G.R. No.

30286 September 12, 1929

M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendants-appellees.
Abad Santos, Camu and Delgado, for appellant.
J.W. Ferrier for appellees.
STATEMENT
Plaintiff alleges that about December 23, 1926, he and the defendants formed a partnership for the operation of a
fish business and similar commercial transactions, which by mutual contest was called "Malangpaya Fish Co," with
a capital of P35,000, of which plaintiff paid P25,000, the defendant Martin P5,000, P2,500, and Golucke P2,500.
That as such partnership, they agreed to share in the profits and losses of the business in proportion to the amount
of capital which each contributed. That the plaintiff was named the general manager to take charge of the
business, with full power to do and perform all acts necessary to carry out of the purposes of the partnership. That
there was no agreement as to the duration of the partnership. That plaintiff wants to dissolve it, but that the
defendants refused to do so. A statement marked Exhibit A, which purports to be a cash book, is made a part of
the complaint. That the partnership purchased and now owns a lighter called Lapu-Lapu, and a motorship
called Barracuda, and other properties. That the lighter and the motorship are in the possession of the defendants
who are making use of them, to the damage and prejudice of the plaintiff, for any damage which plaintiff may
sustain. That it is for the best interest of the parties to have a receiver appointed pending this litigation, to take
possession of the properties, and he prays that the Philippine Trust Company be appointed receiver, and for
judgment dissolving the partnership, with costs.
Each of the defendants filed a separate answer, but the same nature, in which they admit that about December 10,
1926, the plaintiff and the defendants formed a partnership for the purpose of the equipment of the Manila Fish
Co., Inc., and the conduct of a fish business. That the terms of the partnership were never evidenced by a truth
and in fact, the partnership was formed under a written plan, of which each member received a copy and to which
all agreed. That by its terms the amount of the capital was P45,000, of which the plaintiff agreed to contribute
P35,000. That P20,000 of the capital was to be used for the purchase of the equipment of the Manila Fish Co., Inc.
and the balance placed to the checking account o the new company.
It is then alleged that "the new owners agree to duties as follows:
Capt. Maddy will have charger of the Barracuda and the navigating of the same. Salary P300 per month.
Mr. Martin will have charge of the southern station, cold stores, commissary and procuring fish. Salary
P300 per month.
Mr. Teague will have charge of selling fish in Manila and purchasing supplies. No salary until business is on
paying basis, then the same as Maddy or Martin.
The principal office shall be in Manila, each party doing any business shall keep books showing plainly all
transactions, the books shall be available at all time for inspections of any member of the partnership.
If Mr. Martin or Mr. Maddy wishes at some future time to repurchase a larger share in the business Teague
agrees to sell part of his shares to each on the basis double the amount originally invested by each or ten
thousand to Martin and five thousand to Maddy.
This offer will expire after two years.
That no charge was ever made in the terms of said agreement of copartnership as set forth above except
that it was later agreed among the partners that the business of the partnership should be conducted
under the trade name "Malangpaya Fish Company."
That as shown by the foregoing quoted agreement the agreed capital of the copartnership was P45,000
and not P35,000 as stated in the third paragraph of plaintiff's amended complaint, and the plaintiff herein,
M. Teague, bound himself and agreed to contribute to the said copartnership the sum of P35,000 and not
the sum of P25,000 as stated in the third paragraph of his said amended complaint.
Defendant Martin specificaly denies the "plaintiff was named general manager of the partnership," and alleged
"that all the duties and powers of the said plaintiff were specifically set forth in the above quoted written
agreement and that no further or additional powers were ever given the said plaintiff." But he admits the purchase
of the motorship Barracuda, by the partnership. He denies that Exhibit A is a true or correct statement of the cash
received and paid out by or on behalf of the partnership, or that the partnership over purchased or that it now
owns the lighter Lapu-Lapu, "And/ or any other properties" as mentioned in said ninth paragraph, except such
motorship and a smoke in the house," or that the defendants are making use of any of the properties of the
partnership, to the damage and prejudice of the plaintiff, or that they do not have any visible means to answer for
any damages, and alleges that at the time of the filing of the complaint, partnership in cold storage, of the value of
P6,000, for which he has never accounted on the books of the partnership or mentioned in the complaint, and
defendant prays that plaintiff's complaint be dismissed, and that he be ordered and required to render an
accounting , and to pay to partnership the balance of his unpaid subscription amounting to P10,000.
In his answer the defendant Maddy claimed and asserted that there is due and owing him from the plaintiff
P1,385.53, with legal interest, and in his amended answer, the defendant Martin prays for judgment for P615.49.
To all which the plaintiff made a general and specific denial.
Upon such issues the lower court on April 30, 1928, rendered the following judgment:
In view of the foregoing considerations, the court decrees:
That the partnership, existing among the parties in this suit, is hereby declared dissolved; that all the
existing properties of the said partnership are ordered to be sold at public auction; and that all the
proceeds and other unexpended funds of the partnership be used, first, to pay he P529.48 tax to the
Government of the Philippine Islands; second, to pay debts owing to third persons; third, to reimburse the
partners for their advances and salaries due; and lastly, to return to the partners the amounts they
contributed to the capital of the association and any other remaining such to be distributed
proportionately among them as profits:
That the plaintiff immediately render a true and proper account of all the money due to and received by
him for the partnership.
That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and adding machine belong exclusively to
the plaintiff, M. Teague, but the said plaintiff must return to and reimburse the partnership the sum of
P14,032.26 taken from its funds for the purchase and equipment of the said barge Lapu-Lapu; and also to
return the sum of P1,230 and P228 used for buying the Ford truck and adding machine, respectively:
That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and the sum of P615.49 be paid to
defendant, H. Martin, for their advances and their unpaid salaries, with legal interest from October 27,
1927, until paid; that the plaintiff pay the costs of this action.
So ordered.
May 16, 1928, plaintiff filed a motion praying for an order "directing the court's stenographic notes taken by them
of the evidence presented in the present case, as soon as possible." This motion was denied on May 19th, and on
May 16th, the court denied the plaintiff's motion for reconsideration. To all of which exceptions were duly taken.
June 7, 1928, plaintiff filed a petition praying, for the reasons therein stated, that the decision of the court in the
case be set aside, and that the parties be permitted to again present their testimony and to have the case decided
upon its merits. To which objections were duly made, and on June 28, 1928, the court denied plaintiff's motion for
a new trial. To which exceptions were duly taken, and on July 10, 1928, the plaintiff filed a motion in which he
prayed that the period for the appeal interposed by the plaintiff be suspended, and that the order of June 28, 1928,
be set aside, "and that another be entered ordering the re-taking of the evidence in this case." To which objections
were also filed and later overruled, from all of which the plaintiff appealed and assigns the following errors:
I. The trial court erred in not having confined itself, in the determination of this case, to the question as to
whether or not it is proper to dissolve the partnership and to liquidate its assets, for all other issues raised
by appellees are incidental with the process of liquidation provided for by law.
II. The trial court erred in not resolving the primary and most important question at issue in his case,
namely, whether or not the appellant M. Teague was the manager of the unregistered partnership
Malangpaya Fish Company.
III. The trial court erred in holding that the appellant had no authority to buy the Lapu-Lapu, the Ford
truck and the adding machine without the consent of his copartners, for in accordance with article 131 of
the Code of Commerce the managing partner of a partnership can make purchases for the partnership
without the knowledge and/or consent of his copartners.
IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck and the adding machine purchased
by appellant, as manager of the Malangpaya Fish Company, for and with funds of the partnership, do not
form part of the assets of the partnership.
V. The trial court erred in requiring the appellant to pay to the partnership the sum of P14,032.26,
purchase price, cost of repairs and equipment of the barge Lapu-Lapu; P1,230 purchase price of the
adding machine, for these properties were purchased for and they form part of the assets of the
partnership.
VI. The trial court erred in disapproving appellant's claim for salary and expenses incurred by him for and
in connection with the partnership's business.
VII. The trial court erred in approving the claims of appellees J.T. Maddy and H. Martin and in requiring
the appellant to pay them the sum of P1,512.03 and P615.49 respectively.
VIII. The trial court erred in not taking cognizance of appellant's claim for reimbursement for advances
made by him for the partnerships, as shown in the statement attached to the complaint marked Exhibit A,
in which there is a balance in his favor and against the partnership amounting to over P16,000.
X. Lastly, considering the irregularities committed, the disappearance of the stenographic notes for a
considerable length of time, during which time changes in the testimonies of the witnesses could have
been made and the impossibility of having an accurate and complete transcript of the stenographic notes,
the trial court erred in denying appellant's petition for the retaking of the evidence in this case.


JOHNS, J.:
By their respective pleadings, all parties agreed that there was a partnership between them, which appears at one
time to have done a good business. In legal effect, plaintiff asked for its dissolution and the appointment of a
receiver pendente lite. The defendants did not object to the dissolution of the partnership, but prayed for an
accounting with the plaintiff. It was upon such issues that the evidence was taken and the case tried. Hence, there
is no merit in the first in the first assignment of error. Complaint is made that the lower court did not specifically
decide as to whether or not the plaintiff was the manager of the unregistered partnership. But upon that question
the lower court, in legal effect, followed and approved the contention of the defendants that the duties of each
partners were specified and defined in the "plans for formation of a limited partnership," in which it is stated that
Captain Maddy would have charge of the Barracuda and its navigation, with a salary of P300 per month, and that
Martin would have charge of the southern station, cold stores, commisary and procuring fish, with a salary of P300
per month, and that the plaintiff would have charge of selling fish in Manila and purchasing supplies, without salary
until such time as the business is placed on a paying basis, when his salary would be the same as that of Maddy
and Martin, and that the principal office of the partnership "shall keep books showing plainly all transactions,"
which shall be available at all time for inspection of any of the members.
It will thus be noted that the powers and duties of Maddy Martin, and the plaintiff are specifically defined, and that
each of them was more or less the general manager in his particular part of the business. That is to say, that
Maddy's power and duties are confined and limited to the charge of the Barracuda and its navigation, and Martin's
to the southern station, cold stores, commissary and procuring fish, and that plaintiff's powers and duties are
confined and limited to "selling fish in Manila and the purchase of supplies." In the selling of fish, plaintiff received
a substantial amount of money which he deposited to the credit of the company signed by him as manager, but it
appears that was a requirement which the bank made in the ordinary course of business, as to who was authorized
to sign checks for the partnership; otherwise, it would not cash the checks.
In the final analysis, the important question in this case is the ownership of the Lapu-Lapu, the Ford truck, and the
adding machine. The proof is conclusive that they were purchased by the plaintiff and paid for him from and out of
the money of the partnership. That at the time of their purchase, the Lapu-Lapu was purchased in the name of the
plaintiff, and that he personally had it registered in the customs house in his own name, for which he made an
affidavit that he was its owner. After the purchase, he also had the Ford truck registered in his won name. His
contention that this was done as a matter of convenience is not tenable. The record shows that when the
partnership purchased the Barracuda, it was registered in the customs house in the name of the partnership, and
that it was a very simple process to have it so registered.
Without making a detailed analysis of the evidence, we agree with the trial court that the Lapu-Lapu, the Ford
truck, and the adding machine were purchased by the plaintiff and paid for out of the funds of the partnership, and
that by his own actions and conduct, and the taking of the title in his own name, he is now estopped to claim or
assert that they are not his property or that they are the property of the company. Again, under his powers and
duties as specified in the tentative, unsigned written agreement, his authority was confined and limited to the
"selling of fish in Manila and the purchase of supplies." It must be conceded that, standing alone, the power to sell
fish and purchase supplies does not carry with it or imply the authority to purchase the Lapu-Lapu, or the Ford
truck, or the adding machine. From which it must follow that he had no authority to purchase the lighter Lapu-
Lapu, the Ford truck, or the adding machine, as neither of them can be construed as supplies for the partnership
business. While it is true that the tentative agreement was never personally signed by any member of the firm, the
trial court found as a fact, and that finding is sustained by the evidence, that this unsigned agreement was acted
upon and accepted by all parties as the basis of the partnership. It was upon that theory that the lower court
allowed the defendant s Maddy and Martin a salary of P300 per month and the money which each of them paid out
and advanced in the discharged of their respective duties, and denied any salary to the plaintiff, for the simple
reason that the business was never on a paying basis.
Much could be said about this division of powers, and that Maddy and Martin's duties were confined and limited to
the catching and procuring of fish, which were then shipped to the plaintiff who sold them on the Manila market
and received the proceeds of the sales. In other words, Maddy and Martin were supplying the fish to plaintiff who
sold them under an agreement that he would account for the money.
Upon the question of accounting, his testimony as to the entries which he made and how he kept the books of the
partnership is very interesting:
Q. Then this salary does not take into consideration the fact that you claim the company
is very badly in debt?
A. Well, I put the salary in there.
Q. I am asking you if that is true?
A. I do not think I will decide that, I think it will be decided by the court.
Q. I will ask you to answer the question?
A. You asked me my opinion and I said that I am entitled to it.
xxx xxx xxx
I am not on trial as a bookkeeper; if my lawyers won't object to the question I will object myself; I am not
on trial as a bookkeeper; I keep my books any way I want to, put in what I want to, and I leave out
anything I don't choose to put in,
xxx xxx xxx
Q. You have your own bookkeeping?
A. Well, I run my business to suit myself, I put in the books what I want to, and I leave
out what I want to, and I have a quarter of a million pesos to show for it,
xxx xxx xxx
Q. Did you not say that you paid yourself a salary in August because you made a profit?

A. Yes. This profit was made counting the stock on hand and equipment on hand, but as
far as cash to pay this balance, I did not have it. when I wanted a salary I just took it. I ran
things to suit myself.
xxx xxx xxx
Q. In other words in going against these partners you are going to tax them for the
services of your attorney?
A. You are mistaken; I am not against them. I paid this out for filing this complaint and if
the honorable court strikes it out, all right. I think it was a just charge. When I want to sue them
the Company can pay for my suit.
Q. Would you have any objection to their asking for their attorney's fees from the
company as partners also in the business?
A. Yes.
Q. You would object to your partners having their attorney's fees here paid out of the
copartnership like you have had yours paid?
A. Yes, that is the way I do my business.
To say the least, this kind of evidence does not appeal to the court. This case has been bitterly contested, and
there is much feeling between the parties and even their respective attorneys. Be that as it may, we are clearly of
the opinion that the findings of the lower court upon questions of fact are well sustained by the evidence. Plaintiff's
case was tried on the theory that the partnership was the owner of the property in question, and no claim was
made for the use of the Lapu-Lapu, and it appears that P14,032.26 of the partnership money was used in its
purchase, overhauling, expenses and repairs. That in truth and in fact the partnership had the use and benefit of
the Lapu-Lapu in its business from sometime in May until the receiver was appointed on November 11, 1927, or a
period of about six months, and that the partnership has never paid anything for its use. it is true that there is no
testimony as to the value of such use, but the cost of the Lapu-Lapu and the time of its use and the purpose for
which it was used, all appear in the record. For such reason, in the interest of justice, plaintiff should be
compensated for the reasonable value of the time which the partnership made use of the Lapu-Lapu.
All things considered, we are of the opinion that P2,000 is a reasonable, amount which the plaintiff should receive
for its use.
In all things and respects, the judgment of the lower court as to the merits is affirmed, with the modification only
that P2,000 shall be deducted from the amount of the judgment which was awarded against the plaintiff, such
deduction to be made for and on account of such use of the Lapu-Lapu by the partnership, with costs against the
appellant. So ordered.
Avancea, C.J., Street, Villamor, Romualdez and Villa-Real, JJ. concur.
Johnson, J., reserves his vote.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special
Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:
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.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate 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.
The theory of the petitioner, Commissioner of Internal Revenue, is that 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, which provides as follows:
(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; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that 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.
We find the Commissioner's appeal unmeritorious.
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, Vol. 1, 4th Ed., page 58, that
reads as follows:
A husband and a wife may not enter into a contract of general copartnership, because under the
Civil Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited
from making donations to each other are prohibited from entering into universal partnerships. (2 Echaverri
196) It follows that the marriage of partners necessarily brings about the dissolution of a pre-existing
partnership. (1 Guy de Montella 58)
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.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition,
1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o
podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro
Codigo los prohibe, y hay que estar a la norma general segun la que toda persona es capaz para contratar
mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue
favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en
la de 9 de marzo de 1943.
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 (compaias 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.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the
fiction of legal personality of the corporations involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction of their corporate personality was pierced; in
the present case, to do so wouldexempt the limited partnership from income taxation but would throw the tax
burden upon the partners-spouses in their individual capacities. The corporations, in the cases cited, merely served
as business conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate
personalities for tax purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such
independent entity. The change in its membership, brought about by the marriage of the partners and their
subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter
into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design
to use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it
would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand
results in equal treatment, tax wise, of a general copartnership (compaia 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 compaias 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 (Section 26,
N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito
vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's
parapherna become conjugal only when no longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again, the appellant's argument erroneously confines itself
to the question of the legal personality of the limited partnership, which is not essential to the income taxability of
the partnership since the law taxes the income of even joint accounts that have no personality of their
own.
1
Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable unit,
which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in their individual capacities.
Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and wife)
may be the same for a given taxable year, their consequences would be different, as their contributions in the
business partnership are not the same.
The difference in tax rates between the income of the limited partnership being consolidated with, and when
split from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it by requiring the limited partnership to pay tax on its own
income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.



SMITH, BELL & Co., LTD., plaintiff and appellant,
vs.
M. H. AZNAR & Co. et al., defendant and appellees.

No. 5427
February 28, 1941

SYLLABUS

1. PARTNERSHIP; MANAGING PARTNER; AUTHORITY TO EFFECT ROUTINE TRANSACTIONS;
ORDINARY PRUCHASES AND SALES; PURCHASES ON CREDIT. as manager of the firm with the privilege of
using the firm name and with his only co-partner absent most of the time attending to personal business of his
own, an industrial partner must be deemed clothed with sufficient authority to effect the routine transactions of the
firm. Such transactions would naturally include ordinary purchases and sales, since the firm was in the business of
buying and selling merchandise of all kinds. The fact that the purchases are on credit hardly makes any difference.
For it is held that where the business of a partnership is to buy and sell, a partner who purchases on credit in the
name of the firm is acting within his implied powers, since it is usual to buy and sell on credit. (20 R. C.L., pp. 894-
895)

2. ID.; THIRD PERSONS NEED NOT INQUIRE OVER AUTHORITY OF PARTNER. Persons dealing with
a firm have a right to assume that the authority of a partner is coextensive with the business transacted by his firm
(20 R.C.L., p. 885).

3. ID.; ARTICLES OF COPARTNERSHIP; INTERPRETATION; GENERAL AUTHORITY OF THE
MANAGER. The clause To make, sign, seal, execute and deliver contracts, documents, agreements, deeds and
other writings of whatever nature, kind and description, with any and all third persons, concerns and entities, upon
terms and conditions acceptable to him duly approved in writing by the capitalist partner obviously refers to the
execution of formal contracts in writing and not necessarily to routine transactions such as ordinary purchases and
sales of merchandise which naturally come within the scope of the general authority of the manager of a business.

APPEAL, from a judgment of the Court of First Instance of Manila.
A. Locsin, J.

The facts are stated in the opinion of the court.

Ross, Lawrence, Selph & Carrascoso, James Madison Ross,
and Diosdado Macapagal for appellant

Apolonio R. Chavez for appellees

REYES (A.), J.:

Plaintiff is a Philippine corporation with principal office in the City of Manila. M.H. Aznar & Company was a
registered commercial partnership with principal office in the City of Manila organized for the purpose, among
others, of buying and selling merchandise of all kinds. The partnership was composed of Matias H. Aznar, jr., as
capitalist partner, and Eufrone E. Tobes, as industrial partner. Tobes was the manager of the partnership with the
privilege of using the partnership name, On various dates from September 20, 1938, to November 19 of the same
year, plaintiff, upon order of Tobes as manager of the defendant firm, delivered to the latter merchandise of the
total value of P1,595.73. As the merchandise was not paid for notwithstanding repeated demands, plaintiff brought
the present action against the firm and its two partners for the recovery of the value thereof.

At first the firm and its capitalist member Matias H. Aznar, jr., filed a general denial, but on April 21, 1939, these
defendants amended their answer by setting up the defense that the obligation which plaintiff was seeking to
enforce was contracted without the knowledge and consent of the capitalist partner and beyond the authority
conferred upon Tobes by the articles of partnership. Though the fact does not appear in the bill of exceptions,
plaintiff informs us in its brief that, on the same date, the complaint was dismissed as to Tobes, who had died
before the trial.

The lower court absolved the remaining defendants from the complaint on the ground that Tobes had no authority
to sign any document or receipt or have any transaction with any third person without the written approval of the
capitalist partner. From this judgment plaintiff has appealed.

The orders for the merchandise in question were said to have been given by Tobes on the telephone, and for that
reason no written orders were produced at the trial. But we have it from the testimony of the plaintiffs employees
that all of the merchandise in question was delivered to Tobes in the office of the partnership and receipted for by
Tobes in the name of the firm. The original receipts (of which exhs. E to E-4 are copies) could not be produced
in the evidence because they had been delivered by the plaintiffs collector to the defendant firm for examination
when said collector called with a statement of account. Such delivery is evidenced by the counter-receipts exhs.
F, F-1, and F-2 issued by the accounting department of the defendant firm.

Defendant Aznar testified that the signatures and initials affixed on those counter-receipts were not those of Tobes
or of any of his employees. But his testimony is rebutted by that of the plaintiffs collector, who saw the initials on
exhibit F-2 affixed by Tobes, and the signatures on exhibits F and F-1 affixed by a clerk in the accounting
department of the firm. Moreover, Aznars testimony that the signatures on exhibits F and F-1 were not those
of an employee of his firm is weakened by his admission that he did not know or remember the name of one of the
firms employees. It may well be that those signatures were those of the one whose name Aznar could not
remember. And there can be no question that the signature Tomas C. Banta appearing on exhibits F and F-1
was that of an employee of the firm, because we find the same name it its articles of association. Our conclusion,
therefore, is that the goods in question were actually received by the defendant firm, so that they only question
that remains to be determined is whether Tobes had authority to order those goods on credit.

The articles of partnership expressly provides that Tobes shall manage, operate and direct the affairs, business
and activities of the partnership. They also expressly give him the privilege of using the partnership name. As
manager of the firm with the privilege of using the firm name and with his only co-partner in Cebu most of the time
attending to personal business of his own, Tobes must be deemed clothed with sufficient authority to effect the
routine transactions of the firm in Manila. Such transactions would naturally include ordinary purchases and sales,
since the firm was in the business of buying and selling merchandise of all kinds. The fact that the purchases are
on credit hardly makes any difference. For it is held that where the business of a partnership is to buy and sell, a
partner who purchases on credit in the name of the firm is acting within his implied powers, since it is usual to buy
and sell on credit (20 R.C.L., p. 894-895), and persons dealing with a firm have a right to assume that the
authority of a partner is coextensive with the business transacted by his firm. (20 R.C.L., p. 892), Moreover, third
persons are not as a rule bound to inquire whether the partner with whom they are contracting is acting on the
partnership account, or for his individual advantage (20 R.C.L., p. 885).

The lower court declared Tobes to be without authority to order the goods in question without the consent of Aznar
in writing, presumably on the strength of the following provision of the articles of partnership:

E.E. Tobes is the industrial. He shall manage, operate and direct the affairs, businesses and activities of the
partnership and devote his time, effort and energy to the same for the sole benefit of the partnership. Among
others, he shall have the power, authority and right

x---x---x

To make, sign, seal, execute and deliver contracts, documents, agreements, deeds and other writings of whatever
nature, kind and description, upon terms and conditions acceptable to him duly approved in writing by the
capitalist partner.

But the latter clause obviously refers to the execution of formal contracts in writing and not necessarily to routine
transactions such as ordinary purchases and sales of merchandise. These, as we have already seen, naturally come
within the scope of the general authority of the manager of a business.

The evidence also shows that previous purchases made by Tobes in the name of Aznar & Company from the same
plaintiff were honored and paid for by the said firm, and we may well also assume that the goods here in question
which were delivered to defendant firm were made use of by the latter. It is, therefore, but just that the firm
answer for their value.

Wherefore, the judgment appealed form is reversed and one shall be entered condemning M.H. Aznar & Company
and Matias H. Aznar, jr., to pay plaintiff the sum of P1,595.73, with interest at 6 per cent per annum from the time
of the filing of the complaint; but it is understood that Matias H. Aznar, jr., shall not be made to pay the judgment
without the assets of the company being first exhausted. The appellees shall pay the costs in both instances.

Padilla, Lopez Vito, and Tuason, LL., concur
Judgment reversed.
M. TEAGUE vs. H. MARTIN, J. T. MADDY and L.H. GOLUCKE
September 12, 1929

Facts:
about December 23, 1926, he and the defendants formed a partnership for the operation of
a fish business and similar commercial transactions, which by mutual contest was called "Malangpaya Fish Co,"with
a capital of P35,000, of which plaintiff paid P25,000, the defendant Martin P5,000, P2,500, and GoluckeP2,500.
That as such partnership, they agreed to share in the profits and losses of the business in proportion tothe amount
of capital which each contributed. That the plaintiff was named the general manager to take chargeof the business,
with full power to do and perform all acts necessary to carry out of the purposes of the partnership. That there was
no agreement as to the duration of the partnership. That plaintiff wants to dissolveit, but that the defendants
refused to do so.
-Lapu, and a motorship called Barracuda,
andother properties. That the lighter and the motorship are in the possession of the defendants who are making
useof them, to the damage and prejudice of the plaintiff, for any damage which plaintiff may sustain.


e charge of the southern station, cold stores, commisary and procuring fish, with a salary of
P300 per month,
suchtime as the business is placed on a paying basis, when his salary would be the same as that of Maddy
andMartin, and that the principal office of the partnership "shall keep books showing plainly all transactions,"which
shall be available at all time for inspection of any of the members.
CFI: dissolved the partnership and liquidated its assets
-Lapu as well as the Ford truck No. T-3019 and adding machine belong exclusively to the
plaintiff,M. Teague, but the said plaintiff must return to and reimburse the partnership the sum of P14,032.26
takenfrom its funds for the purchase and equipment of the said barge Lapu-Lapu; and also to return the sum of
P1,230 and P228 used for buying the Ford truck and adding machine, respectively. Plaintiff appeals the ruling of
the Trial Court
laintiff contends that he is managing partner of the partnership and the three properties (Lapu-Lapu,
Barracuda& Ford truck) are properties of the partnership since they were paid from the profits of the partnership
thus donot belong to him.

Issue: 1.) Whether the plaintiff is a managing partner of a partnership (Thus can make purchases for the
partnership without the knowledge and/or consent of his copartners)
2.) Whether the three properties are owned by the partnership

Held/Ratio:
1.) YES. All three of the partners are general managers in their particular part of business

andthat each of them was more or less the general manager in his particular part of the business. That is to say,
thatMaddy's power and duties are confined and limited to the charge of the Barracuda and its navigation,
andMartin's to the southern station, cold stores, commissary and procuring fish, and that plaintiff's powers
andduties are confined and limited to "selling fish in Manila and the purchase of supplies."
2.) NO.
-Lapu, the Ford truck, and the adding machine were purchased by the plaintiff and paid for out of
thefunds of the partnership, and that by his own actions and conduct, and the taking of the title in his own
name,he is now estopped to claim or assert that they are not his property or that they are the property of
thecompany.
lling of fish in Manila and the purchase of supplies."It
must be conceded that, standing alone, the power to sell fish and purchase supplies does not carry with it orimply
the authority to purchase the Lapu-Lapu, or the Ford truck, or the adding machine. From which it mustfollow that
he had no authority to purchase the lighter Lapu-Lapu, the Ford truck, or the adding machine, asneither of them
can be construed as supplies for the partnership business.
Plaintiff must be compensated for the partnership's use of the Lapu-Lapu (a lighter; a type of flat-bottomed barge)

Decision: CFI ruling affirmed.


Commissioner of Internal Revenue vs. Sutter
27 SCRA 152
G.R. No. L-25532
February 28, 1969

Facts: A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by herein respondent
William J. Sutter 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 firm was duly registered
with the Securities and Excangange Commission and engaged in lawful business. Later, Sutter and Spirig got
married while Carlson sold his share to the spouses. The limited partnership had been filing its income tax returns
as a corporation, without objection by the herein petitioner, CIR, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the partners-spouses Sutter and Spirig resulting
in a determination of a deficiency income tax against respondent Sutter. Respondent Sutter 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 CTA, which ruled in favor of Sutter.

Issue: Was the partnership dissolved by the marriage of Sutter and Spirig and the subsequent sale of Carlson of
his share to the spouses?

Ruling: No. The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is erroneous. The capital contributions of partners William J. Sutter 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; ....
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 (compaias 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 Sutter is to overstretch the letter and intent of the law. In fact, it
would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand
results in equal treatment, tax wise, of a general copartnership (compaia 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 compaias 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 (Section 26,
N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89)