CIR vs Suter Facts: A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.

," was formed 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. 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. However, general partner Suter and limited partner Spirig got married and limited partner Carlson sold his share in the partnership to Suter and his wife. The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner, Commissioner of Internal Revenue, 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. 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 reversing that of the Commissioner of Internal Revenue. Issue: (a) Whether or not the separate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and (b) 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, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.

Held: 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 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.

Roxas vs Maglana Facts: Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite term of existence was duly registered with the Securities and Exchange Commission. Under the said Articles of Co-Partnership, Maglana(appellee) shall manage the business affairs of the partnership, including marketing and handling of cash and is authorized to sign all papers and instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging operations of the partnership. It is also provided in the said articles of co-partnership that all profits and losses of the partnership shall be divided share and share alike between the partners. There was no operation of said partnership. Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner. Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership which is under the name of the first partnership. Aside from the slight difference in the purpose of the second partnership, the term of the second partnership is fixed to thirty (30) years, everything else is the same. Later, Maglana and Rojas purchased the interest, share and participation in the Partnership of Pahamotang. After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or reconstitution of their written Articles of Partnership. Now, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc. He left and abandoned the partnership, withdrew his equipment there for the use in the newly acquired area which such equipment withdrawn were his supposed contributions to the first partnership and that was transferred to CMS Estate, Inc. So, Maglana wrote Rojas reminding the latter of his obligation to contribute to the capital investments of the partnership as well as his obligation to perform his duties as logging superintendent. But Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as logging superintendent. Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter, Maglana notified Rojas that he dissolved the partnership. Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties, accounting, receivership and damages. The lower cout ruled that the nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second partnership, is one of a de facto and at will; and that the letter of the defendant to the plaintiff, in effect dissolved the partnership; On the other hand, Rojas contented that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership has not been novated, superseded and/or dissolved by the unregistered articles of the second co-

partnership and accordingly, the terms and stipulations of said registered Articles of CoPartnership should govern the relations between him and Maglana. Issues: W/N the second partnership superseded the first partnership, and, the partnership relation which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and at will. W/n Maglana may unilaterally dissolve the partnership Held: That it was not the intention of the partners to dissolve the first partnership upon the constitution of the second partnership, because everything was the same except for the fact that they took in an industrial partner: aside from that they pursued the same purposes, the capital contributions call for the same amounts, all subsequent renewals of Timber License were secured in favor of the first partnership, all businesses were carried out under the registered articles. The First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-Partnership which was never registered. On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership which continued to exist. Even more convincing, is the fact that Maglana wrote Rojas, reminding the latter of his obligation to contribute to the capital investment of the partnership as well as his obligation to perform his duties as logging superintendent. This reminder refer to the provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised contributions and he will not work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was referring to, both considered themselves as governed by the articles of the duly registered partnership. Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly registered. 2. As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the affirmative. There are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal. Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages, but in no case can he be compelled to remain in the firm.

With his withdrawal, the number of members is decreased, hence, the dissolution. The conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners. It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute and for interests and damages from the time he should have complied with his obligation. Being a contract of partnership, each partner must share in the profits and losses of the venture. As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned the partnership but also took funds in an amount more than his contribution In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages. The duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership.