You are on page 1of 8

Heirs of Jose Lim v Juliet Villa Lim

Facts:
Petitioners are the heirs of the late Jose Lim represented by Elenito. They filed a Complaint [4] for
Partition, Accounting and Damages against respondent Juliet Villa Lim, widow of the late Elfledo, who
was the eldest son of Jose.
Sometime in 1980, Jose, together with his friends Jimmy and Norberto, formed a partnership to engage
in the trucking business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be
used in the hauling and transport of lumber of Interwood Sawmill. Jose managed the operations of this
trucking business until his death. Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares in the partnership profits and
income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority
for Elfledo to use, purchase or acquire properties using said funds.
On May 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that
respondent took over the administration of the properties, which belonged to the estate of Jose,
without their consent and approval. Claiming that they are co-owners of the properties, petitioners
required respondent to submit an accounting of all income, profits and rentals received from the
estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of
this case.
Respondent claimed that Elfledo was himself a partner of Norberto and Jimmy.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership
with Jimmy and Norberto ceased upon his demise. Respondent maintained that all the properties
involved in this case were purchased and acquired through her and her husbands joint efforts and
hard work, and without any participation or contribution from petitioners or from Jose. Respondent
submitted that these are conjugal partnership properties; and thus, she had the right to refuse to
render an accounting for the income or profits of their own business.
RTC rendered its decision in favor of petitioners.
Aggrieved, respondent appealed to the CA.
CA reversed and set aside the RTC's decision.
Undaunted, petitioners filed their Motion for Reconsideration, [5] which the CA.
Issue: WON Elfledo was a partner.
Ruling:
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. [12]
Undoubtedly, the best evidence would have been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this case, because the alleged partnership was never
formally organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the
partner in the trucking business.
In Heirs of Tan Eng Kee v. Court of Appeals [14] Article 1769 of the Civil Code was cited, which
provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other
are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether


such co-owners or co-possessors do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any property
from which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits
of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
Applying the legal provision to the facts of this case, 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;[15] (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;[16] (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;
[17]
and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting
from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18] a demand for
periodic accounting is evidence of a partnership.
Finally, we agree with the judicious findings of the CA, to wit:
It is notable too that Jose Lim died when the partnership was barely a
the partnership and its business not only continued but also flourished.
that it was Jose Lim and not Elfledo who was the partner,
death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were
instead its operation continued under the helm of Elfledo and
participation from the heirs of Jose Lim.

year old, and


If it were true
then upon his
not done but
without any

Philiex Mining Corporation v Commission of Internal Revenue


Facts:
On April 1971, petitioner Philex Mining entered into an agreement [4] with Baguio Gold for the
former to manage and operate the latters mining claim, known as the Sto. Nino mine. The parties
agreement was denominated as Power of Attorney.
The mine suffered continuing losses over the years which resulted to petitioners withdrawal as
manager of the mine on January 1982 and in the eventual cessation of mine operations on February
1982.[6]
On September 1982, the parties executed a Compromise with Dation in Payment [7] wherein Baguio
Gold admitted an indebtedness to petitioner and on December 1982 they executed an Amendment to
Compromise with Dation in Payment[8] where the parties corrected the amount stated in the first
compromise agreement.

In its 1982 annual income tax return, petitioner deducted from its gross income P112,136,000.00 as
loss on settlement of receivables from Baguio Gold. However, the BIR disallowed the amount as
deduction for bad debt for lack of legal and factual basis. It held that the alleged debt was not
ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for
bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that,
under the management contract, petitioner was to be paid fifty percent (50%) of the projects net
profit.[10]
Petitioner appealed before the CTA. CTA denied the petition for lack of merit.
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in
the nature of a loan. It instead characterized the advances as petitioners investment in a partnership
with Baguio Gold for the development and exploitation of the Sto. Nino mine. The CTA held that the
Power of Attorney executed by petitioner and Baguio Gold was actually a partnership agreement. Since
the advanced amount partook of the nature of an investment, it could not be deducted as a bad debt
from petitioners gross income.
CA affirmed the decision of the CTA.
Issue: WON CA erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine
indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form
a partnership.
Ruling:
The Power of Attorney is the instrument that is material in determining the true nature of the
business relationship between petitioner and Baguio Gold. Before resort may be had to the two
compromise agreements, the parties contractual intent must first be discovered from the expressed
language of the primary contract under which the parties business relations were founded.
The execution of the two compromise agreements can hardly be considered as a subsequent
or contemporaneous act that is reflective of the parties true intent. The compromise agreements were
executed eleven years after the Power of Attorney and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the Power of Attorney.
An examination of the Power of Attorney reveals that a partnership or joint venture was indeed
intended by the parties. Under a contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves.[15] While a corporation, like petitioner, cannot generally enter into a contract of
partnership unless authorized by law or its charter, it has been held that it may enter into a joint
venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an organization formed
for some temporary purpose. x x x It is in fact hardly distinguishable from the
partnership, since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. x x x The main distinction
cited by most opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary
nature. x x x This observation is not entirely accurate in this jurisdiction, since under
the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. x x x It would seem
therefore that under Philippine law, a joint venture is a form of partnership and should
be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however engage in a joint
venture with others. x x x (Citations omitted) [16]

Perusal of the agreement denominated as the Power of Attorney indicates that the parties had
intended to create a partnership and establish a common fund for the purpose. They also had a joint
interest in the profits of the business as shown by a 50-50 sharing in the income of the mine.
Under the Power of Attorney, petitioner and Baguio Gold undertook to contribute money,
property and industry to the common fund known as the Sto. Nino mine. [17] In this regard, we note that
there is a substantive equivalence in the respective contributions of the parties to the development
and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio
Gold were to contribute equally to the joint venture assets under their respective accounts. Baguio
Gold would contribute P11M under its owners account plus any of its income that is left in the project,
in addition to its actual mining claim. Meanwhile, petitioners contribution would consist of
its expertise in the management and operation of mines, as well as the managers account which is
comprised of P11M in funds and property and petitioners compensation as manager that cannot be
paid in cash.
It should be stressed that the main object of the Power of Attorney was not to confer a power
in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a business
relationship between petitioner and Baguio Gold, in which the former was to manage and operate the
latters mine through the parties mutual contribution of material resources and industry. The essence of
an agency, even one that is coupled with interest, is the agents ability to represent his principal
and bring about business relations between the latter and third persons. [20] Where representation for
and in behalf of the principal is merely incidental or necessary for the proper discharge of ones
paramount undertaking under a contract, the latter may not necessarily be a contract of agency. In
this case, the totality of the circumstances and the stipulations in the parties agreement indubitably
lead to the conclusion that a partnership was formed between petitioner and Baguio Gold.
As pointed out by the CTA, petitioner was merely entitled to a proportionate return of the
mines assets upon dissolution of the parties business relations. There was nothing in the agreement
that would require Baguio Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or accounts payable for Baguio Gold. Thus, the tax court correctly
concluded that the agreement provided for a distribution of assets of the Sto. Nio mine upon
termination, a provision that is more consistent with a partnership than a creditor-debtor
relationship. It should be pointed out that in a contract of loan, a person who receives a loan or money
or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of
the same kind and quality.[23] In this case, however, there was no stipulation for Baguio Gold to actually
repay petitioner the cash and property that it had advanced, but only the return of an amount pegged
at a ratio which the managers account had to the owners account.
Next, the tax court correctly observed that it was unlikely for a business corporation to lend
hundreds of millions of pesos to another corporation with neither security, or collateral, nor a specific
deed evidencing the terms and conditions of such loans. The parties also did not provide a specific
maturity date for the advances to become due and demandable, and the manner of payment was
unclear. All these point to the inevitable conclusion that the advances were not loans but capital
contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it
would receive 50% of the net profits as compensation under paragraph 12 of the agreement. The
entirety of the parties contractual stipulations simply leads to no other conclusion than that petitioners
compensation is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the receipt by a person of a share in
the profits of a business is prima facie evidence that he is a partner in the business. Petitioner asserts,
however, that no such inference can be drawn against it since its share in the profits of the Sto Nino
project was in the nature of compensation or wages of an employee, under the exception provided in
Article 1769 (4) (b).[24]
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold
who will be paid wages pursuant to an employer-employee relationship. To begin with, petitioner was
the manager of the project and had put substantial sums into the venture in order to ensure its
viability and profitability. By pegging its compensation to profits, petitioner also stood not to be

remunerated in case the mine had no income. It is hard to believe that petitioner would take the risk of
not being paid at all for its services, if it were truly just an ordinary employee.
Consequently, we find that petitioners compensation under paragraph 12 of the agreement
actually constitutes its share in the net profits of the partnership. Indeed, petitioner would not be
entitled to an equal share in the income of the mine if it were just an employee of Baguio Gold. [25] It is
not surprising that petitioner was to receive a 50% share in the net profits, considering that the Power
of Attorney also provided for an almost equal contribution of the parties to the St. Nino mine.

ALFREDO N. AGUILA, JR vs. CA and FELICIDAD S. VDA. DE ABROGAR

Facts:

Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending
activities. Private respondent and her late husband, Ruben M. Abrogar, were the registered owners of a
house and lot. On April 1991, private respondent, with the consent of her late husband, and A.C. Aguila
& Sons, Co., represented by petitioner, entered into a Memorandum of Agreement.
On the same day, the parties likewise executed a deed of absolute sale wherein private
respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons, Co.,
represented by petitioner. There was the issuance of a new certificate of title in the name of A.C. Aguila
and Sons Co. in the event she failed to redeem the subject property as provided in the Memorandum of
Agreement.[4]
Private respondent failed to redeem the property.
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co.
filed an ejectment case against her. MTC ruled in favor of A.C. Aguila & Sons, Co. Private respondent
appealed first to the RTC then to the CA and later to this Court, but she lost in all the cases.
On appeal, the CA reversed and held that the transaction between plaintiff-appellant and
defendant-appellee is an equitable mortgage since the real intention of the party is to secure the
payment of debt. Being a mortgage, the transaction entered into by the parties is in the nature of a
pactum commissorium which is clearly prohibited by law. Thus, the issuance of a new TCT was
declared void.
Prohibited by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose
of them. Any stipulation to the contrary is null and void.
Petitioner now contends that he is not the real party in interest but A.C. Aguila & Co., against
which this case should have been brought.

Issue: WON Aguila Jr. is a real party in interest.

Ruling:

Petitioner is not the real party in interest against whom this action should be prosecuted.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided
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.[7] This ruling is now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil
Procedure. Any decision rendered against a person who is not a real party in interest in the case
cannot be executed.[8] Hence, a complaint filed against such a person should be dismissed for failure to
state a cause of action.[9]
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.[10] In this case, private respondent has not shown that A.C. Aguila
& Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private respondent, with the consent of her late
husband, and A. C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its
officers or agents, which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint. [11] We cannot understand why
both the RTC and the CA sidestepped this issue when it was squarely raised before them by petitioner.

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO vs. CA, SEC
and JOAQUIN L. MISA

Facts:
A law firm was duly registered in the Mercantile Registry on 1937. The SEC records show that
such firm underwent several subsequent amendments to the articles of partnership to change the firm
[name] and on December 1980 it became a firm of: Misa, Bito and Lozada, as senior partners with
Ortega, Del Castillo, Jr., and Bacorro, as junior partners.
On February 1988, petitioner-appellant wrote the respondents-appellees a letter stating its
withdrawal from the firm.
On June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership. Respondents-appellees filed
their opposition to the petition.
On March 1989, the hearing officer rendered a decision ruling that [P]etitioner's withdrawal
from the law firm did not dissolve the said law partnership.

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such
as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will.
The parties filed with the appellate court separate appeals. During the pendency of the case,
Attorney Bito and Attorney Lozada both died.
CA AFFIRMED in toto the SEC decision and order appealed from and held: (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and inevitably caused the
dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership which could be
computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney
Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as
no sufficient proof had been shown to indicate that the partnership assets were in any such danger of
being lost, removed or materially impaired.

Issues:
1. WON the CA has erred in holding that the partnership of Bito, Misa & Lozada is a partnership
at will;
2. WON the CA has erred in holding that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith; and

Ruling:

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa &
Lozada" is indeed such a partnership. The partnership agreement does not provide for a specified
period or undertaking. The "DURATION" clause simply states: The partnership shall continue so long
as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners." The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be
considered as partnerships for a definite undertaking. Apparently what the law contemplates is a
specific undertaking or "project" which has a definite or definable period of completion.

The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,

dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership 4 but that it can result in a
liability for damages. 5 In passing, neither would the presence of a period for its specific
duration or the statement of a particular purpose for its creation prevent the dissolution of
any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the
doctrine of delectus personae allows them to have the power, although not necessarily the right, to
dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action
for damages.
The dissolution of a partnership is the change in the relation of the parties caused
by any partner ceasing to be associated in the carrying on, as might be distinguished from
the winding up of, the business. 8 Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in its
termination. 9

You might also like