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When partnership exists

LEUNG v. IAC, YIU (1989)

Facts:
Sun Wah Panciteria (Sun Wah) was established and registered as a single proprietorship and its licenses
and permits were issued in favor of petitioner Leung as the sole proprietor. Respondent Yiu adduced
evidence to show that Sun Wah was actually a proprietorship and that he was one of the partners having
contributed P4,000 to its initial establishment.

Evidence adduced by Yiu:

Yiu gave 4k as his contribution to the partnership (evidence by a receipt, written in Chinese, wherein
Leung acknowledged his acceptance of the 4k by affixing his signature thereto). The same was translated
to the court by Florence Yap. Yiu identified the signature on the receipt as that of Leung because it was
affixed by the latter in his presence; the same was corroborated by two other witnesses by presenting
another receipt wherein it was also signed by Leung.

Furthermore, Yiu received from Leung the amount of P12K covered by the latters check from the profits
of the operation of the restaurant for the year 1974. The Chief of the bank testified that the said check
was deposited by and duly credited to Yius savings account with the bank after it was cleared by the
drawee bank (Equitable).

Leung denied having received P4k from Yiu; contested and impugned the genuineness of the receipt.

Evidence adduced by Leung:

He did not receive any contribution. He used his savings from his salaries as an employee at Camp
Stotsenberg. And later as waiter at the Toho Restaurant amounting to a little more than P2k as capital
establishing Sun Wah. To bolster his contention that he was the sole owner of the restaurant, Leung
presented various govt licenses and permits showing Sun Wah was and still is a single proprietorship
solely owned and operated by himself alone.

TC ruled in favor of Yiu.

Yiu file motion for new trial to include in the prayer the net profit of the Sun Wah Panciteria which was not
specified in the decision TC granted MNT.

Leung appealed modified and granted TCs decision.

Leung filed for MR denied.

Issue:
Whether or not there was a partnership.

Ruling:
Yes.

Both the trial court and the appellate court found that the private respondent is a partner of the petitioner
in the setting up and operations of the panciteria. While the dispositive portions merely ordered the
payment of the respondents share, there is no question from the factual findings that the respondent
invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled
to a share of the annual profits of the restaurant. The petitioner, however, claims that this factual finding is
erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of
which private respondent allegedly will receive a share in the profits of the restaurant. The same
complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious
error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo)

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave
P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent (22%)
of the annual profit derived from the operation of the said panciteria. These allegations, which were
proved, make the private respondent and the petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or
more persons bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".

Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We agree with the appellate court's
observation to the effect that "... given its ordinary meaning, financial assistance is the giving out of
money to another without the expectation of any returns therefrom'. It connotes an ex gratia dole out in
favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was
given to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a
return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two
percentum (22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The
well-settled doctrine is that the '"... nature of the action filed in court is determined by the facts alleged in
the complaint as constituting the cause of action."

Historical background of partnership

SCHOLES & CO. v. HERNANDEZ GOYENECHEA

Facts:
Scholes & Co, a partnership, was engaged in the business of buying and selling cows, woods, bricks, and
the products of the country. The proofs show that it never attempted to comply with any of the
requirements of the Code of Commerce. If it had complied with that Code it would have been a judicial
person. (Article 116.) Assuming, without deciding, that civil partnerships are also juridical persons, did
Prautch and Scholes not having complied with the Code of Commerce nevertheless become a civil
partnership and thus acquire a personality of its own?

Article 35 of the Civil Code provides that the following are juridical persons:

1. The corporations, associations, and institutions of public interest recognized by law.

Their personality begins from the very instant in which, in accordance with law, they are validly
established.

2. The associations of private interest, be they civil, commercial, or industrial, to which the law may
grant proper personality, independent of each member thereof.

Article 36 is as follows:

The associations referred to in No. 2 of the foregoing article, shall be governed by the provisions of their
articles of associations, according to the nature of the latter.

It becomes necessary to know what partnerships are civil and what ones are mercantile in order to know
in a particular case by what provisions of law the partnership there in question is governed. Is a
commercial partnership distinguished from a civil one by the object to which it is devoted or by the
machinery with which it is organized? We think that the former distinction is the true one. The Code of
Commerce of 1829 distinctly provided that those partnerships were mercantile which had for their object
an operation of commerce. (Art. 264.) The present Code has not in our opinion made any radical change
in this respect. Article 123 provides that mercantile partnerships may be of any class provided that their
agreements are lawful and their object industry or commerce.

Article 1, 2, declares that mercantile and industrial partnerships are merchants. It does not say that all
partnerships are merchants even if organized under this Code. It is true that article 116 provides that the
contract of partnership shall be mercantile whatever may be its class provided it is organized in conformity
with the requirements of the Code. Whatever this may mean it can not be construed as indicating that a
partnership organized for a purpose not connected at all with industry or commerce shall be a mercantile
partnerships, thus rendering useless the whole of article 123, and unnecessary the words "mercantile and
industrial" in article 1, 2. The present Code does not therefore allow partnerships not included in article
123 to organize under it. That permission is, however, given to them by article 1670 of the Civil Code.

This article 1670 is entirely inconsistent with the idea that civil and mercantile partnership are
distinguished only by the methods of their organization. (1) Its language is: "Civil partnerships, on account
of the objects to which they are devoted." (2) If article 116 of the Code of Commerce is to be so construed
that all partnerships organized in conformity with that Code are mercantile no matter to what ends they
are devoted then this article of the Civil Code is unnecessary and useless. If, however, the true distinction
is found as we believe in the objects to which the partnerships are devoted, this article can have effect.

The Code of Commerce declares the manner in which commercial partnerships can be organized. Such
organization can be effected only in certain well-defined ways. The provisions of this Code were well-
known when the Civil Code was adopted. The author of that Code when writing article 1667, having in
mind the provisions of the Code of Commerce, did not say that a partnership may be organized in any
form, which would have repealed the said provisions of the Code of Commerce, but did say instead that a
civil partnership may be organized in any form.

If that section includes commercial partnerships then such a partnership can be organized under it
selecting from the Code of Commerce such of its provisions as are favorable to the partners and rejecting
such as are not, and even including in its articles of agreement prohibited. Such a construction would
allow a commercial partnership to use or dispense with the Code of Commerce as best suited its own
ends.

For example a partnership is organized for commercial purposes. It fails to state its agreements in a
public document. The managers are sued by a third person with whom the partnership has contracted,
and it is claimed that each of such managers is liable for the whole debt, they having violated article 119
of the Code of Commerce. Their answer is that although they are organized for commercial purposes,
they have intentionally omitted to comply with said article 119, and consequently they are a civil
partnership, to the managers of which article 120 declaring such liability does not apply.

Another case may be supposed. A partnership is organized for commercial purposes. It fails to comply
with the requirements of article 119. A creditor sues the partnership for a debt contracted by it, claiming to
hold the partners severally. They answer that their failure to comply with the Code of Commerce makes
them a civil partnership and that they are in accordance with article 1698 of the Civil Code only liable
jointly. To allow such liberty of action would be to permit the parties by a violation of the Code to escape a
liability which the law has seen fit to impose upon persons who organized commercial partnerships;
"Because it would be contrary to all legal principles that the nonperformance of a duty should redound to
the benefit of the person in default either intentional or unintentional." (Mercantile Law, Eixala, fourth ed.,
p. 145.)

On the commentators writing since the promulgation of the Civil Code Blanco thus defines the difference
between a civil and a mercantile partnership: "If we can define the contract of partnership in general by
saying that it is one by virtue of which several persons bring their property or industry into a common fund
for the attainment of a common purpose by common means, then a mercantile partnership will be one in
which two or more persons put their property or industry in common or both, applying them to commercial
transaction for the purpose of obtaining some profit to be divided among them." (2 Blanco, Mercantile
Law, 332.)

Manresa's statement that if partnerships are not organized under the Code of Commerce they become
civil partnerships clearly refers to industrial partnerships as distinguished from mercantile, and his opinion
thus agrees entirely with that of Aramburo above stated. (1 Manresa, Spanish Civil Code, 184.)

It is not necessary in this case to attempt to define an industrial partnership or to distinguish between it
and a civil partnership on one hand and a commercial partnership on the other. The partnership of
Prautch, Scholes & Co. was a typical commercial partnership buying personal property with the purpose
of reselling it in the same form at a profit.

Article 1697 of the Italian Civil Code is substantially the same as article 1665 of our Civil Code. Supino in
his commentaries on the Commercial Law of Italy, referring to article 1697, says: "This definitions is in
general applicable even to mercantile partnerships which are those which are established with the view to
effecting one or more commercial operations. (Art. 76.) It is therefore the purpose which determines the
character of a partnership as civil or mercantile. The mercantile form assumed by a partnership whose
purposes are of a civil nature is not sufficient to give it the character of a mercantile partnership; it will be
governed by the provisions of the Code of Commerce, except with respect to bankruptcy and jurisdiction.
(Art. 229.) (Mercantile Law, p. 168)."

We have found no opinion holding the contrary doctrine except a note (p. 44) by the translator of Supino's
work, which is as follows: "(a) Our Code provides that inscription in the Mercantile Registry is obligatory
upon companies and partnerships. (Art. 17.) Upon this inscription and the will of the partners depend the
character, civil or mercantile, as the Civil Code does not establish any essential difference (art. 1665)
between the two classes, and authorizes civil partnership (art. 1670) to organize with all the formalities
prescribed by the Code of Commerce. (T.N.)"

The following note also occurs in the work of Don Ramon Marti de Eixala (p. 259): "(b) Text writers have
discussed the question as to whether the division of the social capital into shares in peculiar to
commercial associations. This is denied by Troplong (No. 143 of the Commentaries of the Contract of
Partnership), who maintains that a company of partnership is to be classified as civil or mercantile
according to its object and not according to its mechanism. But other writers support the contrary view."

We hold then on principle and authority that the contract of partnership between Prautch and Scholes was
in its nature commercial; that under article 36 of Civil Code said partnership was governed by the
provisions of the Code of Commerce; that its failure to comply with the requirements of that Code did not
make it a civil partnership, and thus give it legal personality, which we have assumed such partnerships
have.

Having seen that the partnership in question is governed by the Code of Commerce, it remains to
ascertain what are the consequences of the failure of the partners to comply with the requirements of the
Code.

Article 116 provides that the partnership shall have personality if it is organized in accordance with the
Code. This impliedly denies to it personality unless it is so organized. The partners are required to state
their agreement in a public writing, and to record them in the Mercantil Registry. (Art. 119, 17.)

Article 24 is as follows:

Articles constituting associations not recorded shall be binding between the members who execute the
same but they shall not prejudice third persons, who, however, may make use thereof in so far as
advantageous.
That a commercial partnership which has not recorded its articles of agreement can not maintain an
action in its firm name is well settled by the authorities.

We see, then, that with respect to both classes of artificial persons (civil and mercantile) certain
formalities must be observed in order that their constitution result in legal effects. (1 Mucius Scaevola,
Com. Civil Code, p. 317.)

It is also the fact that a mercantile partnership can not legally exist nor avail itself of the sanction of article
296 of the Code of Commerce (reference is made to the old Code) in enforcing its right against a third
person until articles are recorded in the Provincial Registry.

It has also been declared that although under the provisions of article 284 of the Code of Commerce all
contracts of commercial partnerships must be evidenced by public instrument executed with all the legal
formalities, and although the failure to comply with this requirement results in the nullity of the contract
and makes it unenforceable for the purposes of bringing action under the general provisions of article 236
of the same Code, nevertheless persons who, conjointly and under a firm name or without it, but without
being organized with the formalities required, have entered into contracts with third persons they may in
their individual capacity bring suit upon actions resulting from such contracts. (3 Estasen, Mercantile Law,
36, 37.)

The decisions of the Supreme Court deny legal personality to mercantile partnerships whose articles of
agreement are not recorded. (Judgments of May 8, 1885; March 12, 1888; November 23, 1883.)

It would be strange if this principle were not found in the positive law. When several persons unite for a
common end and desire to transact their joint business in the name of a new artificial being which they
created, they should notify the public who the persons are that are responsible for the acts of this new
entity. That notice can be given in no better way than by requiring them to file their articles in the
Mercantile Registry, a public record.

The firm of Prautch, Scholes & Co. had no legal personality, and this action can not be maintained in its
name.

EVANGELISTA, EVANGELISTA, and EVANGELISTA v. CIR, CTR

Facts:
The Evangelistas borrowed from their father P59,400.00 which together with their monies was used by
them for buying real ppts. They bought the following properties:
a. from Florentino a lot including improvements thereon (P100k);
b. from Oppus 21 parcels of land including improvements thereon (P130,000);
c. from Insular Investments a lot including improvements thereon; and
d. from Afable a lot inc. improvements thereon.

They appointed their brother Simeon to manage their properties with full power to lease; to collect and
receive rents; to issue receipts therefor; in default of such payment, to bring suits against the defaulting
tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and
checks for them.

They had the properties rented or leased to various tenants.

Respondent CIR demanded the payment of income tax on corporations, real estate dealers fixed tax and
corporation residence tax.

The Evangelistas prayed before the CTA that they be absolved from the payment of the mentioned taxes.

Issue:
Whether or not they are partnership, thus subject to corporation tax.

Ruling:
Yes, they are a partnership, thus subject to corporation tax.

With respect to the tax on corporations, the issue hinges on the meaning of the terms "corporation" and
"partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read:

SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (compaias colectivas), a tax upon such income equal
to the sum of the following: . . .

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not
include duly registered general copartnerships. (compaias colectivas).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money, properly, or
industry to a common fund, with the intention of dividing the profits among themselves.

Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not property inherited
by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion
thereof in order to establish said common fund.

2. They invested the same, not merely not merely in one transaction, but in a series of transactions.
On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots
(24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property acquired by
the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually
peculiar to business transactions engaged in the purpose of gain.

3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948
inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization thereof.

4. Since August, 1945, the properties have been under the management of one person, namely
Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15)
years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista
became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set
up already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership,
the collective effect of these circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the
cases cited by petitioners herein, and, hence, those cases are not in point.

Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts
performed by them, a legal entity, with a personality independent of that of its members, did not come into
existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense
was correctly rejected by the Court of Tax Appeals.

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct
and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are
not necessarily "partnerships", in the technical sense of the term.

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

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

DIETRICH v. O.K. FREEMAN, PIERCE, and WHITCOMB

Facts:
Freeman, Pierce, and Whitcomb (FPW) are owners and operators of the Manila Steam Laundry. When
Dietrich was first employed this steam laundry was owned and operated by FPW. Pierce, sold all of his
right, title and interest in the said laundry to Whitcomb, who together with Freeman, then became the
owners of this laundry and continued to operate the same as long as Dietrich was employed.

TC found out that Dietrich was due P752.

Whitcomb insists before the SC that (a) the court erred in giving, jointly and severally, a judgment against
Freeman and Whitcomb for any sum whatever and (b) that the court erred in holding Whitcomb liable.

Issue:
Whether or not Whitcomb is liable.

Ruling:
No.

It appears from the record that Whitcomb never knew the plaintiff, never had anything to do with
personally, and that the plaintiff's contract was with Freeman, the managing partner of the laundry. It
further appears from the record that Pierce, after he sold his interest in this laundry to Whitcomb,
continued to look after Whitcomb's interest by authority of the latter.

Articles 17 and 119 of the Code of Commerce provide:

Art. 17. The record in the commercial registry shall be optional for private merchants and compulsory
for associations established in accordance with this code or with special laws, and for vessels.

Art. 119 Every commercial association before beginning business shall be obliged to record its
establishment, agreements, and conditions in a public instrument, which shall be presented for record in
the commercial registry, in accordance with the provisions of article 17.

Additional instrument which modify or alter in any manner whatsoever the original contracts of the
association are subject to the same formalities, in accordance with the provisions of article 25.

Partners can not make private agreements, but all must appear in the articles of copartnership.

In the organization of this partnership by Freeman and Whitcomb the above provisions of law were not
complied with; that is, no formal partnership was ever entered into by them, notwithstanding the fact that
they were engaged in the operation of this laundry.

The purpose for which this partnership was entered into by Freeman and Whitcomb show clearly that
such partnership was not a commercial one; hence the provisions of the Civil Code and not the Code of
Commerce must govern in determining the liability of the partners.

The plaintiff was employed by and performed services for the Manila Steam Laundry and was not
employed by nor did he perform services for Freeman alone. The public did not deal with Freeman and
Whitcomb personally, but with the Manila Steam Laundry. These two partners were doing business under
this name and, as we have said, it was not a commercial partnership. Therefore, by the express
provisions of articles 1698 and 1137 of the Civil Code the partners are not liable individually for the entire
amount due the plaintiff. The liability is pro rata and in this case the appellant is responsible to the plaintiff
for only one-half of the debt.

HUNG-MAN-YOC, in the name of KWONG-WO-SING v. KIENG-CHO-SENG, ET. AL.

Facts:

The court below found that Chu-Che-Co, Yu-Yec-Pin, and Ang-Chu-Keng were partners of Kiong-Tiao-
Eng, under the firm name of Kieng-Chiong-Seng.

It has been not proved that Kieng-Chiong-Seng was the firm name, but rather the designation of the
partnership.

It can not be the firm name of a general partnership because this should contain the names of all the
partners, or some of them, or at least one of them to be, followed in the two latter cases by the words
"and company" (art. 126 of the Code of Commerce), whereas in this case none of the four names of those
it is alleged were members of the firm appear in the firm name of the partnership. Neither can it be
considered as the firm name of a limited partnership for the reason that this should contain the same
requisites as the firm name of a general partnership, and in addition thereto the word "limited." (Art. 146.)
The firm name in question has absolutely none of these requisites.

Anonymous partnership (corporations) do not require a firm name or signature; a designation adequate,
for the object or objects of the business to which it is dedicated, is sufficient. (Art. 151 and 152.)
The fact is, as alleged by the plaintiff and appellee in his brief, that "there is no doubt that the partnership
of Kieng-Chiong-Seng was a mercantile partnership organized for the purpose of engaging in commercial
pursuits, although such organization was not evidenced by any public document as required by article 119
of the Code of Commerce, nor was it registered as required by article 17 of the said code" (p.5).

Issue:
Whether or not Kieng-Chiong-Seng is a partnership.

Ruling:
Yes.

The partnership in question was a mercantile one, as it was engaged in the importation of goods for sale
here at a profit. It was so testified to by its manager, Yu-Yec-Pin, and Kiong-Tiao-Eng. But its organization
is not evidenced by any public document. The agent Yu-Yec-Pin himself and some of his so-called
partners have merely noted in the books of the partnership, which by the way, were not introduced in
evidence, the capital which each had contributed. The agent further testified that the partnership was not
record in the Mercantile Registry but in the Internal Revenue office.

All this being so, the alleged partnership never had any legal existence nor has it acquired any judicial
personality in the acts and contracts executed and made by it. (Art. 116, par. 2.)

But as the said partnership was a partnership de facto, although it had no legal standing, and contracted
obligations in favor of the plaintiff, the liability arising from such obligations must enforcible against some
one.

The partnership in question not being included in any of the classes of partnership defined by the Code of
Commerce there should be applied to it the general provisions applicable to all partnerships contained in
article 120 of the Code of Commerce, which reads as follows:

The persons in charge of the management of the association who do not comply with the provisions of the
foregoing article (art. 119, which requires that the articles of partnership be recorded in a public
instrument, and that the partnership be registered in the Mercantile Register) shall be responsible
together with the persons not members of the association with whom they may have transacted business
in the name of the same.

The defendant, Chua-Che-Co, was in charge of the management of the association, nor did he make any
contract at all with the plaintiff, as clearly appears from the testimony of the various witnesses, the agent
of the partnership, Yu-Yec-Pin, being the person who made all the contracts for the partnership; also
Kieng-Tiao-Eng according to two of the witnesses. It is evident, therefore, that he has incurred no liability
and that he can not be held individually responsible for the payment of plaintiff's claims as the court below
found.

DE LOS REYES v. LUKBAN and BORJA


Facts:
Jul 15 1905 - De los Reyes (DLR) brought suit against the firm of Lukban and Borja (Firm) to recover a
sum of money for merchandise bought on credit in the October and November 1904 from ship supply
store known by the name of La Industria. Judge ruled against the Firm and ordered it to pay De los Reyes
with legal interest.

Aug 19 1913 DLR brought against the Firm to recover a sum of money, alleging for this purpose that
Borja paid P522 on account of the sum of allowed in the judgment referred to in the preceding paragraph.
After hearing the case, judge absolved the firm from the complaint.
Several years ago and 7 mos after its organization, the Firm was lawfully dissolved, as stated by Borja;
and 5 yrs from the said month stipulated for its duration had elapsed. The Articles of Inc. of the Firm are
found in the attachment doc.

Lukban and Borja, notwithstanding that they alleged themselves to be copartners of the firm of Lukban &
Borja, were not sued by the DLR in cases Nos. 3759 and 10908, but that plaintiff sued the firm of Lukban
& Borja, represented by Borja.

After hearing the evidence, the court rendered judgment sentencing Lukban and Borja jointly and
severally to pay DLR. To this judgment Lukban excepted, announced his intention to file the proper bill of
exceptions and moved for a new trial on the grounds that the evidence did not justify the decision and that
the latter was contrary to law. By an order of December 10, the motion for a new trial was overruled and
an exception was entered by this defendant-appellant. The other defendant, Espiridion Borja, made no
exception to the said ruling so the judgment became final with respect to him.

Issue:
Whether or not Lukban is solidarily liable to partnership debts.

Ruling:
Yes.

With respect to the first assignment of error, the contents of the writ and the return of the execution of the
final judgment rendered in the said case No. 3759 show that the dissolved partnership of Lukban & Borja
had absolutely no property whatever of its own. Had any property whatever of the said partnership still
remained, the defendant Lukban would have pointed it out inorder to avoid being obliged to pay in
solidum all the balance of the sum which the firm was sentenced to pay by the said final judgment of
October 19, 1905. He did not do so because the firm of Lukban & Borja no longer had any kind of
property or credits, as shown by the document setting forth the agreement made by and between several
creditors of the said firm, a third party named Ramon Tinsay and the former partner of the firm, Espiridion
Borja, in which document it appears that the firm Lukban & Borja owed four creditors, among them the
plaintiff De los Reyes, the total sum of P10,165.01 and these creditors with some difficulty succeeded in
collecting the sum of P5,000 through a transaction with the said Ramon Tinsay who paid this last amount
for the account of the partner Espiridion Borja. It appears that the latter paid to the creditor De los Reyes
the aforementioned sum of P522.69, on account of the firm's debt to Teodoro de los Reyes, a debt which
was recognized in the said judgment of October 19, 1905. The attachment, or recourse to the property,
the lack of which proceeding was complained of, is a proceeding that was resorted to when attempt was
made to execute the final judgment rendered against the partnership of Lukban & Borja, which
proceeding gave negative results; therefore, if the requirement of article 237 of the Code of Commerce
must be complied with by the creditor it is evident that it has already been done for the defendant Lukban
was unable to show that the partnership to which he belonged actually possessed any more assets.

With respect to the second assignment of error, if Teodoro de los Reyes is entitled to collect individually
from the partners Lukban and Borja the amount of the debt that the dissolved partnership owed at the
time of its dissolution, it is unquestionable that such a right has given rise to the corresponding right of
action to demand the payment of the debt from the partners individually, or from each of them, by the
insolvency of the partnership, inasmuch as they are personally and severally liable with all their property
for the results of the operations of the partnership which they conducted.

Article 127 of the Code of Commerce provides:

All the member of the general copartnership, be they or be they not managing partners of the same, are
personally and severally liable with all their property for the results of the transactions made in the name
and for the account of the partnership, under the signature of the latter, and by a person authorized to
make use thereof.
COMPAIA AGRICOLA DE ULTRAMAR v. REYES, ET. AL.

Facts:

The representative of Compania, a partnership legally organized in Madrid, Spain, domiciled in the city of
Manila, presented a complaint in the justice court of Quinga, Bulacan against Anacleto Reyes and others,
setting forth that the defendants were tenants of the Tabang, San Marcos, and Dampol estate, the
property of Compania each one of whom were occupying the quantity of land expressed therein without
having paid the rent for the years 1899, 1900 and 1901, notwithstanding the fact that said payment had
been demanded several times at the end of each year. Compania prayed that judgment be rendered
against defendants, ordering them to vacate the lands occupied by them and restore the possession
thereof to Compania.

Court: denied the petition

CA: affirmed the decision and declared Compania a commercial partnership, and therefore that its
registry in commercial register was necessary in order to appear in an action, and adjudged the payment
of the costs to the plaintiff.

Issue:
Whether or not Compania is a civil partnership.

Ruling:
Yes.

In the present case the property was contributed and a public instrument was duly executed before
Manuel de Bofarull, one of the most famous notaries of all Europe.

Article 1670 provides that civil partnerships, on account of the objects to which they are devoted, may
adopt all the forms recognized by the Commercial Code. In such cases its (Commercial Code) provisions
shall be applicable in so far as they do not conflict with the provisions of this code.

It will be seen from this provision that whether or not partnerships shall adopt the forms provided for by
the Civil or Commercial Codes is left entirely to their discretion. And furthermore, that such civil
partnerships shall only be governed by the forms and provisions of the Commercial Code when they
expressly adopt them, and then only in so far as they (rules of the Commercial Code) do not conflict with
the provisions of the Civil Code. In this provision the legislature expressly indicates that there may exist
two classes of commercial associations, depending not upon the business in which they are engaged but
upon the particular form adopted in their organization. The definition of the partnership found in article
1665 clearly includes associations organized for the purpose of gain growing out of commercial
transactions.

Articles 1671-1678 provide for general and particular partnerships, and give the rules governing the
division of the profits.

The Commercial Code makes special provisions for the liability of the members of the different
associations organized under it. (See the articles contained in sections 2, 3, 4, 5, and 6 of Book II, Title I.)

The Civil Code here again recognizes the existence of civil partnerships, in contradistinction to
commercial partnerships, in expressly providing for the liability if their members (See arts. 1667-1669 of
Chap. II of Title VII.) Chapter III of the same title contains special provisions for the dissolution of civil
associations.

If it is held that an association which adopts the form for its organizations provided for by the Civil Code is
controlled by the rules requiring registration under the Commercial Code, then by which code shall the
courts be governed in applying the rules of the liability of their members and for the dissolution of the
same? We are inclined to the belief that the respective codes, Civil and Commercial, have adopted a
complete system for the organization, control continuance, liabilities, dissolutions, and juristic
personalities of associations organized under each.

It will be seen from these provisions of the codes that the Civil Code has expressly provided for the
existence of commercial associations, giving them juristic personality and certain rights and privileges. In
these provisions no reference is made to the provisions of the Commercial Code. It is contended that
notwithstanding this fact, such associations are nevertheless governed by the provisions of the latter
code. The Commercial Code was enacted and went into effect on the 1st day of December, 1888. The
Civil Code was enacted and took effect on the 31st day of July, 1889. Had it been the intention of the
legislature to provide that all commercial associations, of whatever class, should be governed by the
provisions of the Commercial Code, it certainly would not have provided, at a later date, other rules,
rights, privileges, and regulations. It is our opinion that associations organized under the different codes
are governed by the provisions of the respective codes.

From the articles of association it will be seen that the plaintiff company was organized expressly under
the provisions of the Civil Code, on the 6th day of February, 1893.

From the petition of the plaintiff and the bill of exceptions it appears that the defendants failed and refused
to pay the rent for any of the years previous to 1899. Assuming, without finding it to be a fact, that the
defendants had paid the rents for previous years, then they thereby recognized the plaintiff company as
an entity and are thereby now estopped from setting up the contrary.

While conditions precedent must always be performed, in order that a corporation may have a legal
existence, it does not by any means follow that objection to the existence of a corporation on this ground
alone can be raised by any and every person, and in every proceeding. This objection can always, with
few exceptions, be raised by the State. (Attorney-General vs. Hanchett, 42 Mich., 436; People vs. Water
Co., 97 Cal., 276).

Persons who assume to form a corporation or business association, and exercise corporate functions,
and enter into business relations with third persons, are estopped from denying that they constitute a
corporation. So also are the third persons who deal with such a de facto association or corporation,
recognizing it as such and thereby incurring liabilities, estopped, when an action is brought on such
obligations, from denying the juristic personality of such corporations or associations. (Scheufler vs.
Grand Lodge, 45 Minn., 256; Farmer's Loan and Trust Co. vs. Ann Arbor Ry. Co., 67 Fed. Rep., 49)

Where there is a corporation de facto, with no want of legislative power to its due and legal existence,
when it is proceeding in the performance of a corporate functions, and third persons are dealing with it on
the supposition that it is what it professes to be, and the questions are only whether the law has been
strictly followed in its organization, it is plainly a dictate alike of justice and public policy, that in
controversies between the de facto corporation and those who have entered into contractual relations
with it, as corporations or otherwise, such questions should not be suffered to be raised. (Swarthout vs.
Michigan, etc., Ry. Co., 224 Mich., 390).

Where a shareholder of an association is called upon to respond to a liability as such, and where a party
has contracted with a corporation and is sued upon the contract, neither is permitted to deny the
existence or the legal validity of such corporation. To hold otherwise would be contrary to the plainest
principles of reason and good faith. Parties must take the consequences of the position they assume.
(Casey vs. Galli, 94 U.S., 673; Bliss on Code Pleading, secs. 252-254.)

From the foregoing considerations, the provisions of the articles of association of the plaintiff company,
and the quoted provisions of the Civil and Commercial Codes, we are justified in reaching the following
conclusions:

First. That the plaintiff company had statutory authority to organize under the Civil Code for the purposes
indicated in its articles of association.

Second. That it did effect its organization under the Civil Code in force in these Islands.

Third. The defendants having recognized the existence of the plaintiff as an entity capable of dealing with
private persons, they are thereby estopped from denying that fact.

Fourth. That the plaintiff company, having complied with the forms required for the organization of
associations of its class under the Civil Code, is a juristic person recognized by law, and has capacity to
maintain the present action.

Levels of existence of a partnership

BENJAMIN YU v. NLRC and JADE MOUNTAIN PRODUCTS LTD., CO, BENDAL, BENDAL, HENG,
HO-FU

Facts:
Yu was formerly the Asst. GM of the marble quarrying and export business operated by a registered
partnership Jade Mountain Products Company. The partnership was originally organized on Jun 28
1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shiang Jeng, Chen Ho-Fu and
Yu Chang, all citizens of Taiwan, as ltd. Partners.

Yu was hired by virtue of a Partnership Resolution as Asst GM w/ a monthly salary of P4k. According to
Yu he received only half of it since he had accepted the promise of the partners that the balance would be
paid when the firm shall have secured addtl operating funds from abroad. Yu actually managed the
operations and finances of the business, had overall supervision of the workers at the marble quarry in
Bulacan and took charge of the preparation of papers relating to the exportation of the firms products.

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. A Supplement to the Memorandum
Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in
February of 1988. 2 The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.

Yu reported to the Mandaluyong office for work and there met private respondent Willy Co for the first
time. Yu 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 Yu unpaid salaries. Yu was in fact not allowed to work anymore in the Jade Mountain business
enterprise. His unpaid salaries remained unpaid.

Yu filed for illegal dismissal and recovery of unpaid salaries and damages against Jade Mountain.
Respondents denied the allegations and contended that Yu was never hired as an employee by new
partnership.

LA: Yu had been illegally dismissed; decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attys fees.

NLRC: reversed the LA decision; the new partnership had not retained Yu as asst GM and there is no law
requiring the new partnership to absorb the employees of the old partnership. Therefore, Yu had not been
illegally dismissed by the new partnership.

Issue:
Whether or not the partnership which had hired petitioner Yu as Asst GM had been extinguished and
replaced by a new partnership.

Ruling:
Yes.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of
the changes in the membership of the partnership was the dissolution of the old partnership which had
hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta
in 1987.

The applicable law in this connection of which the NLRC seemed quite unaware is found in the Civil
Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
(Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act in good faith, when no definite term or particular
undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the partners, where the circumstances do not permit a
dissolution under any other provision of this article, by the express will of any partner at any time;

xxx xxx xxx

(Emphasis supplied)

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.

The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not,
however, automatically result in the termination of the legal personality of the old partnership. Article 1829
of the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs
is completed.

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 the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new partners,
without the old partnership undergoing the procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took over the business enterprise owned by
the preceeding 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. There were, no doubt, powerful tax considerations which underlay such an informal
approach to business on the part of the retiring and the incoming partners. It is not, however, necessary to
inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the retiring
partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the
old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw
Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner
remains liable to a third party creditor of the old partnership. 9 The liability of the new partnership, upon
the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of
the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person
or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and
assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or more third persons, if the business is
continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns)
their rights in partnership property to the remaining partner, who continues the business without
liquidation of partnership affairs, either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set
forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of the
deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or
more third persons who promise to pay the debts and who continue the business of the dissolved
partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue the business
under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or with
others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the business, under this
article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only,
unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth in this
article the creditors of the retiring or deceased partner or the representative of the deceased partner, have
a prior right to any claim of the retired partner or the representative of the deceased partner against the
person or partnership continuing the business on account of the retired or deceased partner's interest in
the dissolved partnership or on account of any consideration promised for such interest or for his right in
partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment on the ground of
fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain
which continued the business of the old one without liquidation of the partnership affairs. Indeed, a
creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is
entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's
interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under
which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts on
record are not detailed with sufficient precision to permit such determination. It is, however, clear to the
Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as
well as other claims relating to his employment with the previous partnership, against the new Jade
Mountain.

THE UNITED STATES v. EUSEBIO CLARIN

Facts:
Larin delivered to Tarug P172, in order that the latter, in company with Clarin and de Guzman, might buy
and sell mangoes, and, believing that he could make some money in this business, the said Larin made
an agreement with the 3 men by which the profits were to be divided equally among them.

Tarug, Clarin and de Guzman trded in mangoes and obtained P203 from the business, but did not comply
with the terms of the contract by delivering to Larin his half of the profits; neither did they render hi any
acct of the capital.

Larin charged them with estafa (but the prosecutor charged only Clarin).

CFI: found Clarin guilty.

Issue:
Whether or not there was a partnership.

Ruling:
Yes.

When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he
invested his capital in the risks or benefits of the business of the purchase and sale of mangoes, and,
even though he had reserved the capital and conveyed only the usufruct of his money, it would not
devolve upon of his three partners to return his capital to him, but upon the partnership of which he
himself formed part, or if it were to be done by one of the three specifically, it would be Tarug, who,
according to the evidence, was the person who received the money directly from Larin.

The P172 having been received by the partnership, the business commenced and profits accrued, the
action that lies with the partner who furnished the capital for the recovery of his money is not a criminal
action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership
and a levy on its assets if there should be any.

Whether or not there was estafa. NO.


No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the prejudice
of another, shall appropriate or misapply any money, goods, or any kind of personal property which they
may have received as a deposit on commission for administration or in any other character producing the
obligation to deliver or return the same," (as, for example, in commodatum, precarium, and other
unilateral contracts which require the return of the same thing received) does not include money received
for a partnership; otherwise the result would be that, if the partnership, instead of obtaining profits,
suffered losses, as it could not be held liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer to the charge of estafa, for which it
would be sufficient to argue that the partnership had received the money under obligation to return it.

We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is dismissed
without prejudice to the institution of a civil action.

ROJAS v. MAGLANA

Facts:
Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Devt Enterprises (EDE)
with only the two of them as partners (with indefinite term registered with the SEC).

One of the purposes of the partnership: to apply or secure timber and/or minor forests products licenses
and concessions and concessions over public and/or private forest lands and to operate, develop and
promote such rights and concessions. License was duly issued.

Under the Articles, Maglana shall manage the business affairs, including marketing and handling of cash
and is authorized to sign all papers and instruments r/t the partnership, while Rojas shall be the logging
superintendent and shall manage the logging operations of the partnership; that ll profits and losses of the
partnership shall be divided share and share alike between the partners.

During the period Jan 14 1955-Apr 30 1956 there was NO operation of said partnership.

Because of the difficulties encountered, Rojas and Maglana availed the services of Pahamotang as
industrial partner; consequently, they executed their articles of co=partnership under the same firm name
(term: for 30 years).

They executed a document entitled CONDITIONAL SLAE OF INTEREST IN THE PARTNERSHIP,


EASTCOAST DEVELOPMENT ENTERPRISEagreeing among them that Maglan and Rpjas shal
purchase the interest, share and participation in the partnership of Pahamotang assessed in the amount
of P31,501.12. it was also agreed that after payment of the sum to Pahamotang including the amount of
loan secured by pahamotang in favor of the partnerhship, Maglana and rohas shall become the owners of
all equipment contributed by Pahamotang and the EDE, the name also given to the 2 nd partnership be
dissolved. Pahamotang was paid in full. No other rights and obligations accrued in the name of the 2 nd
partnership.

The partnership was continued by Maglana and Rojas without the benefit of any written agreement or
reconstitution of their written Articles of Partnership,

Rojas entered into a management contract with another logging enterprise, the CMS estate. He left and
abandoned he partnership.

Rojas withdrew his equipment from the partnership, which was his supposed contributions and was
transferred to CMS by way of chattel mortgage.

Maglana wrote Rojas reminding him of his contribution either in cash or equipment.

Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work
as logging supt. The latter then told Rojas that the latters share will just be 20% of the net profits.

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, Maglana notified
Rojas that he dissolved the partnership.

Rojas filed for recovery of properties, accounting, receivership and damages.

Receiver was denied. Petition denied.

Issue:
Whether or not the first partnership was dissolved.

Ruling:
No.

After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears
evident that it was not the intention of the partners to dissolve the first partnership, upon the constitution
of the second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for
Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an
equal share in the profits and fixed the term of the second partnership to thirty (30) years, everything else
was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both
partnerships call for the same amounts. Just as important is the fact that all subsequent renewals of
Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all
intents and purposes therefore, the First Articles of Partnership were only amended, in the form of
Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-
Appellant, p. 5). Otherwise stated, even during the existence of the second partnership, all business
transactions were carried out under the duly registered articles. As found by the trial court, it is an
admitted fact that even up to now, there are still subsisting obligations and contracts of the latter
(Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the second partnership
except in favor of Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp.
919-921).

On the other hand, there is no dispute that the second partnership was dissolved by common consent.
Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and
Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang
and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by
Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding
the latter of his obligation to contribute either in cash or in equipment, to the capital investment of the
partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot
refer to any other but to the provisions of the duly registered Articles of Co-Partnership. As earlier stated,
Rojas replied that he will not be able to comply with the promised contributions and he will not work as
logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was
referring to and left no room for doubt that both considered themselves governed by the articles of the
duly registered partnership.

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can
neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an
existing partnership, duly registered.

As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar,
the answer is in the affirmative.

Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is
in effect a notice of withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership
shall be divided "share and share alike" between the partners.

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise,
the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in equipment to the capital investment and to perform
his duties as logging superintendent, as stipulated in their partnership agreement. The records also show
that Rojas not only abandoned the partnership but also took funds in an amount more than his
contribution (Decision, R.A., p. 949).

In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.

LYONS v. ROSENSTOCK

Facts:
Henry W. Elser was engaged in buying, selling, and administering real estate. E. S. Lyons joined with him,
the profits being shared by the two in equal parts.

Lyons, whose regular vocation was that of a missionary or missionary agent, of the Methodist Episcopal
Church, went on leave to the United States and was gone for nearly a year and a half. Elser made written
statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of real
property. Concurrently with this act Lyons execute in favor of Elser a general power of attorney
empowering him to manage and dispose of said properties at will and to represent Lyons fully and amply,
to the mutual advantage of both.

The attention of Elser was drawn to a piece of land, referred to as the San Juan Estate. He obtained the
loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate. The lender
insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given for said
loan. Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by
himself and Lyons on Carriedo Street to secure the liability thus assumed by it.

The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of
redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were,
involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is
insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two-thirds
shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint.

Issue:
Whether or not there was a general relation of partnership.

Ruling:
No.

The position of the appellant is, in our opinion, untenable. If Elser had used any money actually belonging
to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the Code of
Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law
prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a
person who uses money belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer,
25 Phil., 641.). Of course, if an actual relation of partnership had existed in the money used, the case
might be different; and much emphasis is laid in the appellant's brief upon the relation of partnership
which, it is claimed, existed. But there was clearly no general relation of partnership, under article 1678 of
the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any partnership
composed of himself and Lyons, and the law cannot be distorted into a proposition which would make
Lyons a participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the
United States with reference to trust supply a basis for this action. The doctrines referred to operate,
however, only where money belonging to one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment to see that the situation here involved is
not one for the application of that doctrine, for no money belonging to Lyons or any partnership composed
of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if any
damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the
Carriedo property, Elser's estate would be liable for such damage. But it is evident that Lyons was not
prejudice by that act.

A contract to pursue a business enterprise

HEIRS OF JOSE LIM v. JULIET VILLA LIM

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 buy 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 or not Elfledo Lim is the partner, and not Jose Lim.

Ruling:

Yes.
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.

The above testimonies prove that 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.

It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and
its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who
was the partner, then upon his death the partnership should have been dissolved and its assets
liquidated. On the contrary, these were not done but instead its operation continued under the helm of
Elfledo and without any participation from the heirs of Jose Lim.

Whatever properties appellant and her husband had acquired, this was through their own concerted
efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in
other lines of businesses as well.

SINGSON v. ISABELA SAWMILL

Facts:
Isabela Sawmill was formed by partners Saldajeno, Lon and Timoteo. S withdrew from the partnership
and after dissolution, L and T continued the business still under the name Isabela Sawmill. The
partnership is indebted to various creditors and that Sheriff sold the assets of Isabela Sawmill to S and
was subsequently sold to a separate company.

Issue:
Whether or not Isabela Sawmill ceased to be a partnership and that creditors could no longer demand
payment.

Ruling:
On dissolution, the partnership is not terminated but continues until the winding up of the business. It
does not appear that the withdrawal of S from the partnership was published in the newspapers. The
appellee and the public had a right to expect that whatever credit they extended to L and T doing
business in the name of Isabela Sawmill could be enforced against the properties of said partnership. The
judicial foreclosure of the chattel mortgage executed in favor of S did not relieve her from liability to the
creditors of the partnership.

It may be presumed that S acted in good faith, the appellees also acted in good faith in extending credit to
the partnership. Where one of the 2 innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.

ALFREDO AGUILA JR. VS. CA

FACTS:

In April 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 or not the case filed by Felicidad shall prosper.

HELD:

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. 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. Hence, a complaint filed against such a person should be dismissed for
failure to state a cause of action.

Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that
of each of the partners." The partners cannot be held liable for the obligations of the partnership unless it
is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or
illegal purposes. In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with 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. We cannot understand why both the Regional Trial Court and the Court of
Appeals sidestepped this issue when it was squarely raised before them by petitioner.

BASTIDA VS. MENZI


FACTS:
Bastida offered to assign to Menzi & Co. his contract with Phil Sugar Centrals Agency and 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.

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO


vs.
PACIFIC COMMERCIAL CO.,
FACTS:
The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein, a
motion was presented by the appellants praying this court that this case be considered purely a moot
question now, for the reason that subsequent to the decision appealed from, the partnership
Campos Rueda & Co., voluntarily filed an application for a judicial decree adjudging itself
insolvent, which is just what the herein petitioners and appellants tried to obtain from the lower
court in this proceeding.
The this limited partnership subject in this appeal was, and is, indebted to the appellants in various sums
amounting to not less than P1,000, payable in the Philippines, which were not paid more than thirty days
prior to the date of the filing by the petitioners of the application for involuntary insolvency now before us.
These facts were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven, nor alleged, that the members of
the aforesaid firm were insolvent at the time the application was filed; and that said partners are
personally and solidarily liable for the consequence of the transactions of the partnership, it cannot be
adjudged insolvent so long as the partners are not alleged and proven to be insolvent. From this judgment
the petitioners appeal to this court, on the ground that this finding of the lower court is erroneous.
ISSUE:
Whether or not a limited partnership, the insolvency of all of the partners are necessary in order to
adjudge the partnership as insolvent.
RULING:
No. it is not necessary that all of the members of a limited partnership be insolvent in order to adjudge the
partnership as insolvent. This is because a limited partnership has a separate and distinct personality
than that of its members.
Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for all
intents and purposes, which personality is recognized in all its acts and contracts (art. 116, Code of
Commerce). This being so and the juridical personality of a limited partnership being different
from that of its members, it must, on general principle, answer for, and suffer, the consequence of
its acts as such an entity capable of being the subject of rights and obligations . If, as in the instant
case, the limited partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors for
a period of more than thirty days, which failure constitutes, under our Insolvency Law, one of the acts of
bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this partnership must
suffer the consequences of such a failure, and must be adjudged insolvent.
In the particular case under consideration it can be added that the liability of the limited partners for the
obligations and losses of the partnership is limited to the amounts paid or promised to be paid into the
common fund except when a limited partner should have included his name or consented to its inclusion
in the firm name (arts. 147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty
days to pay its obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and the
International Banking Corporation, the case comes under paragraph 11 of section 20 of Act No. 1956,
and consequently the petitioners have the right to a judicial decree declaring the involuntary
insolvency of said partnership

COMMISSIONER OF INTERNAL REVENUE vs. SUTER

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 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.

ISSUE:

(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;

RULING:

We find the Commissioner's appeal unmeritorious.

A husband and a wife may not enter into a contract of general co-partnership, because under the
Civil Code, which applies in the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from entering
into universal partnerships. It follows that the marriage of partners necessarily brings about the
dissolution of a pre-existing partnership.

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

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

The appellant's view, that by the marriage of both partners the company became a single proprietorship,
is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage; and after they were joined in wedlock,
such contributions remained their respective separate property under the Spanish Civil Code (Article
1396):

The following shall be the exclusive property of each spouse:

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

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

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 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).l

EVANGELISTA VS. CIR

It appears from the stipulation submitted by the parties:

1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together
with their personal monies was used by them for the purpose of buying real properties,.

2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of
3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property has
an assessed value of P57,517.00 as of 1948;

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an
aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this property
has an assessed value of P82,255.00 as of 1948;

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m.
including improvements thereon for P108,825.00. This property has an assessed value of
P4,983.00 as of 1948;

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.34. This property has an assessed value of P59,140.00 as of
1948;

6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to
'manage their properties with full power to lease; to collect and receive rents; to issue receipts
therefor; in default of such payment, to bring suits against the defaulting tenants; to sign all
letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for
them;

7. That after having bought the above-mentioned real properties the petitioners had the same
rented or leases to various tenants;

8. That from the month of March, 1945 up to an including December, 1945, the total amount
collected as rents on their real properties was P9,599.00 while the expenses amounted to
P3,650.00 thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which
amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental
income of P7,498.13;

10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was
deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of
P12,615.35.

It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the
payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the
years 1945-1949. Said letter of demand and corresponding assessments were delivered to petitioners on
December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer
that "the decision of the respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the payment of the taxes in question, with costs against the
respondent.

After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the
respondent, and a petition for reconsideration and new trial having been subsequently denied, the case is
now before Us for review at the instance of the petitioners.

ISSUE:
Whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth
Act. No. 466, otherwise known as the National Internal Revenue Code.
RULING:
YES.
Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money,
properly, or industry to a common fund, with the intention of dividing the profits among
themselves.

Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions In other
words, one cannot but perceive a character of habitually peculiar to business transactions
engaged in the purpose of gain.

3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to
1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still
being so let, for petitioners do not even suggest that there has been any change in the utilization
thereof.
4. Since August, 1945, the properties have been under the management of one person, namely
Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative
to said properties have been handled as if the same belonged to a corporation or business and
enterprise operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen
(15) years, since the first property was acquired, and over twelve (12) years, since Simeon
Evangelista became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the
set up already adverted to, or on the causes for its continued existence. They did not even try to
offer an explanation therefor.

Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts
performed by them, a legal entity, with a personality independent of that of its members, did not come into
existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense
was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking,
are distinct and different from "partnerships". When our Internal Revenue Code includes
"partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter
how created or organized." This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for purposes of the tax on corporations.
Again, pursuant to said section 84(b), the term "corporation" includes, among other, joint accounts,
(cuentas en participation)" and "associations," none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have regarded that personality
as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated,
"duly registered general co-partnerships" which are possessed of the aforementioned personality
have been expressly excluded by law (sections 24 and 84 [b] from the connotation of the term
"corporation" It may not be amiss to add that petitioners' allegation to the effect that their liability in
connection with the leasing of the lots above referred to, under the management of one person even if
true, on which we express no opinion tends to increase the similarity between the nature of their
venture and that corporations, and is, therefore, an additional argument in favor of the imposition of said
tax on corporations.
For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships
with the exception only of duly registered general co-partnerships 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.

JOHN FORTIS VS. GUTIERREZ HERMANOS

FACTS:

Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to recover
a balance due him as salary for the year 1902. He alleged that he was entitled, as salary, to 5 percent of
the net profits of the business of the defendants for said year. The complaint also contained a cause of
action for the sum of 600 pesos, money expended by plaintiff for the defendants during the year 1903.
The court below, in its judgment, found that the contract had been made as claimed by the plaintiff; that 5
per cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos, Mexican
currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican currency,
and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency, with
interest thereon from December 31, 1904. The court also ordered judgment against the defendants for the
600 pesos mentioned in the complaint, and interest thereon. The total judgment rendered against the
defendants in favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40. The
defendants moved for a new trial, which was denied, and they have brought the case here by bill of
exceptions.

The evidence is sufficient to support the finding of the court below to the effect that the plaintiff worked for
the defendants during the year 1902 under a contract by which he was to receive as compensation 5
percent of the net profits of the business. The contract was made on the part of the defendants by Miguel
Alonzo Gutierrez. By the provisions of the articles of partnership he was made one of the managers of the
company, with full power to transact all of the business thereof. As such manager he had authority to
make a contract of employment with the plaintiff.

It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a co-partner of
the defendants in the business which they were carrying on.

ISSUE:
WoN a partnership was created between the plaintiff and the defendants.

RULING:
This contention cannot bo sustained. It was a mere contract of employnent. The plaintiff had no voice nor
vote in the management of the affairs of the company. The fact that the compensation received by him
was to be determined with reference to the profits made by the defendants in their business did not in any
sense make by a partner therein. The articles of partnership between the defendants provided that the
profits should be divided among the partners named in a certain proportion. The contract made between
the plaintiff and the then manager of the defendant partnership did not in any way vary or modify this
provision of the articles of partnership. The profits of the business could not be determined until all of the
expenses had been paid. A part of the expenses to be paid for the year 1902 was the salary of the
plaintiff. That salary had to be deducted before the net profits of the business, which were to be divided
among the partners, could be ascertained. It was undoubtedly necessary in order to determine what the
salary of the plaintiff was, to determine what the profits of the business were, after paying all of the
expenses except his, but that determination was not the final determination of the net profits of the
business. It was made for the purpose of fixing the basis upon which his compensation should be
determined.
In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ of
the defendants on the 19th of Macrh, 1903; that at their request he went to Hongkong, and was there for
about two months looking after the business of the defendants in the matter of the repair of a certain
steamship. The appellants in their brief say that the plaintiff is entitled to no compensation for his services
thus rendered, because by the provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be gratuitous. That article i not
applicable to this case, because the amount of 600 pesos not claimed as compensation for services but
as a reimbursment for money expended by the plaintiff in the business of the defendants. The article of
the code that is applicable is article 1728.

GOQUIOLAY VS. SYCIP

FACTS:
Tan Sin An and Goquiolay entered into a general commercial partnership under the partnership name
Tan Sin An and Antonio Goquiolay for the purpose of dealing in real estate. The agreement lodged upon
Tan Sin An the sole management of the partnership affairs. The lifetime of the partnership was fixed at ten
years and the Articles of Co-partnership stipulated that in the event of death of any of the partners before
the expiration of the term, the partnership will not be dissolved but will be continued by the heirs or
assigns of the deceased partner. But the partnership could be dissolved upon mutual agreement in writing
of the partners. Goquiolay executed a General Power of Attorney in favor of Tan Sin An.

The plaintiff partnership purchased 3 parcels of land which was mortgaged to La Urbana as payment of
P25,000. Another 46 parcels of land were purchased by Tan Sin An in his individual capacity which he
assumed payment of a mortgage debt for P35K. A downpayment and the amortization were advanced by
Yutivo and Co. The two obligations were consolidated in an instrument executed by the partnership and
Tan Sin An, whereby the entire 49 lots were mortgaged in favor of Banco HipotecarioTan Sin An died
leaving his widow, Kong Chai Pin and four minor children. The widow subsequently became the
administratrix of the estate. Repeated demands were made by Banco Hipotecario on the partnership and
on Tan Sin An. Defendant Sing Yee, upon request of defendant Yutivo Sons , paid the remaining balance
of the mortgage debt, the mortgage was cancelled Yutivo Sons and Sing Yee filed their claim in the
intestate proceedings of Tan Sin An for advances, interest and taxes paid in amortizing and discharging
their obligations to La Urbana and Banco Hipotecario.

Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land. She
then sold it to Sycip and Lee in consideration of P37K and of the vendees assuming payment of the
claims filed by Yutivo Sons and Sing Yee. Later, Sycip and Lee executed in favor of Insular Development
a deed of transfer covering the 49 parcels of land.When Goquiolay learned about the sale to Sycip and
Lee, he filed a petition in the intestate proceedings to set aside the order of the probate court approving
the sale in so far as his interest over the parcels of land sold was concerned. Probate court annulled the
sale executed by the administratrix w/ respect to the 60% interest of Goquiolay over the properties
Administratrix appealed.The decision of probate court was set aside for failure to include the
indispensable parties. New pleadings were filed. The second amended complaint prays for the annulment
of the sale in favor of Sycip and Lee and their subsequent conveyance to Insular Development. The
complaint was dismissed by the lower court hence this appeal.

ISSUE/S: Whether or not a widow or substitute become also a general partner or only a limited partner.
Whether or not the lower court err in holding that the widow succeeded her husband Tan Sin An in the
sole management of the partnership upon Tans death Whether or not the consent of the other partners
was necessary to perfect the sale of the partnership properties to Sycip and Lee.

RULING:
There is a merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin,
succeeded her husband, Tan Sin An, in the sole management of the partnership, upon the latter's death.
While, as we previously stated in our narration of facts, the Articles of Co-Partnership and the power of
attorney executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive management of the
business, such power, premised as it is upon trust and confidence, was a mere personal right that
terminated upon Tan's demise. The provision in the articles stating that "in the event of death of any one
of the partners within the 10-year term of the partnership, the deceased partner shall be represented by
his heirs", could not have referred to the managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each partner. The covenant that Antonio Goquiolay
shall have no voice or participation in the management of the partnership, being a limitation upon his right
as a general partner, must be held coextensive only with Tan's right to manage the affairs, the contrary
not being clearly apparent.

Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the
firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise. The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce. Minority of the heirs is not a bar to the application
of that clause in the articles of co-partnership .

Appellants argue, however, that since the "new" members' liability in the partnership was limited merely to
the value of the share or estate left by the deceased Tan Sin An, they became no more than limited
partners and, as such, were disqualified from the management of the business under Article 148 of the
Code of Commerce. Although ordinarily, this effect follows from the continuance of the heirs in the
partnership, it was not so with respect to the widow Kong Chai Pin, who, by her affirmative actions,
manifested her intent to be bound by the partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the partnership properties and was admittedly
deriving income therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In fact,
by executing the deed of sale of the parcels of land in dispute in the name of the partnership, she was
acting no less than as a managing partner. Having thus preferred to act as such, she could be held
liable for the partnership debts and liabilities as a general partner, beyond what she might have
derived only from the estate of her deceased husband. By allowing her to retain control of the
firm's property from 1942 to 1949, plaintiff estopped himself to deny her legal representation of
the partnership, with the power to bind it by the proper contracts.

The question now arises as to whether or not the consent of the other partners was necessary to perfect
the sale of the partnership properties to Washington Sycip and Betty Lee. The answer is, we believe, in
the negative. Strangers dealing with a partnership have the right to assume, in the absence of restrictive
clauses in the co-partnership agreement, that every general partner has power to bind the partnership,
especially those partners acting with ostensible authority. And so, we held in one case:

. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners,
to ascertain whether or not this partner with whom the transaction is made has the consent of the other
partner. The public need not make inquiries as to the agreements had between the partners. Its
knowledge is enough that it is contracting with the partnership which is represented by one of the
managing partners.

"There is a general presumption that each individual partner is an agent for the firm and that he has
authority to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle, 112 Pac., 617]

"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by
one of the members of the firm acting apparently in its behalf and within the scope of his authority." [Le
Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).

JOSE OBILLOS VS. CIR AND CTA

FACTS:

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

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled
City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as
a capital gain and paid an income tax on one-half thereof or of P16,792.

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

Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a "
taxable in full (not a mere capital gain of which is taxable) and required them to pay deficiency income
taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.The
Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or
joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code. The petitioners contested
the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence,
the instant appeal.

ISSUE:

WoN the petitioners have formed an unregistered partnership.

RULING:

We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the
Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same
and divided the profit among themselves. To regard the petitioners as having formed a taxable
unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a co-ownership and a partnership. The
petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original
purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction, then they had no choice but to resell the
same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of
the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or
later.

Article 1769(3) of the Civil Code provides that "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". There must be an unmistakable intention to form a
partnership or joint venture.*

The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit.
Thus, in Oa vs.

** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.We find that the case at bar is


fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa heirs
inherited the 'hacienda' in question pro-indiviso from their deceased parents; they did not
contribute or invest additional ' capital to increase or expand the inherited properties; they
merely continued dedicating the property to the use to which it had been put by their
forebears; they individually reported in their tax returns their corresponding shares in the
income and expenses of the 'hacienda', and they continued for many years the status of
co-ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value
and to continue the existing contractual relations with the Central Azucarera de Bais for
milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own
properties which produce income should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview of the income tax law. To
hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a
property does not produce an income at all, it is not subject to any kind of income tax,
whether the income tax on individuals or the income tax on corporation. (De Leon vs. CI
R, CTA Case No. 738, September 11, 1961, cited in Araas, 1977 Tax Code Annotated,
Vol. 1, 1979 Ed., pp. 77-78).

NAVARRO VS. CA

FACTS:

Private respondent Olivia V. Yanson and Petitioner Lourdes Navarro were engaged in the business of Air
Freight Service Agency. Pursuant to the Agreement which they entered, they agreed to operate the said
Agency; It is the Private Respondent Olivia Yanson who supplies the necessary equipment and money
used in the operation of the agency. Her brother in the person of Atty. Rodolfo Villaflores was the manager
thereof while petitioner Lourdes Navarro was the Cashier; In compliance to her obligation as stated in
their agreement, private respondent brought into their business certain chattels or movables or personal
properties. However, those personal properties remain to be registered in her name; Among the
provisions stipulated in their agreement is the equal sharing of whatever proceeds realized from their
business; However, sometime on July 23, 1976, private respondent Olivia V. Yanson, in order for her to
recovery the above mentioned personal properties which she brought into their business, filed a complaint
against petitioner Lourdes Navarro for "Delivery of Personal Properties With Damages and with an
application for a writ of replevin. Private respondents' application for a writ of replevin was later
approved/granted by the trial court. For her defense, petitioner Navarro argue that she and private
respondent Yanson actually formed a verbal partnership which was engaged in the business of Air Freight
Service Agency. She contended that the decision sustaining the writ of replevin is void since the
properties belonging to the partnership do not actually belong to any of the parties until the final
disposition and winding up of the partnership.

ISSUE:
Whether or not there was a partnership that existed between the parties.

RULING:
Article 1767 of the New Civil Code defines the contract of partnership: Art. 1767. By the contract of
partnership two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the proceeds among themselves. Furthermore, the Code provides
under Article 1771 and 1772 that while a partnership may be constituted in any form, a public instrument
is necessary where immovables or any rights is constituted. Likewise, if the partnership involves a
capitalization of P3,000.00 or more in money or property, the same must appear in a public instrument
which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with
these requirements shall only affect liability of the partners to third persons.
A cursory examination of the evidences presented no proof that a partnership, whether oral or written had
been constituted. In fact, those movables brought by the plaintiff for the use in the operation of the
business remain registered in her name. While there may have been co-ownership or co-possession of
some items and/or any sharing of proceeds by way of advances received by both plaintiff and the
defendant, these are not indicative and supportive of the existence of any partnership between them. Art.
1769 par. 2 provides: 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
Besides, the alleged profit was a difference found after valuating the assets and not arising from the real
operation of the business. In accounting procedures, strictly, this could not be profit but a net worth.
PASCUAL VS. CIR

FACTS:

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May
28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land
were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of land were
sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit
in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in
the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974
by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income
taxes for the years 1968 and 1970. Petitioners protested the said assessment in a letter of June 26, 1979
asserting that they had availed of tax amnesties way back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and
1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint
venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed
under Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the partnership by them which
is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended,
by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the
tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency
income tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No.
3045. In due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the
decision and action taken by respondent commissioner with costs against petitioners.

ISSUE:

WoN an unregistered partnership was formed.

RULING:

No. There was only co-ownership.

The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista.

In the present case, there is no evidence that petitioners entered into an agreement to contribute money,
property or industry to a common fund, and that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just assumed these conditions to be present on the
basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof. In
Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing
that the purpose was not limited to the conservation or preservation of the common fund or even the
properties acquired by them. The character of habituality peculiar to business transactions engaged in for
the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor
make any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It
was only 1968 when they sold the two (2) parcels of land after which they did not make any additional or
new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions for the purpose of gain was not
present. In Evangelista, the properties were leased out to tenants for several years. The business was
under the management of one of the partners. Such condition existed for over fifteen (15) years. None of
the circumstances are present in the case at bar. The co-ownership started only in 1965 and ended in
1970.

Other cited cases of the SC:

From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a juridical personality different
from that of the individual partners, and the freedom to transfer or assign any interest in the property by
one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp.
635-636)

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real
estate for profit in the absence of other circumstances showing a contrary intention cannot be considered
a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns
of that enterprise in proportion to their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business itself which the proceeds derived. (Elements
of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled
to share in plaintiffs commission, no partnership existed as between the three parties, whatever their
relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business, and dispose of the whole
property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itself create a partnership between the owners, though they
may use it for the purpose of making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the application of the proceeds
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6

The sharing of returns does not in itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. There must be a clear
intent to form a partnership, the existence of a juridical personality different from the individual
partners, and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no
adequate basis to support the proposition that they thereby formed an unregistered partnership.
The two isolated transactions whereby they purchased properties and sold the same a few years
thereafter did not thereby make them partners. They shared in the gross profits as co- owners and
paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent commissioner proposes.

PASTOR vs. GASPAR


FACTS:
In November, 1900, there existed in Manila a partnership composed of Macario Nicasio and the
defendant Gaspar under the name "Nicasio and Gaspar." It owned the steam launch Luisa, and its only
business was the relating to this launch.

Desiring to increase this business, on the 24th day of November, 1900, a contract was made between the
firm of Nicasio and Gaspar on the one side, and on the other side the plaintiff, the defendants Eguia,
Iboleon, and Monserrat, and one Hermoso. This contract recites that Nicasio and Gaspar, by writing of the
same date, have enlarged the business of their partnership; have bought six lorchas, which are named,
and that, needing money with which to pay for the lorchas and the necessary repairs thereon, the parties
of the second part have furnished them 28,000 pesos as loan, the amount furnished by each being
named. The firm of Nicasio and Gaspar then acknowledges the receipt of these amounts. The fifth clause
of the contract is as follows:

Fifth. The partnership of Nicasio and Gaspar undertakes to return to the said Eguia, Monserrat,
Iboleon, Pastor, and Hermoso the said total sum of 28,000 pesos within the period of ten years
from the date of the instrument, and to guarantee the fulfillment of said payment they pledge to
said parties the said lorchas Pepay, Lola, Consuelo, India, Niceta, and Castellana, in the sums
respectively which said parties have furnished for the purchase and repair of said vessels, as
before stated, ceding and assigning to said parties, in like proportions the profits and gains which
may be realized from the exploitation of said vessels; the said vessels to be the property of said
Eguia, Monserrat, Iboleon, Pastor, and Hermoso, and of the parties of the first part, proportionate
with the sums which the said parties have invested in said vessels; the management of said
vessels during the time in which said debt remains unpaid to remain with the partnership of
Nicasio and Gaspar, with the understanding that whatever may be the result of the business of
said vessels, neither the said partnership nor the parties of the first part shall become responsible
for the payment of said debt, except in so far as the said vessels shall respond therefor, and in no
event shall they respond therefor with any other property; injuries to and all losses of said lorchas
to be shared by all the parties hereto, as well as crews' expenses and other outlays necessary for
the preservation of said vessels, in the proportion which corresponds to each party hereto
according to his investment; the parties of the first part binding themselves not to encumber or
pledge said vessels while said debt remains unsatisfied to the parties of the second part.

It is alleged in the complaint, and not denied by the answer, that the contract thus entered into on
November 24, 1900, was in July, 1901, dissolved and terminated, and the lorchas sold by mutual consent.

The cause of action set forth in the complaint is that there was actually a partnership between the parties
to the contract of November 24, and that the consent of the agent of the plaintiff to its dissolution and the
sale of the lorchas was obtained by fraud of the defendants. The prayer of the complaint is that the
dissolution of the partnership and the sale of the lorchas be declared null, and that the plaintiff be restored
to his rights therein, and if this can not be done that he recover of the defendants damages in the sum of
42,500 pesos.

ISSUE:
WoN a partnership was created between the parties.

RULING:

While all the court are of the opinion that the judgment should be affirmed, we are not agreed as to the
proper construction to be put upon this document. The opinion of the writer is that held by the court below,
viz, that upon the face of the contract the plaintiff was a creditor and not a partner. The contract is
not clearly drawn, but the following seem to indicate that the transaction was rather a loan than a contract
of partnership: (1) In the beginning it is twice stated positively that Nicasio and Gaspar are the only
partners and the only persons interested in the partnership of Nicasio and Gaspar. These statements the
plaintiff assented to when he signed the document. (2) In the second paragraph, and again in the fourth, it
is stated, also, distinctly and positively, that the money has been furnished as a loan. (3) In the fifth
paragraph, hereinbefore quoted, Nicasio and Gaspar bind themselves to repay the amount, something
that they would not be bound to do were the contract one of partnership. (4) In the same paragraph
Nicasio and Gaspar create in favor of the plaintiff and his associates a right of pledge over the lorchas, a
thing inconsistent with the idea of partnership. this paragraph should not be construed as transferring the
ownership of the lorchas themselves to the second parties. Although the words "las cuales" would
grammatically refer to the preceding word "embarcaciones," yet such a construction would be inconsistent
with what has been before stated in the same paragraph as to the pledge. (5) By the same paragraph
Nicasio and Gaspar are to be considered consignees only as long as they do not pay the debt. This
indicates that they had a right to pay it. (6) By the last clause of this paragraph they bind themselves not
to alienate the lorchas until they had paid the debt, indicating clearly that by paying the debt they could do
so, a thing consistent with the idea of a partnership. (7) By the seventh paragraph of this contract it is
stated that the launch Luisa is not included in the contract.

The fact that the plaintiff was to share in the profits and losses of the business and that Nicasio and
Gaspar should answer for the payment of the debt only with the lorchas, and not with their own property,
indicates that the plaintiff was a partner. But these provisions are not conclusive. This is a suit between
the parties to the contract. The rights of third persons are not concerned. Whether the plaintiff would be a
partner as to such third persons is not to be determined. As between themselves the parties could make
any contract that pleased them, provided that it was not illegal (art. 1255, Civil Code). They could, in
making this contract, if they chose, take some provision from the law of partnership and others from the
law of loans. Loans with a right to receive a part of the profits in lieu of interest are not uncommon. As
between the parties, such contract is not one of partnership.

REYES VS. CIR


FACTS:
On October 31, 1950, petitioners, father and son, purchased a lot and building, known as the Gibbs
Building, situated at 671 Dasmarias Street, Manila, for P835,000.00, of which they paid the sum of
P375,000.00, leaving a balance of P460,000.00, representing the mortgage obligation of the vendors with
the China Banking Corporation, which mortgage obligations were assumed by the vendees. The initial
payment of P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was
leased to various tenants, whose rights under the lease contracts with the original owners, the
purchasers, petitioners herein, agreed to respect. The administration of the building was entrusted to an
administrator who collected the rents; kept its books and records and rendered statements of accounts to
the owners; negotiated leases; made necessary repairs and disbursed payments, whenever necessary,
after approval by the owners; and performed such other functions necessary for the conservation and
preservation of the building. Petitioners divided equally the income of operation and maintenance. The
gross income from rentals of the building amounted to about P90,000.00 annually.
Petitioners in this case were assessed by respondent Commissioner of Internal Revenue the sum of
P46,647.00 as income tax, surcharge and compromise for the years 1951 to 1954, an assessment
subsequently reduced to P37,528.00. This assessment sought to be reconsidered unsuccessfully was the
subject of an appeal to respondent Court of Tax Appeals. Thereafter, another assessment was made
against petitioners, this time for back income taxes plus surcharge and compromise in the total sum of
P25,973.75, covering the years 1955 and 1956. There being a failure on their part to have such
assessments reconsidered, the matter was likewise taken to the respondent Court of Tax Appeals.
ISSUE:
Whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth
Act No. 466, otherwise known as the National Internal Revenue Code
RULING:
After referring to another section of the National Internal Revenue Code, which explicitly provides that the
term corporation "includes partnerships" and then to Article 1767 of the Civil Code of the Philippines,
defining what a contract of partnership is, the opinion goes on to state that "the essential elements of a
partnership are two, namely: (a) an agreement to contribute money, property or industry to a common
fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute money and
property to a common fund. Upon consideration of all the facts and circumstances surrounding the case,
we are fully satisfied that their purpose was to engage in real estate transactions for monetary
gain and then divide the same among themselves.
In support of the above conclusion, reference was made to the following circumstances, namely, the
common fund being created purposely not something already found in existence, the investment of the
same not merely in one transaction but in a series of transactions; the lots thus acquired not being
devoted to residential purposes or to other personal uses of petitioners in that case; such properties
having been under the management of one person with full power to lease, to collect rents, to issue
receipts, to bring suits, to sign letters and contracts and to endorse notes and checks; the above
conditions having existed for more than 10 years since the acquisition of the above properties; and no
testimony having been introduced as to the purpose "in creating the set up already adverted to, or on the
causes for its continued existence." The conclusion that emerged had all the imprint of inevitability. Thus:
"Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership,
the collective effect of these circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein.
"To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24
of said Code exempts from the aforementioned tax "duly registered general partnerships", which
constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined
in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any
of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order
that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said
section 84(b), the term "corporation" includes, among others, "joint accounts, (cuentas en
participacion)" and "associations", none of which has a legal personality of its own, independent
of that of its members. Accordingly, the lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly
registered general co-partnerships" which are possessed of the aforementioned personality - have
been expressly excluded by law (sections 24 and 84[b]) from the connotation of the term
"corporation". The opinion went on to summarize the matter aptly: "For purposes of the tax on
corporations, our National Internal Revenue Code, include these partnerships with the exception
only of duly registered general co-partnerships 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." 16

VARGAS and COMPANY vs. CHAN HANG CHIU, ET AL.


THE CASE
This is an action brought to set aside a judgment of the justice's court of Manila on the ground that the
plaintiff here, the defendant in the action in which the judgment was secured, was not served with
summons and that, therefore, the justice's court acquired no jurisdiction to render the judgment was that
the same is null and void. Judgment was entered in favor of plaintiff declaring the judgment in controversy
void and setting it aside. This appeal is from that judgment.
FACTS
Plaintiff is a mercantile association duly organized under the laws of the Philippine Islands and
presumably registered as required by law. On the 19th day of August, 1911, an action was begun by Chan
Hang Chiu against the plaintiff in this case to recover a sum of money. The summons and complaint were
placed in the hands of the sheriff, who certified that on the 19th day of August, 1911, he served the same
on Vargas & Co. by delivering to and leaving with one Jose Macapinlac personally true copies thereof, he
being the managing agent of said Vargas & Co. at the time of such service. On July 2. 1912, the justice's
court rendered judgment against Vargas & Co. for the sum of 372.28. Thereafter execution was duly
issued and the property of Vargas & Co. levied on for the payment thereof. Thereupon Vargas & Co. paid
the amount of the judgment and costs under protest, with notice that it would sue to recover the amount
paid. The execution was returned satisfied and there the matter rested until the present action was
brought.
The contention of plaintiff is, and that contention is supported by the decision of the court below, that
Vargas & Co. being a partnership, it is necessary, in bringing an action against it, to serve the summons
on all of the partners, delivering to each one of them personally a copy thereof; and that the summons in
this case having been served on the managing agent of the company only, the service was of no effect as
against the company and the members thereof and the judgment entered by virtue of such a service was
void.

Plaintiff also contends, and this contention is likewise supported by the court below, that, even admitting
that service on the managing agent of the plaintiff is sufficient service, as a matter of fact no service was
really made on the managing agent of the company but, rather, on an employee or salesman of the
company, who had no powers of management or supervision and who was not competent to receive
service on behalf of the company within the provisions of section 396 of the Code of Civil Procedure.

ISSUE:

WoN service of summons to a managing agent of the partnership/company is tantamount to service of


summons to all of the partners.

RULING:

The petition has no merit.

Article 35 of the Civil Code provides:

The following are judicial persons:

1. The corporation, associations, and institutions of public interest recognized by law.

2. The associations of private interest, be they civil, commercial, or industrial, to which the law
grants proper personality, independent of that of each member thereof.

Article 38 provides: "Judicial persons may acquire and possess property of all kinds, as well as contract
obligations and institute civil or criminal actions in accordance with the laws and rules of their
establishment. While Article 116 of the Code of Commerce provides in part: "After a commercial
association has been established, it shall have legal representation in all its acts and contracts."
These provisions have been the foundation of the practice followed without interruption for many years
that association of the class to which plaintiff belongs have an independent and separate legal entity
sufficient to permit them to sue and be sued in the company name and to be served with process through
the chief officer or managing agent thereof or any other official of the company specified by law.

Actions against companies of the class to which plaintiff belongs are brought, according to the
uninterrupted practice, against such companies in their company names and not against the
individual partners constituting the firm.

This follows naturally for the reason that, if it is necessary to serve the partners individually, they are
entitled to be heard individually in the action and they must, therefore, be made parties thereto so that
they can be heard. It would be idle to serve process on individual members of a partnership if the litigation
were to be conducted in the name of the partnership itself and by the duly constituted officials of the
partnership exclusively.

In the case before us it affirmatively appears that the service of process was made on the person the
sheriff certified was the managing agent of the defendant company. The sheriff's certificate serves as
prima facie evidence of the existence of the facts stated therein. The record, therefore, discloses, so far
as the fact of service is concerned, that it was duly made on the managing agent of the company as
required by section 396, paragraph 1, of the Code of Civil Procedure.

VILLAREAL VS. RAMIREZ


FACTS:
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a
capital of P750,000 for the operation of a restaurant and catering business under the name "Aquarius
Food House and Catering Services." Respondent Donaldo Efren C. Ramirez joined as a partner in the
business on September 5, 1984. His capital contribution of P250,000 was paid by his parents,
Respondents Cesar and Carmelita Ramirez.
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000 was
refunded to him in cash by agreement of the partners. In the same month, without prior knowledge of
respondents, petitioners closed down the restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the respondents' house for storage.
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in
continuing their partnership or in reopening the restaurant, and that they were accepting the latter's offer
to return their capital contribution. On October 13, 1987, Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant furniture and equipment stored in their house. She also
reiterated the request for the return of their one-third share in the equity of the partnership. The repeated
oral and written requests were, however, left unheeded.
A complaint was filed by petitioners for a collection of sum of money. In their Answer, petitioners
contended that respondents had expressed a desire to withdraw from the partnership and had called for
its dissolution under Articles 1830 and 1831 of the Civil Code; that respondents had been paid, upon the
turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to
demand a return of their equity because their share, together with the rest of the capital of the
partnership, had been spent as a result of irreversible business losses.
In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant.
According to them, if such allegation were true, then the loans incurred by petitioners should be regarded
as purely personal and, as such, not chargeable to the partnership. The former further averred that they
had not received any regular report or accounting from the latter, who had solely managed the business.
Respondents also alleged that they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the restaurant.
The RTC rendered decision in favor of respondents and against petitioners. It ruled that the parties had
voluntarily entered into a partnership, which could be dissolved at any time. Petitioners clearly intended to
dissolve it when they stopped operating the restaurant. The CA, on the other hand, eld that, although
respondents had no right to demand the return of their capital contribution, the partnership was
nonetheless dissolved when petitioners lost interest in continuing the restaurant business with them.
Because petitioners never gave a proper accounting of the partnership accounts for liquidation purposes,
and thus computed the liability.
ISSUE:
WoN the petitioners are liable to respondents for the latter's share in the partnership.
RULING:
A share in a partnership can be returned only after the completion of the latter's dissolution,
liquidation and winding up of the business.

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of trust
in, the latter's management of the partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from petitioners the return of their one-third
equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share.
Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The
partnership has a juridical personality separate and distinct from that of each of the partners." Since the
capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the
equity of the retiring partners.

Since it is the partnership, as a separate and distinct entity that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. After all the creditors have been paid,
whatever is left of the partnership assets becomes available for the payment of the partners' shares. In
the present case, the investment of respondents substantially dwindled. The original amount of
P250,000 which they had invested could no longer be returned to them, because one third of the
partnership properties at the time of dissolution did not amount to that much.

Petitioners further argue that respondents acted negligently by permitting the partnership assets in their
custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated
these sole tangible assets of the partnership and considered the proceeds as payment of their net capital.
Hence, petitioners argue that the turnover of the remaining partnership assets to respondents was
precisely the manner of liquidating the partnership and fully settling the latter's share in the
partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the
purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners.
Hence, the former cannot be faulted for not disposing of the stored items to recover their capital
investment.

G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,


vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG
LAY, respondents.
FACTS:

1. After the second World War, Tan EngKee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies.
2. They named their enterprise "Benguet Lumber" which they jointly managed until Tan EngKee's
death.
3. Petitioners herein averred that the business prospered due to the hard work and thrift of the
alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company."The incorporation was purportedly a ruse to deprive Tan EngKee and his heirs of their
rightful participation in the profits of the business.
4. Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net assets of Benguet Lumber.
5. The RTC ruled in favor of petitioners, declaring that Benguet Lumber is a joint venture which is
akin to a particular partnership.
6. The Court of Appeals rendered the assailed decision reversing the judgment of the trial court.

ISSUE:
Whether the deceased Tan EngKee and Tan Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called Benguet Lumber and as such should share
in the profits and/or losses of the business venture or particular partnership

RULING:

There was no partnership whatsoever. Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was even no attempt to submit
an accounting corresponding to the period after the war until Kee's death in 1984. It had no
business book, no written account nor any memorandum for that matter and no license
mentioning the existence of a partnership. Also, the trial court determined that Tan EngKee and
Tan Eng Lay had entered into a joint venture, which it said is akin to a particular partnership. A
particular partnership is distinguished from a joint adventure, to wit:(a) A joint adventure (an
American concept similar to our joint accounts) is a sort of informal partnership, with no firm name
and no legal personality. In a joint account, the participating merchants can transact business
under their own name, and can be individually liable therefor. (b) Usually, but not necessarily a
joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to a
successful termination may continue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind. A joint venture "presupposes
generally a parity of standing between the joint co-ventures or partners, in which each party has
an equal proprietary interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business. The evidence presented by petitioners falls
short of the quantum of proof required to establish a partnership. In the absence of evidence, we
cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a
common fund for the purpose of establishing a partnership. Besides, it is indeed odd, if not
unnatural, that despite the forty years the partnership was allegedly in existence, Tan EngKee
never asked for an accounting. The essence of a partnership is that the partners share in the
profits and losses .Each has the right to demand an accounting as long as the partnership
exists. A demand for periodic accounting is evidence of a partnership. During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay. We conclude that Tan EngKee was only an employee, not a partner since they did
not present and offer evidence that would show that Tan EngKee received amounts of money
allegedly representing his share in the profits of the enterprise. There being no partnership, it
follows that there is no dissolution, winding up or liquidation to speak of.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and
NENITA A. ANAY, respondents.

FACTS:
1. Petitioner William T. Bello introduced private
respondent Nenita Anay to petitioner Tocao, who conveyed her desire toenter into a joint
venture with her for the importation and localdistribution of kitchen cookwares.
2. Belo acted the capitalist,Tocao as president and general manager, and Anay as head ofthe
marketing department (considering her experience andestablished relationship with West Bend
Company,c amanufacturer of kitchen wares in Wisconsin, U.S.A) and later,vice-president for
sales. The parties agreed further that Anaywould be entitled to:(1) ten percent (10%) of the
annual net profits of the business; (2) overriding commission of six percent (6%) of theoverall
weekly production; (3) thirty percent (30%) of thesales she would make; and (4)two percent (2%)
for herdemonstration services.
3. The same was not reduced to writing on the strength of Belosassurances.Later, Anay was able
to secure the distributorship of
cookware products from the West Bend Company. They operated under the name of Geminesse
Enterprise, a sole proprietorship registered in Marjorie Tocaos name.
4. Anay attended distributor/dealer meetings with West Bend Company with theconsent of
Tocao.Due to Anays excellent job performance she was given a plaque of appreciation.
5. Also, in a memo signed by Belo, Anaywas given 37% commission for her personal sales "up
Dec31/87, apart from the 10% share in profits.On October 9, 1987, Anay learned that Marjorie
Tocaoterminated her as vice-president of Geminesse Enterprise.
6. Anay attempted to contact Belo. She wrote him twice todemand her overriding commission for
the period of January8, 1988 to February 5, 1988 and the audit of the company todetermine her
share in the net profits. Belo did not answer.Anay still received her five percent (5%) overriding
commission up to December 1987.
7. The following year, 1988,she did not receive the same commission although the company netted
a gross sales of P13,300,360.00.
8. On April 5, 1988, Nenita A. Anay filed a complaint for sum ofmoney with damages against Tocao
and Belo before the RTC of Makati. She prayed that she be paid (1) P32,000.00 as unpaid
overriding commission from January 8, 1988 to February 5,1988; (2) P100,000.00 as moral
damages, and (3) P100,000.00as exemplary damages.
9. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception
ofits business operation until she was illegally dismissed todetermine her ten percent (10%)
share in the net profits.
10. She further prayed that she be paid the five percent (5%)overriding commission on the
remaining 150 West Bend cookware sets before her dismissal. However, Tocao and Belo
asserted that the alleged agreement was not reduced to writing nor ratified, hence,
unenforceable, void, or nonexistent.
11. Also, they denied the existence of
a partnership because, as Anay herself admitted, GeminesseEnterprise was the
sole proprietorship of Marjorie Tocao. Beloalso contended that he merely acted as a guarantor of
Tocaoand denied contributing capital.
12. Tocao, on the other hand, denied that they agreed on a ten percent (10%) commission on the
net profits. Both trial court and court of appeals ruled that a business partnership existed and
ordered the defendants to pay.

Issue:
Whether or not a partnership existed
YES

RULING:
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. Private respondent Anay
contributed her expertise in
the business of distributorship of cookware to the partnership and hence, under the law, she
was the industrial or managing partner. Petitioner Belo had an proprietary interest.
He presided over meetings regarding matters affecting the operation of
the business. Moreover, his having authorized in writing giving Anay 37% of the proceeds of
her personal sales, could not be interpreted otherwise than that he had a
proprietary interest in the business. This is inconsistent with his claim that he
merely acted as a guarantor. If indeed he was, he should have presented
documentary evidence. Also, Art. 2055 requires that a guaranty must be express and the
Statute of Frauds requires that it must be in writing. Petitioner Tocao was also a
capitalist in the partnership. She claimed that she herself financed the business.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship
between petitioners and private respondent. First, Anay had a voice inthe management of
the affairs of the cookware distributor shipand second, Tocao admitted that Anay,
like her, received only commissions and transportation and representation
allowances and not a fixed salary. If Anay was an employee, it is difficult to believe
that they recEIve the same income.
ALTERNATIVE ANSWER:
Enterprise, a sole proprietorship, is of no moment.
Said business name was used only for practical reasons - it wasutilized as the common
name for petitioner Tocaos
various business activities, which included the distributorship ofcookware.The partnership
exists until dissolved under the law. Since
the partnership created by petitioners and private respondent hasno fixed term and is
therefore a partnership at will predicated on their mutual desire and consent, it
may be dissolved by the will of a partner. Petitioners Tocaos unilateral exclusion of
private respondent from the partnership is shown by her memo to the Cubao office
plainly stating that private respondent was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao
effected her own withdrawal from the partnership and considered herself as having
ceased to be associated with
the partnership in the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business. The
partnership among petitioners and private respondent is ordered dissolved, and the
parties are ordered to effect the winding up and liquidation of the partnership
pursuant to the pertinent provisions of the Civil Code. Petitioners are orderedto pay Anays
10% share in the profits, after accounting, 5%overriding commission for the 150
cookware sets available for disposition since the time private respondent was
wrongfully excluded from the partnership by petitioner, overriding commission on
the total production.

G.R. No. 84197 July 28, 1989


PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

FACTS:

1. Petitioner Jacob Lim, owner-operator of Southern Airlines (SAL) entered in to a contract


with Japan Domestic Airlines (JDA) for the sale and purchase of 2 aircrafts and 1 set of spare
parts for$109k to be paid in installments.
2. Pioneer Insurance as surety executed and issued its surety bond in favor of JDA on behalf of its
principal Lim for the balance. Border Machinery and Heavy Equip. Co.(BorMaHeCo),
3. Francisco and Modesto Cervantes and Maglana gave some funds used in the purchase orFaircrafts and
spare parts as contribution to new Corporation proposed by Lim to expand his airline business.
4. They executed 2 indemnity agreements stipulating that the indemnitors principally agree and bind
themselves solidarily to indemnify, hold and save Pioneer from damages, losses, costs, taxes,
penalties, etc. which Pioneer may incur from becoming surety. Lim, (acting under SAL), executed
in favor of pioneer a deed of chattel mortgage as security, stipulating that Lim was to transfer and
convey to the surety the 2 aircrafts. Lim defaulted on installment payments and JDA asked
Pioneer to pay, which Pioneer did in the amount of P298k.
5. Pioneer filed for extrajudicial foreclosure of chattel mortgage(to which Cervanteses and Maglana
filed a 3rd partyclaim alleging co-ownership over aircrafts) and judicial foreclosure with writ
of prelim attachment against Lim, Cervanteses, Bormaheco and Maglana.
6. Trial Court held that Lim was liable and dismissed Pioneers claim against all other defendants.
7. In an appeal to the CA, Pioneer reinsured its risk of liability under the surety bond in favor of JDA
and collected proceeds of such reinsurance. Pioneer is no longer real party in interest to institute
action as it does not stand to be benefited.

ISSUES
1. WON Pioneer a real party in interest.
2. WON there is de facto partnership created among Cervantes, Maglana and Lim as a
result of their failure to incorporate.

RULING:

Petitioner is not the real party in interest and ha sno cause of action against respondents.
Pioneer, having foreclosed the chattel mortgage on the planes and spare parts no longer has any
further action against defendants as indemnitors to recover any unpaid balance of the price.

Persons who attempt but fail to form a corporation and who carry on business under the
corporate name occupy the position of partners inter se. HOWEVER, such relation does not
necessarily exist, for ordinarily, persons cannot be made to assume the relation of partners as
between themselves when their purpose is that no partnership shall exist. In the instant case, it is
clear that Lim never intended to form a corporation with respondents despite his representations
to them, giving credence to the cross-claims of respondents saying that they were induced and
lured to make contributions to a proposed corporation which was never formed because petitioner
reneged on their agreement. No de facto partnership was created among the parties which
would entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. Petitioner was acting on his own and not in behalf of his other would be
incorporators in transacting the sale of aircrafts and spare parts.
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

FACTS:

1. Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him.
The three agreed to purchase two fishing boats but since they do not have the money they
borrowed from one Jesus Lim the brother of Lim Tong Lim.
2. Subsequently, they again borrowed money for the purchase of fishing nets and other fishing
equipments. Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing
Corporation (OQFC) and they contracted with Philippine Fishing Gear Industries (PFGI) for the
purchase of fishing nets amounting to more than P500k.
3. However, they were unable to pay PFGI and hence were sued in their own names as Ocean
Quest Fishing Corporation is a non-existent corporation. Chua admitted his liability while Lim
Tong Lim refused such liability alleging that Chua and Yao acted without his knowledge and
consent in representing themselves as a corporation.

ISSUE:

WON Lim Tong Lim is liable as a partner

HELD:

Yes. It is apparent from the factual milieu that the three decided to engage in a
fishing business. Moreover, their Compromise Agreement had revealed their intention to
pay the loan with the proceeds of the sale and to divide equally among them the excess
or loss. The boats and equipment used for their business entails their common fund. 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. The principle of corporation by estoppel cannot apply in the
case as Lim Tong Lim also benefited from the use of the nets in the boat, which was an
asset of the partnership. Under the law on estoppel, those acting in behalf of a
corporation and those benefited by it, knowing it to be without valid existence are held
liable as general partners. Hence, the question as to whether such was legally formed for
unknown reasons is immaterial to the case.

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.


BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA,respondents.
FACTS:

1. The law firm of R,L,S and C was duly registered in the Mercantile Registry and reconstituted with
the SEC. There were several amendments to its articles of partnership.
2. Respondent-Appellees senior and junior partners associated themselves together. Ortega
informed them through a letter that he is retiring from the firm of Bito, Misa and Lozada regarding
the liquidation of his participation in it. He later on filed with the SICD a petition for dissolution
and liquidation of partnership.
3. The hearing officer said withdrawal of O did not dissolve the law partnership and both parties
to the case are enjoined to abide by the provisions of the Agreement re: the liquidation of the shares
of any retiring or withdrawing partner.
4. However, SEC reversed the decision ruling that the withdrawal had in fact dissolved the
partnership of BML as a partnership at will, the law firm can be dissolved by any partner at any
time by his withdrawal regardless of good faith or bad faith.
5. Remanded the case to the HO to determine rights and obligations of parties.
6. CA affirmed in toto the SEC decision and that there is no need for the appointment of a receiver
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 it was a partnership at will.
2. WON Ms withdrawal dissolved the partnership;
3. WON such withdrawal was made in bad faith.

RULING:

Yes! It was a partnership at will as it had not fixed a specified period for its undertaking. The
partnership agreement of the firm provides that [t]he 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.

Y e s . A n y o n e o f t h e p a r t n e r s m a y, a t h i s s o l e p l e a s u r e , d i c t a t e a
d i s s o l u t i o n o f t h e partnership at will (e.g. by way of withdrawal of a partner). He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages.

It may be dissolved at will by any of the partners but if it was done in bad faith, such partner shall be liable
for damages. Upon dissolution, the partnership continues and its legal personality is retained until
the complete winding up of its business culminating in its termination. The liquidation of assets is
governed by the CC but an agreement between parties is binding upon them. It was not done out
of bad faith as it was spurred by an interpersonal conflict among the partners.

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,


vs.
YANG CHIAO SENG, defendant-appellee.

FACTS:

1. Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and operate a theatre
on the premises occupied by Cine Oro, PlazaSta. Cruz, Manila, the principal conditions of the
offer being (1) Yang guarantees Yulo a monthly participation of P3,000 (2) partnership shall be
for a period of 2 years and 6 months with the condition that if the land is expropriated, rendered
impracticable for business, owner constructs a permanent building, then Yulo s right to lease and
partnership even if period agreed upon has not yet expired; (3) Yulo is authorized to personally
conduct business in the lobby of the building; and (4) after Dec 31, 1947, all improvements placed
by partnership shall belong to Yulo but if partnership is terminated before lapse of 1 and years,
Yang shall have right to remove improvements.
2. Parties established, Yang and Co. Ltd., to exist from July 1,1945 Dec 31, 1947.In June 1946,
they executed a supplementary agreement extending the partnership for 3 years beginning Jan 1,
1948 to Dec 31, 1950.
3. The land on which the theater was constructed was leased by Yulo from owners, Emilia Carrion
and Maria Carrion Santa Marina for an indefinite period but that after 1 year, such lease may be
cancelled by either party upon 90-day notice. In Apr 1949, the owners notified Yulo of their desire
to cancel the lease contract come July. Yulo and husband brought a civil action to declare the
lease for a indefinite period. Owners brought their own civil action for ejectment upon Yulo and Yang.
4. Two cases were heard jointly by the CFI; Complaint of Yulo and Yang were dismissed declaring
contract of lease terminated.
5. Upon appeal to CA, the court affirmed the judgment. In 1950, Yulo demanded from Yang
her share in the profits of the business. Yang answered saying he had to suspend payment
because of pending ejectment suit. Yulo filed present action in 1954, alleging the existence of a
partnership between them and that Yang has refused to pay her shares.
6. Defendant contended that the real agreement between plaintiff and defendant was one of lease and not of
partnership; that the partnership was adopted as a subterfuge to get around the prohibition
contained in the contract of lease between the owners and the plaintiff against the sublease of the
property.
7. The trial court dismissed the case. It is not true that a partnership was created between them
because defendant has not actually contributed the sum mentioned in the Articles of Partnership
or any other amount.
8. The agreement is a lease because plaintiff didnt share either in the profits or in the losses of the
business as required by Art 1769 (CC) and because plaintiff was granted a guaranteed participation
in the profits belies the supposed existence of a partnership.

Issue:
WON the agreement a contract a lease or a partnership

RULING:
The agreement was a sublease not a partnership. The following are the requisites of partnership:

(1) two or more persons who bind themselves to contribute money property or industry
to a common fund;
(2) the intention on the part of the partners to divide the profits among themselves

(Article 1761, CC)


Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any help or intervention
in the management of the theatre. Neither has she demanded from defendant any accounting of
the expenses and earnings of the business. She was absolutely silent with respect to any of the
acts that a partner should have done; all she did was to receive her share of P3,000 a month
which cannot be interpreted in any manner than a payment for the use of the premises which she
has leased to the owners.

ESTANISLAO, JR. VS. COURT OF APPEALS

Facts:
1. The petitioner and private respondents are brothers and sisters who are co-owners
of certain lots at the in Quezon City which were then being leased to SHELL.
2. They agreed to open and operate a gas station thereat to be known as Estanislao
ShellS e r v i c e S t a t i o n w i t h a n i n i t i a l i n v e s t m e n t o f PhP15,000.00 to
be taken from the advance rentals due to them from SHELL for the occupancy of the said
lots owned in common by them.
3. A joint affidavit w a s e x e c u t e d b y t h e m o n A p r i l 1 1 , 1 9 6 6 . T h e respondents
agreed to help their brother, petitioner therein, by allowing him to operate and manage the
gasoline service station of the family.
4. In order not to run counter to the companys policy of appointing only one dealer, it was
agreed that petitioner would apply for the dealership.
5. Respondent Remedios helped in co-managing the business with petitioner from May 1966 up
to February 1967.On May 1966, the parties entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P15,000.00 advance rental shall
be deposited with SHELL to cover advances of fuel
top e t i t i o n e r a s d e a l e r w i t h a p r o v i s o t h a t s a i d a g r e e m e n t c a
n c e l s a n d s u p e r s e d e s t h e J o i n t Affidavit.

6. For some time, the petitioner submitted financial statement regarding the operation of the
business to the private respondents, but thereafter petitioner failed to render subsequent
accounting.

7. Hence , the private respondents filed a complaint against the petitioner praying
among others that the latter beordered:( 1 ) To e x e c u t e a p u b l i c d o c u m e n t
embodying a l l t h e p r o v i s i o n s o f t h e p a r t n e r s h i p agreement they
entered into; ( 2 ) T o r e n d e r a f o r m a l a c c o u n t i n g o f t h e business
operation veering the period from May 6, 1966 up to December 21, 1968,
andf r o m J a n u a r y 1 , 1 9 6 9 u p t o t h e t i m e t h e order is issued and that the same be
subject to proper audit;(3)To pay the plaintiffs their lawful shares and
participation in the net profits of the business;
and( 4 ) T o p a y t h e p l a i n t i f f s a t t o r n e y s f e e s a n d costs of the suit.

8. Trial Court: The complaint (of the respondents) wasdismissed. But upon a motion for
reconsideration of the decision, another decision was rendered in favorof the respondents.
9. CA: Affirmed in toto
10. Petitioners contention that The CA erred in interpreting the legal import of the Joint
Affidavit vis--vis the Additional Cash Pledge Agreement. Because of
the stipulationc a n c e l l i n g a n d s u p e r s e d i n g t h e J o i n t A f f i d a v i t , 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 /operation of
the gasoline service station business.

Issue:
WON a partnership exist between members of the same family arising from their
joint ownership of certain properties

Held:
There is no merit in the petitioners contention
that because of the stipulation cancelling andsuperseding the previous joint affidavit, whateverpartne
rship agreement there was in said previous agreement had thereby been
abrogated. Saidcancelling provision was necessary for the JointAffidavit speaks of P15,000.00 adva
nce rentalstarting 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
itcancels and supercedes the previous none.Indeed, it is true that the latter document is silent asto
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
privaterespondents and not a sole proprietorship of thepetitioner.Furthermore, there are other
evidences in the recordwhich show that there was in fact such
partnershipagreement between parties. The petitionersubmitted to the private respondents periodica
ccounting of the business and gave a writtenauthority to the private respondent RemediosEstanislao
to examine and audit the books of theircommon business (aming negosyo). Therespondent
Remedios, on the other hand, assisted inthe running of the business. Indeed, the parties
hereto formed a partnership when they boundthemselves to contribute money in a common
fundwith the intention of dividing the profits amongthemselves.

G.R. No. L-17526 June 30, 1962

GREGORIO MAGDUSA, ET AL., petitioners,


vs.
GERUNDIO ALBARAN, ET AL., respondents.

FACTS:
1. The Court of Appeals found that appellant and appellees, together with various other persons,
had verbally formed a partnership de facto, for the sale of general merchandise in Surigao,
Surigao, to which appellant contributed P2,000 as capital, and the others contributed their labor,
under the condition that out of the net profits of the business 25% would be added to the original
capital, and the remaining 75% would be divided among the members in proportion to the length
of service of each.

2. Sometime in 1953 and 1954, the appellees expressed their desire to withdraw from the
partnership, and appellant thereupon made a computation to determine the value of the partners'
shares to that date. The results of the computation were embodied in the document Exhibit "C",
drawn in the handwriting of appellant.

3. Appellees thereafter made demands upon appellant for payment, but appellant having refused,
they filed the initial complaint in the court below. Appellant defended by denying any partnership
with appellees, whom he claimed to be mere employees of his.

4. The Court of First Instance of Bohol refused to give credence to Exhibit "C", and dismissed the
complaint on the ground that the other were indispensable parties but hid not been impleaded.
Upon appeal, the Court of Appeals reversed.

5. Gregorio Magdusa then petitioned for a review of the decision, and we gave it due course.

ISSUE:

Whether or not the appellees' action can be entertained, because in the distribution of all or part of a
partnership's assets, all the partners have no interest and are indispensable parties without whose
intervention no decree of distribution can be validly entered

RULING:

NO.
A partner's share cannot be returned without first dissolving and liquidating the partnership for the return
is dependent on the discharge of the creditors, whose claims enjoy preference over those of the partners;
and it is self-evident that all members of the partnership are interested in his assets and business, and
are entitled to be heard in the matter of the firm's liquidation and the distribution of its property.

The liquidation Exhibit "C" is not signed by the other members of the partnership besides appellees and
appellant; it does not appear that they have approved, authorized, or ratified the same, and, therefore, it is
not binding upon them. At the very least, they are entitled to be heard upon its correctness.

In addition, unless a proper accounting and liquidation of the partnership affairs is first had, the capital
shares of the appellees, as retiring partners, cannot be repaid, for the firm's outside creditors have
preference over the assets of the enterprise (Civ. Code, Art. 1839), and the firm's property cannot be
diminished to their prejudice.

Finally, the appellant cannot be held liable in his personal capacity for the payment of partners' shares for
he does not hold them except as manager of, or trustee for, the partnership. It is the latter that must
refund their shares to the retiring partners. Since not all the members of the partnership have been
impleaded, no judgment for refund can be rendered, and the action should have been dismissed.

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

MAURICIO AGAD, plaintiff-appellant,


vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

FACTS:
1. Alleging that he and defendant Severino Mabato are pursuant to a public instrument -- are
partners in a fishpond business, to the capital of which Agad contributed P1,000, with the right to
receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the
partnership funds, had yearly rendered accounts of the operations of the partnership; and that,
despite repeated demands, Mabato had failed and refused to render accounts for the years 1957
to 1963.
2. Agad prayed in his complaint against Mabato and Mabato & Agad Company, that judgment be
rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of
the partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and
ordering the dissolution of the partnership, as well as the winding up of its affairs by a receiver to
be appointed therefor.
3. In his answer, Mabato admitted the formal allegations of the complaint and denied the existence
of said partnership, upon the ground that the contract therefor had not been perfected, because
Agad had allegedly failed to give his P1,000 contribution to the partnership capital.
4. Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action
and that the lower court had no jurisdiction over the subject matter of the case, because it
involves principally the determination of rights over public lands.
5. After due hearing, the court granted the motion to dismiss the complaint for failure to state a
cause of action. This conclusion was predicated upon the theory that the contract of partnership
is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond
referred in said instrument had not been attached thereto.
6. A reconsideration of this order having been denied, Agad brought the matter to us for review by
record on appeal.

ISSUE:
Whether or not "immovable property or real rights" have been contributed to the partnership
RULING:
NO.
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties; and attached to the public instrument.
It should be noted that, as stated in the public instrument, the partnership was established "to operate a
fishpond", not to "engage in a fishpond business". Moreover, none of the partners contributed either a
fishpond or a real right to any fishpond. Their contributions were limited to the sum of P1,000 each.
Mabatos contention that it is really inconceivable how a partnership engaged in the fishpond business
could exist without said fishpond property (being) contributed to the partnership is without merit.
The operation of the fishpond mentioned was the purpose of the partnership. Neither said fishpond nor a
real right thereto was contributed to the partnership or became part of the capital thereof, even if a
fishpond or a real right thereto could become part of its assets.
We find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be,
as it is hereby set aside and the case remanded to the lower court for further proceedings.

[G.R. No. 31057. September 7, 1929.]


ADRIANO ARBES ET AL., Plaintiffs-Appellees,
vs.
VICENTE POLISTICO ET AL., Defendants-Appellants.

FACTS:

1. This is an action to bring about a liquidation of the funds and property of the association called
"Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants
were designated as president-treasurer, directors and secretary of said association.
2. By agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditors
Office, commissioner to examine all the books, documents and accounts of "Turnuhan Polistico &
Co.," and to receive whatever evidence the parties might desire to present.
3. The commissioner rendered his report to which the defendants objected but the trial court, having
examined the reasons for the objection, found the same sufficiently explained in the report and
the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan
Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the
amount of P24,607.80, as well as the documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the rest of the members of said association
represented by said plaintiffs.
4. There is no question that "Turnuhan Polistico & Co." is an unlawful partnership but the appellants
allege that because it is so, some charitable institution to whom the partnership funds may be
ordered to be turned over, should be included as a party defendant. The appellants refer to article
1666 of the Civil Code, which provides:

"A partnership must have a lawful object, and must be established for the common benefit of the
partners.

"When the dissolution of an unlawful partnership is decreed, the profits shall be given to the
charitable institutions of the domicile of the partnership, or, in default of such, to those of the
province."

ISSUE:
Whether or not a charitable institution is a necessary party to the case for the determination of the rights
of the parties

RULING:
NO. Appellants contention on this point is untenable.
According to said article, no charitable institution is a necessary party in the present case for the
determination of the rights of the parties. The action which may arise from said article, in the case of an
unlawful partnership, is that for the recovery of the amounts paid in by the members from those in charge
of the administration of said partnership, and it is not necessary for the said partners to base their action
on the existence of the partnership, but on the fact of having contributed some money to the partnership
capital. And hence, the charitable institutions of the domicile of the partnership, and in default thereof,
those of the province are not necessary parties in this case.
The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful
partnership, during its existence as a result of the business in which it was engaged, because, for that
purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract,
which is null and without legal existence by reason of its unlawful object; and it is self-evident that what
does not exist cannot be a cause of action.
Hence, paragraph 2 of the same article provides that when the dissolution of an unlawful partnership is
decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable
institution.
Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts
contributed are to be returned to the partners, because it only deals with the disposition of the profits; but
the fact that said contributions are not included in the disposal prescribed for said profits, shows that in
consequence of said exclusion, the general rules of law must be followed, and hence, the partners must
be reimbursed the amount of their respective contributions. Any other solution would be immoral, and the
law will not consent to the latter remaining in the possession of the manager or administrator who has
refused to return them, by denying to the partners the action to demand them.

[G.R. No. 142612. July 29, 2005]


OSCAR ANGELES and EMERITA ANGELES, petitioners,
vs.
THE HON. SECRETARY OF JUSTICE and FELINO MERCADO, respondents.

FACTS:

1. The Angeles spouses filed a criminal complaint for estafa against Mercado. Mercado is the
brother-in-law of the Angeles spouses, being married to Emerita Angeles sister Laura.
2. The Angeles spouses claimed that in November 1992, Mercado convinced them to enter into a
contract of antichresis, colloquially known as sanglaang-perde, covering eight parcels of land
(subject land) planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and owned
by Juana Suazo. The contract of antichresis was to last for five years with P210,000 as
consideration. As the Angeles spouses stay in Manila during weekdays and go to Laguna only on
weekends, the parties agreed that Mercado would administer the lands and complete the
necessary paperwork.

3. After three years, the Angeles spouses asked for an accounting from Mercado. Mercado
explained that the subject land earned P46,210 in 1993, which he used to buy more lanzones
trees. Mercado also reported that the trees bore no fruit in 1994. Mercado gave no accounting for
1995. The Angeles spouses claim that only after this demand for an accounting did they discover
that Mercado had put the contract of sanglaang-perde over the subject land under Mercado and
his spouses names.
4. In his counter-affidavit, Mercado denied the Angeles spouses allegations. Mercado claimed that
there exists an industrial partnership, colloquially known as sosyo industrial, between him and his
spouse as industrial partners and the Angeles spouses as the financiers. This industrial
partnership had existed since 1991, before the contract of antichresis over the subject land. As
the years passed, Mercado used his and his spouses earnings as part of the capital in the
business transactions which he entered into in behalf of the Angeles spouses.
5. The Provincial Prosecution Office issued a resolution recommending the filing of criminal
information for estafa against Mercado but thereafter issued an amended resolution dismissing
the complaint.
6. On appeal to the Secretary of Justice, it stated that the Angeles spouses failed to show sufficient
proof that Mercado deliberately deceived them in the sanglaang perde transaction. The document
alone, which was in the name of Mercado and his spouse, failed to convince us that there was
deceit or false representation on the part of Mercado that induced the Angeles spouses to part
with their money.
7. In addition, it is convinced that a partnership truly existed between the parties. The formation of a
partnership was clear from the fact that they contributed money to a common fund and divided
the profits among themselves. Records would show that Mercado was able to make deposits for
the account of the Angeles spouses. These deposits represented their share in the profits of their
business venture. Although the Angeles spouses deny the existence of a partnership, they,
however, never disputed that the deposits made by Mercado were indeed for their account.

ISSUE:
Whether a partnership existed between the Angeles spouses and Mercado even without any
documentary proof to sustain its existence;
Assuming that there was a partnership, whether there was misappropriation by Mercado of the
proceeds of the lanzones after the Angeles spouses demanded an accounting from him of the income
and Mercado failed to do so and also failed to deliver the proceeds to the Angeles spouses

RULING:
The petition has no merit.
The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely on
Articles 1771 to 1773 of the Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money
or property, shall appear in a public instrument, which must be recorded in the Office of the Securities
and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
The Angeles spouses position that there is no partnership because of the lack of a public instrument
indicating the same and a lack of registration with the Securities and Exchange Commission (SEC)
holds no water.
First, the Angeles spouses contributed money to the partnership and not immovable property.
Second, mere failure to register the contract of partnership with the SEC does not invalidate a
contract that has the essential requisites of a partnership. The purpose of registration of the contract
of partnership is to give notice to third parties. Failure to register the contract of partnership does not
affect the liability of the partnership and of the partners to third persons. Neither does such failure to
register affect the partnerships juridical personality. A partnership may exist even if the partners do not
use the words partner or partnership.
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract
showing a sosyo industrial or industrial partnership, contribution of money and industry to a common
fund, and division of profits between the Angeles spouses and Mercado.
The Secretary of Justice adequately explained the alleged misappropriation by Mercado: The
document alone, which was in the name of Mercado and his spouse, failed to convince us that there
was deceit or false representation on the part of Mercado that induced the Angeles spouses to part
with their money. Mercado satisfactorily explained that the [Angeles spouses] do not want to be
revealed as the financiers.

[G.R. No. 142293. February 27, 2003]


VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and SBT[1] TRUCKING
CORPORATION, petitioners,
vs.
HON. COURT OF APPEALS and JAIME SAHOT, respondents.

FACTS:

1. Private respondent Jaime Sahot started working as a truck helper for petitioners family-owned
trucking business named Vicente Sy Trucking. Throughout all the changes in names and for 36
years, private respondent continuously served the trucking business of petitioners.
2. In April 1994, Sahot was already 59 years old. He had been incurring absences as he was
suffering from various ailments.
3. Sahot had files a week long leave and he was medically examined and treated. On said grounds,
Belen Paulino of the SBT Trucking Service management told him to file a formal request for
extension of his leave. At the end of his week-long absence, Sahot applied for extension of his
leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened
to terminate his employment should he refuse to go back to work.
4. At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, but
he could not retire on pension because petitioners never paid his correct SSS premiums. The fact
remained he could no longer work as his left thigh hurt abominably. Petitioners ended his
dilemma. They carried out their threat and dismissed him from work, effective June 30, 1994. He
ended up sick, jobless and penniless.
5. Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal dismissal.
6. Petitioners admitted they had a trucking business in the 1950s but denied employing helpers and
drivers. They contend that private respondent was not illegally dismissed as a driver because he
was in fact petitioners industrial partner.
7. Petitioners add that due to Sahots refusal to work after the expiration of his authorized leave of
absence, he should be deemed to have voluntarily resigned from his work. They contended that
Sahot had all the time to extend his leave or at least inform petitioners of his health condition.
8. The NLRC NCR Arbitration Branch ruled that there was no illegal dismissal in Sahots case.
9. On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter.
It declared that private respondent was an employee, not an industrial partner, since the start.
Private respondent Sahot did not abandon his job but his employment was terminated on account
of his illness.
10. Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision, the
appellate court affirmed with modification the judgment of the NLRC.

ISSUE:
Whether or not Sahot was an industrial partner
RULING:
NO.
We agree with complainant that there was error committed by the Labor Arbiter when he concluded that
complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that
he was only twenty-three (23) years when he started working with respondent as truck helper. How can
we entertain in our mind that a twenty-three (23) year old man, working as a truck helper, be considered
an industrial partner. Hence we rule that complainant was only an employee, not a partner of respondents
from the time complainant started working for respondent.
The elements to determine the existence of an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employees conduct. The most important element is the employers control
of the employees conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish it.
As found by the appellate court, petitioners owned and operated a trucking business since the 1950s and
by their own allegations, they determined private respondents wages and rest day. Records of the case
show that private respondent actually engaged in work as an employee. During the entire course of his
employment he did not have the freedom to determine where he would go, what he would do, and how he
would do it. He merely followed instructions of petitioners and was content to do so, as long as he was
paid his wages. Indeed, said the CA, private respondent had worked as a truck helper and driver of
petitioners not for his own pleasure but under the latters control.
Article 1767 of the Civil Code states that in 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. Not one of these circumstances is present in this case.
No written agreement exists to prove the partnership between the parties. Private respondent did not
contribute money, property or industry for the purpose of engaging in the supposed business. There is no
proof that he was receiving a share in the profits as a matter of course, during the period when the
trucking business was under operation. Neither is there any proof that he had actively participated in the
management, administration and adoption of policies of the business. Thus, the NLRC and the CA did not
err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from 1958
to 1994.

[G.R. No. 134559. December 9, 1999]


ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA BARING,
petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

FACTS:

1. Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of
land in favor of respondent, who then had it registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the subdivision. All three of them also agreed
to share the proceeds from the sale of the subdivided lots.
2. The project did not push through, and the land was subsequently foreclosed by the bank.
3. According to petitioners, the project failed because of respondents lack of funds or means and
skills. They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company.
4. On the other hand, respondent alleged that he used the loan to implement the Agreement.
Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project.
5. Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed the present civil case which, upon respondent's
motion, was later dismissed by the trial court. On appeal, however, the appellate court remanded
the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as
earlier stated, was affirmed by the CA.
6. Hence, this Petition.

ISSUE:
Whether or not there exists a partnership

RULING:
YES.
A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides:
ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Under their Agreement, petitioners would contribute property to the partnership in the form of land which
was to be developed into a subdivision; while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs. Furthermore, the income from the said project
would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of
the parties to form a partnership.
It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to
the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the
land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered
into a contract to construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no contribution to the partnership.
Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also
industry.
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which
provides:
ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the public instrument an inventory of
the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Second, petitioners
themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60
percent of the value of the property. They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent
positions in regard to a contract and courts will not tolerate, much less approve, such practice.
Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts were not the cause of the
failure of the project. But it also ruled that neither was respondent responsible therefor. In imputing the
blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of
the appellate court relieving him of fault. Accordingly, we find no reversible error in the CA's ruling that
petitioners are not entitled to damages.

G.R. No. 172690 March 3, 2010


HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,
vs.
JULIET VILLA LIM, Respondent.

FACTS:
1. Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim
(petitioners), represented by Elenito Lim (Elenito). They filed a Complaint4 for Partition,
Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late
Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.
2. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (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 the
sawmill.
3. 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.
4. Petitioners also alleged that he was never a partner or an investor in the business and merely
supervised the purchase of additional trucks using the income from the trucking business of the
partners. By the time the partnership ceased, it had nine trucks, which were all registered in
Elfledo's name. Petitioners asseverated that it was also through Elfledos management of the
partnership that he was able to purchase numerous real properties by using the profits derived
therefrom, all of which were registered in his name and that of respondent.
5. Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent
took over the administration of the aforementioned 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.
6. Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of
Norberto and Jimmy.
7. Respondent also alleged that when Jose died, he left no known assets, and the partnership with
Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no
properties that Elfledo could have held in trust. 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.
8. The RTC rendered its decision in favor of petitioners. Aggrieved, respondent appealed to the CA
which reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack of
merit. Undaunted, petitioners filed their Motion for Reconsideration which the CA, however,
denied in its Resolution. Hence, this Petition.

ISSUE:
Whether or not Elfledo Lim was the partner and not Jose Lim

RULING:
Elfledo Lim was the partner in the trucking business and not Jose.
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.
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.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against
respondent. It must be considered and weighed along with petitioners' other evidence vis--vis
respondent's contrary evidence. In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence
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;
(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 petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting
from Elfledo during his lifetime.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties
acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having
been derived from Jose's alleged partnership with Jimmy and Norberto. Petitioners could not offer any
credible evidence other than their bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight.
It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and
its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who
was the partner, then upon his death the partnership should have been dissolved and its assets
liquidated. On the contrary, these were not done but instead its operation continued under the helm of
Elfledo and without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their own concerted
efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in
other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply
supported by the law and by the evidence on record.

G.R. No. 19892 September 6, 1923


TECK SEING AND CO., LTD., petitioner-appellee.
SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

FACTS:
1. Following the presentation of an application to be adjudged an insolvent by the "Sociedad
Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piol &
Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the Court was
prayed to enter an order:
"(A) Declaring the individual partners as described in paragraph 5 parties to this
proceeding;
(B) to require each of said partners to file an inventory of his property in the manner
required by section 51 of Act No. 1956; and
(C) that each of said partners be adjudicated insolvent debtors in this proceeding."
2. The trial judge first granted the motion, but, subsequently, on opposition being renewed, denied it.
It is from this last order that an appeal was taken in accordance with section 82 of the Insolvency
Law.

ISSUE:
Whether or not there was a limited partnership

RULING:
NO.
To establish a limited partnership there must be, at least, one general partner and the name of the least
one of the general partners must appear in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.)
But neither of these requirements have been fulfilled.
The general rule is, that those who seek to avail themselves of the protection of laws permitting the
creation of limited partnerships must show a substantially full compliance with such laws. A limited
partnership that has not complied with the law of its creation is not considered a limited partnership at all,
but a general partnership in which all the members are liable.
The contention of the creditors and appellants is that the partnership contract established a general
partnership.
Article 125 of the Code of Commerce provides that the articles of general co-partnership must estate the
names, surnames, and domiciles of the partners; the firm name; the names, and surnames of the
partners to whom the management of the firm and the use of its signature is instrusted; the capital which
each partner contributes in cash, credits, or property, stating the value given the latter or the basis on
which their appraisement is to be made; the duration of the co-partnership; and the amounts which, in a
proper case, are to be given to each managing partner annually for his private expenses.
While the succeeding article of the Code provides that the general co-partnership must transact business
under the name of all its members, of several of them, or of one only. Turning to the document before us,
it will be noted that all of the requirements of the Code have been met, with the sole exception of that
relating to the composition of the firm name.
What is said in article 126 of the Code of Commerce relating to the general co-partnership transacting
business under the name of all its members or of several of them or of one only, is wisely included in our
commercial law. It would appear, however, that this provision was inserted more for the protection of the
creditors than of the partners themselves.
A distinction could well be drawn between the right of the alleged partnership to institute action when
failing to live up to the provisions of the law, or even the rights of the partners as among themselves, and
the right of a third person to hold responsible a general co-partnership which merely lacks a legal firm
name in order to make it a partnership de jure.
The legal intention deducible from the acts of the parties controls in determining the existence of a
partnership. If they intend to do a thing which in law constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such relation. Here, the intention of the persons making up Teck
Seing & co., Ltd. was to establish a partnership which they erroneously denominated a limited
partnership. If this was their purpose, all subterfuges resorted to in order to evade liability for possible
losses, while assuming their enjoyment of the advantages to be derived from the relation, must be
disregarded. The partners who have disguised their identity under a designation distinct from that of any
of the members of the firm should be penalized, and not the creditors who presumably have dealt with the
partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the general co-partnership liable
personally and in solidum with all their property for the results of the transactions made in the name and
for the account of the partnership. Section 51 of the Insolvency Law, likewise, makes all the property of
the partnership and also all the separate property of each of the partners liable. In other words, if a firm be
insolvent, but one or more partners thereof are solvent, the creditors may proceed both against the firm
and against the solvent partner or partners, first exhausting the assets of the firm before seizing the
property of the partners.
We reach the conclusion that the contract of partnership found in the document hereinbefore quoted
established a general partnership or, to be more exact, a partnership as this word is used in the
Insolvency Law.

[G.R. No. 30616 : December 10, 1990.]


192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant,
vs.
CONSTANCIO B. MAGLANA,Defendant-Appellee.
FACTS:

1. Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast
Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with
an indefinite term of existence was duly registered with the Securities and Exchange
Commission.
2. One of the purposes of the duly-registered partnership was to "apply or secure timber and/or
minor forests products licenses and concessions over public and/or private forest lands and to
operate, develop and promote such forests rights and concessions."
3. Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of
the partnership, including marketing and handling of cash and is authorized to sign all papers and
instruments relating to the partnership, while appellant Rojas shall be the logging superintendent
and shall manage the logging operations of the partnership. It is also provided in the said articles
of co-partnership that all profits and losses of the partnership shall be divided share and share
alike between the partners.
4. Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of
Pahamotang as industrial partner.
5. Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership under the firm
name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in
the purpose of the second partnership which is to hold and secure renewal of timber license
instead of to secure the license as in the first partnership and the term of the second partnership
is fixed to thirty (30) years, everything else is the same.
6. Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF
INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" agreeing
among themselves that Maglana and Rojas shall purchase the interest, share and participation in
the Partnership of Pahamotang. It was also agreed in the said instrument that after payment to
Pahamotang including the amount of loan secured by Pahamotang in favor of the partnership, the
two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang
and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second
partnership, be dissolved.
7. After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas
without the benefit of any written agreement or reconstitution of their written Articles of
Partnership.
8. Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc.
He left and abandoned the partnership. Rojas withdrew his equipment from the partnership for
use in the newly acquired area.
9. Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in
equipment, to the capital investments of the partnership as well as his obligation to perform his
duties as logging superintendent.
10. Two weeks after, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the
latter's share will just be 20% of the net profits. Meanwhile, Rojas took funds from the partnership
more than his contribution.
11. Thus, in a letter, Maglana notified Rojas that he dissolved the partnership.
12. Rojas filed an action against Maglana for the recovery of properties, accounting, receivership and
damages.
13. The lower court rendered its decision to which Rojas interposed an appeal.
ISSUE:
What is the nature of the partnership and legal relationship of Maglana and Rojas after Pahamatong
retired from the second partnership
Whether or not the partnership can be unilaterally dissolved by a partner

RULING:
A.
It appears evident that it was not the intention of the partners to dissolve the first partnership, upon the
constitution of the second one, which they unmistakably called an "Additional Agreement".
Except for the fact that they took in one industrial partner; gave him an equal share in the profits and fixed
the term of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted
the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and
the capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same
amounts.
To all intents and purposes therefore, the First Articles of Partnership were only amended, in the form of
Supplementary Articles of Co-Partnership which was never registered. Otherwise stated, even during the
existence of the second partnership, all business transactions were carried out under the duly registered
articles.
On the other hand, there is no dispute that the second partnership was dissolved by common consent.
Said dissolution did not affect the first partnership which continued to exist.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can
neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an
existing partnership, duly registered.
B.
As there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect
a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. The conclusion is inevitable that Rojas and Maglana shall
be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-
Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike"
between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished
by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners are as follows:
Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana
who should have contributed P160,984.00, contributed P267,541.44. It is a settled rule that when a
partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests
and damages from the time he should have complied with his obligation (Article 1788, Civil Code) Being a
contract of partnership, each partner must share in the profits and losses of the venture. That is the
essence of a partnership.
Thus, Rojas is not entitled to any profits. In their voluminous reports which was approved by the trial
court, they showed that on 50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%,
he will be liable for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for
P52,040.31.
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise,
the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in equipment to the capital investment and to perform
his duties as logging superintendent, as stipulated in their partnership agreement. The records also show
that Rojas not only abandoned the partnership but also took funds in an amount more than his
contribution.
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.

G.R. No. 126881 October 3, 2000


HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG
LAY,respondents.
FACTS:
1. Following the death of Tan Eng Kee, Matilde Abubo, the common-law spouse of the decedent,
joined by their children collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed
suit against the decedent's brother TAN ENG LAY.
2. The complaint was for accounting, liquidation and winding up of the alleged partnership formed
after World War II between Tan Eng Kee and Tan Eng Lay. The petitioners filed an amended
complaint impleading private respondent herein BENGUET LUMBER COMPANY, as represented
by Tan Eng Lay.
3. The amended complaint principally alleged that after the second World War, Tan Eng Kee and
Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in
the business of selling lumber and hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death.
4. Petitioners herein averred that the business prospered due to the hard work and thrift of the
alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their
rightful participation in the profits of the business. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division
of the net assets of Benguet Lumber.
5. After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment in favor of the
petitioners.
6. Private respondent sought relief before the Court of Appeals which rendered the assailed
decision reversing the judgment of the trial court. Hence, the present petition.

ISSUE:
Whether or not Tan Eng Kee snd Tan Eng Lay were partners in Benguet Lumber

RULING:
NO.
A contract of partnership is defined by law 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. Two or more persons may also form a
partnership for the exercise of a profession.
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it
said is akin to a particular partnership.
A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in
which each party has an equal proprietary interest in the capital or property contributed, and where each
party exercises equal rights in the conduct of the business."
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. It is 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.
The main distinction cited by most opinions in common law jurisdiction 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.
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. (Art.
1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus 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.
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of
partnership but there is none. The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that the
Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners
falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could
have expounded on the precise nature of the business relationship between them. In the absence of
evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources
to a common fund for the purpose of establishing a partnership. The testimonies to that effect of
petitioners' witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with the
number of witnesses wherein preponderance lies; the quality of their testimonies is to be considered.
None of petitioners' witnesses could suitably account for the beginnings of Benguet Lumber Company,
except perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo.
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in
existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners
share in the profits and losses. Each has the right to demand an accounting as long as the partnership
exists.
We have allowed a scenario wherein "[i]f excellent relations exist among the partners at the start of the
business and all the partners are more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible." But in the situation in the case at bar,
the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of
his concerns.
A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee appeared
never to have made any such demand for accounting from his brother, Tang Eng Lay.
Where circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a finding of the
existence of the parties' intent. Yet, in the case at bench, even the aforesaid circumstances when taken
together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the
likelihood that as a member of the family, he occupied a niche above the rank-and-file employees. He
would have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet
Lumber Company compound. He would have moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place
orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to
the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of.
Hence, the petition must fail.

G.R. No. L-21906 December 24, 1968


INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

FACTS:
1. Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of
Malalag three times which were all disapproved.
2. Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration.
While this motion was pending resolution, he was advised by the district forester of Davao City
that no further action would be taken on his motion, unless he filed a new application for the area
concerned. So he filed once again his fishpond application.
3. Meanwhile, several applications were submitted by other persons for portions of the area covered
by Casteel's application.
4. Upon learning that portions of the area applied for by him were already occupied by rival
applicants, Casteel immediately filed the corresponding protests.
5. However, despite the finding made in the investigation of the above administrative cases that
Casteel had already introduced improvements on portions of the area applied for by him, the
Director of Fisheries nevertheless rejected Casteel's application, required him to remove all the
improvements which he had introduced on the land, and ordered that the land be leased through
public auction. Failing to secure a favorable resolution of his motion for reconsideration of the
Director's order, Casteel appealed to the Secretary of Agriculture and Natural Resources.
6. Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of
the second part, executed a contract denominated a "contract of service".
7. On the same date the above contract was entered into, Inocencia Deluao executed a special
power of attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me
in the administration of the fishpond.
8. The Secretary of Agriculture and Natural Resources issued a decision in favor of Casteel.
9. Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected
the latter's representative, Jesus Donesa, from the premises.
10. Alleging violation of the contract of service entered into between Inocencia Deluao and Nicanor
Casteel, Felipe Deluao and Inocencia Deluao filed an action for specific performance and
damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to
violate his contract).
11. The plaintiffs filed an ex parte motion for the issuance of a preliminary injunction which the lower
court granted. Casteel filed a motion to dissolve the injunction which was then denied.
12. A decision was rendered from which the defendant Casteel filed for a petition for relief alleging
lack of knowledge of the court a quo setting the case for trial. The petition however was denied by
the lower court.
13. Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case
to us for final determination on the ground that it involves only questions of law.

ISSUE:
Whether or not the contract of service created a contract of co-ownership and partnership between
Deluao and Casteel over the fishpond
Whether or not there was dissolution
RULING:
Apparently, the court a quo relied on exhibit A the so-called "contract of service" and the appellees'
contention that it created a contract of co-ownership and partnership between Inocencia Deluao and the
appellant over the fishpond in question.
The evidence preponderates in favor of the view that the initial intention of the parties was not to form a
co-ownership but to establish a partnership Inocencia Deluao as capitalist partner and Casteel as
industrial partner the ultimate undertaking of which was to divide into two equal parts such portion of
the fishpond as might have been developed by the amount extended by the plaintiffs-appellees, with the
further provision that Casteel should reimburse the expenses incurred by the appellees over one-half of
the fishpond that would pertain to him.
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their
partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which, although
denominated a "contract of service," was actually the memorandum of their partnership agreement. That
it was not a contract of the services of the appellant, was admitted by the appellees themselves in their
letter to Casteel wherein they stated that they did not employ him in his (Casteel's) claim but because he
used their money in developing and improving the fishpond, his right must be divided between them. Of
course, although exhibit A did not specify any wage or share appertaining to the appellant as industrial
partner, he was so entitled this being one of the conditions he specified for the execution of the
document of partnership.
Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond.
The arrangement under the so-called "contract of service" continued until the decisions were issued by
the Secretary of Agriculture and Natural Resources. This development, by itself, brought about the
dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of both parties to
terminate the partnership because each refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "...
any event which makes it unlawful for the business of the partnership to be carried on or for the members
to carry it on in partnership." The approval of the appellant's fishpond application brought to the fore
several provisions of law which made the continuation of the partnership unlawful and therefore caused
its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources.
To the same effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not
transfer or sublet all or any area herein granted or any rights acquired therein without the previous
consent and approval of this Office."
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of
Agriculture and Commerce, and the violation of this condition shall avoid the contract; Provided,
That assignment, encumbrance, or subletting for purposes of speculation shall not be permitted
in any case: Provided, further, That nothing contained in this section shall be understood or
construed to permit the assignment, encumbrance, or subletting of lands leased under this Act, or
under any previous Act, to persons, corporations, or associations which under this Act, are not
authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources
issued in August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands and
under such terms and conditions as he may prescribe.
Since the partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by
the approval of his application and the award to him of the fishpond. The approval was an event which
made it unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership.
However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the
foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties to terminate the partnership by refusing to share the
fishpond with the other.
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to
share the fishpond with each other in direct violation of the undertaking for which they have established
their partnership each must be deemed to have expressly withdrawn from the partnership, thereby
causing its dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that dissolution
is caused "by the express will of any partner at any time."

G.R. NOS. 166299-300


AURELIO K. LITONJUA JR
Vs.
EDUARDO K. LITONJUA SR, ET.AL

FACTS:
1. Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr.
(Eduardo) are brothers. The legal dispute between them started when Aurelio filed a suit against
his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for
specific performance and accounting.
2. In his complaint, Aurelio alleged that, since June 1973, he and Eduardo are into a joint
venture/partnership arrangement in the Odeon Theater business which had expanded thru
investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other
corporations.
3. It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelios]
retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater.
4. In a span of 28 years, [Aurelio] and Eduardo had accumulated in their joint venture/partnership
various assets including but not limited to the corporate defendants and [their] respective assets.
5. Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio]
requested for an accounting and liquidation of his share in the joint venture/partnership but these
demands for complete accounting and liquidation were not heeded.
6. What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate
defendants as well as Bobby [Yang], are transferring . . . various real properties of the
corporations belonging to the joint venture/partnership to other parties in fraud of [Aurelio].
7. Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With
Compulsory Counterclaim denying under oath the material allegations of the complaint, more
particularly that portion thereof depicting petitioner and Eduardo as having entered into a contract
of partnership.
8. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the
complaint states no cause of action, since no cause of action may be derived from the actionable
document, being void under the terms of Article 1767 in relation to Article 1773 of the Civil Code.
9. The trial court, in an Omnibus Order denied the affirmative defenses and, except for Yang, set the
case for pre-trial. In another Omnibus Order, the same court denied the motion of Eduardo, et al.,
for reconsideration and Yangs motion to dismiss.
10. Eduardo and the corporate defendants, on the contention that grave abuse of discretion and
injudicious haste attended the issuance of the trial courts aforementioned Omnibus sought relief
from the CA.
11. The appellate court came out with the herein assailed Decision reversing the assailed orders of
the court a quo.
12. Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership,
as evidenced by the actionable documents, Annex A and A-1attached to the complaint, and upon
which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is void or legally inexistent. Hence, the present petition.

ISSUE:
Whether or not there was a partnership created
RULING:
NO.
A contract of partnership is defined by the Civil Code as one where two or more persons bound
themselves to contribute money, property, or industry to a common fund with the intention of dividing the
profits among themselves.
A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership
since their elements are similar, i.e., community of interests in the business and sharing of profits and
losses. Being a form of partnership, a joint venture is generally governed by the law on partnership.
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that Annex A-1 does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or property, Annex A-1 cannot be
presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as
called for under the Article 1772 of the Code.
The CA, addressing the foregoing query, correctly stated that petitioners contribution consisted of
immovables and real rights.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code
applies as long real property or real rights are initially brought into the partnership. In short, it is really of
no moment which of the partners, or, in this case, who between petitioner and his brother Eduardo,
contributed immovables. In context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to speak of.
In sum then, the Court rules, as did the CA, that petitioners complaint for specific performance anchored
on an actionable document of partnership which is legally inexistent or void or, at best, unenforceable
does not state a cause of action as against respondent Eduardo and the corporate defendants. And if no
of action can successfully be maintained against respondent Eduardo because no valid partnership
existed between him and petitioner, the Court cannot see its way clear on how the same action could
plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could not have had
any form of business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him
as his partner. In fact, attendant circumstances would indicate the contrary.

PARTNERSHIP NAME

2. THE COMPAIA AGRICOLA DE ULTRAMAR


vs. ANACLETO REYES, ET AL
G.R. No. 1184 April 22, 1904
Facts:
1. Plaintiff, a partnership legally organized in Spain, domiciled in Manila, filed a complaint for eviction in
Bulacan against defendants which was denied on the supposition that said plaintiff company was a
commercial partnership, and subject to the provisions of the Code of Commerce, and had not registered
in the commercial registry.

2. On appeal, the judge declared that the plaintiff was a civil partnership, to which are applicable the
provisions of the Code of Commerce in conformity with article 1670 of the Civil Code, and that said
partnership should be registered in the commercial registry before it could appear and used the name of
the association in an action against the defendants.

3. Among the documents presented by plaintiff was the article of incorporation executed before a notary in
the court of Madrid entitling it as a special civil partnership with a purpose to exploit the agricultural
industry in the Philippine Islands and other Spanish colonies, and is not therefore under the obligation of
registering in the commercial registry in order to have juridical personality with the power to appear in an
action against the defendants.

Issue:

WON plaintiff was a mercantile or a civil corporation.

Ruling:
The Commercial Code for the Philippines does not attempt anywhere, as some other codes do, to define
what commercial transactions are. In the absence of proof to the contrary, therefore, we must be
governed as to the purposes of the association by the form adopted by its organization and the purposes
declared in its articles of association.

Article 1670 provides that civil partnerships, on account of the objects to which they are devoted, may
adopt all the forms recognized by the Commercial Code. In such cases its (Commercial Code) provisions
shall be applicable in so far as they do not conflict with the provisions of this code.

It will be seen from this provision that whether or not partnerships shall adopt the forms provided for by
the Civil or Commercial Codes is left entirely to their discretion. And furthermore, that such civil
partnerships shall only be governed by the forms and provisions of the Commercial Code when they
expressly adopt them, and then only in so far as they (rules of the Commercial Code) do not conflict with
the provisions of the Civil Code. In this provision the legislature expressly indicates that there may exist
two classes of commercial associations, depending not upon the business in which they are engaged but
upon the particular form adopted in their organization. The definition of the partnership found in article
1665 clearly includes associations organized for the purpose of gain growing out of commercial
transactions.

From the articles of association it will be seen that the plaintiff company was organized expressly
under the provisions of the Civil Code.

From the petition of the plaintiff and the bill of exceptions it appears that the defendants failed and refused
to pay the rent for any of the years previous to 1899. Assuming, without finding it to be a fact, that the
defendants had paid the rents for previous years, then they thereby recognized the plaintiff company as
an entity and are thereby now estopped from setting up the contrary.

Held:

First. That the plaintiff company had statutory authority to organize under the Civil Code for the purposes
indicated in its articles of association.

Second. That it did effect its organization under the Civil Code in force in these Islands.

Third. The defendants having recognized the existence of the plaintiff as an entity capable of dealing with
private persons, they are thereby estopped from denying that fact.

Fourth. That the plaintiff company, having complied with the forms required for the organization of
associations of its class under the Civil Code, is a juristic person recognized by law, and has capacity to
maintain the present action.
3. GEORGE LITTON
vs. HILL & CERON, ET AL*
G.R. No. L-45624 April 25, 1939

*same case also included under topic Every partner has a right to manage

Facts:
1. On February 14, 1934, the plaintiff sold and delivered to Carlos Ceron, one of the managing partners of
Hill & Ceron, a certain number of mining claims who was not able to pay the whole amount. Unable to
collect the balance either from Hill & Ceron or from its surety, plaintiff filed a complaint against said
defendants for the recovery of the said balance.

2. The court after trial, ordered Carlos Ceron personally to pay the amount claimed and absolved the
partnership Hill & Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On appeal to the
Court of Appeals, the latter affirmed the decision of the lower court, having reached the conclusion that
Ceron did not intend to represent and did not act for the firm Hill & Ceron in the transaction involved in
this litigation.

Issue:

WON the sale was entered individually with the plaintiff.

Held:

No. In view of certain regulations of the Code of Commerce, the transaction made by Ceron with the
plaintiff is understood in law as effected by Hill & Ceron and binding upon it hence, liable jointly and
severally.

In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he and Ceron,
during the partnership, had the same power to buy and sell; that in said partnership Hill as well as Ceron
made the transaction as partners in equal parts; that on the date of the transaction, the partnership
between Hill and Ceron was in existence; and it was neither published in the newspapers nor stated in the
commercial registry that the partnership Hill & Ceron had been dissolved.

Under article 226 of the Code of Commerce, the dissolution of a commercial association shall not cause
any prejudice to third parties until it has been recorded in the commercial registry. Aside from this, the
order of the Bureau of Commerce also prohibits brokers from buying and selling shares on their own
account as was opposed by the respondents being engaged in brokerage in general.

The stipulation in the articles of partnership that any of the two managing partners may contract and sign
in the name of the partnership with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles of partnership but, on the
contrary, is acting in accordance therewith. And this finds support in the legal presumption that the
ordinary course of business has been followed, and that the law has been obeyed.

Wherefore, unless the contrary is shown, namely, that one of the partners did not consent to his copartner
entering into a contract with a third person, and that the latter with knowledge thereof entered into said
contract, the aforesaid presumption with all its force and legal effects should be taken into account.

The reason or purpose behind these legal provisions is no other than to protect a third person who
contracts with one of the managing partners of the partnership, thus avoiding fraud and deceit to which he
may easily fall a victim without this protection which the Code of Commerce wisely provides.

4. ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C. GOQUIOLAY
vs. WASHINGTON Z. SYCIP, ET AL*
G.R. No. L-11840 July 26, 1960

*same case also included under topic Every partner has a right to manage
Facts:

1. On May 1940, Tan Sin An and Antonio C. Goquiolay, entered into a general commercial partnership
under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose of dealing in real
state. The agreement lodge upon Tan Sin An the sole management of the partnership affairs and Antonio
C. Goquiolay as co-partner.

2. The plaintiff partnership purchased 3 parcels of land assuming the payment of a mortgage obligation
payable to "La Urbana" for a period of ten (10) years. Another 46 parcels were purchased by Tan Sin An
in his individual capacity, and he assumed payment of a mortgage debt. The downpayment and the
amortization were advanced by Yutivo and Co., for the account of the purchasers.

3. The two separate obligations were consolidated in an instrument executed by the partnership and Tan
Sin An, whereby the lots were mortgaged in favor of the "Banco Hipotecario de Filipinas" (as successor to
"La Urbana") and the covenantors bound themselves to pay, jointly and severally, the remaining balance
of their unpaid accounts.

4. On June 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin (appointed
administratrix of the intestate estate of her deceased husband), and four minor children. In the meantime,
repeated demands for payment were made by the Banco Hipotecario on the partnership and on Tan Sin
An. In March 1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans
Hardware Co., paid the remaining balance of the mortgage debt, and the mortgage was cancelled.

5. Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the
intestate proceedings of Tan Sin An, as alleged obligations of the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and discharging their
obligations to "La Urbana" and the "Banco Hipotecario."

6. On March 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49
parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the
aforesaid debts of Tan Sin An and the partnership. Defendants Sycip and Betty Lee then executed in
favor of the Insular Development Co., Inc. a deed of transfer covering the said parcels of land by virtue of
the executed deed of sale pursuant to the probate courts order.

7. Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed a petition in the
intestate proceedings seeking to set aside the order of the probate court approving the sale in so far as
his interest over the parcels of land sold was concerned. The probate court annulled the sale executed by
the administratrix with respect to the 60% interest of Antonio Goquiolay over the properties sold, then
subsequently the orders of the probate court complained of was set aside and the case was remanded
due to the non-inclusion of indispensable parties. Thereafter, new pleadings were filed.

8. The second amended complaint in the case at bar prays, among other things, for the annulment of the
sale in favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular
Development Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are concerned. The
answer averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin
An. After hearing, the complaint was dismissed by the lower court, hence the instant direct appeal.

Issue:

WON the consent of the other partners was necessary to perfect the sale of the partnership properties to
Washington Sycip and Betty Lee.

Ruling:
No. Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in
the co-partnership agreement, that every general partner has power to bind the partnership, specially
those partners acting with ostensible authority. And so, we held in one case:

. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two
partners, to ascertain whether or not this partner with whom the transaction is made has the
consent of the other partner. The public need not make inquiries as to the agreements had
between the partners. Its knowledge is enough that it is contracting with the partnership which is
represented by one of the managing partners.

"There is a general presumption that each individual partner is an agent for the firm and that he
has authority to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle, 112
Pac., 617]

"The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of the members of the firm acting apparently in its behalf and within the scope
of his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al.,
67 Phil., 513-514).

Although the partnership under consideration is a commercial partnership and, therefore, to be governed
by the Code of Commerce, the provisions of the old Civil Code may give us some light on the right of one
partner to bind the partnership. States Art. 1695 thereof:

Should no agreement have been made with respect to the form of management, the following
rules shall be observed:

1. All the partners shall be considered agents, and whatever any one of the may do individually
shall bind the partnership; but each one may oppose any act of the others before it has become
legally binding.

xxx the widow, Kong Chai Pin, did not succeed her husband, Tan Sin An, in the sole management of the
partnership, upon the latter's death. While the Articles of Co-Partnership and the power of attorney
executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive management of the business,
such power, premised as it is upon trust and confidence, was a mere personal right that terminated upon
Tan's demise.

... Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the
firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise.

... Appellants argue, however, that since the "new" members' liability in the partnership was limited merely
to the value of the share or estate left by the deceased Tan Sin An, they became no more than limited
partners and, as such, were disqualified from the management of the business under Article 148 of the
Code of Commerce. Although ordinarily, this effect follows from the continuance of the heirs in the
partnership, it was not so with respect to the widow Kong Chai Pin, who, by her affirmative actions,
manifested her intent to be bound by the partnership agreement not only as a limited but as a general
partner.

SPOUSES AS PARTNERS BETWEEN THEMSELVES OR WITH THIRD PERSONS

1. COMMISSIONER OF INTERNAL REVENUE


vs. WILLIAM J. SUTER and THE COURT OF TAX APPEALS
G.R. No. L-25532 February 28, 1969

Facts:

1. In 1947, a limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed and registered
with the SEC by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav
Carlson, as the limited partners. The firm engaged, among other activities, in the marketing, distribution
and operation of automatic phonographs, radios, television sets, their parts and accessories. It had an
office and held itself out as a limited partnership, handling and carrying merchandise, maintaining its own
books of accounts and bank accounts, and had a quota allocation with the Central Bank.

2. In 1948 however, general partner Suter and limited partner Spirig got married and thereafter, limited
partner Carlson sold his share in the partnership to Suter and his wife which sale was duly recorded with
the SEC.

3. 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 Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter.

4. Respondent Suter protested the assessment, and requested its cancellation and withdrawal, but his
request was denied. Unable to secure a reconsideration, he appealed to the CTA which reversed the
CIRs decision. Hence, the instant case.

Issue:

WON 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 in the partnership.

Ruling:

No. The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947),
a universal partnership requires either that the object of the association be all the present property of the
partners, as contributed by them to the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership." William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the partners were fixed sums of money and
neither one of them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of
the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce. 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, 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.
2. Spouses ANTONIO and LUZVIMINDA GUIANG
vs. COURT OF APPEALS and GILDA COPUZ
G.R. No. 125172 June 26, 1998

Facts:

1. Over the objection of private respondent and while she was in Manila seeking employment, her
husband sold to the petitioners-spouses their conjugal property, consisting of their residence and the lot
on which it stood thru a document known as "Deed of Transfer of Rights".

2. For staying in their house sold by her husband upon returning her home, private respondent was
complained against by the spouses-petitioners before the barangay authorities for trespassing and
subsequently entered into an amicable settlement which was then moved by the former to be annulled.

3. Annulment not having been made, private respondent stayed put in her house and lot while
petitioners-spouses followed thru the execution of the amicable settlement by filing the same with the
Municipal Trial Court.

2. Respondent Court found no reversible error in the trial court's ruling that any alienation or
encumbrance by the husband of the conjugal property without the consent of his wife is null and void as
provided under Article 124 of the Family Code. Hence, this petition.

Issue:

WON the assailed Deed of Transfer of Rights was validly executed.

Ruling:

No. The sale of a conjugal property requires the consent of both the husband and the wife. The absence
of the consent of one renders the sale null and void, while the vitiation thereof makes it merely voidable.
Only in the latter case can ratification cure the defect.

Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the parties-
litigants in good faith and for valuable consideration. The absence of private respondent's consent merely
rendered the Deed voidable under Article 1390 of the Civil Code, which provides:

Art. 1390. The following contracts are voidable or annullable, even though there may have been
no damage to the contracting parties:

xxx xxx xxx

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.

The error in petitioners' contention is evident. Article 1390, par. 2, refers to contracts visited by vices of
consent, i.e., contracts which were entered into by a person whose consent was obtained and vitiated
through mistake, violence, intimidation, undue influence or fraud. In this instance, private respondent's
consent to the contract of sale of their conjugal property was totally inexistent or absent.

In sum, the nullity of the contract of sale is premised on the absence of private respondent's consent. To
constitute a valid contract, the Civil Code requires the concurrence of the following elements: (1) cause,
(2) object, and (3) consent, the last element being indubitably absent in the case at bar.
3. SPOUSES ANICETO AND THELMA CIRELOS, Petitioners,
vs. SPOUSES WILLIAM G. HERNANDEZ, AND ROSEMARIE ZAFE AND THE HON. COURT OF
APPEALS
G.R. No. 146523 June 15, 2006

Facts:

1. On March 10, 1993, spouses petitioners filed a complaint for Breach of Contract, Annulment of Sale
and Damages before the RTC, against spouses private respondents alleging that: they are the registered
owners of a house and lot which was used as security executed under a Deed of Real Estate Mortgage
when petitioner Cirelos obtained a loan from respondent William Hernandez, a money lender. In order to
effect the immediate release of the loan, Hernandez asked Cirelos to sign a blank bond paper containing
nothing but her name which Hernandez said will be converted into promissory note.

2. On February 15, 1993, petitioners received a letter from respondents asking them to vacate the
property because respondents already own the same; Cirelos went to the Register of Deeds and learned
that there was already a Deed of Sale in favor of respondents annotated at the back of the titleand a
Release of Real Estate Mortgage. Cirelos also discovered that the blank paper she signed, which
Hernandez said will only be used as promissory note, was converted into a Deed of Absolute
Sale;moreover, the Deed did not have the consent of Aniceto, husband of Cirelos whose SPA covers only
the power to mortgage, and that the Release of Real Estate Mortgage is fictitious as petitioners have not
yet paid their loan.

3. Respondents in their Answer countered that: Thelma did not sign any blank paper neither did they
require her to do so; the execution of the Release of Real Estate Mortgage and Deed of Absolute Sale
was out of the free will and volition of petitioners who could no longer pay the loan plus interest;in the
execution of the promissory note, Real Estate Mortgage and Deed of Absolute Sale, Thelma was
authorized by her husband, Aniceto, through a power of attorney executed way back on January 27,
1990;and it is not true that petitioners learned of the sale only after receiving a letter from respondents
lawyer on 1993 because as early as 1991, respondents counsel had been writing petitioners asking them
to vacate the property.

4. The RTC dismissed petitioners complaint which wasaffirmed by the CA finding that the Deed of
Absolute Sale covering the subject property is not fabricated by the defendants. That the type of their
contents, the signature of the parties, their subscribing witnesses and of the notary publicare
incontestable evidence that the document is what it purports to be. Atty. Campos testified under oath in
Court that both plaintiff and defendant appeared and signed the deed of sale before him. In this case, the
presumption of regularity applies. Hence, the instant petition.

Issue:

WON the Deed of Absolute Sale was valid.

Ruling:

Yes.The Deed of Absolute Sale being impugned by petitioners is a public document having been
notarized by Atty. Campos. As a public document, the deed has in its favor the presumption of regularity,
and carries the evidentiary weight conferred upon it with respect to its due execution, i.e., it is admissible
in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.To
rebut the same, there must be evidence that is clear, convincing and more than merely preponderant;
otherwise the document shall be upheld.In this case, all petitioners could offer by way of evidence was
Cireloss bare denial that she signed the subject deed of sale and her claim that what was given her to
sign was a blank piece of paper which Hernandez later turned into said deed. Such denial is insufficient to
overcome the positive value of the deed of sale which is a notarized document.

Petitioners further claim that the Deed of Absolute Sale is void since it did not have the consent of
Cireloss husband. It is true that in the sale of conjugal properties, the consent of both the husband and
the wife is required and the absence of the consent of one renders the entire sale null and void including
the portion of the conjugal property pertaining to the spouse who contracted the sale.In this case,
respondents were able to show that there was already an annotation on the title anent the SPA dated
January 27, 1990 executed by Aniceto in favor of Cirelos, with power to sell as well as mortgage, which
was inscribed on July 10, 1990 or before Cirelos started transacting with Hernandez, thus respondents
were able to comply with the requirements of Rule 132, Section 31 and were able to show, by convincing
evidence that the insertions of the words "sell", "absolute sale", and "sale" in the SPA were already
existing when it was given to them by Cirelos.

4. SPOUSES CLARO and NIDA BAUTISTA


vs. BERLINDA F. SILVA
G.R. No. 157434 September 19, 2006

Facts:

1. A complaint for Annulment of Deed of Absolute Sale and the TCT issued, Reconveyance and Damages
was filed by herein respondent, against spouses-petitioners Bautista.

2. On March 3, 1988, Pedro M. Silva, for himself and as attorney-in-fact of his wife Berlina F. Silva, thru a
Special Power of Attorney purportedly executed on November 18, 1987 by Berlina F. Silva in his favor,
signed and executed a Deed of Absolute Sale over the disputed parcel of land in favor of herein petitioner
spouses Claro and Nida Bautista.

3. As a consequence, Transfer Certificate of Title of said land was cancelled and in lieu thereof, another
TCT of the ROD was issued in the names of Spouses Claro Bautista and Nida Bautista on March 4, 1988.

4. The RTC rendered judgment in favour of the herein respondent which was affirmed by the CA. Based
on the evidence presented, the RTC found that the signature appearing on the SPA as that of Berlina
Silva is a forgery, and that consequently the Deed of Absolute Sale executed by Pedro in favor of
Spouses Bautista is not authorized by Berlina. Hence, the instant petition.

Issues:

1. WON the petitioners are considered as purchasers in good faith and for value having relied upon an
SPA which appears legal, valid and genuine on its face.

2. Gratia argumenti that the special power of attorney is a forgery and the deed of sale executed by the
husband is null and void, WON the nullity [thereof] does not include the one half share of the husband.

Ruling:

1. No.Whether or not petitioners are buyers for value in good faith is a question of fact not cognizable by
us in a petition for review. We may have at times reversed their findings and conclusions but we resort to
this only under exceptional circumstances as when it is shown that said courts failed to take into account
certain relevant facts which, if properly considered, would justify a different conclusion. No such
exceptional circumstance obtains in the present case for we find the conclusions of the RTC and CA
supported by the established facts and applicable lawespecially as it is based on the expert opinion of the
NBI which constitutes more than clear, positive and convincing evidence that respondent did not sign the
SPA.

A buyer for value in good faith is one who buys property of another, without notice that some other person
has a right to, or interest in, such property and pays full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some other persons in the property. He buys
the property with the well-founded belief that the person from whom he receives the thing had
title to the property and capacity to convey it.

In the present case, petitioners were dealing with a seller (Pedro) who had title to and possession of the
land but, as indicated on the face of his title, whose capacity to sell was restricted, in that the marital
consent of respondent is required before he could convey the property. To prove good faith then,
petitioners must show that they inquired not only into the title of Pedro but also into his capacity to sell.

The SPA being a forgery, it did not vest in Pedro any authority to alienate the subject property without the
consent of respondent. Absent such marital consent, the deed of sale was a nullity.

In sum, all things being equal, a person dealing with a seller who has possession and title to the
property but whose capacity to sell is restricted, qualifies as a buyer in good faith if he proves that he
inquired into the title of the seller as well as into the latter's capacity to sell; and that in his inquiry, he
relied on the notarial acknowledgment found in the seller's duly notarized special power of attorney. He
need not prove anything more for it is already the function of the notarial acknowledgment to establish the
appearance of the parties to the document, its due execution and authenticity.

2. No. It is well-settled that the nullity of the sale of conjugal property contracted by the husband without
the marital consent of the wife affects the entire property, not just the share of the wife.

EVERY PARTNER HAS A RIGHT TO MANAGE

1. ELMO MUASQUE vs. COURT OF APPEALS, CELESTINO GALAN, TROPICAL COMMERCIAL


COMPANY and RAMON PONS
G.R. No. L-39780 November 11, 1985

Facts:
1. Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that
the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging or expecting any consideration from Galan
although the latter was casually named as partner in the contract.

2. Galan would receive some kind of compensation in the form of some percentages or commission; that
Tropical, under the terms of the contract, agreed to give petitioner the amount of P7,000.00 soon after the
construction began and thereafter, the amount of P6,000.00 every fifteen (15) days during the
construction to make a total sum of P25,000.00.

3.On January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a
stranger to the contract, Galan, who succeeded in getting petitioner's indorsement on the same check
persuading the latter that the same be deposited in a joint account.

4.On January 26, 1967 when the second check for P6,000.00 was due, petitioner refused to indorse said
check presented to him by Galan but through later manipulations, respondent Pons succeeded in
changing the payee's name from Elmo Muasque to Galan and Associates, thus enabling Galan to cash
the same at the Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and subjecting him to demands of
creditors to pay for construction materials, the payment of which should have been made from the
P13,000.00 received by Galan.

5.Petitioner undertook the construction at his own expense completing it prior to the March 16, 1967
deadline;that because of the unauthorized disbursement by respondents Tropical and Pons of the sum of
P13,000.00 to Galan, petitioner demanded that said amount be paid to him by respondents under the
terms of the written contract between the petitioner and respondent company.

6. The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed
to intervene, both having legal interest in the matter in litigation.

7. After trial, the trial court and appellate court rendered judgment ordering plaintiff Muasque and
defendant Galan to pay jointly the intervenors Cebu and Southern Hardware Company and Blue Diamond
Glass Palace and absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability. Hence, the instant petition.

Issue:

WON a partnership existed between petitioner and respondent Galan.

Ruling:

Yes.Petitioner contends that Galan was a sham and a perfidious partner who misappropriated the amount
of P13,000.00 due to the petitioner.
The records will show that the petitioner entered into a contract with Tropical for the renovation of the
latter's building on behalf of the partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan and
Muasque hereinafter called the Contractor, and Tropical Commercial Co., Inc.,
hereinafter called the owner do hereby for and in consideration agree on the
following: ... .

There is nothing in the records to indicate that the partnership organized by the two men was not a
genuine one. If there was a falling out or misunderstanding between the partners, such does not convert
the partnership into a sham organization.

Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a check
made out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had every
right to presume that the petitioner and Galan were true partners. If they were not partners as petitioner
claims, then he has only himself to blame for making the relationship appear otherwise, not only to
Tropical but to their other creditors as well. The payments made to the partnership were, therefore,valid
payments.
We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner
and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and severally" is plain
error since the liability of partners under the law to third persons for contracts executed inconnection with
partnership business is only pro rata under Art. 1816, of the Civil Code.

While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be
liable prorate with all their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into the name and fm the account cd the partnership, under its signature
and by a person authorized to act for the partner-ship. ...". this provision should be construed together
with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third person who transacted with said
partnership can hold the partners solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.

The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a
partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily
liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership existed between
the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan
and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true
partner with real authority to transact on behalf of the partnership with which it was dealing. This is even
more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied
materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act
committed by any of the partners therein should be answered solidarily by all the partners and the
partnership as a whole.

2. THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED MEN
vs. THE VETERAN ARMY OF THE PHILIPPINES
G.R. No. 3186 March 7, 1907

Facts:
1. The Constitution of the Veteran Army of the Philippines provides that such association shall be
composed of (a) A department; and (b) Two or more posts.Among the posts thus organized is the Lawton
Post, No. 1.

2. On the 1st day of March, 1903, a contract of lease of parts of a certain buildings in the city of Manila
was signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe, No. 1,
Improved Order of Red Men, as lessors, and Albert E. McCabe, citing for and on behalf of Lawton Post,
Veteran Army of the Philippines as lessee. The lease was for the term of two years commencing February
1, 1903, and ending February 28, 1905. The Lawton Post occupied the premises in controversy for
thirteen months, and paid the rent for that time. It then abandoned them and this action was commenced
to recover the rent for the unexpired term.

3. Judgment was rendered acquitting McCabe but against the Veteran Army of the Philippines. Hence on
appeal, it claimed that the action cannot be maintained against the Veteran Army of the Philippines
because it never contradicted, either with the plaintiff or with Apache Tribe, No. 1, and never authorized
anyone to so contract in its name.

Issue:

WON defendant organization is a mercantile partnership.

Ruling:

No. The view most favorable to the appellee is the one that makes the appellant a civil partnership.
Assuming that it is such, it is necessary for the appellee to prove that the contract in question was
executed by some authorized to do so by the Veteran Army of the Philippines.
Under Article 1695 of the Civil Code, one partner, therefore, is empowered to contract in the name of the
partnership only when the articles of partnership make no provision for the management of the
partnership business. In the case at bar we think that the articles of the Veteran Army of the Philippines
do so provide. It is true that an express disposition to that effect is not found therein, but we think one may
be fairly deduced from the contents of those articles. They declare what the duties of the several officers
are. In these various provisions there is nothing said about the power of making contracts, and that faculty
is not expressly given to any officer. We think that it was, therefore, reserved to the department as a
whole; that is, that in any case not covered expressly by the rules prescribing the duties of the officers,
the department were present. It is hardly conceivable that the members who formed this organization
should have had the intention of giving to any one of the sixteen or more persons who composed the
department the power to make any contract relating to the society which that particular officer saw fit to
make, or that a contract when so made without consultation with, or knowledge of the other members of
the department should bind it. Therefore, no contract such as the one in question, is binding on the
Veteran Army of the Philippines unless it was authorized at a meeting of the department.

3. GEORGE LITTON
vs. HILL & CERON, ET AL*
G.R. No. L-45624 April 25, 1939

*please refer to case number 3 under Partnership Name topic

4. SMITH, BELL & COMPANY (LTD.)


vs. Aznar
Facts:

1.SEARCH!!!!

5. ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C. GOQUIOLAY
vs. WASHINGTON Z. SYCIP, ET AL*
G.R. No. L-11840 July 26, 1960

*please refer to case number 4 under Partnership Name topic

PARTNERS RIGHT TO PARTNERSHIP PROPERTY

1. Catalan vs. Gatchalian 105 Phil 1270

G.R. No. L-11648 April 22, 1959

(wala ko makakita ug full text ani. Hahaha. Digest rajud. Sorry)

Facts:

Catalan and Gatchalian are partners. They mortgaged two lots to Dr.Marave together with the
improvements thereon to secure a credit from the latter. The partnership failed to pay the obligation. The
properties were sold to Dr.Marave at a public auction. Catalan redeemed the property and he contends
that title should be cancelled and a new one must be issued in his name.

Issue:

Did Catalans redemption of the properties make him the absolute owner of the lands?
Ruling:

No. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to any
benefits or profits derived from his act as a partner. Consequently, when Catalan redeemed the
properties in question, he became a trustee and held the same in trust for his co-partner Gatchalian,
subject to his right to demand from the latter his contribution to the amount of redemption.

Art. 1830. The marriage of the general partner to a limited partner did not result in the dissolution
of the partnership.

2. ENRIQUE CLEMENTE, plaintiff-appellee,


vs. DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant
G.R. No. L-45662 April 26, 1939

Facts:

1. On June 6, 1931, plaintiff and defendant organized a civil partnership which they named "Galvan y
Compaia" to engage in the manufacture and sale of paper and other stationery.

2. Hardly a year after such organization, the plaintiff commenced the present case in the CFI to ask for
the dissolution of the partnership and to compel defendant to whom the management thereof was
entrusted to submit an accounting of his administration and to deliver to him his share as such partner.

3. In his answer defendant expressed his conformity to the dissolution of the partnership and the
liquidation of its affairs; but by way of counterclaim he asked that, having covered a deficit incurred by the
partnership amounting to P4,000 with his own money, plaintiff reimburse him of one-half of said sum.

4. On petition of the plaintiff a receiver and liquidator was appointed to take charge of the properties and
business for the partnership while the same was not yet definitely dissolved.

5. In the meantime the judgments rendered in separate cases for the recovery of a sum of money were
made executory and in order to avoid the attachment and subsequent sale of the machines by the sheriff
for the satisfaction from the proceeds thereof of the judgments rendered in the two cases, plaintiff agreed
with the intervenor, who is his nephew, to execute, as he in fact executed in favor of the latter, a deed of
mortgage encumbering the machines described in said deed.

6. The one year agreed upon in the deed of mortgage for the fulfilment by the plaintiff of the obligation he
had contracted with the intervenor having expired, the latter commenced a case to collect his mortgage
credit and obtained a judgment in his favour.

7. The machines which the intervenor said were mortgaged to him were then in fact in custodia legis, as
they were under the control of the receiver and liquidator appointed by the plaintiff. It was, therefore,
useless for the intervenor to attach the same in view of the receiver's opposition; and the question having
been brought to court, it decided that nothing could be done because the receiver was not a party to the
case which the intervenor instituted to collect his aforesaid credit. Thus, the mortgage executed in his
favor by plaintiff is declared null and void. Hence, the instant petition.

Issue:

WON the deed of mortgage was valid.

Ruling:
No. The plaintiff could not obtain possession of the machines in question. Consequently, if he did not have
actual possession of the machines, he could not in any manner mortgage them.

The evidence of record shows that the machines in contention originally belonged to the defendant and
from him were transferred to the partnership Galvan y Compania. This being the case, said machines
belongs to the partnership and not to him, and shall belong to it until partition is effected according to the
result thereof after the liquidation.

DISSOLUTION AND WINDING-UP A PARTNERSHIP

9. PEDRO MARTINEZ
vs. ONG PONG CO and ONG LAY
G.R. No. L-5236 January 10, 1910

Facts:

1. On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a
private document, acknowledged that they had received the same with the agreement, as stated by them,
"that we are to invest the amount in a store, the profits or losses of which we are to divide with the former,
in equal shares."

2. On April 25, 1907, plaintiff filed a complaint in order to compel the defendants to render him an
accounting of the partnership as agreed to, or else to refund him the P1,500 that he had given them for
the said purpose. Ong Pong Co alone appeared to answer the complaint and he admitted the fact of the
agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid, but he alleged
that Ong Lay, who was then deceased, was the one who had managed the business, and that nothing
had resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff agreed.

3. The CFI rendered a decision in favour of the plaintiff and ordered Ong Pong Co to return one-half of the
said capital of P1,500 which, together with Ong Lay, he had received from the plaintiff plus P90 as one-
half of the profits, calculated at the rate of 12 per cent per annum for the six months that the store was
supposed to have been open.

4. Aggrieved, hence the instant appeal.

Issue:

WON defendants are obliged to refund the money that they received for the purpose of establishing the
said store.

Ruling:

Yes. The whole action is based upon the fact that the defendants received certain capital from the plaintiff
for the purpose of organizing a company; they, according to the agreement, were to handle the said
money and invest it in a store which was the object of the association; they, in the absence of a special
agreement vesting in one sole person the management of the business, were the actual administrators
thereof; as such administrators they were the agent of the company and incurred the liabilities peculiar to
every agent, among which is that of rendering account to the principal of their transactions, and paying
him everything they may have received by virtue of the mandatum. (Arts. 1695 and 1720, Civil Code.)
Neither of them has rendered such account nor proven the losses referred to by Ong Pong Co; they are
therefore obliged to refund the money that they received for the purpose of establishing the said
store the object of the association.
LIMITED PARTNERSHIP

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


SANTIAGO JO CHUNG, ET AL., partners,
vs. PACIFIC COMMERCIAL COMPANY, ET AL.
G.R. No. 19892 September 6, 1923

Facts:

Spanish man. Di ko kasabot. Hahaha. Please refer nalang sa iba nga nagdigest ani. Recurring case
man ni. Salamat.

Issue:

WON Teck Seing and Co., Ltd. is a limited partnership.

Ruling/Facts:

No. Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a
corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is accidental partnership
denominated cuenta en participacion (joint account association).

To establish a limited partnership there must be, at least, one general partner and the name of the least
one of the general partners must appear in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.)
But neither of these requirements has been fulfilled. The general rule is that those who seek to avail
themselves of the protection of laws permitting the creation of limited partnerships must show a
substantially full compliance with such laws. A limited partnership that has not complied with the law of its
creation is not considered a limited partnership at all, but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp. 499, 595; 20 R C. L.
1064.)

Article 119 of the Code of Commerce requires every commercial association before beginning its
business to state its article, agreements, and conditions in a public instrument, which shall be presented
for record in the mercantile registry. Article 120, next following, provides that the persons in charge of the
management of the association who violate the provisions of the foregoing article shall be responsible in
solidum to the persons not members of the association with whom they may have transacted business in
the name of the association. Applied to the facts before us, it would seem that Teck Seing & Co., Ltd. has
fulfilled the provisions of article 119. Moreover, to permit the creditors only to look to the person in charge
of the management of the association, the partner Lim Yogsing, would not prove very helpful to them.

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

Articles 127 and 237 of the Code of Commerce make all the members of the general copartnership liable
personally and in solidum with all their property for the results of the transactions made in the name and
for the account of the partnership. Section 51 of the Insolvency Law, likewise, makes all the property of
the partnership and also all the separate property of each of the partners liable. In other words, if a firm be
insolvent, but one or more partners thereof are solvent, the creditors may proceed both against the firm
and against the solvent partner or partners, first exhausting the assets of the firm before seizing the
property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los Reyes vs. Lukban and Borja
[1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. vs. Pacific Commercial Co. [1922],
44 Phil., 916).

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA
ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

Leonardo Abola for petitioners.

Baisas, Alberto & Associates for respondent.

FACTS:
1. On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June
7, 1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella
Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo
Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that
capacity, with a contribution of P17,500 each.
2. The amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos consists
of her industry being an industrial partner", and that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among
them equally; and 30% for the fourth partner Estrella Abad Santos."
3. Respondent filed suit against the three other partners in the CFI of Manila, alleging that the
partnership, which was also made a party-defendant, had been paying dividends to the partners
except to her; and that notwithstanding her demands the defendants had refused and continued
to refuse and let her examine the partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared by the partnership.
4. She therefore prayed that the defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs

5. The defendants, in their answer, denied ever having declared dividends or distributed profits of
the partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine
the partnership books; and byway of affirmative defense alleged that the amended Articles of Co-
partnership did not express the true agreement of the parties, which was that the plaintiff was not
an industrial partner; that she did not in fact contribute industry to the partnership; and that her
share of 30% was to be based on the profits which might be realized by the partnership only until
full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance
Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-
maker and mortgaged her property as security.

6. The Court rendered judgement declaring respondent an industrial partner and therefore entitled
to an accounting.
7. Defendants (herein petitioners) appealed to the CFA however, the latter affirmed the decision of
the court a quo. Hence, this appeal.

ISSUE: WON ESTRELLA ABAD SANTOS IS AN INDUSTRIAL PARTNER


HELD: YES!
By contract of partnership two or more persons bind themselves, to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves, 'does not specify
the kind of industry that a partner may thus contribute, hence the said services may legitimately be
considered as appellee's contribution to the common fund. Another article of the same Code relied upon
appellants reads:

'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm
or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to
damages in either case.'

It is not disputed that the provision against the industrial partner engaging in business for himself seeks to
prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful
compliance by said partner with this prestation. There is no pretense, however, even on the part of the
appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of
one of the branches of the City Court of Manila can hardly be characterized as a business. That appellee
has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it
was only after filing of the complaint in this case and the answer thereto appellants exercised their right of
exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29,
1964 or after around nine (9) years from June 7, 1955 subsequent to the filing of defendants'
answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded
from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the
defendant partnership and/or in its net profits or income, on the ground plaintiff has never contributed her
industry to the partnership, instead she has been and still is a judge of the City Court (formerly Municipal
Court) of the City of Manila, devoting her time to performance of her duties as such judge and enjoying
the privilege and emoluments appertaining to the said office, aside from teaching in law school in Manila,
without the express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always
knows as a appellee as a City judge even before she joined appellant company on June 7, 1955 as an
industrial partner, why did it take appellants many yearn before excluding her from said company as
aforequoted allegations? And how can they reconcile such exclusive with their main theory that appellee
has never been such a partner because "The real agreement evidenced by Exhibit "A" was to grant the
appellee a share of 30% of the net profits which the appellant partnership may realize from June 7, 1955,
until the mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully
paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a formal accounting and to receive her share in the net
profit that may result from such an accounting, which right appellants take exception under their second
assigned error. Our said holding is based on the following article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;

(2) If the right exists under the terms of any agreement;

3) As provided by article 1807;


(4) Whenever other circumstance render it just and reasonable.

G.R. No. 10695 December 15, 1916

TEODORO DE LOS REYES, plaintiff-appellee,


vs.
VICENTE LUKBAN and ESPERIDION BORJA, defendants. VICENTE LUKBAN, appellant.

Ramon Diokno for appellant.


Ramon Salinas for appellee.

FACTS:
1. On December 5, 1913, Teodoro de los Reyes brought suit with the CFI against Vicente Lukban
and Esperidion Borja, to recover from them individually the sum of P853, the balance of a debt of
P1,086.65 owing for merchandise bought on credit in October and November, 1904, by the firm
Lukban & Borja, from the plaintiff's ship supply store, named La Industria.

2. In case No. 3759, prosecuted in the said court by the creditor Reyes against the said firm of
Lukban & Borja, the latter was ordered by a final judgment of October 19, 1905, to pay the said
sum of P1,086.65, together with the interest thereon, amounting to a total of P1,102.95, in
addition to the costs, P46.24.

3. One of the partner, Esperidion Borja, paid P522.69 on account of the debt, there still remaining
P610.21 to be paid such sum, together with the costs and legal interest thereon from July 14,
1905, to the date of the complaint, December 5, 1913, aggregates the total sum of P894.17.

4. The plaintiff prayed the court to order the defendants jointly or severally to pay him the last
mentioned amount, together with the legal interest thereon from the date of the complaint, and
the costs.

5. Esperidion Borja, in his answer to the complaint entered a general and specific denial of each and
all of the allegations therein contained, and, as a special defense, alleged that it was res
judicata and that the plaintiff's action, if it existed, had already prescribed.

6. The other defendant, Vicente Lukban, in his amended answer set forth he is merely an industrial
partner in the firm of Lukban & Borja, Espiridion Borja being the partner thereof who furnished the
capital; that the assets of the firm of Lukban & Borja had not been exhausted (by attachment),
wherefore the present action is premature; and that the plaintiff Reyes' action, as regards this
defendant Lukban, has prescribed.

7. After hearing the evidence, the court rendered judgment on November 25, 1914, sentencing the
defendants Vicente Lukban and Espiridion Borja jointly and severally to pay to the plaintiff
Teodoro de los Reyes the sum of P610.20, together with the legal interest thereon

8. To this judgment Lukban excepted, announced his intention to file the proper bill of exceptions
and moved for a new trial on the grounds that the evidence did not justify the decision and that
the latter was contrary to law. By an order of December 10, the motion for a new trial was
overruled and an exception was entered by this defendant-appellant. The other defendant,
Espiridion Borja, made no exception to the said ruling so the judgment became final with respect
to him.
9. The subject matter of this suit is an acknowledged debt held to be owing by a judicial
pronouncement contained in a judgment rendered in case No. 3759, prosecuted by the creditor
Teodoro de los Reyes against the general partnership of Lukban & Borja, which was sentenced to
pay the said debt. The creditor was unable to collect it in its entirety but recovered only a part
thereof, to wit, P522.69, which was paid by the partner Borja.

ISSUE(s):

1. WON the Court erred in not holding that the action brought against this defendant is improper,
inasmuch as prior to its prosecution no attachment was levied on the assets of the said
partnership.

2. WON Teodoro de los Reyes is entitled to collect individually from the partners Lukban and Borja
the amount of the debt that the dissolved partnership owed at the time of its dissolution

HELD:

1. NO.

With respect to the first assignment of error, the contents of the writ and the return of the
execution of the final judgment rendered in the said case No. 3759 show that the dissolved
partnership of Lukban & Borja had absolutely no property whatever of its own. Had any property
whatever of the said partnership still remained, the defendant Lukban would have pointed it out
inorder to avoid being obliged to pay in solidum all the balance of the sum which the firm was
sentenced to pay by the said final judgment of October 19, 1905. He did not do so because the
firm of Lukban & Borja no longer had any kind of property or credits, as shown by the document
setting forth the agreement made by and between several creditors of the said firm, a third party
named Ramon Tinsay and the former partner of the firm, Espiridion Borja, in which document it
appears that the firm Lukban & Borja owed four creditors, among them the plaintiff De los Reyes,
the total sum of P10,165.01 and these creditors with some difficulty succeeded in collecting the
sum of P5,000 through a transaction with the said Ramon Tinsay who paid this last amount for
the account of the partner Espiridion Borja. It appears that the latter paid to the creditor De los
Reyes the aforementioned sum of P522.69, on account of the firm's debt to Teodoro de los
Reyes, a debt which was recognized in the said judgment of October 19, 1905. The attachment,
or recourse to the property, the lack of which proceeding was complained of, is a proceeding that
was resorted to when attempt was made to execute the final judgment rendered against the
partnership of Lukban & Borja, which proceeding gave negative results; therefore, if the
requirement of article 237 of the Code of Commerce must be complied with by the creditor it is
evident that it has already been done for the defendant Lukban was unable to show that the
partnership to which he belonged actually possessed any more assets.

2. YES.

Article 127 of the Code of Commerce provides:

All the member of the general copartnership, be they or be they not managing partners of the
same, are personally and severally liable with all their property for the results of the transactions
made in the name and for the account of the partnership, under the signature of the latter, and by
a person authorized to make use thereof.

G.R. No. 413 February 2, 1903


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

Vicente Miranda, for appellant.


Simplicio del Rosario, for appellee.

FACTS:

1. The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the defendant
to form a partnership for the purchase of cascoes and the carrying on of the business of letting
the same for hire in Manila, the defendant to buy the cascoes and each partner to furnish for that
purpose such amount of money as he could, the profits to be divided proportionately; that in the
same January the plaintiff furnished the defendant 300 pesos to purchase a casco designated as
No. 1515, which the defendant did purchase for 500 pesos of Doa Isabel Vales, taking the title in
his own name; that the plaintiff furnished further sums aggregating about 300 pesos for repairs on
this casco; that on the fifth of the following March he furnished the defendant 825 pesos to
purchase another casco designated as No. 2089, which the defendant did purchase for 1,000
pesos of Luis R. Yangco, taking the title to this casco also in his own name; that in April the
parties undertook to draw up articles of partnership for the purpose of embodying the same in an
authentic document, but that the defendant having proposed a draft of such articles which differed
materially from the terms of the earlier verbal agreement, and being unwillingly to include casco
No. 2089 in the partnership, they were unable to come to any understanding and no written
agreement was executed; that the defendant having in the meantime had the control and
management of the two cascoes, the plaintiff made a demand for an accounting upon him, which
the defendant refused to render, denying the existence of the partnership altogether.

2. The defendant admits that the project of forming a partnership in the casco business in which he
was already engaged to some extent individually was discussed between himself and the plaintiff
in January, 1900, and earlier, one Marcos Angulo, who was a partner of the plaintiff in a bakery
business, being also a party to the negotiations, but he denies that any agreement was ever
consummated

3. He denies that the plaintiff furnished any money in January, 1900, for the purchase of casco No.
1515, or for repairs on the same, but claims that he borrowed 300 pesos on his individual account
in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo.
The 825 pesos, which he admits he received from the plaintiff March 5, he claims was for the
purchase of casco No. 1515, which he alleged was bought March 12, and he alleges that he
never received anything from the defendant toward the purchase of casco No. 2089. He claims to
have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second
one

ISSUES:

1. WON A PARTNERSHIP EXISTS BETWEEN THE PARTIES

2. IF SUCH PARTNERSHIP EXISTED, WON IT WAS TERMINATED AS A RESULT OF THE AT OF


THE DEFENDANT IN RECEIVING BACK THE P1,125
HELD:

1. YES.

"Partnership is a contract by which two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves."

The essential points upon which the minds of the parties must meet in a contract of partnership are,
therefore, (1) mutual contribution to a common stock, and (2) a joint interest in the profits. If the contract
contains these two elements the partnership relation results, and the law itself fixes the incidents of this
relation if the parties fail to do so.

We have found as a fact that money was furnished by the plaintiff and received by the defendant with
the understanding that it was to be used for the purchase of the cascoes in question. This establishes the
first element of the contract, namely, mutual contribution to a common stock. The second element,
namely, the intention to share profits, appears to be an unavoidable deduction from the fact of the
purchase of the cascoes in common, in the absence of any other explanation of the object of the parties
in making the purchase in that form, and, it may be added, in view of the admitted fact that prior to the
purchase of the first casco the formation of a partnership had been a subject of negotiation between
them.

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

It is thus apparent that a complete and perfect contract of partnership was entered into by the parties .
This contract, it is true, might have been subject to a suspensive condition, postponing its operation until
an agreement was reached as to the respective participation of the partners in the profits, the character of
the partnership as collective or en comandita, and other details, but although it is asserted by counsel for
the defendant that such was the case, there is little or nothing in the record to support this claim, and that
fact that the defendant did actually go on and purchase the boat, as it would seem, before any attempt
had been made to formulate partnership articles, strongly discountenances the theory.

The execution of a written agreement was not necessary in order to give efficacy to the verbal contract
of partnership as a civil contract, the contributions of the partners not having been in the form of
immovables or rights in immovables. (Civil Code, art. 1667.) The special provision cited, requiring the
execution of a public writing in the single case mentioned and dispensing with all formal requirements in
other cases, renders inapplicable to this species of contract the general provisions of article 1280 of the
Civil Code.

2. NO!

The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returned
to him by the defendant after the definitive failure of the attempt to agree upon partnership articles. The
amount returned fell short, in our view of the facts, of that which the plaintiff had contributed to the capital
of the partnership, since it did not include the sum which he had furnished for the repairs of casco No.
1515. Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been realized from
the business during the period in which the defendant have been administering it prior to the return of the
money, and if so he still retained that sum in his hands. For these reasons the acceptance of the money
by the plaintiff did not have the effect of terminating the legal existence of the partnership by converting it
into a societas leonina, as claimed by counsel for the defendant.

Did the defendant waive his right to such interest as remained to him in the partnership property by
receiving the money? Did he by so doing waive his right to an accounting of the profits already realized, if
any, and a participation in them in proportion to the amount he had originally contributed to the common
fund? Was the partnership dissolved by the "will or withdrawal of one of the partners" under article 1705
of the Civil Code? We think these questions must be answered in the negative.

There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a
partner, nor is there any evidence that by anything that he said or by anything that he omitted to say he
gave the defendant any ground whatever to believe that he intended to relinquish them. On the contrary
he notified the defendant that he waived none of his rights in the partnership. Nor was the acceptance of
the money an act which was in itself inconsistent with the continuance of the partnership relation, as
would have been the case had the plaintiff withdrawn his entire interest in the partnership. There is,
therefore, nothing upon which a waiver, either express or implied, can be predicated. The defendant might
have himself terminated the partnership relation at any time, if he had chosen to do so, by recognizing the
plaintiff's right in the partnership property and in the profits. Having failed to do this he cannot be
permitted to force a dissolution upon his co-partner upon terms which the latter is unwilling to accept. We
see nothing in the case which can give the transaction in question any other aspect than that of the
withdrawal by one partner with the consent of the other of a portion of the common capital.

The result is that we hold and declare that a partnership was formed between the parties in January,
1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089
constitute partnership property, and that the plaintiff is entitled to an accounting of the defendant's
administration of such property, and of the profits derived therefrom

G.R. No. 110782 September 25, 1998

IRMA IDOS, petitioner,


vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

FACTS:
1. The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser
for violation of B.P. 22 is her erstwhile supplier and business partner, the complainant below,
Eddie Alarilla.

2. The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant Irma L.
Idos for use in the latter's business of manufacturing leather. In 1985, he joined the accused-
appellant's business and formed with her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City.

3. However, the partnership was short livedand as such, the parties agreed to terminate their
partnership.

4. Upon liquidation of the business the partnership had as of May 1986 receivables and stocks
worth P1,800,000.00the complainant's share of the assets was P900,000.00 to pay for which
the accused-appellant issued 4 postdated checks.

5. The complainant was able to encash the first, second, and fourth checks, but the third check
which is the subject of this case, was dishonored for insufficiency of funds.
6. The complainant demanded payment from the accused-appellant but the latter failed to pay
prompting the former through counsel, to make a formal demand for payment.

7. The accused-appellant denied liability and claimed that the check had been given upon demand
of complainant in May 1986 only as "assurance" of his share in the assets of the partnership and
that it was not supposed to be deposited until the stocks had been sold.

8. Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan denying that
the checks issued to him by accused-appellant were subject to the disposition of the stocks and
the collection of receivables of the business.

9. The accused-appellant insisted that the complainant had known that the checks were to be
funded from the proceeds of the sale of the stocks and the collection of receivables and that the
complainant himself asked for the checks because he did not want to continue in the tannery
business and had no use for a share of the stocks.

10. The trial court rendered judgment finding the accused-appellant guilty of the crime charged.

11. The accused-appellant's motion for annulment of the decision and for reconsideration was denied
by the trial court

12. The respondent court thereafter affirmed on appeal the decision of the trial court.

13. Petitioner timely moved for a reconsideration, but this was subsequently denied by respondent
court. Hence, this appeal.

ISSUE:

WON respondent court erred in holding that the subject check was issued by petitioner to apply on
account or for value, that is, as part of the consideration of a "buy-out" of said complainant's interest
in the partnership, and not merely as a commitment on petitioner's part to return the investment share
of complainant, along with any profit pertaining to said share, in the partnership.

HELD: YES!

In the present case, with regard to the first issue, evidence on record would show that the subject check
was to be funded from receivables to be collected and goods to be sold by the partnership, and only when
such collection and sale were realized. 15 Thus, there is sufficient basis for the assertion that the petitioner
issued the subject check (Metrobank Check No. 103115490 dated October 30, 1986, in the amount of
P135,828.87) to evidence only complainant's share or interest in the partnership, or at best, to show her
commitment that when receivables are collected and goods are sold, she would give to private
complainant the net amount due him representing his interest in the partnership. It did not involve a debt
of or any account due and payable by the petitioner.

Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one (the
third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private
complainant admitted that there was no consideration whatsoever for the issuance of the check, whose
funding was dependent on future sales of goods and receipts of payment of account receivables.

Now, it could not be denied that though the parties petitioner and complainant had agreed to
dissolve the partnership, such ageement did not automatically put an end to the partnership, since they
still had to sell the goods on hand and collect the receivables from debtors. In short, they were still in the
process of "winding up" the affairs of the partnership, when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and (3)
termination. These stages are distinguished, to wit:

(1) Dissolution Defined

Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated
in the carrying on of the business (Art. 1828). It is that point of time the time the partners cease to carry
on the business together. (Citation omitted).

(2) Winding Up Defined

Winding up is the process of settling business affairs of dissolution.

(NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets previously
demandable; even new business if needed to wind up, as the contracting with a demolition company for
the demolition of the garage used in a "used car" partnership.)

(3) Termination Defined

Termination is the point in time after all the partnership affairs have been wound up.

These final stages in the life of a partnership are recognized under the Civil Code that explicitly declares
that upon dissolution, the partnership is not terminated, to wit:

Art 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished from
the winding up of the business.

Art. 1829. On dissolution the partnership is not terminated, but continues until the winding
up of partnership affairs is completed

The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private complainant remained as
co-partners. The check was thus issued by the petitioner to complainant, as would a partner to another,
and not as payment from a debtor to a creditor.

The more tenable view, one in favor of the accused, is that the check was issued merely to evidence the
complainant's share in the partnership property, or to assure the latter that he would receive in time his
due share therein.

To go by accepted custom of the trade, we are more inclined to the view that the subject check was
issued merely to evidence complainant's interest in the partnership. Thus, we are persuaded that the
check was not intended to apply on account or for value; rather it should be deemed as having been
drawn without consideration at the time of issue.

Absent the first element of the offense penalized under B.P. 22, which is "the making, drawing and
issuance of any check to apply on account or for value", petitioner's issuance of the subject check was
not an act contemplated in nor made punishable by said statute.

G.R. No. L-13680


April 27, 1960

MAURO LOZANA, plaintiff-appellee,


vs.
SERAFIN DEPAKAKIBO, defendant-appellant
FACTS:
1. Plaintiff, Mauro Lozana entered into a contract with defendant Serafin Depakakibo wherein they
established a partnership capitalized at the sum of P30,000, plaintiff furnishing 60% thereof and
the defendant, 40%, for the purpose of maintaining, operating and distributing electric light and
power in the Municipality of Dumangas, Province of Iloilo, under a franchise issued to Mrs.
Piadosa Buenaflor.
2. The franchise or certificate of public necessity and convenience in favor of the said Mrs. Piadosa
Buenaflor was however cancelled and revoked by the Public Service Commission. Subsequently,
a temporary certificate of public convenience was issued in the name of Olimpia D. Decolongon.
3. Evidently because of the cancellation of the franchise in the name of Mrs. Piadosa Buenaflor,
plaintiff herein Mauro Lozana sold a generator, Buda (diesel) to the new grantee Olimpia D.
Decolongon. Defendant Serafin Depakakibo, on the other hand, sold one Crossly Diesel Engine
to the spouses Felix Jimenea and Felina Harder.

4. According to the stipulation of facts, there was no liquidation of partnership and that at the time of
said Sale on October 30, 1955, defendant was the manager thereof;

5. Plaintiff, Mauro Lozana brought an action against the defendant, alleging that he is the owner of
the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires connecting
the generator to the different houses supplied by electric current in the Municipality of Dumangas,
and that he is entitled to the possession thereof, but that the defendant has wrongfully detained
them as a consequence of which plaintiff suffered damages. Plaintiff prayed that said properties
be delivered back to him.
6. Three days after the filing of the complaint, that is on November 18, 1955, Judge Pantaleon A.
Pelayo issued an order in said case authorizing the sheriff to take possession of the generator
and 70 wooden posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of the
defendant (for subsequent delivery to the plaintiff).
7. The defendant filed an answer, denying that the generator and the equipment mentioned in the
complaint belong to the plaintiff and alleging that the same had been contributed by the plaintiff to
the partnership entered into between them in the same manner that defendant had contributed
equipments also, and therefore that he is not unlawfully detaining them. By way of counterclaim,
defendant alleged that under the partnership agreement the parties were to contribute
equipments, plaintiff contributing the generator and the defendant, the wires for the purpose of
installing the main and delivery lines; that the plaintiff sold his contribution to the partnership, in
violation of the terms of their agreement.
8. A decision was rendered declaring plaintiff owner of the equipment and entitled to the possession
thereof, with costs against defendant. Hence, this appeal.

ISSUE: WON the defendant Depakakibo wrongfully detained the Generator Buda and 70 wooden
posts
HELD: NO!
1. As it appears from the above stipulation of facts that the plaintiff and the defendant entered into
the contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated
therein that there bas been a liquidation of the partnership assets at the time plaintiff sold the
Buda Diesel Engine on October 15, 1955, and since the court below had found that the plaintiff
had actually contributed one engine and 70 posts to the partnership, it necessarily follows that the
Buda diesel engine contributed by the plaintiff had become the property of the partnership. As
properties of the partnership, the same could not be disposed of by the party contributing the
same without the consent or approval of the partnership or of the other partner.
2. The lower court declared that the contract of partnership was null and void, because by the
contract of partnership, the parties thereto have become dummies of the owner of the franchise.
The reason for this holding was the admission by defendant when being cross-examined by the
court that he and the plaintiff are dummies. We find that this admission by the defendant is an
error of law, not a statement of a fact. The Anti-Dummy law has not been violated as parties
plaintiff and defendant are not aliens but Filipinos. The Anti-Dummy law refers to aliens only
(Commonwealth Act 108 as amended).

3. Upon examining the contract of partnership, especially the provision thereon wherein the parties
agreed to maintain, operate and distribute electric light and power under the franchise belonging
to Mrs. Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy
such as to make the contract of partnership, null and void ab initio. The agreement could have
been submitted to the Public Service Commission if the rules of the latter require them to be so
presented. But the fact of furnishing the current to the holder of the franchise alone, without the
previous approval of the Public Service Commission, does not per se make the contract of
partnership null and void from the beginning and render the partnership entered into by the
parties for the purpose also void and non-existent. Under the circumstances, therefore, the court
erred in declaring that the contract was illegal from the beginning and that parties to the
partnership are not bound therefor, such that the contribution of the plaintiff to the partnership did
not pass to it as its property. It also follows that the claim of the defendant in his counterclaim that
the partnership be dissolved and its assets liquidated is the proper remedy, not for each
contributing partner to claim back what he had contributed.

G.R. No. L-59956

October 31, 1984

ISABELO MORAN, JR., petitioner,


vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR.
FACTS:
1. Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for
the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional
Convention), with Moran actually supervising the work; that Pecson would receive a commission
of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15,
1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be
made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two equal installments (P10,000 payable on
or before June 15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first installment on the date due, complete with
the costs of collection.
2. Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of
money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the
profits that the partnership would have earned, and, payment of unpaid commission; (2) on the
alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary
damages and attorney's fees.
3. Court rendered judgement in favor of Pecson ordering defendant Isabelo C. Moran, Jr. to return
to plaintiff Mariano E. Pecson the sum of P17,000.00,
4. Both parties appealed but the appellate rendered judgement still in favor of Pecson ordering
Moran to pay (a) P47,500, the amount that could have accrued to Pecson under the partnership
agreement; (b)P8,000, the commission for 8 months; (c) P7,000, as a return of Pecsons
investment for the Veteran Project, (d) legal interest

ISSUE(s):

1. WON THE CA ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO


RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED
EXPECTED PROFITS DUE HIM.

2. WON THE CA ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO


RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED
COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT

HELD:
1. YES.

Article 1797 of the Civil Code provides: The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.

Being a contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership. And even with an assurance made by one of the partners that they
would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In this
case, on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a
month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of
which were sold at P5.00 each. Hidden risks in any business venture have to be considered.

It does not follow however that the private respondent is not entitled to recover any amount from
the petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter
used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00.
This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And
since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private respondent.
2. YES.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a
failure, the private respondent is not entitled to the P8,000.00 commission.
There are risks in any business venture and the failure of the undertaking cannot entirely be blamed
on the managing partner alone, specially if the latter exercised his best business judgment, which seems
to be true in this case.

G.R. No. L-39780 November 11, 1985

ELMOMUASQUE, petitioner,
vs.
COURT OF APPEALS, CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON
PONS, respondents
FACTS:
1. The present controversy began when petitioner Muasque in behalf of the partnership of "Galan
and Muasque" as Contractor entered into a written contract with respondent Tropical for
remodelling the respondent's Cebu branch building.

2. A total amount of P25,000.00 was to be paid under the contract for the entire services of the
Contractor. The terms of payment were as follows: thirty percent (30%) of the whole amount upon
the signing of the contract and the balance thereof divided into three equal installments at the lute
of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

3. The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the
name of the petitione, who, however, indorsed the check in favor of respondent Galan to enable
the latter to deposit it in the bank and pay for the materials and labor used in the project.

4. Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that
when the second check in the amount of P6,000.00 came and Galan asked the petitioner to
indorse it again, the petitioner refused.

5. The check was withheld from the petitioner.

6. Since Galan informed the Cebu branch of Tropical that there was a "misunderstanding" between
him and petitioner, respondent Tropical changed the name of the payee in the second check from
Muasque to "Galan and Associates" which was the duly registered name of the partnership
between Galan and petitioner and under which name a permit to do construction business was
issued by the mayor of Cebu City, enabling Galan to encash the second check.

7. Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He
stated that he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses
had reached the amount of P29,000.00 because of the failure of Galan to pay what was partly
due the laborers and partly due for the materials, the construction work was finished ahead of
schedule with the total expenditure reaching P34,000.00.

8. The two remaining checks, each in the amount of P6,000.00, were subsequently given to the
petitioner alone with the last check being given pursuant to a court order.

9. The petitioner filed a complaint for payment of sum of money and damages against the
respondents, seeking to recover the following: the amounts covered by the first and second
checks which fell into the hands of respondent Galan, the additional expenses that the petitioner
incurred in the construction, moral and exemplary damages, and attorney's fees.

10. Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager,
Pons, from any liability but they also held the petitioner together with respondent Galan, liable to
the intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the
credit which the intervenors extended to the partnership of petitioner and Galan

ISSUE(s):

1. WON THE APPELLATE COURT ERRED IN HOLDING THAT A PARTNERSHIP EXISTED


BETWEEN PETITIONER AND RESPONDENT GALAN

2. ASSUMING THAT THERE WAS A PARTNERSHIP, WON THE APPELLATE COURT ERRED ON
HOLDING PETITIONER JOINT AND SEVERALLY LIABLE WITH GALAN

HELD:

1. YES!

There is nothing in the records to indicate that the partnership organized by the two men
was not a genuine one. If there was a falling out or misunderstanding between the partners, such
does not convert the partnership into a sham organization.

Likewise, when Muasque received the first payment of Tropical in the amount of
P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume that the petitioner and Galan were
true partners. If they were not partners as petitioner claims, then he has only himself to blame for
making the relationship appear otherwise, not only to Tropical but to their other creditors as well.
The payments made to the partnership were, therefore, valid payments.

No error was committed by the appellate court in holding that the payment made by
Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the two
were partners when the debts were incurred, they, are also both liable to third persons who
extended credit to their partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil.
513, 514), the Court ruled that:

There is a general presumption that each individual partner is an authorized agent for the
firm and that he has authority to bind the firm in carrying on the partnership transactions.

The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of members of the firm acting apparently in its behalf and within the scope of
his authority

2. YES!

We note that the petitioner is not solely burdened by the obligations of their illstarred
partnership. The records show that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended
credit to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber.

We, however, take exception to the ruling of the appellate court that the trial court's
ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the liability of partners under the law to third
persons for contracts executed inconnection with partnership business is only pro rata under Art.
1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including industrial
ones, shall be liable prorata with all their property and after all the partnership assets have been
exhausted, for the contracts which may be entered into the name and for the account cd the
partnership, under its signature and by a person authorized to act for the partner-ship. ...". this
provision should be construed together with Article 1824 which provides that: "All partners are
liable solidarily with the partnership for everything chargeable to the partnership under Articles
1822 and 1823." In short, while the liability of the partners are merely joint in transactions entered
into by the partnership, a third person who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or
1823.

Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partner-ship or with the authority of his co-partners,
loss or injury is caused to any person, not being a partner in the partnership or any
penalty is incurred, the partnership is liable therefor to the same extent as the partner so
acting or omitting to act.

Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent authority receives
money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is misapplied by any
partner while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of
the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership
existed between the petitioner and Galan and no fault or error can be imputed against it for
making payments to "Galan and Associates" and delivering the same to Galan because as far as
it was concerned, Galan was a true partner with real authority to transact on behalf of the
partnership with which it was dealing. This is even more true in the cases of Cebu Southern
Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership.
Thus, it is but fair that the consequences of any wrongful act committed by any of the partners
therein should be answered solidarily by all the partners and the partnership as a whole

However. as between the partners Muasque and Galan,justice also dictates that
Muasque be reimbursed by Galan for the payments made by the former representing the liability
of their partnership to herein intervenors, as it was satisfactorily established that Galan acted in
bad faith in his dealings with Muasque as a partner.

G.R. No. L-5953 February 24, 1912

ANTONIO M. PABALAN, plaintiff-appellant,


vs.
FELICIANO VELEZ, defendant-appellee.
Ariston Estrada for appellant.
Luciano de la Rosa for appellee
FACTS:
1. Pabalan owned two lots, a rural estate devoted to agricultural purposes and an urban lot.
2. In his desire to put the two lots into use, he agreed to enter into a mercantile partnership with
Walter Fitton.
3. The agreement stipulates that they form a partnership known in the name AM Pabalan and
Company with a capital stock at P9000; that Pabalan would contribute P3000 in cash while
Fitton would contribute P6000 in real property; that Pabalan would sell his two lots to Fitton for
P6000; that Pabalan would receive P3000 of the purchase price while the remaining will be his
contribution to the capital; that Fitton would contribute the two lots as his agreed capital
contribution.
4. Pabalan received P3000 of the purchase price.
5. When Fitton died, he failed to pay into the partnership funds the remaining P3000.
6. Due to the failure of Fitton to comply with his comply with his obligation, the properties in question
had been entirely unproductive, resulting in losses and damages to Pabalan.
7. Plaintiff prayed for the rescission of the double contract which consists of the partnership and
sale.
8. Defendant Velez is the administrator of the Estate of Fitton.

ISSUE: WON THE CONTRACTS CAN BE RESCINDED


HELD: YES!

Article 1506 of the Civil Code prescribes:

The sale shall be rescinded for the same causes as all other obligations, etc.

Article 1124 provides:

The right to rescind the obligations is considered as implied in mutual ones, in case one of the
obligated persons does not comply with what is incumbent upon him.

The person prejudiced may choose between exacting the fulfillment of the obligation or its
rescission, with indemnity for damages and the payment of interest in either case. He may also
demand the rescission, even after having requested its fulfillment, should the latter appear
impossible.

The court shall order the rescission demanded, unless there are sufficient causes authorizing it to
fix a period.

This is understood without prejudice to the rights of third acquirers, in accordance with articles
1295 and 1298, and with the provisions of the Mortgage Law.

Article 116 of the Code of Commerce prescribes:

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 its class may be, provided it has been established in accordance with the provisions of this code
In bilateral contracts, when one of the parties fail to comply with his obligation, the party prejudiced is
entitle to choose between enforcement of the obligation or the rescission of the contract, with the payment
of damages in either case. In this case, enforcement cannot be had since because the defaulting partner
is already dead. Justice requires the dissolution of the company and the rescission of said sale.
In regard to the amount of the losses and damages occasioned by the noncompliance, on the part of the
partner Fitton, with the stipulated provisions, both such amounts should be considered as the company's
losses and computed pro rata, in proportion to the extent that each partner is interested in the company
and on the same basis as the profits.

G.R. No. L-16318 October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees,


vs.
LO SENG, defendant-appellant.

Cohn, Fisher and DeWitt for appellant.


No appearance for appellees
FACTS:
1. For several years, two of the litigating parties, namely, Lo Seng and Pang Lim, Chinese residents
of the City of Manila, were partners, under the firm name of Lo Seng and Co., in the business of
running a distillery, known as "El Progreso,".

2. The land on which said distillery is located as well as the buildings and improvements originally
used in the business were property of Lo Yao, who leased the same to the firm of Lo Seng and
Co. for the term of three years.

3. Upon the expiration of this lease a new written contract, in the making of which Lo Yao was
represented by one Lo Shui as attorney in fact, became effective whereby the lease was
extended for fifteen years.

4. The reason why the contract was made for so long a period of time appears to have been that the
Bureau of Internal Revenue had required sundry expensive improvements to be made in the
distillery, and it was agreed that these improvements should be effected at the expense of the
lessees.

5. In conformity with this understanding many thousands of pesos were expended by Lo Seng and
Co., and later by Lo Seng alone, in enlarging and improving the plant.

6. Pang Lim then sold all his interest in the partnership to Lo Seng thereby making the latter the sole
owner of the distillery.

7. Lo Shui, again acting as an attorney in fact of Lo Yao executed and acknowledged before a
Notary Public a deed purporting to convey to Pang Lim and Benito Galvez the entire distillery
plant, but the document was never recorded in the registry of property.

8. Thereafter, Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter
refused; thus the former initiated an action for unlawful detainer to recover possession of the
premises.

9. Plaintiff, Pang Lim has occupied a double role in the transactions which gave rise to the present
litigation, namely1) as one of the lessees and 2) one of the purchasers seeking to terminate the
lease.

ISSUE: WON PANG LIM HAVING BEEN A PARTICIPANT IN THE CONTRACT OF LEASE IS IN A
POSITION TO TERMINATE IT
HELD: NO!

While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation
of this lease, and when he sold out his interest in that firm to Lo Seng this operated as a transfer
to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot
now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived from
himself, and for which he has received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly
revealed in the circumstance that prior to the acquisition of this property Pang Lim had been
partner with Lo Seng and Benito Galvez an employee. Both therefore had been in relations of
confidence with Lo Seng and in that position had acquired knowledge of the possibilities of the
property and possibly an experience which would have enabled them, in case they had acquired
possession, to exploit the distillery with profit. On account of his status as partner in the firm of Lo
Seng and Co., Pang Lim knew that the original lease had been extended for fifteen years; and he
knew the extent of valuable improvements that had been made thereon. Certainly, as observed in
the appellant's brief, it would be shocking to the moral sense if the condition of the law were found
to be such that Pang Lim, after profiting by the sale of his interest in a business, worthless without
the lease, could intervene as purchaser of the property and confiscate for his own benefit the
property which he had sold for a valuable consideration to Lo Seng. The sense of justice recoils
before the mere possibility of such eventuality.

Above all other persons in business relations, partners are required to exhibit towards
each other the highest degree of good faith. In fact the relation between partners is essentially
fiduciary, each being considered in law, as he is in fact, the confidential agent of the other. It is
therefore accepted as fundamental in equity jurisprudence that one partner cannot, to the
detriment of another, apply exclusively to his own benefit the results of the knowledge and
information gained in the character of partner. Thus, it has been held that if one partner obtains in
his own name and for his own benefit the renewal of a lease on property used by the firm, to
commence at a date subsequent to the expiration of the firm's lease, the partner obtaining the
renewal is held to be a constructive trustee of the firm as to such lease. And this rule has even
been applied to a renewal taken in the name of one partner after the dissolution of the firm and
pending its liquidation

If one partner obtains in his own name and for his own benefit the renewal of the lease of
a property used by the firm , to commence at a date subsequent to the expiration of the firms
lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as to such
lease.

As long as Lo Seng is vested with the possessory right as against Pang Lim, he cannot
be ousted either by Pang Lim or Benito Galvez. Having lawful possession as against one co-
tenant, he is entitled to retain it against both.

G.R. No. 30616 : December 10, 1990.]


192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA, Defendant-Appellee.

FACTS:
1. On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership called
Eastcoast Development Enterprises (EDE) with only the two of them as partners, such
partnership EDE with an indefinite term of existence was duly registered on January 21, 1955
with the SEC.
2. One of the purposes of the duly-registered partnership was to "apply or secure timber and/or
minor forests products licenses and concessions over public and/or private forest lands and to
operate, develop and promote such forests rights and concessions."
3. A duly registered Articles of Co-Partnership was filed together with an application for a timber
concession which was subsequently approved.
4. Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of
the partnership, including marketing and handling of cash and is authorized to sign all papers and
instruments relating to the partnership, while appellant Rojas shall be the logging superintendent
and shall manage the logging operations of the partnership. Moreover, was also provided in the
said articles of co-partnership that all profits and losses of the partnership shall be divided share
and share alike between the partners
5. Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of
Pahamotang as industrial partner
6. On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-
Partnership under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE), whereby
aside from the slight difference in the purpose of the second partnership which is to hold and
secure renewal of timber license instead of to secure the license as in the first partnership and
the term of the second partnership is fixed to thirty (30) years, everything else is the same.
7. The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956,
and was able to ship logs and realize profits. Income was derived from the proceeds of the logs.
8. Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF
INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE"agreeing
among themselves that Maglana and Rojas shall purchase the interest, share and participation in
the Partnership of Pahamotang. It was also agreed in the said instrument that after payment to
Pahamotang including the amount of loan secured by Pahamotang in favor of the partnership, the
two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang
and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second
partnership, be dissolved.
9. Pahamotang was paid in full and no other rights and obligations accrued in the name of the
second partnership.
10. After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas
without the benefit of any written agreement or reconstitution of their written Articles of
Partnership
11. Rojas then entered into a management contract with another logging enterprise, the CMS Estate,
Inc. thus leaving and abandoning the partnership.
12. Rojas withdrew his equipment from the partnership for use in the newly acquired area, such
equipment were his supposed contributions to the first partnership and was transferred to CMS
Estate, Inc. by way of chattel mortgage.
13. Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in
equipment, to the capital investments of the partnership as well as his obligation to perform his
duties as logging superintendent to which , Rojas replied that will not be able to comply with the
promised contributions and he will not work as logging superintendent.
14. Meanwhile, Rojas took funds from the partnership more than his contribution and so Maglana
notified him through a letter that he dissolved the partnership.
15. Subsequently, Rojas filed an action before the CFI of Davao against Maglana for the recovery of
properties, accounting, receivership and damages
16. Rojas' petition for appointment of a receiver was denied and upon his motion the judge appointed
commissioners to examine the long and voluminous accounts of EDE.
17. Rojas filed his motion for reconsideration of the order approving the report of the commissioners
which was opposed by the appellee, such motion was however denied.
ISSUE(s):
1. WON THE RELATIONSHIP OF ROJAS AND MAGLANA AFTER THE WITHDRAWAL OF
PAHAMOTANG CAN NEITHER BE CONSIDERED AS A DE FACTO PARTNERSHIP, NOR A
PARTNERSHIP AT WILL.
2. WON MAGLANA CAN UNILATERALLY DISSOLVE THE PARTNERSHIP
3. WON MAGLANA IS LIABLE FOR DAMAGES OF SUCH WITHDRAWAL
HELD:
1. YES.
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it
appears evident that it was not the intention of the partners to dissolve the first partnership, upon
the constitution of the second one, which they unmistakably called an "Additional Agreement"
Except for the fact that they took in one industrial partner; gave him an equal share in the profits
and fixed the term of the second partnership to thirty (30) years, everything else was the same.
Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in
both partnerships call for the same amounts. Just as important is the fact that all subsequent
renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the original
licensee. To all intents and purposes therefore, the First Articles of Partnership were only
amended, in the form of Supplementary Articles of Co-Partnership which was never registered).
Otherwise stated, even during the existence of the second partnership, all business transactions
were carried out under the duly registered articles. No rights and obligations accrued in the name
of the second partnership except in favor of Pahamotang which was fully paid by the duly
registered partnership

On the other hand, there is no dispute that the second partnership was dissolved by common
consent. Said dissolution did not affect the first partnership which continued to exist. Significantly,
Maglana and Rojas agreed to purchase the interest, share and participation in the second
partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners
of equipment contributed by Pahamotang. Even more convincing, is the fact that Maglana on
March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in cash or
in equipment, to the capital investment of the partnership as well as his obligation to perform his
duties as logging superintendent. This reminder cannot refer to any other but to the provisions of
the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be
able to comply with the promised contributions and he will not work as logging superintendent. By
such statements, it is obvious that Roxas understood what Maglana was referring to and left no
room for doubt that both considered themselves governed by the articles of the duly registered
partnership

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will, for
as stressed, there is an existing partnership, duly registered.

2. YES!
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the
partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner
can cause its dissolution by expressly withdrawing even before the expiration of the period, with
or without justifiable cause. Of course, if the cause is not justified or no cause was given, the
withdrawing partner is liable for damages but in no case can he be compelled to remain in the
firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in
whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana
shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles
of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and
share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and
accomplished by the commissioners appointed for the purpose.
It is a settled rule that when a partner who has undertaken to contribute a sum of money
fails to do so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Article 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) Being a contract of partnership, each
partner must share in the profits and losses of the venture. That is the essence of a partnership
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits.

3. NO!
As to whether Maglana is liable for damages because of such withdrawal,it will be recalled that after
the withdrawal of Pahamotang, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc., a company engaged in the same business as the partnership. He
withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment
and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The
records also show that Rojas not only abandoned the partnership but also took funds in an amount
more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for
damages.

G.R. No. L-6304 December 29, 1953

SERGIO V. SISON, plaintiff-appellant,


vs.
HELEN J. MCQUAID, defendant-appellee.

FACTS:
1. On March 28, 1951, plaintiff brought an action in the Court of First Instance of Manila against
defendant, alleging that during the year 1938 the latter borrowed from him various sums of
money, aggregating P2,210, to enable her to pay her obligation to the Bureau of Forestry and to
add to her capital in her lumber business,

2. as defendant was not able to pay the loan in 1938, as she had promised, she proposed to take in
plaintiff as a partner in her lumber business, plaintiff to contribute to the partnership the said sum
of P2,210 due him from defendant in addition to his personal services; that plaintiff agreed to
defendant's proposal and, as a result, there was formed between them, under the provisions of
the Civil Code, a partnership in which they were to share alike in the income or profits of the
business, each to get one-half thereof; that in accordance with said contract, plaintiff, together
with defendant, rendered services to the partnership without compensation from June 15, 1938 to
December, 1941; that before the last World War, the partnership sold to the United States Army
230,000 board feet of lumber for P13,800, for the collection of which sum defendant, as manager
of the partnership, filed the corresponding claim with the said army after the war; that the claim
was "finally" approved and the full amount paid the complaint does not say when but
defendant has persistently refused to deliver one-half of it, or P6,900, to plaintiff notwithstanding
repeated demands, investing the whole sum of P13,800 for her own benefit. Plaintiff, therefore,
prays for judgment declaring the existence of the alleged partnership and requiring the defendant
to pay him the said sum of P6,900, in addition to damages and costs.
3. Defendant filed a motion to dismiss on the grounds that plaintiff's action had already prescribed,
that plaintiff's claim was not provable under the Statute of Frauds, and that the complaint stated
no cause of action. Sustaining the first ground, the court dismissed the case, whereupon, plaintiff
appealed to the Court of Appeals; but that court has certified the case here on the ground that the
appeal involved only questions of law.

ISSUE: WON defendant is liable to plaintiff for the latters share in the proceeds of the sale
HELD: NO!
It is not clear from the allegations of the complaint just when plaintiff's cause of action accrued.
Consequently, it cannot be determined with certainty whether that action has already prescribed or not.
Such being the case, the defense of prescription cannot be sustained on a mere motion to dismiss based
on what appears on the face of the complaint.

But though the reason given for the order of dismissal be untenable, we find that the said order should be
upheld on the ground that the complaint states no cause of action, which is also one of the grounds on
which defendant's motion to dismiss was based. Plaintiff seeks to recover from defendant one-half of the
purchase price of lumber sold by the partnership to the United States Army. But his complaint does not
show why he should be entitled to the sum he claims. It does not allege that there has been a liquidation
of the partnership business and the said sum has been found to be due him as his share of the profits.
The proceeds from the sale of a certain amount of lumber cannot be considered profits until costs and
expenses have been deducted. Moreover, the profits of the business cannot be determined by taking into
account the result of one particular transaction instead of all the transactions had. Hence, the need for a
general liquidation before a member of a partnership may claim a specific sum as his share of the profits.

G.R. No. L-19819 October 26, 1977


WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant
Facts:
1. Defendant, Bartolome Puzon, had a contract with the Republic of the Philippines for the
construction of the Ganyangan Bato Section of the Pagadian Zamboanga City Road, province of
Zamboanga del Sur, and of 5 bridges in the Malangas-Ganyangan Road. Finding difficulty in
accomplishing both projects, Bartolome Puzon sought financial assistance of the plaintiff, William
Uy.
2. As inducement, Puzon proposed the creation of a partnership between them which would be the
sub-contractor of the projects and the profits to be divided equally between them. The partners
agreed that the capital of the partnership would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash.
3. But Puzon was short of cash and he promised to contribute his share in the partnership capital as
soon as his application for a loan with the PNB in the amount of P150,000.00 shall have been
approved.
4. However, before his loan application could be acted upon, he had to clear his collaterals of its
encumbrances first. For this purpose, Uy gave Puzon the amout of P10,000.00 as advance
contribution of his share in the partnership to be organized between them under the firm name
U.P. CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon to pay
his obligations with the PNB to effect the release of his mortgages with the said Bank.
5. Uy gave Puzon the amount of P30,000.00 again as his partial contribution to the proposed
partnership and which the said Puzon was to use in payment of his obligation to the
Rehabilitation on Finance Corporation. Puzon promised Uy that the amount of P150,000 would
be given to the partnership to be applied thusly: 40,000, as reimbursement of the capital
contribution of Uy which he advanced to clear the title of Puzons property; 50,000, as Puzons
contribution to the partnership; and the balance of 60,000 as Puzons personal loan to the
partnership.
6. Since Puzon was was busy with is other projects, Uy, was entrusted with the management of the
projects and whatever expense that latter might incur, would be considered as part of his
contribution.
7. The loan of Puzon was approved by the PNB.Of which 60,000 was given to Uy. 40,000 as
reimbursement; and the 20,000 as Puzons contribution to the partnership capital.
8. Moreover, to guarantee the repayment of the loan, Puzon, without the knowledge and consent of
Uy, assigned to the PNB all the payments to be received on account of the contracts with the
Bureau of Public Highways for the construction of the projects.
9. As time passed and the financial demands of the projects increased, Uy found difficulty in
obtaining the necessary funds with to continue the projects. Uy called on Puzon to comply with
his obligations under the terms of their partnership. However, failed to do so.
10. Puzon, as prime contractor of the construction projects terminated their subcontract agreement
for failure to reach an agreement with Uy. Thereafter, Uy was not allowed to hold office in the U.P.
Construction Company and his authority to deal with the BPH was revoked by Puzon who
continued with the projects alone.

Issue: WON Puzon failed to comply with his obligation of paying the capital contribution to the
partnership.
Held: Yes.
11. The findings of the TC that the Puzon failed to contribute his share in the capital of the
partnership is clear and incontrovertible. The record shows that after the appellants loan was
approved, he only gave 60,000 to the Uy. Thereafter, Puzon failed to make any further
contribution.
12. Furthermore, Puzon misapplied partnership funds. It is of record that Puzon assigned to the PNB
all the payments to be received on account of the contracts with the BPH for the construction of
the projects to guarantee the repayment of the bank. By virtue of the personal loan, the BPH paid
the money due on the partial accomplishments on the construction projects to the PNB who, in
turn, applied portions of it in payment of the appellants loan.
13. The assignment to the PNB, hence, became prejudicial to the partnership.
14. The trial court properly ordered Puzon to reimburse Uy whatever amount the latter had invested
on the projects.
15. Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and
subcontract agreements, it is reasonable to expect that the partnership would have earned much
more. An award of 200,000.00 as compensatory damages is reasonable.

WHEREFORE, affirmed.

G.R. No. L-19819 October 26, 1977


WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant
Facts:
1. Defendant, Bartolome Puzon, had a contract with the Republic of the Philippines for the
construction of the Ganyangan Bato Section of the Pagadian Zamboanga City Road, province of
Zamboanga del Sur, and of 5 bridges in the Malangas-Ganyangan Road. Finding difficulty in
accomplishing both projects, Bartolome Puzon sought financial assistance of the plaintiff, William
Uy.
2. As inducement, Puzon proposed the creation of a partnership between them which would be the
sub-contractor of the projects and the profits to be divided equally between them. The partners
agreed that the capital of the partnership would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash.
3. But Puzon was short of cash and he promised to contribute his share in the partnership capital as
soon as his application for a loan with the PNB in the amount of P150,000.00 shall have been
approved.
4. However, before his loan application could be acted upon, he had to clear his collaterals of its
encumbrances first. For this purpose, Uy gave Puzon the amout of P10,000.00 as advance
contribution of his share in the partnership to be organized between them under the firm name
U.P. CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon to pay
his obligations with the PNB to effect the release of his mortgages with the said Bank.
5. Uy gave Puzon the amount of P30,000.00 again as his partial contribution to the proposed
partnership and which the said Puzon was to use in payment of his obligation to the
Rehabilitation on Finance Corporation. Puzon promised Uy that the amount of P150,000 would
be given to the partnership to be applied thusly: 40,000, as reimbursement of the capital
contribution of Uy which he advanced to clear the title of Puzons property; 50,000, as Puzons
contribution to the partnership; and the balance of 60,000 as Puzons personal loan to the
partnership.
6. Since Puzon was was busy with is other projects, Uy, was entrusted with the management of the
projects and whatever expense that latter might incur, would be considered as part of his
contribution.
7. The loan of Puzon was approved by the PNB.Of which 60,000 was given to Uy. 40,000 as
reimbursement; and the 20,000 as Puzons contribution to the partnership capital.
8. Moreover, to guarantee the repayment of the loan, Puzon, without the knowledge and consent of
Uy, assigned to the PNB all the payments to be received on account of the contracts with the
Bureau of Public Highways for the construction of the projects.
9. As time passed and the financial demands of the projects increased, Uy found difficulty in
obtaining the necessary funds with to continue the projects. Uy called on Puzon to comply with
his obligations under the terms of their partnership. However, failed to do so.
10. Puzon, as prime contractor of the construction projects terminated their subcontract agreement
for failure to reach an agreement with Uy. Thereafter, Uy was not allowed to hold office in the U.P.
Construction Company and his authority to deal with the BPH was revoked by Puzon who
continued with the projects alone.

Issue: WON Puzon failed to comply with his obligation of paying the capital contribution to the
partnership.

Held: Yes.
11. The findings of the TC that the Puzon failed to contribute his share in the capital of the
partnership is clear and incontrovertible. The record shows that after the appellants loan was
approved, he only gave 60,000 to the Uy. Thereafter, Puzon failed to make any further
contribution.
12. Furthermore, Puzon misapplied partnership funds. It is of record that Puzon assigned to the PNB
all the payments to be received on account of the contracts with the BPH for the construction of
the projects to guarantee the repayment of the bank. By virtue of the personal loan, the BPH paid
the money due on the partial accomplishments on the construction projects to the PNB who, in
turn, applied portions of it in payment of the appellants loan.
13. The assignment to the PNB, hence, became prejudicial to the partnership.
14. The trial court properly ordered Puzon to reimburse Uy whatever amount the latter had invested
on the projects.
15. Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and
subcontract agreements, it is reasonable to expect that the partnership would have earned much
more. An award of 200,000.00 as compensatory damages is reasonable.
WHEREFORE, affirmed.