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Agad vs Mabato GR No.

L-24193 June 28, 1968

Facts:

Plaintiff Mauricio Agad alleged that he and Defendant SeverinoMabato are partners in a
fishpond business, to the capital of which Agad contributed P1000 with the right to receive 50%
of profits; that from 1952up to and including 1956, Mabato who handled the partnership funds,
had yearly rendered accounts of the operations of the partnership; that despite reapeated
demands Mabato had failed and refused to render accounts for the years 1957 up to 1963.
Agad prayed that judgment be rendered sentencing Mabato to pay him the sum of P14,000 as
his share in the profits of the partnership for the period from 1957 to 1963.

In his Answer, MAbato admitted the formal allegations of the complaint and denied the
existence of said partnership on the ground that the contract therefor had not been perfected
because Agad had allegedly failed to give his P1000 contribution to the partnership capital.
Mabato prayed for the dismissal of the complaint.

The complaint was subsequently dismissed upon the theory that the contract of
partnership is null and void pursuant to Art. 1773,CC because an inventory referred to had not
been attached thereto.

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.

Thus, Agad brought the matter for review by record on appeal.

Issue:

WON immovable property or real rights have been contributed to the partnership under
consideration.

Ruling: No.

None of the partners contributed either a fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1000 each. Par. 4 of Annex A provides:

that the capital of said partnership is two thousand (P2000) pesos od which one
thousand (P1000) has been contributed by SeverinoMabato and one thousand (P1000) has
been contributed by Mauricio Agad.

The operation of the fishpond mentioned in Annex A was the purpose of the partnership.
Neither said fishpond or 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.

Art. 1773, CC is not in point in this case.


CHARLES F. WOODHOUSE, plaintiff-appellant, vs.
FORTUNATO F. HALILI, defendant-appellant.
G.R. No. L-4811 July 31, 1953
Subject: BusOrg 1 (PAT)
Doctrine: Fraud
FACTS
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant
Halili stating among others that: 1) that they shall organize a partnership for the bottling and
distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the
defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure
the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, that he had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a milliondollars in the bottling and distribution of the
said beverages, and requested, in order that he may close the deal with him, that the right to
bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation. Pursuant to this request, plaintiff was given a thirty days option
on exclusive bottling and distribution rights for the Philippines. The contract was finally signed
by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and
3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the
other hand claims that: 1) the defendants consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that plaintiff did not secure the franchise
but was given to defendant himself 2) that defendant did not fail to carry out his undertakings,
but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as
damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2)
execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasnt proved
ISSUES

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

1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission
Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the
agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement to secure the Mission Dry franchise for and in behalf
of the proposed partnership. The existence of this provision in the final agreement does not
militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The defendant believed, or was
made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also
agreed upon that the franchise was to be transferred to the name of the partnership, and that,
upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not
have the exclusive franchise, was to reduce, as he himself testified, plaintiffs participation in the
net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he(plaintiff) was the exclusive grantee of the franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for damages only. The Supreme Court
has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for
the partnership. The original draft prepared by defendants counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of
an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the
share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may the
agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is
evident from the very language of the agreement that the parties intended that the execution of
the agreement to form a partnership was to be carried out at a later date. , The defendant may not
be compelled against his will to carry out the agreement nor execute the partnership papers. The
law recognizes the individuals freedom or liberty to do an act he has promised to do, or not to
do it, as he pleases.

EVANGELISTA & CO. v. ABAD SANTOS


EVANGELISTA & CO. v. ABAD SANTOS
G.R. No. L-31684; June 28, 1973
Ponente: J. Makalintal

FACTS:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co."
On June 7, 1955 the Articles of Co-partnership were amended so as to include herein respondent,
Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonarda Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners,
remaining in that capacity, with a contribution of P17,500 each
On December 17, 1963 herein respondent filed suit against the three other partners,
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 to let her examine the partnership books or to give her information
regarding the partnership affairs or to pay her any share in the dividends declared by the
partnership

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 by way 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.

ISSUE:

Whether Abad Santos is entitled to see the partnership books because she is an industrial
partner in the partnership

HELD:

Yes, Abad Santos is entitled to see the partnership books.

The Supreme Court ruled that according to

ART. 1299. 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 circumstances render it just and reasonable."

In the case at hand, the company is estopped from denying Abad Santos as an industrial partner
because it has been 8 years and the company never corrected their agreement in order to show
their true intentions. The company never bothered to correct those up until Abad Santos filed a
complaint.

Eligio Estanislao, Jr. v. Court of Appeals ,REMEDIOS


ESTANISLAO, EMILIO and LEOCADIO SANTIAGO
FACTS:

Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at
the corner of Annapolis and Aurora Blvd., Quezon City which were then being leased to the
Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a gas
station thereat to be known as Estanislao Shell Service Station with an initial investment of
P15,000.00 to be taken from the advance rentals due to them from SHELL for the occupancy of
the said lots owned in common by them.

On May 26, 1966, the parties herein entered into an Additional Agreement with a proviso that
said agreement cancels and supersedes the original agreement executed by the co-owners.

For sometime, the petitioner submitted financial statements regarding the operation of the
business to private respondents, but thereafter petitioner failed to render subsequent accounting.

A demand was made on petitioner:


to render an accounting of the profits;
to execute a public document embodying all the provisions of the partnership agreement;
to pay the plaintiffs their lawful shares and participation in the net profits of the business.

ISSUE:
IS A PARTNERSHIP a FORMED WHERE MEMBERS OF THE SAME FAMILY BIND
THEMSELVES TO CONTRIBUTE MONEY TO A COMMON FUND WITH THE
INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES?

HELD:
YES. The Joint Affidavit of April 11, 1966 (Exhibit A), clearly stipulated by the members of
the same family that the P15,000.00 advance rental due to them from SHELL shall augment
their "capital investment" in the operation of the gasoline station.

other evidence in the record:


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

Respondent Remedios assisted in the running of the business.

Moran, Jr. vs CA

Business Organization Partnership, Agency, Trust Profit and Loss Sharing Speculative Damages
In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership agreement where they
agreed to contribute P15k each for the purpose of printing 95k posters of the delegates to the then 1971
Constitutional Commission. Moran shall be in charge in managing the printing of the posters. It was
further agreed that Pecson will receive a commission of P1k a month starting from April 1971 to
December 1971; that the partnership is to be liquidated on December 15, 1971.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in favor of the partnership.
He gave the P10k to Moran as the managing partner. Moran however did not add anything and, instead,
he only used P4k out of the P10k in printing 2,000 posters. He only printed 2,000 posters because he felt
that printing all 95k posters is a losing venture because of the delay by the COMELEC in announcing the
full delegates. All the posters were sold for a total of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of Appeals
affirmed the decision of the trial court but modified the same as it ordered Moran to pay P47.5k for
unrealized profit; P8k for Pecsons monthly commissions; P7k as return of investment because the
venture never took off; plus interest.
ISSUE: Whether or not the CA judgment is correct.
HELD: No. The award of P47.5k for unrealized profit is speculative. There is no evidence whatsoever that
the partnership between the Moran and Pecson would have been a profitable venture (because base on
the circumstances then i.e. the delay of the COMELEC in proclaiming the candidates, profit is highly
unlikely). In fact, it was a failure doomed from the start. There is therefore no basis for the award of
speculative damages in favor of Pecson. Further, there is mutual breach in this case, Pecson only gave
P10k instead of P15k while Moran gave nothing at all.
As for the P8k monthly commission, this is without basis. 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, Pecson is not entitled to the P8k commission.
As for the P7k award as return for Pecsons investment, the CA erred in his ruling too. Though the
venture failed, it did took off the ground as evidenced by the 2,000 posters printed. Hence, return of
investment is not proper in this case. 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.
Moran must however return the unused P6k of Pecsons contribution to the partnership plus P3k
representing Pecsons profit share in the sale of the printed posters. Computation of P3k profit share is as
follows: (P10k profit from the sale of the 2,000 posters printed) (P4k expense in printing the 2k posters)
= (P6k profit); Profit 2 = P3k each.

ADRIANO ARBES ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO


ET AL., defendants-appellants.

Marcelino Lontok and Manuel de la Rosa for appellants.


Sumulong & Lavides for appellees.

SYLLABUS
1. UNLAWFUL PARTNERSHIPS; "TURNUHAN POLISTICO & CO.;"
CHARITABLE INSTITUTIONS. The partnership "Turnuhan Polistico &
Co." is an unlawful partnership (U. S. vs. Baguio, 39 Phil., 962).
According to paragraph 2 of article 1666 of the Civil Code, when an
unlawful partnership is judicially dissolved, the earnings shall not be
disposed of as profits, but shall be given to charitable institutions. But
in a case like the one at bar, whose object is to determine the rights of
the parties, and to liquidate the unlawful partnership, no charitable
institution should be included as defendant, as the appellants contend,
because it is not a necessary party to the case.
2. ID.; ACTION TO OBTAIN PROFITS OF UNLAWFUL PARTNERSHIP.
Said article 1666 of the Civil Code allows 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 the partner will have to base his action on
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.

D E C I S I O N

VILLAMOR, J p:
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.
It is well to remember that this case is now brought before the
consideration of this court for the second time. The first time was
when the same plaintiffs appealed from the order of the court below
sustaining the defendants' demurrer, and requiring the former to
amend their complaint within a certain period, so as to include all the
members of "Turnuhan Polistico & Co.," either as plaintiffs or as
defendants. This court held then that in an action against the officers
of a voluntary association to wind up its affairs and to enforce an
accounting for money and property in their possession, it is not
necessary that all members of the association be made parties to the
action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amended, respectively,
their complaint and their answer, and by agreement of the parties, the
court appointed Amadeo R. Quintos, of the Insular Auditor's 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.
The commissioner rendered his report, which is attached to the record,
with the following resume:
Income:
Members' shares P97,263.70
Credits paid 6,196.55
Interest received 4,569.45
Miscellaneous 1,891.00
P109,620.70
Expenses:
Premiums to members 68,146.25
Loans on real-estate security 9,827.00
Loans on promissory notes 4,258.55
Salaries 1,095.00
Miscellaneous 1,686.108
85,012.90

Cash on hand 24,607.80


The defendants objected to the commissioner's report, 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, with costs against the defendants.
The defendants assigned several errors as grounds for their appeal,
but we believe they can all be reduced to two points, to wit: (1) That
not all persons having an interest in this association are included as
plaintiffs or defendants; (2) that the objection to the commissioner's
report should have been admitted by the court below.
As to the first point, the decision in the case of Borlasa vs. Polistico,
supra, must be followed.
With regard to the second point, despite the praiseworthy efforts of
the attorney for the defendants, we are of opinion that, the trial court
having examined all the evidence touching the grounds for the
objection and having found that they had been explained away in the
commissioner's report, the conclusion reached by the court below,
accepting and adopting the findings of fact contained in said report,
and especially those referring to the disposition of the association's
money, should not be disturbed.
In Tan Diangseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it
was held that the findings of fact made by a referee appointed under
the provisions of section 135 of the Code of Civil Procedure stand upon
the same basis, when approved by the court, as findings made by the
judge himself. And in Kriedt vs. E.C. McCullough & Co. (37 Phil., 474),
the court held: "Under section 140 of the Code of Civil Procedure it is
made the duty of the court, to render judgment in accordance with the
report of the referee unless the court shall for cause shown set aside
the report or recommit it to the referee. This provision places upon the
litigant parties the duty of discovering and exhibiting to the court any
error that may be contained therein." The appellants stated the
grounds for their objection. The trial court examined the evidence and
the commissioner's report, and accepted the findings of fact made in
the report. We find no convincing argument in the appellants' brief to
justify a reversal of the trial court's conclusion admitting the
commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful
partnership (U. S. vs. Baguio, 39 Phil., 962), 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."
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.
We deem it pertinent to quote Manresa's commentaries on article 1666
at length, as a clear explanation of the scope and spirit of the
provision of the Civil Code with which we are concerned. Commenting
on said article, Manresa, among other things says:
"When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in
transactions consistent with the purposes of the partnership may the
former demand the return or reimbursement thereof from the
manager or administrator withholding them?
"Apropos of this, it is asserted: If the partnership has had no valid
existence, if it is considered juridically non-existent, the contract
entered into can have no legal effect; and in that case, how can it give
rise to an action in favor of the partners to judicially demand from the
manager or administrator of the partnership capital, each one's
contribution?
"The authors discuss this point at great length; but Ricci decides the
matter quite clearly, dispelling all doubts thereon. He holds that the
partner who limits himself to demanding only the amount contributed
by him need not resort to the partnership contract on which to base
his claim or action. And, he adds in explanation, that the partner
makes his contribution, which passes to the managing partner for the
purpose of carrying on the business or industry which is the object of
the partnership; or, in other words, to breathe the breath of life into a
partnership contract with an object forbidden by the law. And as said
contract does not exist in the eyes of the law, the purpose for which
the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what
belongs to others, without any consideration; for which reason he is
bound to return it, and he who has paid in his share is entitled to
recover it.
"But this is not the case with regard to profits earned in the course of
the partnership, because they do not constitute or represent the
partner's contribution but are the result of the industry, business, or
speculation, which is the object of the partnership; and, therefore, in
order to demand the proportional part of said profits, the partner
would have to base his action on the contract, which is null and void,
since this partition or distribution of the profits is one of the juridical
effects thereof. Wherefore, considering this contract as non-existent,
by reason of its illicit object, it cannot give rise to the necessary
action, which must be the basis of the judicial complaint. Furthermore,
it would be immoral and unjust for the law to permit a profit from an
industry prohibited by it.
"Hence, the distinction made in the second paragraph of this article of
our Code, providing that the profits obtained by unlawful means shall
not enrich the partners, but shall, upon the dissolution of the
partnership, be given to the charitable institutions of the domicile of
the partnership, or, in default of such, to those of the province.
"This is a new rule, unprecedented in our law, introduced to supply an
obvious deficiency of the former law, which did not prescribe the
purpose to which those profits denied to the partners were to be
applied, nor state what was to be done with them.
"The profits are so applied, and not the individual contributions,
because this would be an excessive and unjust sanction for, as we
have seen, there is no reason, in such a case, for depriving the partner
of the portion of the capital that he contributed, the circumstances of
the two cases being entirely different.
"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." (Manresa, Commentaries on the
Spanish Civil Code, vol. XI, pp. 262-264.)
The judgment appealed from, being in accordance with law, should be,
as it is hereby, affirmed with costs against the appellants; provided,
however, that the defendants shall pay the legal interest on the sum of
P24,607.80 from the date of the decision of the court, and provided,
further, that the defendants shall deposit these sums of money and
other documents evidencing uncollected credits in the office of the
clerk of the trial court, in order that said court may distribute them
among the members of said association, upon being duly identified in
the manner it may deem proper. So ordered.

Fortis vs. Hermanos


Fortis vs. Hermanos

Facts:
Plaintiff Fortis is an employee of defendant Gutierrez Hermanos. Theformer brought an action to recover a balance due him
as salary forthe year 1902. He also 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 600pesos, money expended by
plaintiff for the defendants during the year1903. The lower court ruled in favor of the plaintiff. The total judgmentrendered
amounted to P13, 025.40, which was reduced to Philippinecurrency. The defendants moved for new trial but were denied.
They brought the case in the SC thru bill of exceptions; the appellants(defendants) alleged that that the contract made the
plaintiff acopartner of the defendants in the business, which they were carrying on.

Issue: WON the plaintiff is a co-partner of the defendants in the business.

Ruling:

NO. It was a mere contract of employment. The plaintiff had neithervoice nor vote in the management of the affairs of the
company. Thefact that the compensation received by him was to be determined withreference to the profits made by the
defendants in their business didnot in any sense make by a partner therein. The articles of partnershipbetween the
defendants provided that the profits should be dividedamong the partners named in a certain proportion. The contract
madebetween the plaintiff and the then manager of the defendantpartnership did not in any way vary or modify this provision
of thearticles of partnership.

Evangelista vs CIR
Facts: Petitioners borrowed money from theirfather and
purchased several lands. For several years, these lands
were leased to tenants by the petitioners. In 1954,
respondent Collector of Internal Revenue demanded from
petitioners the payment of income tax on corporations,
real estate dealer's fixed tax and corporation residence tax
for the years 1945-1949. A letter of demand and
corresponding assessments were delivered to petitioners.
Petitioners claim that they should be absolved from paying
said taxes since they are not a corporation.
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, as well as to the residence tax for
corporations and the real estate dealers fixed tax.
Held: Yes. Petitioners are subject to the income tax and
residence tax for corporation.
As defined in section 84 (b) of the Internal Revenue 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
usualrequirements of the law on partnerships, in order that
one could be deemed constituted for purposes of the tax
on corporations. Partnership, as has been defined in the
civil code refers to two or more persons who bind
themselves to contribute money, properly, or industry to
a common fund, with the intention of dividing the profits
among themselves. Thus, petitioners, being engaged in
the real estate transactions for monetary gain and dividing
the same among themselves constitute a partnership so
far as the Code is concerned and are subject to income
tax for corporation.
Since Sec 2 of the Code in defining corporations also
includes joint-stock company, partnership, joint account,
association or insurance company, no matter how created
or organized, it follows that petitioners, regardless of how
their partnership was created is also subject to the
residence tax for corporations.
Aguila vs CA
Business Organization Partnership, Agency, Trust Identity Separate and Distinct
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: No. Unfortunately, the civil case was filed not against the real party in interest. As
pointed out by Aguila, he is not the real party in interest but rather it was the partnership
A.C. Aguila & Sons, Co. The Rules of Court provide that every action must be prosecuted
and defended in the name of the real party in interest. A real party in interest is one who
would be benefited or injured by the judgment, or who is entitled to the avails of the
suit. Any decision rendered against a person who is not a real party in interest in the case
cannot be executed. Hence, a complaint filed against such a person should be dismissed
for failure to state a cause of action, as in the case at bar.
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and
distinct from that of each of the partners. The partners cannot be held liable for the
obligations of the partnership unless it is shown that the legal fiction of a different juridical
personality is being used for fraudulent, unfair, or illegal purposes. In this case, Felicidad
has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the
name of A.C. Aguila & Sons, Co. It is the partnership, not its officers or agents, which
should be impleaded in any litigation involving property registered in its name. A violation of
this rule will result in the dismissal of the complaint.
PETITION FOR AUTHORITY TO CONTINUE USE OF
THE FIRM NAME SYCIP, SALAZAR, FELICIANO,
HERNANDEZ & CASTILLO".
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME SYCIP, SALAZAR,
FELICIANO, HERNANDEZ & CASTILLO.
July 30, 1979

Facts:
Petitions were filed by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975 and by
the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be
allowed to continue using, in the names of their firms, the names of partners who had passed away.
Petitioners contend that the continued use of the name of a deceased or former partner when permissible
by local custom, is not unethical but care should be taken that no imposition or deception is practiced
through this use. They also contend that no local custom prohibits the continued use of a deceased
partners name in a professional firms name; there is no custom or usage in the Philippines, or at least in
the Greater Manila Area, which recognizes that the name of a law firm necessarily identifies the individual
members of the firm.
Issue:
WON the surviving partners may be allowed by the court to retain the name of the partners who already
passed away in the name of the firm? NO

Held:
In the case of Register of Deeds of Manila vs. China Banking Corporation, the SC said:
The Court believes that, in view of the personal and confidential nature of the relations between attorney
and client, and the high standards demanded in the canons of professional ethics, no practice should be
allowed which even in a remote degree could give rise to the possibility of deception. Said attorneys are
accordingly advised to drop the names of the deceased partners from their firm name.
The public relations value of the use of an old firm name can tend to create undue advantages and
disadvantages in the practice of the profession. An able lawyer without connections will have to make a
name for himself starting from scratch. Another able lawyer, who can join an old firm, can initially ride on
that old firms reputation established by deceased partners.
The court also made the difference from the law firms and business corporations:
A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a
particular purpose. It is not a partnership formed for the purpose of carrying on trade or business or of
holding property. Thus, it has been stated that the use of a nom de plume, assumed or trade name in
law practice is improper.
We find such proof of the existence of a local custom, and of the elements requisite to constitute the
same, wanting herein. Merely because something is done as a matter of practice does not mean that
Courts can rely on the same for purposes of adjudication as a juridical custom.
Petition suffers legal and ethical impediment.

Ortega vs. CA
FACTS:

On December 19, 1980, respondent Misa associated himself together, as senior partner with
petitioners Ortega, del Castillo, Jr., and Bacorro, as junior partners. On Feb. 17, 1988, respondent
Misa wrote a letter stating that he is withdrawing and retiring from the firm and asking for a
meeting with the petitioners to discuss the mechanics of the liquidation. On June 30, 1988,
petitioner filed a petition to the Commision's Securities Investigation and Clearing Department
for the formal dissolution and liquidation of the partnership. On March 31, 1989, the hearing
officer rendered a decision ruling that the withdrawal of the petitioner has not dissolved the
partnership. On appeal, the SEC en banc reversed the decision and was affirmed by the Court of
Appeals. Hence, this petition.

ISSUE:
Whether or not the Court of Appeals has erred in holding that the partnership is a partnership at
will and whether or not the Court of Appeals has erred in holding that the withdrawal of private
respondent dissolved the partnership regardless of his good or bad faith

HELD:
No. The SC upheld the ruling of the CA regarding the nature of the partnership. The SC further
stated that a partnership that does not fix its term is a partnership at will. The birth and life of a
partnership at will is predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very foundation and essence of
that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not that the attendance
of bad faith can prevent the dissolution of the partnership but that it can result in a liability for
damages.
Campos Rueda & Co v Pacific Commercial (44 Phil
916)
Facts:
Campos, Rueda & Co., a limited partnership, is indebted to the appellants: Pacific Commercial Co. , Asiatic
Petroleum Co, and International Banking Corporation amounting to not less than P1,000.00 (which were not paid
more than 30 days prior to the date of the filing by petitioners of the application for voluntary insolvency).
The trial court denied their petition on the ground that it was not proven, nor alleged, that the members of the firm
were insolvent at the time the application was filed. It also held that the partners are personally and solidarily liable for
the consequences of the transactions of the partnership.

Issue:
Whether or not a limited partnership may be held to have committed an act of insolvency.

Held:
Yes. A limited partnerships juridical personality is different from the personality of its members. On general
principle, the limited partnership must answer for and suffer the consequence of its acts. Under our Insolvency Law,
one of the acts of bankruptcy upon w/c an adjudication of involuntary insolvency can be predicated is the failure to
pay obligations.
The failure of Campos, Rueda & Co., to pay its obligations constitutes an act w/c is specifically provided for in the
Insolvency Law for declaration of involuntary insolvency. The petitioners have a right to a judicial decree declaring the
involuntary insolvency of said partnership.
CIR VS. SUTER

FACTS:

A limited partnership named William J. Suter 'Morcoin' Co., Ltd was formed 30 September 1947
byWilliam J. Suter as the general partner, and Julia Spirig and Gustav Carlson. They contributed,
respectively, P20,000.00, P18,000.00 and P2,000.00. it was also duly registered with the SEC. On 1948
Suter and Spirig got married and in effect Carlson sold his share to the couple, the same was also
registered with the SEC.

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.

ISSUE:

Whether or not the limited partnership has been dissolved after the marriage of Suter and Spirig
and buying the interest of limited partner Carlson.

RULING:

No, the limited partnership was not dissolved.

A husband and a wife may not enter into a contract of general copartnership, because under
the Civil Code, which applies in the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from entering into universal
partnerships. (2 Echaverri 196) It follows that the marriage of partners necessarily brings about the
dissolution of a pre-existing partnership.

What the law prohibits was when the spouses entered into a general partnership. In the case at
bar, the partnership was limited.
G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September
1947 by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav
Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and
P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among other activities, in the importation,
marketing, distribution and operation of automatic phonographs, radios, television sets and
amusement machines, their parts and accessories. It had an office and held itself out as a limited
partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its
trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation
with the Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by
the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an
assessment, consolidated the income of the firm and the individual incomes of the partners-spouses
Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in
the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not
in accordance with law, but his request was denied. Unable to secure a reconsideration, he
appealed to the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November
1965, reversing that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax
court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent
William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner,
Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and
Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the
partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of
the partnership should be disregarded for income tax purposes because the spouses have exclusive
ownership and control of the business; consequently the income tax return of respondent Suter for
the years in question should have included his and his wife's individual incomes and that of the
limited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which
provides as follows:

(d) Husband and wife. In the case of married persons, whether citizens, residents or non-
residents, only one consolidated return for the taxable year shall be filed by either spouse to
cover the income of both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New
Civil Code, and that since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, Suter was not bound to include in his individual return the income
of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only general partner, William J. Suter to the
originally limited partner, Julia Spirig one year after the partnership was organized is rested by the
appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under
the Civil Code, which applies in the absence of express provision in the Code of Commerce,
persons prohibited from making donations to each other are prohibited from entering
into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)

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

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th
Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the
aforesaid Article 1677:

Los conyuges, segunesto, no puedencelebrar entre si el contrato de sociedad universal,


pero o podranconstituirsociedad particular? Aunque el punto ha sidomuydebatido,
nosinclinamos a la tesispermisiva de loscontratos de sociedad particular entre esposos, ya
que ningunprecepto de nuestroCodigolosprohibe, y hay que estar a la norma general segun
la que toda persona escapaz para contratarmientras no sea declaradoincapazpor la ley. La
jurisprudencia de la Direccion de losRegistrosfue favorable a estamismatesisensu resolution
de 3 de febrero de 1936, mas parececambiar de rumboen la de 9 de marzo de 1943.

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

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

The following shall be the exclusive property of each spouse:

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

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

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners (unlike American and English
law that does not recognize such separate juridical personality), the bypassing of the existence of
the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory
mandates and basic principles of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members. True, section 24 of the Internal
Revenue Code merges registered general co-partnerships (compaiascolectivas) with the
personality of the individual partners for income tax purposes. But this rule is exceptional in its
disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to
limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-
13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority
for disregarding the fiction of legal personality of the corporations involved therein are not applicable
to the present case. In the cited cases, the corporations were already subject to tax when the fiction
of their corporate personality was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely served as business conduits
or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for
tax purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business purposes; it
conducted its own dealings with its customers prior to appellee's marriage, and had been filing its
own income tax returns as such independent entity. The change in its membership, brought about by
the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay
income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy
the interests of the remaining partner with the premeditated scheme or design to use the partnership
as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the
law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership
(compaiacolectiva) 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 compaiascolectivas 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). lawphi 1.nt

But it is argued that the income of the limited partnership is actually or constructively the income of
the spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As
pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60
Phil. 167, the fruits of the wife's parapherna become conjugal only when no longer needed to defray
the expenses for the administration and preservation of the paraphernal capital of the wife. Then
again, the appellant's argument erroneously confines itself to the question of the legal personality of
the limited partnership, which is not essential to the income taxability of the partnership since the law
taxes the income of even joint accounts that have no personality of their own. 1 Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not.
What is taxable is the "income of both spouses" (Section 45 [d] in their individual capacities. Though
the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and
wife) may be the same for a given taxable year, their consequences would be different, as their
contributions in the business partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidated with,
and when split from the income of the spouses, is not a justification for requiring consolidation; the
revenue code, as it presently stands, does not authorize it, and even bars it by requiring the limited
partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and
Teehankee, JJ., concur.
Barredo, J., took no part.
DAN FUE LEUNG, VS. IAC and LEUNG YIU
G.R. No. 70926, January 31, 1989

FACTS:
The petitioner asks for the reversal of the decision of the Appellate Court in
which affirmed the decision of the lower court declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun
WahPanciteria and ordering the petitioner to pay to the private respondent
his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the
lower court to recover the sum equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun WahPanciteria since
October, 1955 from petitioner Dan Fue Leung.

The Sun WahPanciteria was registered as a single proprietorship and its


licenses and permits were issued to and in favor of petitioner Dan Fue Leung
as the sole proprietor. Respondent Leung Yiu adduced evidence during the
trial of the case to show that Sun WahPanciteria was actually a partnership
and that he was one of the partners having contributed P4,000.00 to its initial
establishment.

Lower court ruled in favor of the private respondent. Petitioner appealed the
trial court's amended decision. However, the questioned decision was further
modified and affirmed by the appellate court. Both the trial court and the
appellate court declared that the private petitioner is a partner and is entitled
to a share of the annual profits of the restaurant. Hence, an appeal to the
SC.The petitioner argues that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun
WahPanciteria, in return of which private respondent allegedly will receive a
share in the profits of the restaurant. It was, therefore, error for the Appellate
Court to interpret or construe 'financial assistance' to mean the contribution
of capital by a partner to a partnership.

ISSUE:
WON the private respondent is a partner of the petitioner in the
establishment of Sun WahPanciteria.
HELD:

In essence, the private respondent alleged that when Sun WahPanciteria 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 WahPanciteria 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 WahPanciteria, notwithstanding the use of the
term financial assistance therein.

SC affirmed appellate courts decision and ordered the dissolution of the


partnership.

FULL TEXT

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner, vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:


The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the
then Court of First Instance of Manila, Branch II in Civil Case No. 116725
declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung
in the business of Sun WahPanciteriaand ordering the petitioner to pay to the
private respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the
then Court of First Instance of Manila, Branch II to recover the sum equivalent
to twenty-two percent (22%) of the annual profits derived from the operation
of Sun WahPanciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun WahPanciteria, a restaurant, located at Florentino Torres Street, Sta.


Cruz, Manila, was established sometime in October, 1955. It was registered as
a single proprietorship and its licenses and permits were issued to and in
favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung
Yiu adduced evidence during the trial of the case to show that Sun
WahPanciteria was actually a partnership and that he was one of the partners
having contributed P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun WahPanciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership. This
is evidenced by a receipt identified as Exhibit "A" wherein the petitioner
acknowledged his acceptance of the P4,000.00 by affixing his signature
thereto. The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to translate its
contents into English. Florence Yap issued a certification and testified that the
translation to the best of her knowledge and belief was correct. The private
respondent identified the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his (private respondents')
presence. Witnesses So Sia and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were both present when the
receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that
he himself received from the petitioner a similar receipt (Exhibit D)
evidencing delivery of his own investment in another amount of P4,000.00 An
examination was conducted by the PC Crime Laboratory on orders of the trial
court granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when compared
to the signature of the petitioner appearing in the pay envelopes of employees
of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24)
showed that the signatures in the two receipts were indeed the signatures of
the petitioner.

Furthermore, the private respondent received from the petitioner the amount
of P12,000.00 covered by the latter's Equitable Banking Corporation Check
No. 13389470-B from the profits of the operation of the restaurant for the
year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the
China Banking Corporation testified that said check (Exhibit B) was deposited
by and duly credited to the private respondents savings account with the bank
after it was cleared by the drawee bank, the Equitable Banking Corporation.
Another witness Elvira Rana of the Equitable Banking Corporation testified
that the check in question was in fact and in truth drawn by the petitioner and
debited against his own account in said bank. This fact was clearly shown and
indicated in the petitioner's statement of account after the check (Exhibit B)
was duly cleared. Rana further testified that upon clearance of the check and
pursuant to normal banking procedure, said check was returned to the
petitioner as the maker thereof.

The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of the
receipt (Exhibit D). His evidence is summarized as follows:

The petitioner did not receive any contribution at the time he started the Sun
WahPanciteria. He used his savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the Toho Restaurant
amounting to a little more than P2,000.00 as capital in establishing Sun
WahPanciteria. To bolster his contention that he was the sole owner of the
restaurant, the petitioner presented various government licenses and permits
showing the Sun WahPanciteria was and still is a single proprietorship solely
owned and operated by himself alone. Fue Leung also flatly denied having
issued to the private respondent the receipt (Exhibit G) and the Equitable
Banking Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the private
respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant, ordering the latter to
deliver and pay to the former, the sum equivalent to 22% of
the annual profit derived from the operation of Sun
WahPanciteria from October, 1955, until fully paid, and
attorney's fees in the amount of P5,000.00 and cost of suit.
(p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion, he
requested that the decision rendered should include the net profit of the Sun
WahPanciteria which was not specified in the decision, and allow private
respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.

The motion was granted over the objections of the petitioner. After hearing
the trial court rendered an amended decision, the dispositive portion of which
reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the motion


for reconsideration filed by the plaintiff, which was granted
earlier by the Court, is hereby reiterated and the decision
rendered by this Court on September 30, 1980, is hereby
amended. The dispositive portion of said decision should
read now as follows:

WHEREFORE, judgment is hereby rendered, ordering the


plaintiff (sic) and against the defendant, ordering the latter
to pay the former the sum equivalent to 22% of the net
profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as and
for attorney's fees and costs of suit. (p. 150, Rollo)

The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further modified
by the appellate court. The dispositive portion of the appellate court's
decision reads:

WHEREFORE, the decision appealed from is modified, the


dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of
temperate damages 22% of the net profit of P2,000.00 a day
from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of
P8,000.00 a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22%
of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is
affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed
the lower court's decision. The dispositive portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended


judgment of the court a quo reading as follows:

WHEREFORE, judgment is rendered in favor of the plaintiff


and against the defendant, ordering the latter to pay to the
former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand, until
fully paid, plus the sum of P5,000.00 as and for attorney's
fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date
of judicial demand is July 13, 1978. (pp. 105-106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was
denied.
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 WahPanciteria, 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)

The pertinent portions of the complaint state:


xxxxxxxxx
2. That on or about the latter (sic) of September, 1955,
defendant sought the financial assistance of plaintiff in
operating the defendant's eatery known as Sun
WahPanciteria, located in the given address of defendant; as
a return for such financial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the annual
profit derived from the operation of the said panciteria;

3. That on October 1, 1955, plaintiff delivered to the


defendant the sum of four thousand pesos (P4,000.00),
Philippine Currency, of which copy for the receipt of such
amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof; (p. 11,
Rollo)

In essence, the private respondent alleged that when Sun WahPanciteria 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 WahPanciteria 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 WahPanciteria, 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." (De Tavera v. Philippine Tuberculosis
Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA
37).

The appellate court did not err in declaring that the main issue in the instant
case was whether or not the private respondent is a partner of the petitioner
in the establishment of Sun WahPanciteria.

The petitioner also contends that the respondent court gravely erred in giving
probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground
that the alleged standards or specimens used by the PC Crime Laboratory in
arriving at the conclusion were never testified to by any witness nor has any
witness identified the handwriting in the standards or specimens belonging to
the petitioner. The supposed standards or specimens of handwriting were
marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the
private respondent over the vigorous objection of the petitioner's counsel.

The records show that the PC Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by the
petitioner to the private respondent and So Sia (Exhibits "A" and "D") and
compared the signatures on them with the signatures of the petitioner on the
various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and
Maria Wong, employees of the restaurant. After the usual examination
conducted on the questioned documents, the PC Crime Laboratory submitted
its findings (Exhibit J) attesting that the signatures appearing in both receipts
(Exhibits "A" and "D") were the signatures of the petitioner.

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-
24") were presented by the private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither did the petitioner file an
opposition to the motion of the private respondent to have these exhibits
together with the two receipts examined by the PC Crime Laboratory despite
due notice to him. Likewise, no explanation has been offered for his silence
nor was any hint of objection registered for that purpose.

Under these circumstances, we find no reason why Exhibit "J" should be


rejected or ignored. The records sufficiently establish that there was a
partnership.

The petitioner raises the issue of prescription. He argues: The Hon.


Respondent Intermediate Appellate Court gravely erred in not resolving the
issue of prescription in favor of petitioner. The alleged receipt is dated
October 1, 1955 and the complaint was filed only on July 13, 1978 or after the
lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From
October 1, 1955 to July 13, 1978, no written demands were ever made by
private respondent.

The petitioner's argument is based on Article 1144 of the Civil Code which
provides:
Art. 1144. The following actions must be brought within ten
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when
they are filed before the court, when there is a written
extra-judicial demand by the creditor, and when there is
any written acknowledgment of the debt by the debtor.'

The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun WahPanciteria.


The requisites of a partnership which are 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
(Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been
established. As stated by the respondent, a partner shares not only in profits
but also in the losses of the firm. If excellent relations exist among the
partners at the start of 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. It would be incorrect to state that
if a partner does not assert his rights anytime within ten years from the start
of operations, such rights are irretrievably lost. The private respondent's
cause of action is premised upon the failure of the petitioner to give him the
agreed profits in the operation of Sun WahPanciteria. In effect the private
respondent was asking for an accounting of his interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:

The right to an account of his interest shall accrue to any


partner, or his legal representative as against the winding
up partners or the surviving partners or the person or
partnership continuing the business, at the date of
dissolution, in the absence or any agreement to the
contrary.

Regarding the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the partnership exists. Prescription
begins to run only upon the dissolution of the partnership when the final
accounting is done.

Finally, the petitioner assails the appellate court's monetary awards in favor
of the private respondent for being excessive and unconscionable and above
the claim of private respondent as embodied in his complaint and testimonial
evidence presented by said private respondent to support his claim in the
complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun WahPanciteria, a certain Mrs. Sarah L. Licup, to
testify on the income of the restaurant.
Mrs.Licup stated:
ATTY. HIPOLITO (direct examination to Mrs.Licup).
Q Mrs. Witness, you stated that among your duties was that
you were in charge of the custody of the cashier's box, of the
money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were
the one who accepted the money and you gave the change, if
any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you
said, what do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer
together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you
please tell us, how much is the gross income of the
restaurant?
A For regular days, I received around P7,000.00 a day during
my shift alone and during pay days I receive more than
P10,000.00. That is excluding the catering outside the place.
Q What about the catering service, will you please tell the
Honorable Court how many times a week were there catering
services?
A Sometimes three times a month; sometimes two times a
month or more.
xxxxxxxxx
Q Now more or less, do you know the cost of the catering
service?
A Yes, because I am the one who receives the payment also of
the catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a
single day from 3:30 P.M. to 11:30 P.M. in the evening the
restaurant grosses an income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxxxxxxxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November
15, 1978). (Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did the petitioner's
counsel waive the cross-examination on the matter of income but he failed to
comply with his promise to produce pertinent records. When a subpoena
ducestecum was issued to the petitioner for the production of their records of
sale, his counsel voluntarily offered to bring them to court. He asked for
sufficient time prompting the court to cancel all hearings for January, 1981
and reset them to the later part of the following month. The petitioner's
counsel never produced any books, prompting the trial court to state:

Counsel for the defendant admitted that the sales of Sun


Wah were registered or recorded in the daily sales book.
ledgers, journals and for this purpose, employed a
bookkeeper. This inspired the Court to ask counsel for the
defendant to bring said records and counsel for the
defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for
quite sometime. To bemuddle the issue, defendant instead
of presenting the books where the same, etc. were recorded,
presented witnesses who claimed to have supplied chicken,
meat, shrimps, egg and other poultry products which,
however, did not show the gross sales nor does it prove that
the same is the best evidence. This Court gave warning to
the defendant's counsel that if he failed to produce the
books, the same will be considered a waiver on the part of
the defendant to produce the said books inimitably showing
decisive records on the income of the eatery pursuant to the
Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully
suppressed would be adverse if produced." (Rollo, p. 145)

The records show that the trial court went out of its way to accord due
process to the petitioner.
The defendant was given all the chance to present all
conceivable witnesses, after the plaintiff has rested his case
on February 25, 1981, however, after presenting several
witnesses, counsel for defendant promised that he will
present the defendant as his last witness. Notably there
were several postponement asked by counsel for the
defendant and the last one was on October 1, 1981 when he
asked that this case be postponed for 45 days because said
defendant was then in Hongkong and he (defendant) will be
back after said period. The Court acting with great concern
and understanding reset the hearing to November 17, 1981.
On said date, the counsel for the defendant who again failed
to present the defendant asked for another postponement,
this time to November 24, 1981 in order to give said
defendant another judicial magnanimity and substantial
due process. It was however a condition in the order
granting the postponement to said date that if the defendant
cannot be presented, counsel is deemed to have waived the
presentation of said witness and will submit his case for
decision.

On November 24, 1981, there being a typhoon prevailing in


Manila said date was declared a partial non-working
holiday, so much so, the hearing was reset to December 7
and 22, 1981. On December 7, 1981, on motion of
defendant's counsel, the same was again reset to December
22, 1981 as previously scheduled which hearing was
understood as intransferable in character. Again on
December 22, 1981, the defendant's counsel asked for
postponement on the ground that the defendant was sick.
the Court, after much tolerance and judicial magnanimity,
denied said motion and ordered that the case be submitted
for resolution based on the evidence on record and gave the
parties 30 days from December 23, 1981, within which to
file their simultaneous memoranda. (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in
front of the Republic Supermarket. It is near the corner of Claro M. Recto
Street. According to the trial court, it is in the heart of Chinatown where
people who buy and sell jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the
trial court and the appellate court. If the respondent court awarded damages
only from judicial demand in 1978 and not from the opening of the restaurant
in 1955, it is because of the petitioner's contentions that all profits were being
plowed back into the expansion of the business. There is no basis in the
records to sustain the petitioners contention that the damages awarded are
excessive. Even if the Court is minded to modify the factual findings of both
the trial court and the appellate court, it cannot refer to any portion of the
records for such modification. There is no basis in the records for this Court to
change or set aside the factual findings of the trial court and the appellate
court. The petitioner was given every opportunity to refute or rebut the
respondent's submissions but, after promising to do so, it deliberately failed
to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the payment of


the petitioner's obligation shows that the same continues until fully paid. The
question now arises as to whether or not the payment of a share of profits
shall continue into the future with no fixed ending date.

Considering the facts of this case, the Court may decree a dissolution of the
partnership under Article 1831 of the Civil Code which, in part, provides:

Art. 1831. On application by or for a partner the court shall


decree a dissolution whenever:
xxxxxxxxx
(3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breach of


the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business that
it is not reasonably practicable to carry on the business in
partnership with him;
xxxxxxxxx

(6) Other circumstances render a dissolution equitable.


There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for lack of merit.
The decision of the respondent court is AFFIRMED with a MODIFICATION that
as indicated above, the partnership of the parties is ordered dissolved.

SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
Gatchalian vs CIR

Facts: Plaintiffs purchased, in the ordinary course of business, from one of the duly
authorized agents of the National Charity Sweepstakes Office oneticket for the sum of
two pesos (P2), said ticket wasregistered in the name of Jose Gatchalian and
Company. The ticket won one of the third-prizes in the amount of P50,000.

Jose Gatchalian was required to file the corresponding income tax return covering the
prize won. Defendant-Collector made an assessment against Jose Gatchalian and Co.
requesting the payment of the sum of P1,499.94 to the deputyprovincial treasurer of
Pulilan, Bulacan. Plaintiffs, however through counsel made a request for exemption. It
was denied.

Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy
was issued. Plaintiffs paid under protest a part of the tax and penalties to avoid the
effects of the warrant. A request that the balance be paid by plaintiffs
in installments was made. This was granted on the condition that a bond be filed.

Plaintiffs failed in their installment payments. Hence a request for execution of the
warrant of distraint and levy was made. Plaintiffs paid under protest to avoid the
execution.

A claim for refund was made by the plaintiffs, which was dismissed, hence the appeal.

Issue: Whether the plaintiffs formed a partnership hence liable for income tax.

Held: Yes. According to the stipulation facts the plaintiffs organized a partnership of a
civil nature because each of them put up money to buy a sweepstakes ticket for the
sole purpose of dividing equally the prize which they may win, as they did in fact in
the amount of P50,000. The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Jose Gatchalian personally appeared
in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as
such collection the prize, the office issued thecheck for P50,000 in favor of Jose
Gatchalian and company, and the said partner, in the same capacity, collected the
said check. All these circumstances repel the idea that the plaintiffs organized and
formed a community of property only.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-45425 April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,


vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

Guillermo B. Reyes for appellants.


Office of the Solicitor-General Tuason for appellee.

IMPERIAL, J.:

The plaintiff brought this action to recover from the defendant Collector of Internal Revenue
the sum of P1,863.44, with legal interest thereon, which they paid under protest by way of
income tax. They appealed from the decision rendered in the case on October 23, 1936 by
the Court of First Instance of the City of Manila, which dismissed the action with the costs
against them.

The case was submitted for decision upon the following stipulation of facts:

Come now the parties to the above-mentioned case, through their respective
undersigned attorneys, and hereby agree to respectfully submit to this Honorable
Court the case upon the following statement of facts:

1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that
defendant is the Collector of Internal Revenue of the Philippines;

2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase
one sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the
amounts as follows:
1. Jose Gatchalian
P0.18
....................................................................................................

2. Gregoria Cristobal
.18
...............................................................................................

3. Saturnina Silva
.08
....................................................................................................

4. Guillermo Tapia
.13
...................................................................................................

5. Jesus Legaspi
.15
......................................................................................................

6. Jose Silva
.07
.............................................................................................................

7. Tomasa Mercado
.08
................................................................................................

8. Julio Gatchalian
.13
...................................................................................................

9. Emiliana Santiago
.13
................................................................................................

10. Maria C. Legaspi


.16
...............................................................................................

11. Francisco Cabral


.13
...............................................................................................

12. Gonzalo Javier


.14
....................................................................................................

13. Maria Santiago


.17
...................................................................................................
14. Buenaventura Guzman
.13
......................................................................................

15. Mariano Santos


.14
.................................................................................................

Total ........................................................................................................ 2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased,
in the ordinary course of business, from one of the duly authorized agents of the
National Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of
two pesos (P2) and that the said ticket was registered in the name of Jose
Gatchalian and Company;

4. That as a result of the drawing of the sweepstakes on December 15, 1934, the
above-mentioned ticket bearing No. 178637 won one of the third prizes in the
amount of P50,000 and that the corresponding check covering the above-mentioned
prize of P50,000 was drawn by the National Charity Sweepstakes Office in favor of
Jose Gatchalian & Company against the Philippine National Bank, which check was
cashed during the latter part of December, 1934 by Jose Gatchalian & Company;

5. That on December 29, 1934, Jose Gatchalian was required by income tax
examiner Alfredo David to file the corresponding income tax return covering the prize
won by Jose Gatchalian & Company and that on December 29, 1934, the said return
was signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit A and
made a part hereof;

6. That on January 8, 1935, the defendant made an assessment against Jose


Gatchalian & Company requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian &
Company until January 20, 1935 within which to pay the said amount of P1,499.94, a
copy of which letter marked Exhibit B is enclosed and made a part hereof;

7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant
a reply, a copy of which marked Exhibit C is attached and made a part hereof,
requesting exemption from payment of the income tax to which reply there were
enclosed fifteen (15) separate individual income tax returns filed separately by each
one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to
D-15, respectively, in order of their names listed in the caption of this case and made
parts hereof; a statement of sale signed by Jose Gatchalian showing the amount put
up by each of the plaintiffs to cover up the attached and marked as Exhibit E and
made a part hereof; and a copy of the affidavit signed by Jose Gatchalian dated
December 29, 1934 is attached and marked Exhibit F and made part thereof;

8. That the defendant in his letter dated January 28, 1935, a copy of which marked
Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption
from the payment of tax and reiterated his demand for the payment of the sum of
P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to
pay the said tax;

9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by
the defendant, notwithstanding subsequent demand made by defendant upon the
plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit H
is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked Exhibit I is
enclosed and made a part hereof;

10. That to avoid embarrassment arising from the embargo of the property of the
plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C.
Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the tax
and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official
receipt No. 7454879 which is attached and marked Exhibit J and made a part hereof,
and requested defendant that plaintiffs be allowed to pay under protest the balance
of the tax and penalties by monthly installments;

11. That plaintiff's request to pay the balance of the tax and penalties was granted by
defendant subject to the condition that plaintiffs file the usual bond secured by two
solvent persons to guarantee prompt payment of each installments as it becomes
due;

12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is
enclosed and made a part hereof, to guarantee the payment of the balance of the
alleged tax liability by monthly installments at the rate of P118.70 a month, the first
payment under protest to be effected on or before July 31, 1935;

13. That on July 16, 1935 the said plaintiffs formally protested against the payment
of the sum of P602.51, a copy of which protest is attached and marked Exhibit L, but
that defendant in his letter dated August 1, 1935 overruled the protest and denied
the request for refund of the plaintiffs;

14. That, in view of the failure of the plaintiffs to pay the monthly installments in
accordance with the terms and conditions of bond filed by them, the defendant in his
letter dated July 23, 1935, copy of which is attached and marked Exhibit M, ordered
the municipal treasurer of Pulilan, Bulacan to execute within five days the warrant of
distraint and levy issued against the plaintiffs on May 13, 1935;

15. That in order to avoid annoyance and embarrassment arising from the levy of
their property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo
Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the municipal
treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance
of the income tax and penalties demanded by defendant as evidenced by income tax
receipt No. 35811 which is attached and marked Exhibit N and made a part hereof;
and that on September 3, 1936, the plaintiffs formally protested to the defendant
against the payment of said amount and requested the refund thereof, copy of which
is attached and marked Exhibit O and made part hereof; but that on September 4,
1936, the defendant overruled the protest and denied the refund thereof; copy of
which is attached and marked Exhibit P and made a part hereof; and

16. That plaintiffs demanded upon defendant the refund of the total sum of one
thousand eight hundred and sixty three pesos and forty-four centavos (P1,863.44)
paid under protest by them but that defendant refused and still refuses to refund the
said amount notwithstanding the plaintiffs' demands.

17. The parties hereto reserve the right to present other and additional evidence if
necessary.

Exhibit E referred to in the stipulation is of the following tenor:

To whom it may concern:

I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify,


that on the 11th day of August, 1934, I sold parts of my shares on ticket No. 178637
to the persons and for the amount indicated below and the part of may share
remaining is also shown to wit:

Purchaser Amount Address

1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan.

2. Buenaventura Guzman ............................... .13 - Do -

3. Maria Santiago ............................................ .17 - Do -


4. Gonzalo Javier .............................................. .14 - Do -

5. Francisco Cabral .......................................... .13 - Do -

6. Maria C. Legaspi .......................................... .16 - Do -

7. Emiliana Santiago ......................................... .13 - Do -

8. Julio Gatchalian ............................................ .13 - Do -

9. Jose Silva ...................................................... .07 - Do -

10. Tomasa Mercado ....................................... .08 - Do -

11. Jesus Legaspi ............................................. .15 - Do -

12. Guillermo Tapia ........................................... .13 - Do -

13. Saturnina Silva ............................................ .08 - Do -

14. Gregoria Cristobal ....................................... .18 - Do -

15. Jose Gatchalian ............................................ .18 - Do -

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of
whatever prize that might be won by said ticket.

Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL
DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL
REVENUE.

Exhibit Purchase Price Net


Name Expenses
No. Price Won prize

1. Jose Gatchalian
D-1 P0.18 P4,425 P 480 3,945
..........................................

2. Gregoria Cristobal
D-2 .18 4,575 2,000 2,575
......................................

3. Saturnina Silva
D-3 .08 1,875 360 1,515
.............................................

4. Guillermo Tapia
D-4 .13 3,325 360 2,965
..........................................

5. Jesus Legaspi by Maria


D-5 .15 3,825 720 3,105
Cristobal .........

6. Jose Silva
D-6 .08 1,875 360 1,515
....................................................

7. Tomasa Mercado
D-7 .07 1,875 360 1,515
.......................................

8. Julio Gatchalian by Beatriz


D-8 .13 3,150 240 2,910
Guzman .......

9. Emiliana Santiago
D-9 .13 3,325 360 2,965
......................................

10. Maria C. Legaspi


D-10 .16 4,100 960 3,140
......................................

11. Francisco Cabral D-11 .13 3,325 360 2,965


......................................

12. Gonzalo Javier


D-12 .14 3,325 360 2,965
..........................................

13. Maria Santiago


D-13 .17 4,350 360 3,990
..........................................

14. Buenaventura Guzman


D-14 .13 3,325 360 2,965
...........................

15. Mariano Santos


D-15 .14 3,325 360 2,965
........................................

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The legal questions raised in plaintiffs-appellants' five assigned errors may properly be
reduced to the two following: (1) Whether the plaintiffs formed a partnership, or merely a
community of property without a personality of its own; in the first case it is admitted that the
partnership thus formed is liable for the payment of income tax, whereas if there was merely
a community of property, they are exempt from such payment; and (2) whether they should
pay the tax collectively or whether the latter should be prorated among them and paid
individually.

The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as
last amended by section 2 of Act No. 3761, reading as follows:

SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the
total net income received in the preceding calendar year from all sources by every
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association or insurance company, organized in the Philippine
Islands, no matter how created or organized, but not including duly registered
general copartnership (compaias colectivas), a tax of three per centum upon such
income; and a like tax shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding calendar year from all sources within
the Philippine Islands by every corporation, joint-stock company, partnership, joint
account (cuenta en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country, including interest on
bonds, notes, or other interest-bearing obligations of residents, corporate or
otherwise: Provided, however, That nothing in this section shall be construed as
permitting the taxation of the income derived from dividends or net profits on which
the normal tax has been paid.

The gain derived or loss sustained from the sale or other disposition by a
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company, or property, real, personal, or
mixed, shall be ascertained in accordance with subsections (c) and (d) of section two
of Act Numbered Two thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.

The foregoing tax rate shall apply to the net income received by every taxable
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company in the calendar year nineteen
hundred and twenty and in each year thereafter.

There is no doubt that if the plaintiffs merely formed a community of property the latter is
exempt from the payment of income tax under the law. But according to the stipulation facts
the plaintiffs organized a partnership of a civil nature because each of them put up money to
buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may
win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership
was not only formed, but upon the organization thereof and the winning of the prize, Jose
Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his
capacity as co-partner, as such collection the prize, the office issued the check for P50,000
in favor of Jose Gatchalian and company, and the said partner, in the same capacity,
collected the said check. All these circumstances repel the idea that the plaintiffs organized
and formed a community of property only.

Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected under the aforesaid section 10
(a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's
contention that the tax should be prorated among them and paid individually, resulting in
their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to
the plaintiffs appellants. So ordered.

Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.
HUNG-MAN-YOC, in the name of KWONG-WO-SING, plaintiff-appellee,
vs.KIENG-CHIONG-SENG, ET AL., defendants-appellants.
G.R. No. 2888 October 23, 1906

HUNG-MAN-YOC vs. KIENG-CHIONG-SENG, ET A, 6 Phil 498

Man Yoc sued KiengChiong Seng, a partnership, for collection of sum of money.
The said partnership was composed of four partners: KiongTiaoEng , Chua Che Co,
Yu Yec Pin, and Ang Chu Keng. It was found by the trial court that the firm is liable
to Man Yoc.

ISSUE: Whether or not all the partners are liable.

HELD: No. The partnership is neither a general partnership nor is it a limited


partnership. This is because of the infirmity of the firm name which is neither the
name of a general partner because it does not contain the name of at least one
of the general partners, nor is it a limited partnership because the word
limited is not attached to the firm name KiengChiong Seng.

But it is still a partnership of sorts hence the provision of Article 120 of the Code
of Commerce applies which provides that for these types of partnerships the
person managing it shall be the one directly liable to third persons. In this case, it
was established that only KiongTiaoEng and Yu Yec Pin are managing the
partnership, hence only they are liable to Man Yoc.

FULL TEXT
G.R. No. 2888 October 23, 1906
HUNG-MAN-YOC, in the name of KWONG-WO-SING, plaintiff-appellee,
vs.
KIENG-CHIONG-SENG, ET AL., defendants-appellants.

DECISION
ARELLANO, J.:
The court below entered judgment against each and all of the defendants, Chua-
Che-Co, Yu-Yec-Pin, and Ang-Chu-Keng for the sum of 7,962.14 pesos, Mexican,
equivalent to 7,372.75 pesos, Philippine currency, with interest at the rate 6 per
cent per annum from December 7, 1903, and costs.

Chua-Che-Co is the only one who appealed.

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 cannot 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).

All these statements are correct.

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 be enforceable against someone.

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 not 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 not liability and that he cannot be held individually
responsible for the payment of plaintiffs claims as the court below found.

We accordingly reverse the judgment of the court below and acquit the
defendant, Chua-Che-Co, without special condemnation as to costs in both
instances.
After the expiration of ten days from the date of final judgment the record will be
remanded to the Court of First Instance for execution. So ordered.

Torres, Mapa, Johnson, Carson, Willard, and Tracey, JJ., concur.


B. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES
Topic: Article 1811

1. LOZANA vs. DEPAKAKIBO

FACTS:

On November 16, 1954, plaintiff and the defendant entered into a contract of Partnership for the
purpose set forth therein and under the national franchise granted to Mrs.PiadosaBuenaflor. According to
the aforementioned Partnership Contract, the plaintiff Mr. Mauro Lozana, contributed the amount of
Eighteen Thousand Pesos (P18,000.00) said contributions of both parties being the appraised values of
their respective properties brought into the partnership. On October 30, 1955, the plaintiff sold properties
brought into by him to the said partnership in favor of OlimpiaDecolongon in the amount of P10,000.00.
When the sale was made, there has been no liquidation yet. On the other hand, defendant sold certain
properties in favor of the spouses, Felix Jimenea and Felisa Harder contributed by him to the partnership
for P3,500.00.

ISSUE # 1: WON the partners can withdraw or dispose the properties they have contributed in the
partnership without the consent of the other partners?

RULING: NO.

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 has 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. (Clemente vs. Galvan, 67
Phil., 565).

ISSUE #2: WON the partnership entered into by the parties is valid?

RULING: YES.

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.
Machuca v Chuidian (1903, Ladd)

DOCTRINE:

The assignment by its terms is not to take effect until all the liabilities of the partnership have been
discharged and nothing remains to be done except to distribute the assets, if there should be any,
among the partners. Meanwhile the assignor is to continue in the enjoyment of the rights and is to
remain subject to the liabilities of a partner as though no assignment had been made. The assignment
does not purport to transfer an interest in the partnership, but only a future contingent right to such
portion of the ultimate residue of the partnership property as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital.

FACTS:

Chuidian Buenaventura & Co. is regular general partnership, organized in Manila, December 29,
1882, as a continuation of a prior partnership of the same name. The original partners constituting the
partnership of 1882 were D. Telesforo Chuidian, Doa Raymunda Chuidian, Doa Candelaria Chuidian,
and D. Mariano Buenaventura.

Doa Raymunda Chuidian retired from the partnership November 4, 1885. On January 1, 1888, the
partnership went into liquidation, and it does not appear that the liquidation had been terminated when
this action was brought.

On January 1, 1894, D. Mariano Buenaventura died, his estate passing by will to his children, among
whom was D. Vicente Buenaventura. Upon the partition of the estate the amount of the interest of D.
Vicente Buenaventura in his father's account-current and in the capital was ascertained and recorded in
the books of the firm.

On December 15, 1898, D. Vicente Buenaventura executed a public instrument in which for a
valuable consideration he "assigns to D. Jose Gervasio Garcia . . . a 25 per cent share in all that may be
obtained by whatever right in whatever form from the liquidation of the partnership of Chuidian,
Buenaventura & Co., in the part pertaining to him in said partnership

A subsequent assignment was made by D. Jose Gervasio Garcia in favour of Jose Machuca (Plaintiff-
Appellee), which has been notified to the liquidator of the partnership.

Trial Court Brought by Jose Machuca against Chuidian Buenaventura & Co.. Action was for specific
performance to compel the liquidator of the partnership to record in the books Machucas claim under
the assignment as a credit due, and the he further asks that he be adjudicated to be a creditor of the
partnership in an amount equal to 25 per cent of D. Vicente Buenaventura's share in his father's
account-current. That the necessary liquidation being first had, the partnership pay to the plaintiff the
balance which may be found to be due him; and that if the partnership has no funds with which to
discharge this obligation an adjudication of bankruptcy be made. He also asks to recover the damages
caused by reason of the failure of the liquidator to record his credit in the books of partnership. Court
ruled in favor of the plaintiff.
ISSUE(s): WON Machuca is entitled to the relief prayed pending the liquidation of the partnership?

HELD/RATIO: NO

Clause 19 of the partnership agreement stipulates that:


"upon the dissolution of the company, the pending obligations in favor of outside parties should
be satisfied, the funds of the minors Jose and Francisco Chuidian should be taken out, and
afterwards the resulting balance of the account-current of each one of those who had put in
money (imponentes) should be paid."

A construction of this clause establishes that the liabilities to noncompartners are to be first
discharged; that the claims of the Chuidian minors are to be next satisfied; and that what is due to
the respective partners on account of their advances to the firm is to be paid last of all, leaving the
ultimate residue, of course, if there be any, to be distributed, among the partners in the proportions
in which they may be entitled thereto. A distinction is made in this clause between creditors who
were partners and creditors who were not partners, and that the expression "outside parties" refers
to the latter class.
Thus, it follows that D. Vicente Buenaventura, whose rights are those of his father, is in no case
entitled to receive any part of the assets until the creditors who are nonpartners and the Chuidian
minors are paid. Whatever rights he had either as creditor or partner, he could only transfer subject
to this condition.
It is clear, from the language of the instrument, that this conditional interest was all that D. Vicente
Buenaventura ever intended to transfer. By that instrument he undertakes to assign to Garcia not a
present interest in the assets of the partnership but an interest in whatever "may be obtained from
the liquidation of the partnership," which Garcia is to receive "in the same form in which it may be
obtained from said partnership," and "on the date when Messrs. Chuidian, Buenaventura & Co., in
liquidation, shall have effected the operations necessary in order to satisfy" the claims of D. Vicente
Buenaventura.
The assignment by its terms is not to take effect until all the liabilities of the partnership have
been discharged and nothing remains to be done except to distribute the assets, if there should be
any, among the partners. Meanwhile the assignor, Buenaventura, is to continue in the enjoyment
of the rights and is to remain subject to the liabilities of a partner as though no assignment had
been made. The assignment does not purport to transfer an interest in the partnership, but only a
future contingent right to 25 per cent of such portion of the ultimate residue of the partnership
property as the assignor may become entitled to receive by virtue of his proportionate interest in
the capital.
There is nothing in the case to show either that the nonpartner creditors of the partnership have
been paid or that the claims of the Chuidian minors have been satisfied. Thus, Machuca is not yet
entitled to the relief.
DISPOSITIVE:

The plaintiff having acquired no rights under the assignment which are now enforceable against the
defendant, this action can not be maintained. The liquidator of the defendant having been notified of
the assignment, the plaintiff will be entitled to receive from the assets of the partnership, if any remain,
at the termination of the liquidation, 25 per cent of D. Vicente's resulting interest, both as partner and
creditor. The judgment in this case should not affect the plaintiff's right to bring another action against
the partnership when the affairs of the same are finally wound up. The proper judgment will be that the
action be dismissed. The judgment of the court below is reversed and the case is remanded to that court
with directions to enter a judgment of dismissal. So ordered.
G.R. No. 1011 May 13, 1903

JOSE MACHUCA, plaintiff-appellee,


vs.
CHUIDIAN, BUENAVENTURA & CO., defendants-appellants.

Simplicio del Rosario for appellants.


Joaquin Rodriguez Serra for appellee.

LADD, J.:

Most of the allegations of the complaint were admitted by the defendant at the hearing, and the
judgment of the court below is based on the state of facts appearing from such admissions, no
evidence having been taken.

The defendants are a regular general partnership, organized in Manila, December 29, 1882, as a
continuation of a prior partnership of the same name. The original partners constituting the
partnership of 1882 were D. Telesforo Chuidian, Doa Raymunda Chuidian, Doa Candelaria
Chuidian, and D. Mariano Buenaventura. The capital was fixed in the partnership agreement at
16,000 pesos, of which the first three partners named contributed 50,000 pesos each, and the last
named 10,000 pesos, and it was stipulated that the liability of the partners should be "limited to the
amounts brought in by them to form the partnership stock."

In addition to the amounts contributed by the partners to the capital, it appears from the partnership
agreement that each one of them had advanced money to the preexisting partnership, which
advances were assumed or accounts-current aggregated something over 665,000 pesos, of which
sum about 569,000 pesos represented the advances from the Chuidians and the balance that
balance that from D. Mariano Buenaventura.

Doa Raymunda Chuidian retired from the partnership November 4, 1885. On January 1, 1888, the
partnership went into liquidation, and it does not appear that the liquidation had been terminated
when this action was brought.

Down to the time the partnership went into liquidation the accounts-current of D. Telesforo Chuidian
and Doa Candelaria Chuidian had been diminished in an amount aggregating about 288,000
pesos, while that of D. Mariano Buenaventura had been increased about 51,000 pesos. During the
period from the commencement of the liquidation down to January 1, 1896, the account-current of
each of the Chuidians had been still further decreased, while that of D. Mariano Buenaventura had
been still further increased.

On January 1, 1894, D. Mariano Buenaventura died, his estate passing by will to his children, among
whom was D. Vicente Buenaventura. Upon the partition of the estate the amount of the interest of D.
Vicente Buenaventura in his father's account-current and in the capital was ascertained and
recorded in the books of the firm.

On December 15, 1898, D. Vicente Buenaventura executed a public instrument in which for a
valuable consideration he "assigns to D. Jose Gervasio Garcia . . . a 25 per cent share in all that
may be obtained by whatever right in whatever form from the liquidation of the partnership of
Chuidian, Buenaventura & Co., in the part pertaining to him in said partnership, . . . the assignee,
being expressly empowered to do in his own name, and as a part owner, by virtue of this assignment
in the assets of the partnership, whatever things may be necessary for the purpose of accelerating
the liquidation, and of obtaining on judicially or extrajudicially the payment of the deposits account-
current pertaining to the assignor, it being understood that D. Jose Gervasio Garcia is to receive the
25 per cent assigned to him, in the same form in which it may be obtained from said partnership,
whether in cash, credits, goods, movables or immovables, and on the date when Messrs. Chuidian,
Buenaventura & Co., in liquidation, shall have effected the operations necessary in order to satisfy
the credits and the share in the partnership capital hereinbefore mentioned."

The plaintiff claims under Garcia by virtue of a subsequent assignment, which has been notified to
the liquidator of the partnership.

The liquidator of the partnership having declined to record in the books of the partnership the
plaintiff's claim under the assignment as a credit due from the concern to him this action is brought to
compel such record to be made, and the plaintiff further asks that he be adjudicated to be a creditor
of the partnership in an amount equal to 25 per cent of D. Vicente Buenaventura's share in his
father's account-current, as ascertained when the record was made in the books of the partnership
upon the partition of the latters estate, with interest, less the liability to which the plaintiff is subject by
reason of his share in the capital; that the necessary liquidation being first had, the partnership pay
to the plaintiff the balance which may be found to be due him; and that if the partnership has no
funds with which to discharge this obligation an adjudication of bankruptcy be made. He also asks to
recover the damages caused by reason of the failure of the liquidator to record his credit in the
books of partnership.

The judgment of the court below goes beyond the relief asked by the plaintiff in the complaint, the
plaintiff being held entitled not only to have the credit assigned him recorded in the books of the
partnership but also to receive forthwith 25 per cent of an amount representing the share of D.
Vicente Buenaventura in the account-current at the time of the partition of his father's estate, with
interest, the payment of the 25 percent of Buenaventura's share in the capital to be postponed till the
termination of the liquidation. This point has not, however, been taken by counsel, and we have
therefore considered the case upon its merits.

The underlying question in the case relates to the construction of clause 19 of the partnership
agreement, by which it was stipulated that "upon the dissolution of the company, the pending
obligations in favor of outside parties should be satisfied, the funds of the minors Jose and Francisco
Chuidian [it does not appear what their interest in the partnership was or when or how it was
acquired] should be taken out, and afterwards the resulting balance of the account-current of each
one of those who had put in money (imponentes) should be paid."

Our construction of this clause is that it establishes a a basis for the final adjustment of the affairs of
the partnership; that that basis is that the liabilities to noncompartners are to be first discharged; that
the claims of the Chuidian minors are to be next satisfied; and that what is due to the respective
partners on account of their advances to the firm is to be paid last of all, leaving the ultimate residue,
of course, if there be any, to be distributed, among the partners in the proportions in which they may
be entitled thereto.

Although in a sense the partners, being at the same time creditors, were "outside parties," it is clear
that a distinction is made in this clause between creditors who were partners and creditors who were
not partners, and that the expression "outside parties" refers to the latter class. And the words
"pending obligations," we think, clearly comprehend outstanding obligations of every kind in favor of
such outside parties, and do not refer merely, as claimed by counsel for the plaintiff, to the
completion of mercantile operations unfinished at the time of the dissolution of the partnership, such
as consignments of goods and the like. As respects the claims of the Chuidian minors, the
suggestion of counsel is that the clause in question means that their accounts are to be adjusted
before those of the partners but not paid first. Such a provision would have been of no practical
utility, and the language used that the funds should be "taken out" (se dedujeran) does not
admit of such a construction.

Such being the basis upon which by agreement of the partners the assets of the partnership are to
be applied to the discharge of the various classes of the firm's liabilities, it follows that D. Vicente
Buenaventura, whose rights are those of his father, is in no case entitled to receive any part of the
assets until the creditors who are nonpartners and the Chuidian minors are paid. Whatever rights he
had either as creditor or partner, he could only transfer subject to this condition. And it is clear, from
the language of the instrument under which the plaintiff claims, that this conditional interest was all
that D. Vicente Buenaventura ever intended to transfer. By that instrument he undertakes to assign
to Garcia not a present interest in the assets of the partnership but an interest in whatever "may be
obtained from the liquidation of the partnership," which Garcia is to receive "in the same form in
which it may be obtained from said partnership," and "on the date when Messrs. Chuidian,
Buenaventura & Co., in liquidation, shall have effected the operations necessary in order to satisfy"
the claims of D. Vicente Buenaventura.

Upon this interpretation of the assignment, it becomes unnecessary to inquire whether article 143 of
the Code of Commerce, prohibiting a partner from transferring his interest in the partnership without
the consent of the other partners, applies to partnerships in liquidation, as contended by the
defendant. The assignment by its terms is not to take effect until all the liabilities of the partnership
have been discharged and nothing remains to be done except to distribute the assets, if there should
be any, among the partners. Meanwhile the assignor, Buenaventura, is to continue in the enjoyment
of the rights and is to remain subject to the liabilities of a partner as though no assignment had been
made. In other words, the assignment does not purport to transfer an interest in the partnership, but
only a future contingent right to 25 per cent of such portion of the ultimate residue of the partnership
property as the assignor may become entitled to receive by virtue of his proportionate interest in the
capital.

There is nothing in the case to show either that the nonpartner creditors of the partnership have
been paid or that the claims of the Chuidian minors have been satisfied. Such rights as the plaintiff
has acquired against the partnership under the assignment still remain, therefore, subject to the
condition which attached to them in their origin, a condition wholly uncertain of realization, since it
may be that the entire assets of the partnership will be exhausted in the payment of the creditors
entitled to preference under the partnership agreement, thus extinguishing the plaintiff's right to
receive anything from the liquidation.

It is contended by the plaintiff that, as the partnership was without authority to enter upon new
mercantile operations after the liquidation commenced, the increase in D. Mariano Buenaventura's
account-current during that period was the result of a void transaction, and that therefore the plaintiff
is entitled to withdraw at once the proportion of such increase to which he is entitled under the
assignment. With reference to this contention, it is sufficient to say that it nowhere appears in the
case that the increase in D. Mariano Buenaventura's account-current during the period of liquidation
was the result of new advances to the firm, and the figures would appear to indicate that it resulted
from the accumulation of interest.

Counsel for the plaintiff have discussed at length in their brief the meaning of the clause in the
partnership agreement limiting the liability of the partners to the amounts respectively brought into
the partnership by them, and the effect of this stipulation upon their rights as creditors of the firm.
These are questions which relate to the final adjustment of the affairs of the firm, the distribution of
the assets remaining after all liabilities have been discharged, or, on the other hand, the
apportionment of the losses if the assets should not be sufficient to meet the liabilities. They are in
no way involved in the determination of the present case.

The plaintiff having acquired no rights under the assignment which are now enforceable against the
defendant, this action can not be maintained. The liquidator of the defendant having been notified of
the assignment, the plaintiff will be entitled to receive from the assets of the partnership, if any
remain, at the termination of the liquidation, 25 per cent of D. Vicente's resulting interest, both as
partner and creditor. The judgment in this case should not affect the plaintiff's right to bring another
action against the partnership when the affairs of the same are finally wound up. The proper
judgment will be that the action be dismissed. The judgment of the court below is reversed and the
case is remanded to that court with directions to enter a judgment of dismissal. So ordered.

Arellano, C.J., Torres, Cooper, Willard and Mapa, JJ., concur.

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