TOCAO V.

CA
G.R. No. 127405; October 4, 2000
J. Ynares-Santiago
FACTS:
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailan, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations
of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo introduced Anay to
petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cookwares.
Under the joint venture, Belo acted as capitalist, Tocao as president and general manager,
and Anay as head of the marketing department and later, vice-president for sales. The parties
agreed that Belo's name should not appear in any documents relating to their transactions with
West Bend Company. Anay having secured the distributorship of cookware products from the
West Bend Company and organized the administrative staff and the sales force, the cookware
business took off successfully. They operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocao's name.
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 agreement was not reduced to writing
on the strength of Belo's assurances that he was sincere, dependable and honest when it came to
financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to
the Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company
to determine her share in the net profits.

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 P 13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages against Marjorie D. Tocao and William Belo before the Regional Trial
Court of Makati, Branch 140
The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants based on the ff: (a) there was an intention to create a partnership, (b)
a common fund was established through contributions consisting of money and industry, (c)
there was a joint interest in the profit. The RTC further held that it did not matter that the
agreement was not in writing because Article 1171 of the Civil Code provides that a partnership
may be constituted in any form. The Court of Appeals affirmed the lower courts decision.
Contentions of Tocao and Belo- The alleged agreement with Anay that was neither reduced in
writing, nor ratified, was either unenforceable or voir or inexistent. They alleged that Anay
filed the complaint on account of ill-will and resentment.
Contentions of Belo- He is merely a guarantor, he did not financed the partnership.
ISSUE:
Whether a partnership exists in the case.
HELD:
Yes, the parties involved in this case formed a partnership.
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.
In the case at hand, Belo acted as capitalist while Tocao as president and general manager, and
Anay as head of the marketing department and later, vice-president for sales. Furthermore, Anay
was entitled to a percentage of the net profits of the business.
Therefore, the parties formed a partnership.

Alfredo Aguila Jr vs Court of Appeals et al

G.R. No. 127347; November 25, 1999
Mendoza, J.:
Facts:
Petitioner is the manager of A.C. Aguila and Sons, Co., a partnership engaged in lending
activities. Private respondent and her late husband, Ruben Abrogar, were the registered owner of
the house and lot in Makati.
On April 18, 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement with
a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan was for P200k. To secure
the loan, the spouses mortgaged their house and lot located in a subdivision. The terms of the
loan further stipulates that in case of non-payment, the property shall be automatically
appropriated to the partnership and a deed of sale be readily executed in favor of the partnership.
She does have a 90 day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn over the property and so
the firm filed an ejectment case against her (wherein she lost). She also failed to redeem the
property within the period stipulated. She then filed a civil case against Alfredo Aguila, manager
of the firm, seeking for the declaration of nullity of the deed of sale. The RTC retained the
validity of the deed of sale. The Court of Appeals reversed the RTC. The CA ruled that the sale is
void for it is a pactum commissorium sale which is prohibited under Art. 2088 of the Civil Code
(note the disparity of the purchase price, which is the loan amount, with the actual value of the
property which is after all located in a subdivision).
ISSUE:
Whether the case filed by Felicidad shall prosper.
HELD:
No. Unfortunately, the civil case was filed not against the real party in interest. As pointed out
by Aguila, he is not the real party in interest but rather it was the partnership A.C. Aguila & Sons,
Co. The Rules of Court provide that every action must be prosecuted and defended in the name
of the real party in interest. A real party in interest is one who would be benefited or injured by
the judgment, or who is entitled to the avails of the suit. Any decision rendered against a person
who is not a real party in interest in the case cannot be executed. Hence, a complaint filed against
such a person should be dismissed for failure to state a cause of action, as in the case at bar.
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, Felicidad 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. 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.

OA V. COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-19342; May 25, 1972

J. BARREDO

FACTS:
Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T.
Oa and her five children. Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all
surnamed Oa, were still minors when the project of partition was approved, Lorenzo T. Oa,
their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of
First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the
Court appointed him guardian of the persons and property of the aforenamed minors.

The project of partition shows that the heirs have undivided one-half (1/2) interest in ten parcels
of land with a total assessed value of P87,860.00, six houses with a total assessed value of
P17,590.00 and an undetermined amount to be collected from the War Damage Commission.

Although the project of partition was approved by the Court on May 16, 1949, no attempt was
made to divide the properties therein listed. Instead, the properties remained under the
management of Lorenzo T. Oa 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
from P105,450.00 in 1949 to P480,005.20 in 1956.

From said investments and properties petitioners derived such incomes as profits from
installment sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests
The said incomes are recorded in the books of account kept by Lorenzo T. Oa, where the
corresponding shares of the petitioners in the net income for the year are also known

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax.

ISSUE:
Whether the petitioners formed an unregistered partnership
HELD:
Yes, the petitioners formed an unregistered partnership.
The Supreme Court held that that instead of actually distributing the estate of the deceased
among themselves pursuant to the project of partition approved in 1949, "the properties remained
under the management of Lorenzo T. Oa 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. It is thus incontrovertible that petitioners did not, contrary to
their contention, merely limit themselves to holding the properties inherited by them. Indeed, it is
admitted that during the material years herein involved, some of the said properties were sold at
considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the
purchase and sale of corporate securities. It is likewise admitted that all the profits from these
ventures were divided among petitioners proportionately in accordance with their respective
shares in the inheritance.
As already indicated, for tax purposes, the co-ownership of inherited properties is automatically
converted into an unregistered partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent to produce profits for the heirs
in proportion to their respective shares in the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or approved by the court in the corresponding
testate or intestate proceeding.
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 Mertens 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.

Obillos v. CIR
G.R. No. L-68118; October 29, 1985
Aquino, J.:

Facts:
This case is about the income tax liability of four brothers and sisters who sold two parcels of
land which they had acquired from their father.
In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan. The next
day, he transferred his rights to his four children for them to build their own residences. The
Torrens title would show that they were co-owners of the two lots. However, the petitioners
resold them to Walled City Securities Corporation and Olga Cruz Canda for P313k or P33k for
each of them. They treated the profit as capital gains and paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate income tax of their shares, as this entire
assessment is based on the alleged partnership under Article 1767 of the Civil Code; simply
because they contributed each to buy the lots, resold them and divided the profits among them.
But as testified by Obillos, they have no intention to form the partnership and that it was merely
incidental since they sold the said lots due to high demand of construction. Naturally, when they
sell them as co-partners, it will result to the share of profits. Further, their intention was to divide
the lots for residential purposes.
Issue:
Was there a partnership, hence, they are subject to corporate income taxes?
Held:
No, there was no partnership. Petitioners were co-owners and to consider them partners would
obliterate the distinction between co-ownership and 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 purpose. If later on they found it not
feasible to build their residences on the lots because of the high cost of construction, they had no
choice but to resell the same to dissolve the co-ownership. The division of profit was merely
incidental to the dissolution of the co-ownership.
As Article 1769 (3) of the Civil Code provides: the sharing of gross returns does not in itself
establish a partnership, whether or not the persons sharing them have a joint or common right or

interest in any property from which the returns are derived. There must be an unmistakeable
intention to form a partnership or joint venture.
In this case, the Commissioner should have investigated if the father paid donor's tax to establish
the fact that there was really no partnership.

Afisco Insurance Corp. et al. vs. CA, CTA and CIR

G.R. No. 112675; January 25, 1999
Panganiban, J.:

Facts:
The petitioners are 41 local insurance firms which entered into Reinsurance Treaties with
Munich, a non-resident foreign insurance corporation. The reinsurance treaties required them to
form an insurance pool or clearing house in order to facilitate the handling of the business
they contracted with Munich. The CIR assessed the insurance pool deficiency corporate taxes
and withholding taxes on dividends paid on Munich and to the petitioners respectively. The
assessments were protested by the petitioners.
The CA ruled that the insurance pool was a partnership taxable as a corporation and that the
latters collection of premiums on behalf of its members was taxable income.
The petitioners belie the existence of a partnership because, according to them, the reinsurers did
not share the same risk or solidary liability, there was no common fund, the executive board of
the pool did not exercise control and management of its funds and the pool was not engaged in
business of reinsurance from which it could have derived income for itself.

Issues:
a.
May the insurance pool be deemed a partnership or an association that is taxable as a
corporation?
b.
Should the pools remittances to member companies and to Munich be taxable as
dividends?

Held:
The pool is taxable as a corporation. A pool is considered a corporation for taxation purposes.
Citing the case of Evangelista v. CIR, the court held that Sec. 24 of the NIRC covered these
unregistered partnerships and even associations or joint accounts, which had no legal
personalities apart from individual members. Further, the pool is a partnership as evidence by a
common fund, the existence of executive board and the fact that while the pool is not in itself, a

reinsurer and does not issue any insurance policy, 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.

In the present case, the ceding companies entered into a Pool Agreement or an association that
would handle all the insurance businesses covered under their quota-sharing reinsurance treaty
and surplus reinsurance treaty with Munich. There are unmistakable indicators that it is a
partnership or an association covered by NIRC.

a.
The pool has a common fund, consisting of money and other valuables that are deposited
in the name and credit of the pool.
b.
The pool functions through an executive board which resembles the BOD of a
corporation.
c.
Though the pool itself is not a reinsurer, 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. Profit motive or business is therefore the primordial
reason for the pools formation.

The fact that the pool does not retain any profit or income does not obliterate an antecedent fact
that of the pool is being used in the transaction of business for profit. It is apparent, and
petitioners admit that their association or co-action 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 one a matter of
consequence as it implies that profit actually resulted.

Petitioners' reliance on Pascual v. Commissioner is misplaced, because the facts obtaining therein
are not on all fours with the present case. In Pascual, there was no unregistered partnership, but
merely a co-ownership which took up only 2 isolated transactions. The CA did not err in
applying Evangelista, which involved a partnership that engaged in a series of transactions
spanning more than 10 years, as in the case before us.

As to the claim of double taxation, the pool is a taxable entity distinct from the individual
corporate entities of the ceding companies. The tax on its income is obviously different from the
tax on the dividends received by the said companies. Clearly, there is no double taxation.

Lim Tong Lim V. Philippine Fishing Gear Industries

G.R. No. 136448; November 3, 1999
Panganiban, J.:

Facts:
Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing
Corporation for the purchase of fishing nets from respondent Philippine Fishing Gear Industries,
Inc. Chua and Yao claimed that they were engaged in business venture with petitioner Lim Tong
Lim, who, however, was not a signatory to the contract. The buyers failed to pay the fishing nets.
Respondent filed a collection against Chua, Yao and petitioner Lim in their capacities as general
partners because it turned out that Ocean Quest Fishing Corporation is a non-existent
corporation.
The trial court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching
the fishing nets. The trial court rendered its decision ruling that respondent was entitled to the
Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. Lim appealed to the Court of Appeals, but the appellate court affirmed the decision
of the trial court that petitioner Lim is a partner and may thus be held liable as such. Hence, the
present petition.
Petitioner claimed that since his name did not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he cannot be held liable.
ISSUE:
Whether or not Lim Tong Lim is liable.

HELD:
Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim 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. 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.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his
boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and
Yao decided to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties in representation
of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general partners.

YU v. NLRC
G.R. No. 97212; June 30, 1993
J. Feliciano

FACTS:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name of "Jade
Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally
organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chiu
Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as limited
partners.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold
and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and
himself, private respondent Willy Co acquired the great bulk of the partnership interest. The
partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old
firm name of Jade Mountain, though they moved the firm's main office from Makati to
Mandaluyong, Metropolitan Manila
Petitioner was informed by Willy Co that the latter had bought the business from the original
partners and that it was for him to decide whether or not he was responsible for the obligations of
the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to
work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid.
On 21 December 1988, Benjamin Yu filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to October 1988

ISSUE:

Whether the partnership which had hired petitioner Yu as Assistant General Manager had
been extinguished and replaced by a new partnership composed of Willy Co and Emmanuel
Zapanta

HELD:
Yes, the partnership which hired Yu was extinguished and replaced by a new partnership.
In the case at bar, just about all of the partners had sold their partnership interests (amounting to
82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does
not show what happened to the remaining 18% of the original partnership interest. The
acquisition of 82% of the partnership interest by new partners, coupled with the retirement or
withdrawal of the partners who had originally owned such 82% interest, was enough to
constitute a new partnership
In the ordinary course of events, the legal personality of the expiring partnership persists for the
limited purpose of winding up and closing of the affairs of the partnership.
In other words, the new partnership simply took over the business enterprise owned by the
preceding partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said assets or most of them
and opening a new business enterprise.
The new partnership itself which continued the business of the old, dissolved, one, are liable for
the debts of the preceding partnership. Creditors of the Old Jade Mountain are also creditors of
the New Jade Mountain. A creditor of the old Jade Mountain, like petitioner Benjamin Yu, in
respect of his claim for unpaid wages, is entitled to priory vis--vis any claim of any retired or
previous partner insofar as such retired partners interest in the dissolved partnership.
The new partnership is entitled to appoint and hire a new general manager to run the affairs of
the business, thus, there was no unlawful termination.

Fernando Santos v. Sps. Reyes

G.R. No. 135813; October 25, 2001
Panganiban, J.:

Facts:
This is a petition for review on certiorari assailing CA decision which affirmed the RTC decision.
In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally
instituted a partnership with them as partners. Their venture is to set up a lending business where
it was agreed that Santos shall be financier and that Nieves and Zabat shall contribute their
industry.
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a corporation. It
was agreed that the partnership shall provide loans to the employees of Grageras corporation
and Gragera shall earn commission from loan payments.
In August 1986, the three partners put into writing their verbal agreement to form the
partnership. As earlier agreed, Santos shall finance and Nieves shall do the daily cash flow more
particularly from their dealings with Gragera, Zabat on the other hand shall be a loan
investigator. But then later, Nieves and Santos found out that Zabat was engaged in another
lending business which competes with their partnership hence Zabat was expelled.
The two continued with the partnership and they took with them Nieves husband, Arsenio, who
became their loan investigator.

Later, Santos accused the spouses of not remitting Grageras commissions to the latter. He sued
them for collection of sum of money. The spouses countered that Santos merely filed the
complaint because he did not want the spouses to get their shares in the profits. Santos argued
that the spouses, insofar as the dealing with Gragera is concerned, are merely his employees.

Santos alleged that there is a distinct partnership between him and Gragera which is separate
from the partnership formed between him, Zabat and Nieves.
The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to pay
the shares of the spouses.

ISSUE:
Whether or not the spouses are partners.

HELD:
Yes. Though it is true that the original partnership between Zabat, Santos and Nieves was
terminated when Zabat was expelled, the said partnership was however considered continued
when Nieves and Santos continued engaging as usual in the lending business even getting
Nieves husband, who resigned from the Asian Development Bank, to be their loan investigator
who, in effect, substituted Zabat.

There is no separate partnership between Santos and Gragera. The latter being merely a
commission agent of the partnership. This is even though the partnership was formalized shortly
after Gragera met with Santos (Note that Nieves was even the one who introduced Gragera to
Santos exactly for the purpose of setting up a lending agreement between the corporation and the
partnership).

HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their shares
in the profit is premature. The accounting made by the trial court is based on the total income
of the partnership. Such total income calculated by the trial court did not consider the expenses
sustained by the partnership. All expenses incurred by the money-lending enterprise of the
parties must first be deducted from the total income in order to arrive at the net profit of the
partnership. The share of each one of them should be based on this net profit and not from the
gross income or total income.

Bastida vs Menzi
G.R. No. 35840; March 31, 1993
Vickers, J.:
Facts:
Bastida offered to assign to Menzi & Co. his contract with Phil Sugar Centrals Agencyand to
supervise the mixing of the fertilizer and to obtain other orders for 50 % of the net profit that
Menzi & Co., Inc., might derive therefrom. J. M. Menzi (gen. manager of Menzi & Co.)
accepted the offer. The agreement between the parties was verbal and was confirmed by the letter
of Menzi to the plaintiff on January 10, 1922.
Pursuant to the verbal agreement, the defendant corporation on April 27, 1922 entered into a
written contract with the plaintiff, marked Exhibit A, which is the basis of the present action.
Still, the fertilizer business as carried on in the same manner as it was prior to the written
contract, but the net profit that the plaintiff herein shall get would only be 35%. The intervention
of the plaintiff was limited to supervising the mixing of the fertilizers in the bodegas of Menzi.
Prior to the expiration of the contract (April 27, 1927), the manager of Menzi notified the
plaintiff that the contract for his services would not be renewed. Subsequently, when the contract
expired, Menzi proceeded to liquidate the fertilizer business in question. The plaintiff refused to
agree to this. It argued, among others, that the written contract entered into by the parties is a
contract of general regular commercial partnership, wherein Menzi was the capitalist and the
plaintiff the industrial partner.
Issue:
Is the relationship between the petitioner and Menzi that of partners?
Held:
The relationship established between the parties was not that of partners, but that of employer
and employee, whereby the plaintiff was to receive 35% of the net profits of the fertilizer
business of Menzi in compensation for his services for supervising the mixing of the fertilizers.
Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its
execution justified the finding that it was a contract of co- partnership. The written contract was,

in fact, a continuation of the verbal agreement between the parties, whereby the plaintiff worked
for the defendant corporation for one-half of the net profits derived by the corporation form
certain fertilizer contracts.
According to Art. 116 of the Code of Commerce, articles of association by which two or more
persons obligate themselves to place in a common fund any property, industry, or any of these
things, in order to obtain profit, shall be commercial, no matter what it class may be, provided it
has been established in accordance with the provisions of the Code. However in this case, there
was no common fund. The business belonged to Menzi & Co.The plaintiff was working for
Menzi, and instead of receiving a fixed salary, he was to receive 35% of the net profits as
compensation for his services. The phrase in the written contract en sociedad con, which is
used as a basis of the plaintiff to prove partnership in this case, merely means en reunion con
or in association with.
It is also important to note that although Menzi agreed to furnish the necessary financial aid for
the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray
at its own expense the cost of securing the necessary credit.

Eligio Estanislao, Jr. v. Court of Appeals

G.R. No. L-49982; April 27, 1988
Gancayco, J.:

FACTS:
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at
the corner of Annapolis and Aurora Blvd., Quezon City which were then being leased to the
Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a gas
station thereat to be known as Estanislao Shell Service Station with an initial investment of
P15,000.00 to be taken from the advance rentals due to them from SHELL for the occupancy of
the said lots owned in common by them.
On May 26, 1966, the parties herein entered into an Additional Agreement with a proviso that
said agreement cancels and supersedes the original agreement executed by the co-owners.
For sometime, the petitioner submitted financial statements regarding the operation of the
business to private respondents, but thereafter petitioner failed to render subsequent accounting.
A demand was made on petitioner:

to render an accounting of the profits;

to execute a public document embodying all the provisions of the partnership agreement;

to pay the plaintiffs their lawful shares and participation in the net profits of the business.

Trial Court:
The complaint (of the respondents) was dismissed. But upon a motion for reconsideration of the
decision, another decision was rendered in favour of the respondents.
CA:

Affirmed in toto
Petitioner:
The CA erred in interpreting the legal import of the Joint Affidavit vis--vis the Additional Cash
Pledge Agreement. Because of the stipulation cancelling and superseding the Joint Affidavit,
whatever partnership agreement there was in said previous agreement had thereby been
abrogated. Also, the CA erred in declaring that a partnership was established by and among the
petitioner and the private respondents as regards the ownership and /or operation of the gasoline
service station business.
ISSUE:
Is a partnership a formed where members of the same family bind themselves to contribute
money to a common fund with the intention of dividing the profits among themselves?

HELD:
Yes. There is no merit in the petitioners contention that because of the stipulation cancelling and
superseding the previous joint affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. Said cancelling provision was necessary for the
Joint Affidavit speaks of P15,000.00 advance rental starting May 25, 1966 while the latter
agreement also refers to advance rentals of the same amount starting May 24, 1966. There is
therefore a duplication of reference to the P15,000.00 hence the need to provide in the
subsequent document that it cancels and supercedes the previous none. Indeed, it is true that
the latter document is silent as to the statement in the Join Affidavit that the value represents the
capital investment of the parties in the business and it speaks of the petitioner as the sole
dealer, but this is as it should be for in the latter document, SHELL was a signatory and it would
be against their policy if in the agreement it should be stated that the business is a partnership
with private respondents and not a sole proprietorship of the petitioner
The Joint Affidavit of April 11, 1966 (Exhibit A), clearly stipulated by the members of the same
family that the P15,000.00 advance rental due to them from SHELL shall augment their "capital
investment" in the operation of the gasoline station.
other evidence in the record:

Petitioner submitted to private respondents periodic accounting of the business.

Petitioner gave a written authority to private respondent Remedios Estanislao, his sister, to
examine and audit the books of their "common business" (aming negosyo).

Respondent Remedios assisted in the running of the business.

Heirs of Jose Lim v. Juliet Villa Lim

G.R. No. 172690; March 3, 2010
Nachura, J.:

Facts:
In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a partnership agreement with
Jimmy Yu and Norberto Uy. The three contributed P50,000.00 each and used the funds to
purchase a truck to start their trucking business. A year later however, Jose Lim died. The eldest
son of Jose Lim, Elfledo Lim, took over the trucking business and under his management, the
trucking business prospered. Elfledo was able to but real properties in his name. From one truck,
he increased it to 9 trucks, all trucks were in his name however. He also acquired other motor
vehicles in his name.
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack. Elfledos wife,
Juliet Lim, took over the properties but she intimated to Jimmy and the heirs of Norberto that she
could not go on with the business. So the properties in the partnership were divided among them.
Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do an accounting
of all income, profits, and properties from the estate of Elfledo Lim as they claimed that they are
co-owners thereof. Juliet refused hence they sued her.

The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the partnership that
Jose Lim formed with Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim was the
partner and not Elfledo Lim. The heirs testified that Elfledo was merely the driver of Jose Lim.

ISSUE:
Whether a partnership existed.
Who is the partner between Jose Lim and Elfledo Lim?

HELD:
YES. A partnership exists when two or more persons agree to place their money, effects, labor,
and skill in lawful commerce or business, with the understanding that there shall be a
proportionate sharing of the profits and losses among them. A contract of partnership is defined
by the Civil Code as one where two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves.
It is Elfledo Lim based on the evidence presented regardless of Jimmy Yus testimony in court
that Jose Lim was the partner. If Jose Lim was the partner, then the partnership would have been
dissolved upon his death (in fact, though the SC did not say so, I believe it should have been
dissolved upon Norbertos death in 1993). A partnership is dissolved upon the death of the
partner. Further, no evidence was presented as to the articles of partnership or contract of
partnership between Jose, Norberto and Jimmy. Unfortunately, there is none in this case, because
the alleged partnership was never formally organized.
But at any rate, the Supreme Court noted that based on the functions performed by Elfledo, he is
the actual partner.
The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and
Norberto:
1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date
that coincided with the payment of the initial capital in the partnership;
2.) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority,
without any intervention or opposition whatsoever from any of petitioners herein;
3.) all of the properties, particularly the nine trucks of the partnership, were registered in the
name of Elfledo;
4.) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating
that what he actually received were shares of the profits of the business; and
5.) none of the heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in the case of Heirs of Tan Eng Kee, a demand for
periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and Juliet formed part of the estate of
Jose, having been derived from Joses alleged partnership with Jimmy and Norberto.
Elfledo was not just a hired help but one of the partners in the trucking business, active and
visible in the running of its affairs from day one until this ceased operations upon his demise.

The extent of his control, administration and management of the partnership and its business, the
fact that its properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only contributed in the initial capital
but had no say thereafter on how the business was ran. Evidently it was through Elfredos efforts
and hard work that the partnership was able to acquire more trucks and otherwise prosper. Even
the appellant participated in the affairs of the partnership by acting as the bookkeeper sans salary.

CHARLES F. WOODHOUSE vs. FORTUNATO F. HALILI,

G.R. No. L-4811; July 31, 1953
Labrador, J.:

FACTS
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant
Halili stating among others that: 1) that they shall organize a partnership for the bottling and
distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the
defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure
the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, that he had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a milliondollars in the bottling and distribution of the
said beverages, and requested, in order that he may close the deal with him, that the right to
bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation. Pursuant to this request, plaintiff was given a thirty days option
on exclusive bottling and distribution rights for the Philippines. The contract was finally signed
by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and
3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the
other hand claims that: 1) the defendants consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that plaintiff did not secure the franchise
but was given to defendant himself 2) that defendant did not fail to carry out his undertakings,
but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as
damages.

The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2)
execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasnt proved

ISSUES

1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission
beverages
2. WON false representation, if it existed, annuls the agreement to form the partnership

HELD

1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission
Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the
agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement to secure the Mission Dry franchise for and in behalf
of the proposed partnership. The existence of this provision in the final agreement does not
militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The defendant believed, or was
made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also
agreed upon that the franchise was to be transferred to the name of the partnership, and that,
upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not
have the exclusive franchise, was to reduce, as he himself testified, plaintiffs participation in the
net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he(plaintiff) was the exclusive grantee of the franchise.

2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for damages only. The Supreme Court
has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the making of the contract.

The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for
the partnership. The original draft prepared by defendants counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of
an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the
share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may the
agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is
evident from the very language of the agreement that the parties intended that the execution of
the agreement to form a partnership was to be carried out at a later date. , The defendant may not
be compelled against his will to carry out the agreement nor execute the partnership papers. The
law recognizes the individuals freedom or liberty to do an act he has promised to do, or not to do
it, as he pleases.