of juridical personality of the partnership should be disregarded
for income tax purposes because the spouses have exclusive ownership and control of the
business; consequently the income tax return of respondent Suter for the years in question
should have included his and his wife's individual incomes and that of the limited partnership,
in accordance with Section 45 (d) of the National Internal Revenue Code:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-
residents, only one consolidated return for the taxable year shall be filed by either spouse to
cover the income of both spouses; ....

Suter’s Contention: His marriage with limited partner Spirig and their acquisition of Carlson's
interests in the partnership in 1948 is not a ground for dissolution of the partnership, either in
the Code of Commerce or in the New Civil Code, and that since its juridical personality had
not been affected and since, as a limited partnership, as contra distinguished from a duly
registered general partnership, it is taxable on its income similarly with corporations, Suter
was not bound to include in his individual return the income of the limited partnership.

ISSUE:

Whether or not the partnership was dissolved after the marriage of the partners, respondent
William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining
partner, Gustav Carlson.

HELD:

NO. The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when
the subject firm was organized in 1947), 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 their industry or work
during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a
universal partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an
42
industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership
that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not
being one of the causes provided for that purpose either by the Spanish Civil Code or the
Code of Commerce.

The appellant'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):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their marriage in 1948.

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 (unlike American and
English law that does not recognize such separate juridical personality), 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.

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 co-partnership (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.

WOLFGANG AURBACH v. SANITARY WARES MANUFACTURING CORPORATION, GR

No. 75875, 1989-12-15

Facts:
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. 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.

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At the annual stockholders' meeting proceeded to the election of the members of the board of
directors. During the election, 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 two separate petitions by the parties with the
Securities and Exchange Commission (SEC).

Issue:
Whether or not the nature of the partnership was a joint venture.

Held:
Yes. 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, upon SC’s examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and Young Group shows that the
parties 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.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall
be construed to constitute any of the parties hereto partners or joint venturers in respect of
any transaction hereunder" was merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to third parties.

TUAZON vs. BOLANOS

G.R. No. L-4935 May 28, 1954

FACTS: Plaintiff’s complaint against defendant was to recover possession of a registered

land. In the complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta,
Inc., another corporation. Defendant, in his answer, sets up prescription and title in himself
thru "open, continuous, exclusive and public and notorious possession under claim of
ownership, adverse to the entire world by defendant and his predecessors in interest" from
"time immemorial". After trial, the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and ordering him to restore
possession thereof to plaintiff and to pay the latter a monthly rent. Defendant appealed
directly to the Supreme Court and contended, among others, that Gregorio Araneta, Inc.
cannot act as managing partner for plaintiff on the theory that it is illegal for two corporations
to enter into a partnership

Issue: Whether or not a corporation may enter into a joint venture with another corporation.

HELD: YES, there is nothing to the contention that the present action is not brought by the
real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is
that an action be brought in the name of, but not necessarily by, the real party in interest.
(Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to
file the complaint, in the name of the plaintiff. That practice appears to have been followed in
this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for
plaintiff" and commences with the statement "comes now plaintiff, through its undersigned
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counsel." It is true that the complaint also states that the plaintiff is "represented herein by
its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing
against one corporation being represented by another person, natural or juridical, in a suit in
court. The contention that Gregorio Araneta, Inc. cannot act as managing partner for plaintiff
on the theory that it is illegal for two corporations to enter into a partnership is without merit,
for the true rule is that "though a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the nature of that venture is
in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the
record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc.
as "its managing partner" is not in line with the corporate business of either of them.

ARTICLE 1784

JOSE FERNANDEZ, vs. FRANCISCO DE LA ROSA

G.R. No. 413 February 2, 1903

FACTS: Fernandez entered into a verbal agreement with the Dela Rosa to form a partnership
for the purchase of cascoes and the carrying on of the business of letting the same for hire in
Manila, the Dela Rosa to buy the cascoes and each partner to furnish for that purpose such
amount of money as he could, the profits to be divided proportionately; that in the same
January the Fernandez furnished the Dela Rosa 300 pesos to purchase a casco designated as
No. 1515, which the Dela Rosa did purchase for 500 pesos of Doña Isabel Vales, taking the
title in his own name; that the plaintiff furnished further sums aggregating about 300 pesos
for repairs on this casco; that on March 5th Fernandez furnished the Dela Rosa 825 pesos to
purchase another casco designated as No. 2089, which Dela Rosa did purchase for 1,000
pesos of Luis R. Yangco, taking the title to this casco also in his own name; that in April the
parties undertook to draw up articles of partnership for the purpose of embodying the same
in an authentic document, but that Dela Rosa having proposed a draft of such articles which
differed materially from the terms of the earlier verbal agreement, and being unwillingly to
include casco No. 2089 in the partnership, they were unable to come to any understanding
and no written agreement was executed; that Dela Rosa having in the meantime had the
control and management of the 2 cascoes, Fernandez made a demand for an accounting upon
him, which Dela Rosa refused to render, denying the existence of the partnership altogether.

Issue: Whether or not a partnership exist between the parties.

Ruling: YES.
"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. If the contract contains these two elements the partnership relation
results, and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil
Code, secs. 1689, 1695.)

Money was 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. This establishes the first element
of the contract, namely, mutual contribution to a common stock. 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

45
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.

Under other circumstances the relation of joint ownership, a relation distinct though perhaps
not essentially different in its practical consequence from that of partnership, might have
been the result of the joint purchase. If, for instance, it were shown that the object of the
parties in purchasing in company had been to make a more favorable bargain for the two
cascoes that they could have done by purchasing them separately, and that they had no
ulterior object except to effect a division of the common property when once they had
acquired it, the affectio societatiswould be lacking and the parties would have become joint
tenants only; but, as nothing of this sort appears in the case, we must assume that the
object of the purchase was active use and profit and not mere passive ownership in common.

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.) The special
provision cited, requiring the execution of a public writing in the single case mentioned and
dispensing with all formal requirements in other cases, renders inapplicable to this species of
contract the general provisions of article 1280 of the Civil Code.

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