PARTNERSHIP

[1st SET]
1
(DIONNE) || D2014

Contents

AGAD v. MABATO ........................................................................................................................................ 2

TUASON v. BOLANOS .............................................................................................................................. 18

TORRES v. CA ................................................................................................................................................. 2
HEIRS OF TANG ENG KEE v. CA .......................................................................................................... 18

ARBES v. POLISTICO ................................................................................................................................... 4

AURBACH v. SANITARY WARES ......................................................................................................... 19

TOCAO v. CA ................................................................................................................................................... 6
LITONJUA v. LITONJUA .......................................................................................................................... 23

HEIRS OF JOSE LIM, represented by Elenito Lim v. JULIET VILLA LIM ............................... 7
BOURNS v. CARMAN ................................................................................................................................ 23

AGUILA v. CA .................................................................................................................................................. 9
SEVILLA v. CA ............................................................................................................................................. 24

TAN v. DEL ROSARIO ................................................................................................................................. 9

PHILEX v. MINING CORP. ...................................................................................................................... 26

MENDIOLA v. CA ....................................................................................................................................... 10
ORTEGA v. CA ............................................................................................................................................. 27

ANGELES v. SECRETARY OF JUSTICE .............................................................................................. 13

GATCHALIAN v. CIR ................................................................................................................................. 15

PASCUAL v. CIR .......................................................................................................................................... 15



OBILLOS v. CIR ........................................................................................................................................... 16


RIVERA v. PEOPLES BANK ................................................................................................................... 17
 PARTNERSHIP [1st SET]
2
(DIONNE) || D2014

THE LAW ON PARTNERSHIP determination of rights over public lands. After due hearing, the court
I. NATURE; CREATION issued the order appealed from, granting the motion to dismiss the
complaint for failure to state a cause of action. This conclusion was
A. DEFINITION; ESSENTIAL FEATURES predicated upon the theory that the contract of partnership is null and void,
B. CREATION pursuant to Art. 1773 of our Civil Code, because an inventory of the
fishpond referred in said instrument had not been attached thereto.
AGAD v. MABATO

(June 28, 1968)
ISSUES:
DOCTRINE: A partnership may be constituted in any form, except where immovable
The issue hinges on whether or not "immovable property or real rights" have been
property or real rights are contributed thereto, in which case a public instrument
contributed to the partnership under consideration.
shall be necessary. A contract of partnership is void, whenever immovable property
is contributed thereto, if inventory of said property is not made, signed by the HELD:
parties, and attached to the public instrument.
NO. (Mabato alleged and the lower court held that the answer should be in the
NATURE: Appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the affirmative, because "it is really inconceivable how a partnership engaged in the
Court of First Instance of Davao, we are called upon to determine the applicability of fishpond business could exist without said fishpond property (being) contributed to
Article 1773 of our Civil Code to the contract of partnership on which the complaint the partnership." But...)
herein is based.
RATIO/RULING:
PONENTE: Concepcion, C.J.
- The Court said that it should be noted, however, that, as stated in
FACTS: Annex "A" the partnership was established "to operate a fishpond", not
to "engage in a fishpond business". Moreover, none of the partners
- Plaintiff alleges that he and defendant Severino Mabato are
contributed either a fishpond or a real right to any fishpond. Their
pursuant to a public instrument dated August 29, 1952 " partners in
contributions were limited to the sum of P1,000 each.
a fishpond business, to the capital of which Agad contributed P1,000, with
the right to receive 50% of the profits. - The operation of the fishpond mentioned in Annex "A" was the purpose of
the partnership. Neither said fishpond nor a real right thereto was
- That from 1952 up to and including 1956, Mabato who handled the
contributed to the partnership or became part of the capital thereof, even if
partnership funds, had yearly rendered accounts of the operations of
a fishpond or a real right thereto could become part of its assets.
the partnership; and that, despite repeated demands, Mabato had
failed and refused to render accounts for the years 1957 to 1963. -
- Agad prayed in his complaint against Mabato and Mabato & Agad Company, DISPOSITION:
filed on June 9, 1964, that judgment be rendered sentencing Mabato to
pay him (Agad) the sum of P14,000, as his share in the profits of the WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that,
partnership for the period from 1957 to 1963, in addition to P1,000 as the order appealed from should be, as it is hereby set aside and the case remanded to
attorney's fees, and ordering the dissolution of the partnership, as well as the lower court for further proceedings, with the costs of this instance against
the winding up of its affairs by a receiver to be appointed. defendant-appellee, Severino Mabato. It is so ordered.
- In his answer, Mabato admitted the formal allegations of the complaint VOTE: Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando,
and denied the existence of said partnership, upon the ground that the JJ., concur.
contract therefor had not been perfected, despite the execution of Annex
"A", because Agad had allegedly failed to give his P1,000 contribution to the CONCURRING/DISSENTING OPINION: None.
partnership capital. Mabato prayed, therefore, that the complaint be ADDITIONAL NOTES:
dismissed; that Annex "A" be declared void ab initio; and that Agad be
sentenced to pay actual, moral and exemplary damages, as well as
attorney's fees.
- Mabato filed a motion to dismiss, upon the ground that the complaint TORRES v. CA
states no cause of action and that the lower court had no jurisdiction
(December 9, 1999)
over the subject matter of the case, because it involves principally the
 PARTNERSHIP [1st SET]
3
(DIONNE) || D2014

DOCTRINE: Courts may not extricate parties from the necessary consequences of CA also said: In the absence of stipulation, the share of each partner in the profits
their acts. That the terms of a contract turn out to be financially disadvantageous to and losses shall be in proportion to what he may have contributed, but the industrial
them will not relieve them of their obligations therein. The lack of an inventory of partner shall not be liable for the losses. As for the profits, the industrial partner
real property will not ipso facto release the contracting partners from their shall receive such share as may be just and equitable under the circumstances. If
respective obligations to each other arising from acts executed in accordance with besides his services he has contributed capital, he shall also receive a share in the
their agreement. profits in proportion to his capital.
NATURE: Petition for review on certiorari a CA decision denying MR Petitioners claim CA erred in concluding that the transaction between the parties
PONENTE: Panganiban, J. was a joint venture/partnership.
FACTS: ISSUES:
-Sisters Antonia Torres and Emeteria Baring, petitioners, entered into a "joint WON a partnership relationship existed between the parties?
venture agreement" with Respondent Manuel Torres for the development of a parcel HELD: Yes.
of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale RATIO/RULING:
covering the said parcel of land in favor of respondent, who then had it registered in Existence of Partnership:
his name. By mortgaging the property, respondent obtained from Equitable Bank a Petitioners deny having formed a partnership with respondent. They contend that
loan of P40,000 which, under the Joint Venture Agreement, was to be used for the the Joint Venture Agreement and the earlier Deed of Sale were void.
development of the subdivision. All three of them also agreed to share the proceeds In the same breath, however, they assert that under those very same contracts,
from the sale of the subdivided lots. respondent is liable for his failure to implement the project. Because the agreement
-The project did not push through, and the land was subsequently foreclosed by the entitled them to receive 60 percent of the proceeds from the sale of the subdivision
bank. lots, they pray that respondent pay them damages equivalent to 60 percent of the
Petitioners: the project failed because of respondents lack of funds or means and value of the property.
skills. They add that respondent used the loan not for the development of the The pertinent portions of the Joint Venture Agreement read as follows:
subdivision, but in furtherance of his own company, Universal Umbrella Company. That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
Respondent: alleged that he used the loan to implement the Agreement. With the property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering
said amount, he was able to effect the survey and the subdivision of the lots. He TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the
secured the Lapu Lapu City Councils approval of the subdivision project which he FIRST PARTY;
advertised in a local newspaper. He also caused the construction of roads, curbs and Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY
gutters. Likewise, he entered into a contract with an engineering firm for the THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this
building of sixty low-cost housing units and actually even set up a model house on contract for the property entrusted by the SECOND PARTY, for sub-division projects
one of the subdivision lots. He did all of these for a total expense of P85,000. and development purposes;
Respondent claimed that the subdivision project failed, however, because petitioners NOW THEREFORE, for and in consideration of the above covenants and promises
and their relatives had separately caused the annotations of adverse claims on the herein contained the respective parties hereto do hereby stipulate and agree as
title to the land, which eventually scared away prospective buyers. Despite his follows:
requests, petitioners refused to cause the clearing of the claims, thereby forcing him ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5,
to give up on the project. 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN &
-petitioners filed a criminal case for estafa against respondent and his wife, who were FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE
however acquitted. [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but
-Thereafter, they filed the present civil case which, upon respondent's motion, was the SECOND PARTY did not actually receive the payment.
later dismissed by the trial court in an Order dated September 6, 1982. xxx
-On appeal, however, the appellate court remanded the case for further FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the
stated, was affirmed by the CA. FIRST PARTY, and additional profits or whatever income deriving from the sales will
CA ruling: petitioners and respondents formed a partnership for the development of be divided equally according to the x x x percentage [agreed upon] by both parties.
the subdivision. Thus, they must bear the loss suffered by the partnership in the xxx
same proportion as their share in the profits stipulated in the contract. CA cited A reading of the terms embodied in the Agreement indubitably shows the existence
Article 1979 which said The losses and profits shall be distributed in conformity of a partnership pursuant to Article 1767 of the Civil Code, which provides:
with the agreement. If only the share of each partner in the profits has been agreed ART. 1767. By the contract of partnership two or more persons bind themselves to
upon, the share of each in the losses shall be in the same proportion. contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
 PARTNERSHIP [1st SET]
4
(DIONNE) || D2014

Under the above-quoted Agreement, petitioners would contribute property to the which the land was intended to be used. As explained by the trial court, the land
partnership in the form of land which was to be developed into a subdivision; while was in effect given to the partnership as [petitioners] participation therein. x x x
respondent would give, in addition to his industry, the amount needed for general There was therefore a consideration for the sale, the [petitioners] acting in the
expenses and other costs. Furthermore, the income from the said project would be expectation that, should the venture come into fruition, they [would] get sixty
divided according to the stipulated percentage. Clearly, the contract manifested the percent of the net profits.
intention of the parties to form a partnership. DISPOSITION: Petition denied. CA affirmed.
It should be stressed that the parties implemented the contract. Thus, petitioners VOTE: 3rd Division. Melo, Vitug, Purisima, and Gonzaga-Reyes concur
transferred the title to the land in the name of the respondent. On the other hand, CONCURRING/DISSENTING OPINION: none
respondent caused the subject land to be mortgaged, the proceeds of which were
used for the survey and the subdivision of the land. As noted earlier, he developed
the roads, the curbs and the gutters of the subdivision and entered into a contract to ARBES v. POLISTICO
construct low-cost housing units on the property.
(September 7, 1929)
Respondents actions clearly belie petitioners contention that he made no
ADRIANO ARBES, ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET AL.,
contribution to the partnership. Under Article 1767 of the Civil Code, a partner may
contribute not only money or property, but also industry. defendants-appellants.
Petitioners Bound by Terms of Contract

Courts are not authorized to extricate parties from the necessary consequences of
DOCTRINE:
their acts, and the fact that the contractual stipulations may turn out to be financially
Hence the distinction made in the second paragraph of this article [in the present
disadvantageous will not relieve parties thereto of their obligations. They cannot
case 1666 but under the NCC 1770] of this Code, providing that the profits obtained
now disavow the relationship formed from such agreement due to their supposed
by unlawful means shall not enrich the partners, but shall upon the dissolution of the
misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement partnership, be given to the charitable institutions of the domicile of the partnership,
or, in default of such, to those of the province.
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the

Civil Code, which provides:
This is a new rule, unprecedented by our law, introduced to supply an obvious
ART. 1773. A contract of partnership is void, whenever immovable property is
deficiency of the former law, which did not describe the purpose to which those
contributed thereto, if an inventory of said property is not made, signed by the
profits denied the partners were to be applied, nor state what to be done with
parties, and attached to the public instrument.
them.The profits are so applied, and not the contributions, because this would be an
They contend that since the parties did not make, sign or attach to the public
excessive and unjust sanction for, as we have seen, there is no reason, in such a case,
instrument an inventory of the real property contributed, the partnership is void.
for depriving the partner of the portion of the capital that he contributed, the
We clarify. First, Article 1773 was intended primarily to protect third
circumstances of the two cases being entirely different.
persons. Second, petitioners themselves invoke the allegedly void contract as basis

for their claim that respondent should pay them 60 percent of the value of the

property. They cannot in one breath deny the contract and in another recognize it,
NATURE: Appeal from a judgment of CFI
depending on what momentarily suits their purpose. Parties cannot adopt
PONENTE: VILLAMOR, J.:
inconsistent positions in regard to a contract and courts will not tolerate, much less

approve, such practice.
Partnership Agreement Not the Result of an Earlier Illegal Contract FACTS:
Petitioners also contend that the Joint Venture Agreement is void under Article This is an action to bring about liquidation of the funds and property of the
1422 of the Civil Code, because it is the direct result of an earlier illegal contract, association called "Turnuhan Polistico & Co." The plaintiffs were members
which was for the sale of the land without valid consideration. or shareholders, and the defendants were designated as president-
This argument is puerile. The Joint Venture Agreement clearly states that the treasurer, directors and secretary of said association.
consideration for the sale was the expectation of profits from the subdivision It is well to remember that this case is now brought before the
project. Its first stipulation states that petitioners did not actually receive payment consideration of this court for the second time. The first one was when the
for the parcel of land sold to respondent. Consideration, more properly denominated same plaintiffs appeared from the order of the court below sustaining the
as cause, can take different forms, such as the prestation or promise of a thing or defendant's demurrer, and requiring the former to amend their complaint
service by another. within a period, so as to include all the members of "Turnuhan Polistico &
In this case, the cause of the contract of sale consisted not in the stated peso Co.," either as plaintiffs or as a defendants.
value of the land, but in the expectation of profits from the subdivision project, for
 PARTNERSHIP [1st SET]
5
(DIONNE) || D2014

This court held then that in an action against the officers of a voluntary When the dissolution of an unlawful partnership is decreed, the
association to wind up its affairs and enforce an accounting for money and profits shall be given to charitable institutions of the domicile of
property in their possessions, it is not necessary that all members of the the partnership, or, in default of such, to those of the province.
association be made parties to the action.The case having been remanded to
the court of origin, both parties amend, respectively, their complaint and Appellant's contention on this point is untenable.
their answer, and by agreement of the parties, the court appointed Amadeo o According to said article, no charitable institution is a necessary
R. Quintos, of the Insular Auditor's Office, commissioner to examine all the party in the present case of determination of the rights of the
books, documents, and accounts of "Turnuhan Polistico & Co.," and to parties.
receive whatever evidence the parties might desire to present. o The action which may arise from said article, in the case of
The commissioner rendered his report. unlawful partnership, is that for the recovery of the amounts paid
The defendants objected to the commissioner's report, but the trial court, by the member from those in charge of the administration of said
having examined the reasons for the objection, found the same sufficiently partnership, and it is not necessary for the said parties to base
explained in the report and the evidence, and accepting it, rendered their action to the existence of the partnership, but on the fact that
judgment, holding that the association "Turnuhan Polistico & Co." is of having contributed some money to the partnership capital. And
unlawful, and sentencing the defendants jointly and severally to hence, the charitable institution of the domicile of the partnership,
return the amount of P24,607.80 to the plaintiffs in this case, and to and in the default thereof, those of the province are not necessary
the rest of the members of the said association 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 result of
ISSUES: the business in which it was engaged, because for the purpose, as Manresa
Whether the lower court erred in ordering the return of the the amount of remarks, the partner will have to base his action upon the partnership
P24,607.80 to the plaintiffs in this case, and to the rest of the members of the said contract, which is to annul and without legal existence by reason of its
association rather than order it to be given to charitable institutions. unlawful object; and it is self evident that what does not exist cannot be a
cause of action.
HELD: No. The amount should be returned to the members of the said association o Hence, paragraph 2 of the same article provides that when the
because they pertain to their contributions and not to profits derived from such dissolution of the unlawful partnership is decreed, the profits
unlawful partnership. cannot inure to the benefit of the partners, but must be given to
some charitable institution.
RATIO/RULING: Petitioner's contention:
Petitioner's contention: If the partnership has no valid existence, if it is considered juridically non-
because the partnership is an unlawful partnership, some charitable existent, the contract entered into can have no legal effect; and in that case,
institution to whom the partnership funds may be ordered to be turned how can it give rise to an action in favor of the partners to judicially
over, should be included, as a party defendant demand from the manager or the administrator of the partnership capital,
If the partnership has no valid existence, if it is considered juridically non- each one's contribution?
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 COURT:
demand from the manager or the administrator of the partnership capital, Ricci: The partner who limits himself to demanding only the amount
each one's contribution? contributed by him need not resort to the partnership contract on which to
base his action.
COURT: o that the partner makes his contribution, which passes to the
The appellants allege that the necessary party, i.e. Charitable institution, managing partner for the purpose of carrying on the business or
was not impleaded. The appellants refer to article 1666 of the Civil Code, industry which is the object of the partnership; or in other words,
which provides: to breathe the breath of life into a partnership contract with an
"A partnership must have a lawful object, and must be established objection forbidden by law.
for the common benefit of the partners. o And as said contrast does not exist in the eyes of the law, the
purpose from 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
 PARTNERSHIP [1st SET]
6
(DIONNE) || D2014

consideration; for which reason he is not bound to return it and he
who has paid in his share is entitled to recover it. TOCAO v. CA
But this is not the case with regard to profits earned in the course of the
(October 4, 2000)
partnership, because they do not constitute or represent the partner's
contribution but are the result of the industry, business or speculation DOCTRINE: It may be constituted in any form; a publicinstrument is necessary only
which is the object of the partnership where immovable property or real rights are contributed thereto.
o therefor, in order to demand the proportional part of the said
profits, the partner would have to base his action on the contract This implies that since a contract of partnership is consensual, an oral contract of
which is null and void, since this partition or distribution of the partnership is as good as a written one. Where no immovable property or real rights
profits is one of the juridical effects thereof. areinvolved, what matters is that the parties have complied with the requisites of a
o Wherefore considering this contract as non-existent, by reason of partnership.
its illicit object, it cannot give rise to the necessary action, which NATURE: Petition for review on certiorari
must be the basis of the judicial complaint. Furthermore, it would
be immoral and unjust for the law to permit a profit from an PONENTE: YNARES-SANTIAGO, J.
industry prohibited by it. FACTS:
Hence the distinction made in the second paragraph of this article of this
Code, providing that the profits obtained by unlawful means shall not Petitioner William Belo introduced respondent NenitaAnay to petitioner
enrich the partners, but shall upon the dissolution of the partnership, be Marjorie Tocao, who conveyed her desire to enter into a jointventure with her for the
given to the charitable institutions of the domicile of the partnership, or, in importation and local distribution of kitchen cookwares. Under the joint venture,
default of such, to those of the province. Belo acted as capitalist, Tocao aspresident and general manager, and Anay as head of
This is a new rule, unprecedented by our law, introduced to supply an the marketing department and later, vice-president for sales. The parties agreed to
obvious deficiency of the former law, which did not describe the purpose to useAnay's name in securing distributorship of cookware from West Bend Company, a
which those profits denied the partners were to be applied, nor state what manufacturer of kitchen cookwares in Wisconsin, U.S.A. Theparties agreed further
to be done with them. that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the
o The profits are so applied, and not the contributions, because this business; (2) overridingcommission of six percent (6%) of the overall weekly
would be an excessive and unjust sanction for, as we have seen, production; (3) thirty percent (30%) of the sales she would make; and (4) two
there is no reason, in such a case, for depriving the partner of the percent(2%) for her demonstration services. The agreement was not reduced to
portion of the capital that he contributed, the circumstances of the writing on the strength of Belo's assurances that he was sincere,dependable and
two cases being entirely different. honest when it came to financial commitments. Anay having secured the
Our Code does not state whether, upon the dissolution of the unlawful distributorship of cookware products from the WestBend Company and organized
partnership, the amounts contributed are to be returned by the partners, the administrative staff and the sales force, the cookware business took off
because it only deals with the disposition of the profits; but the fact that successfully. They operated underthe name of Geminesse Enterprise, a sole
said contributions are not included in the disposal prescribed profits, shows proprietorship registered in Marjorie Tocao's name, with office at 712 Rufino
that in consequences of said exclusion, the general law must be followed, Building, Ayala Avenue,Makati City. Belo made good his monetary commitments to
and hence the partners should reimburse the amount of their respective Anay. On October 9, 1987, Anay learned that Marjorie Tocao had signed a
contributions. letteraddressed to the Cubao sales office to the effect that she was no longer the vice-
president of GeminesseEnterprise. The following day,October 10, she received a note
DISPOSITION: The judgment appealed from, being in accordance with law, should from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from
be, as it is hereby, affirmed with costs against the appellants; provided, however, the holding office and conductingdemonstrations in both Makati and Cubao offices.
defendants shall pay the legal interest on the sum of P24,607.80 from the date of the Anay attempted to contact Belo. She wrote him twice to demand her
decision of the court, and provided, further, that the defendants shall deposit this overriding commissionfor the period of January 8, 1988 to February 5, 1988 and the
sum of money and other documents evidencing uncollected credits in the office of the audit of the company to determine her share in the net profits. When her letterswere
clerk of the trial court, in order that said court may distribute them among the not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that
members of said association, upon being duly identified in the manner that it may letter was not answered. Anay still received her fivepercent (5%) overriding
deem proper. So ordered. commission up to December 1987. The following year, 1988, she did not receive the
same commission although thecompany netted a gross sales of P13,300,360.00. On
VOTE: EN BANC; Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
concur. .
 PARTNERSHIP [1st SET]
7
(DIONNE) || D2014

moneywith damagesagainst Marjorie D. Tocao and William Belo before the Regional 1. Petitioners are ordered to submit to the Regional Trial Court a formal account of
Trial Court of Makati, Branch 140. The trial court held that therewas indeed an oral the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the
partnership agreement between the plaintiff and the defendants, based on the Civil Code, in order to determine private respondents ten percent (10%) share in the
following: (a) there was an intention tocreate a partnership; (b) a common fund was net profits of the partnership;
established through contributions consisting of money and industry, and (c) there
was a jointinterest in the profits. Petitioners appeal to the Court of Appealswas 2. Petitioners are ordered, jointly and severally, to pay private respondent five
dismissed. Their Motion for Reconsideration was denied by the Court of Appeals for percent (5%) overriding commission for the one hundred and fifty (150) cookware
lack of merit. sets available for disposition since the time private respondent was wrongfully
ISSUES:Whether or not a partnership exists excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
HELD &RATIO/RULING: commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;
Yes. The issue of whether or not a partnership exists is a factual matter
which is within the exclusive domain of both the trial andappellate courts. This Court
cannot set aside factual findings of such courts absent any showing that there is no 4. Petitioners are ordered, jointly and severally, to pay private respondent moral
evidence to support theconclusion drawn by the courta quo. damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.
In this case, both the trial court and the Court of Appeals are one in ruling
that petitioners and privaterespondent established a business partnership. This
VOTE: 1st division. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
Court finds no reason to rule otherwise. To be considered a juridical personality,
apartnership must fulfill these requisites: (1) two or more persons bind themselves
to contribute money, property or industry to a commonfund; and (2) intention on the HEIRS OF JOSE LIM, represented by Elenito Lim v. JULIET VILLA LIM
part of the partners to divide the profits among themselves.
(March 3, 2010)
It may be constituted in any form; a publicinstrument is necessary only
where immovable property or real rights are contributed thereto. DOCTRINE: A demand for periodic accounting is evidence of a partnership.

This implies that since a contract of partnership is consensual, an oral contract NATURE: Petition for Review on Certiorari under Rule 45 of the Rules of Civil
of partnership is as good as a written one. Where no immovable property or real Procedure, assailing the Court of Appeals (CA) Decision dated June 29, 2005, which
rights areinvolved, what matters is that the parties have complied with the requisites reversed and set aside the decision of the Regional Trial Court (RTC) of Lucena City,
of a partnership. The fact that there appears to be no record in theSecurities and dated April 12, 2004.
Exchange Commission of a public instrument embodying the partnership agreement PONENTE: Nachura, J.
pursuant to Article 1772 of the Civil Code did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter states:Art. 1768. FACTS:
The partnership has a juridical personality separate and distinct from that of each of 1. Petitioners are the heirs of the late Jose Lim. represented by Elenito Lim.
the partners, even in case of failure to complywith the requirements of article 1772, They filed a Complaint for Partition, Accounting and Damages against
first paragraph. respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim,
who was the eldest son of Jose and Cresencia.
2. Petitioners alleged that Jose was the liaison officer of Interwood Sawmill.
DISPOSITION: Jose, together with his friends Jimmy Yu and Norberto Uy formed a
partnership to engage in the trucking business. Jose managed the
WHEREFORE, the instant petition for review on certiorari is DENIED. The operations of this trucking business until his death. Thereafter, Jose's heirs,
partnership among petitioners and private respondent is ordered dissolved, and the including Elfledo, and partners agreed to continue the business under the
parties are ordered to effect the winding up and liquidation of the partnership management of Elfledo. The shares in the partnership profits and income
pursuant to the pertinent provisions of the Civil Code. This case is remanded to the that formed part of the estate of Jose were held in trust by Elfledo, with
Regional Trial Court for proper proceedings relative to said dissolution. The appealed petitioners' authority for Elfledo to use, purchase or acquire properties
decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with using said funds.
MODIFICATIONS, as follows ---
 PARTNERSHIP [1st SET]
8
(DIONNE) || D2014

3. Petitioners alleged that Elfledo was never a partner or an investor in the 2. The best evidence would have been the contract of partnership or the
business and merely supervised the purchase of additional trucks using the articles of partnership. Unfortunately, there is none in this case, because the
income from the trucking business of the partners. By the time the alleged partnership was never formally organized.
partnership ceased, it had nine trucks, which were all registered in Elfledo's 3. SC affirms the CA decision. The evidence presented by petitioners falls
name. short of the quantum of proof required to establish that: (1) Jose was
the partner and not Elfledo; and (2) all the properties acquired by
4. Elfledo died, leaving respondent as his sole surviving heir. Petitioners
Elfledo and respondent form part of the estate of Jose, having been
claimed that respondent took over the administration of the properties,
derived from the alleged partnership.
which belonged to the estate of Jose, without their consent and approval.
4. Petitioners heavily rely on Jimmy's testimony. But that testimony is just one
Claiming that they are co-owners of the properties, petitioners required
piece of evidence against respondent. It must be considered and weighed
respondent to submit an accounting of all income, profits and rentals
along with petitioners' other evidence vis--vis respondent's contrary
received from the estate of Elfledo, and to surrender the administration
evidence.
thereof. Respondent refused; thus, the filing of this case.
5. At this juncture, the SCs ruling in Heirs of Tan Eng Kee v. Court of
5. Respondent traversed petitioners' allegations and claimed that
Appeals is enlightening. Therein, we cited Article 1769 of the Civil Code.
Elfledo was himself a partner of Norberto and Jimmy. Respondent also 6. Applying the legal provision to the facts of this case, the following
claimed that per testimony of Cresencia, Jose gave Elfledo capital in an
circumstances tend to prove that Elfledo was himself the partner of
informal partnership with Jimmy and Norberto. When Elfledo and
Jimmy and Norberto:
respondent got married, the partnership only had one truck; but through
a. Cresencia testified that Jose gave Elfledo P50,000.00, as share in
the efforts of Elfledo, the business flourished.
the partnership, on a date that coincided with the payment of the
6. When Norberto was ambushed and killed, the trucking business started to
initial capital in the partnership;
falter. When Elfledo died due to a heart attack, respondent talked to Jimmy
b. Elfledo ran the affairs of the partnership, wielding absolute
and to the heirs of Norberto, as she could no longer run the business. Jimmy
control, power and authority, without any intervention or
suggested that three out of the nine trucks be given to him as his share,
opposition whatsoever from any of petitioners herein;
while the other three trucks be given to the heirs of Norberto. However,
c. All of the properties, particularly the nine trucks of the
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she
partnership, were registered in the name of Elfledo;
sold the same to respondent, who paid for them in installments.
d. Jimmy testified that Elfledo did not receive wages or salaries from
7. Respondent also alleged that when Jose died, he left no known assets,
the partnership, indicating that what he actually received were
and the partnership with Jimmy and Norberto ceased upon his demise.
shares of the profits of the business;
Respondent also stressed that Jose left no properties that Elfledo
e. None of the petitioners, as heirs of Jose, the alleged partner,
could have held in trust. Respondent maintained that all the
demanded periodic accounting from Elfledo during his lifetime. As
properties involved in this case were purchased and acquired through
repeatedly stressed in Heirs of Tan Eng Kee, a demand for
her and her husbands joint efforts and hard work, and without any
periodic accounting is evidence of a partnership.
participation or contribution from petitioners or from Jose.
7. Furthermore, petitioners failed to adduce any evidence to show that the
Respondent submitted that these are conjugal partnership properties;
real and personal properties acquired and registered in the names of
and thus, she had the right to refuse to render an accounting for the income
Elfledo and respondent formed part of the estate of Jose, having been
or profits of their own business.
derived from Jose's alleged partnership with Jimmy and Norberto.
8. TC: favoured petitioners
8. SC agrees with CAs findings that the testimonities prove that Elfledo was
9. CA: reversed the decision of TC
not just a hired help but one of the partners in the trucking business, active
ISSUES: WON Elfledo Lim was a partner in the business and visible in the running of its affairs from day one until this ceased
operations upon his demise. The extent of his control, administration
HELD: and management of the partnership and its business, the fact that its
1. Yes properties were placed in his name, and that he was not paid salary or
other compensation by the partners, are indicative of the fact that
RATIO/RULING: Elfledo was a partner and a controlling one at that.
9. Notable too that Jose Lim died when the partnership was barely a year old,
1. A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with and the partnership and its business not only continued but also flourished.
the understanding that there shall be a proportionate sharing of the If it were true that it was Jose Lim and not Elfledo who was the partner,
profits and losses among them. then upon his death the partnership should have
 PARTNERSHIP [1st SET]
9
(DIONNE) || D2014

person who is not a real party in interest in the case cannot be executed.
DISPOSITION: WHEREFORE, the instant Petition is DENIED. The assailed Court of Hence, a complaint filed against such a person should be dismissed for
Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners. failure to state a cause of action.

VOTE: All concur Art. 1768 of the Civil Code, a partnership has a juridical personality
separate and distinct from that of each partner. The partners cannot be held
liable for the obligations of the partnership unless it is shown that the legal
C. SEPARATE JURIDICAL PERSONALITY fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes.
AGUILA v. CA
FACTS: In this case, private respondent has not shown that A.C. Aguila & Sons, Co.,
as a separate juridical entity, is being used for fraudulent, unfair, or illegal
Petitioner is the manager of A.C. Aguila & Sons, Co, a partnership engaged in purposes. Moreover, the title to the subject property is in the name of A.C.
lending activities. Aguila & Sons, Co. and the Memorandum of Agreement was executed
between private respondent, with the consent of her late husband, and A.C.
Private respondent Felicidad Abrogar entered into a MOA w/ A.C. Aquila & Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership,
Sons involving a pacto de retro sale of a house & lot. 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
As private respondent failed to redeem the property within the prescribed in the dismissal of the complaint.
period, petitioner caused the cancellation of TCT and the issuance of the
new certificate of title in the name of the partnership.

Private respondent filed a petition for a declaration of the nullity of the TAN v. DEL ROSARIO
deed of sale and a criminal complaint for forgery against petitioner alleging (October 3, 1994)
that the signature of her husband was a forgery because he was already
dead when the deed was supposed to have been executed. DOCTRINE: (see notes below)
NATURE: Consolidated case. Two special civil actions for prohibition
Petitioner now contends that he is not the real party in interest but A.C. PONENTE: Vitug, J.
FACTS:
Aguila & Co., against which this case should have been brought.
This is a consolidated case involving the constitutionality of RA 7496 or the
Simplified Net Income Taxation (SNIT) scheme.
ISSUE: Petitioners claim to be taxpayers adversely affected by the continued
implementation of the SNIT.
WON the petitioner is the real party in interest.
In the 1st case, they contended that the House Bill which eventually
HELD: became RA 7496 is a misnomer or deficient because it was named as
Simplified Net Income Taxation Scheme for the Self-Employed and
No. Professionals Engaged in the Practice of their Profession while the actual
title contains the said words with the additional phrase, Amending
Rule 3, Section 2 of the Rules of Court of 1964, under which the complaint Section 21 and 29 of the National Internal Revenue Code.
in this case was filed, provided that "every action must be prosecuted and
defended in the name of the real party in interest." A real party in interest is They alleged that this title was in direct violation of Section 26 (1) and 28
one who would be benefited or injured by the judgment, or who is entitled (1) in Article VI of the 1987 Constitution. The petitioner also stressed that it
to the avails of the suit. This ruling is now embodied in Rule 3, Section 2 of violates the equal protection clause as it only imposed taxes upon one who
the 1997 Revised Rules of Civil Procedure. Any decision rendered against a
 PARTNERSHIP [1st SET]
10
(DIONNE) || D2014

practice his profession alone and not to those who are engaged to single return mainly for administration and data), the partners
proprietorship. themselves are liable for the payment of income tax in their
individual capacity computed on their respective and distributive
In the 2nd case, they argued that respondents have exceeded their rule- shares of profits.
making authority in applying SNIT to general professional
partnerships by issuing Revenue Regulation 2-93 to carry out the RA. This
is anchored on the administrative interpretation of public respondents that
would apply SNIT topartners in general professional partnerships.-
Petitioners cited the deliberations in the HOR regarding the
implementation of the said rule in which it was shown that framers did not
intend for the bill to be applicable to business corporations or partnerships NOTES:
Differences between general professional partnerships and ordinary business
partnerships:
ISSUE: a. A general professional partnership1, unlike an ordinary business
1. WON RA 7496 is unconstitutional (G.R. No. 109289). NO partnership (which is treated as a corporation for income tax
purposes and so subject to the corporate income tax), is not itself an
2. WON in RA 7496, the SNIT applies to partners in general professional income taxpayer. The income tax is imposed not on the professional
partnerships. (G.R. No. 109446). YES partnership, which is tax exempt, but on the partners themselves in
their individual capacity computed on their distributive shares of
HELD: partnership profits.
1. Constitutionality of RA 7496 b. Ordinary business partnerships, no matter how created or organized, are
taxable partnerships. General professional partnerships are exempt
o The SC ruled in the negative. The said law is not arbitrary; it is partnerships. Under the Tax Code on income taxation, the general
germane to the purpose of the law and; applies to all things of professional partnership is deemed to be no more than a mere mechanism
equal conditions and of same class. or a flow-through entity in the generation of income by, and the ultimate
o It is neither violative of equal protection clause due to the distribution of such income to, respectively, each of the individual partners.
existence of substantial difference between one who practice his
profession alone and one who is engaged to proprietorship. DISPOSITIVE: WHEREFORE, the petitions are DISMISSED. No special
o Further, the SC said that RA 7496 is just an amendatory provision pronouncement on costs.
of the code of taxpayers where it classifies taxpayers in to four VOTING: Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo,
main groups: Individuals, Corporations, Estate under Judicial Quiason, Puno, Kapunan and Mendoza, JJ., concur.
Settlement and Irrevocable Trust. Padilla and Bidin, JJ., are on leave.
o The court would have appreciated the contention of the petitioner
if RA 7496 was an independent law. But since it is attached to a
law that has already classified taxpayers, there is no violation of MENDIOLA v. CA
equal protection clause.

2. Application of SNIT to partners in general professional partnerships

o There is no distinction in income tax liability between a person 1
A general professional partnership, in this context, must be formed for the sole purpose
who practices his profession alone or individually and one who
of exercising a common profession, no part of the income of which is derived from its
does it through a partnership (whether registered or not) with
engaging in any trade business; otherwise, it is subject to tax as an ordinary business
others in the exercise of a common profession.
partnership or, which is to say, as a corporation and thereby subject to the corporate
o Under the present income tax system, all individuals deriving
income tax. The only other exempt partnership is a joint venture for undertaking
income from any source whatsoever are treated in almost
construction projects or engaging in petroleum operations pursuant to an operating
invariably the same manner and under a common set of rules. agreement under a service contract with the government (see Sections 20, 23 and 24,
o Although the general professional partnership is exempt from the National Internal Revenue Code).
payment of taxes (but it still has an obligation to file an income tax
 PARTNERSHIP [1st SET]
11
(DIONNE) || D2014

ARSENIO T. MENDIOLA vs. COURT OF APPEALS, NATIONAL LABOR RELATIONS In its application (to the SEC), private respondent Pacfor proposed to establish its
COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB representative office in the Philippines. It also designated petitioner as its resident
agent in the Philippines, authorized to accept summons and processes in all legal
(July 31, 2006) proceedings, and all notices affecting the corporation.

DOCTRINE: In a partnership, the members become co-owners of what is contributed The Side Agreement was amended through a "Revised Operating and Profit Sharing
to the firm capital and of all property that may be acquired thereby and through the Agreement for the Representative Office Known as Pacific Forest Resources
efforts of the members. The property or stock of the partnership forms a community (Philippines)," where the salary of petitioner was increased to $78,000 per annum.
of goods, a common fund, in which each party has a proprietary interest. In fact, the Both agreements show that the operational expenses will be borne by the
New Civil Code regards a partner as a co-owner of specific partnership property. representative office and funded by all parties "as equal partners," while the profits
Each partner possesses a joint interest in the whole of partnership property. If the and commissions will be shared among them.
relation does not have this feature, it is not one of partnership. This essential
element, the community of interest, or co-ownership of, or joint interest in In July 2000, petitioner wrote the Vice President for Asia of Pacfor, seeking
partnership property is absent in the relations between petitioner and private confirmation of his 50% equity of Pacfor Phils. Private respondent Pacfor, through
respondent Pacfor. xxx the parties in this case, merely shared profits. This alone does its President, replied that petitioner is not a part-owner of Pacfor Phils. because the
not make a partnership. latter is merely Pacfor-USA's representative office and not an entity separate and
distinct from Pacfor-USA. "It's simply a 'theoretical company' with the purpose of
Besides, a corporation cannot become a member of a partnership in the absence of dividing the income 50-50."11 Petitioner presumably knew of this arrangement
express authorization by statute or charter. This doctrine is based on the following from the start, having been the one to propose to private respondent Pacfor the
considerations: (1) that the mutual agency between the partners, whereby the setting up of a representative office, and "not a branch office" in the Philippines to
corporation would be bound by the acts of persons who are not its duly appointed save on taxes.
and authorized agents and officers, would be inconsistent with the policy of the law
that the corporation shall manage its own affairs separately and exclusively; and, (2) Petitioner claimed that he was all along made to believe that he was in a joint venture
that such an arrangement would improperly allow corporate property to become with them; that he would have been better off remaining as an independent agent or
subject to risks not contemplated by the stockholders when they originally invested representative of Pacfor-USA as ATM Marketing Corp. Petitioner raised other issues,
in the corporation. such as the rentals of office furniture, salary of the employees, company car, as well
as commissions allegedly due him. The issues were not resolved, hence, in October
PONENTE: Puno, J. 2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and
office furniture and equipment rentals.
FACTS:
Privatre respondent Pacfor through counsel ordered petitioner to turn over to it all
papers, documents, files, records, and other materials in his or ATM Marketing
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation Corporation's possession that belong to Pacfor or Pacfor Phils then to remit more
organized and existing under the laws of California, USA. It is a subsidiary of than 300k xmas giveaway fund for clients of Pacfor Phil and finally Pacfor withdraw
Cellulose Marketing International (organized in Sweden) all its offers of settlement and ordered petitioner to transfer title and turn over to it
possession of the service car.18
Private respondent Pacfor entered into a "Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc." with petitioner Arsenio T. Mendiola Private respondent Pacfor likewise sent letters to its clients in the Philippines,
(ATM). The Side Agreement outlines the business relationship of the parties with advising them not to deal with Pacfor Phils.
regard to the Philippine operations of Pacfor. Private respondent will establish a
Pacfor representative office in the Philippines, to be known as Pacfor Phils, and
petitioner ATM will be its President. Petitioner's base salary and the overhead Petitioner construed these directives as a severance of the "unregistered
expenditures of the company shall be borne by the representative office and funded partnership" between him and Pacfor, and the termination of his employment as
by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and resident manager of Pacfor Phils.
Pacfor-usa.
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor
equally own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a
 PARTNERSHIP [1st SET]
12
(DIONNE) || D2014

50/50 basis, Pacfor Phils.' office furniture and equipment and the service car. He also MR denied.
reiterated his demand for unpaid commissions, and proposed to offset these with the
remaining Christmas giveaway fund in his possession. Furthermore, he did not CA: Affirmed holding that "the legal basis of the complaint is not employment but
renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of perhaps partnership, co-ownership, or independent contractorship." Hence, the
Pacfor Phils., wherein he was the signatory to the lease agreement. Labor Code cannot apply.

Private respondent Pacfor placed petitioner on preventive suspension and ordered MR denied
him to show cause why no disciplinary action should be taken against him. Private
respondent Pacfor charged petitioner with willful disobedience and serious
misconduct for his refusal to turn over the service car and the Christmas giveaway Issues: Was there an employer-employee relationship or a partnership? Can both
fund which he applied to his alleged unpaid commissions. Private respondent also exist at the same time? There was an employer employee relationship but no
alleged loss of confidence and gross neglect of duty on the part of petitioner for partnership
allegedly allowing another corporation owned by petitioner's relatives, High End
Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to Was he constructively dismissed? (Not important so omitted) YES.
possibly steal and divert the sales and business of private respondent.
Ratio:
Petitioner denied the charges. He reiterated that he considered the import of Pacfor
Presidents letters as a "cessation of his position and of the existence of Pacfor Phils." Petitioner argues that he is an industrial partner of the partnership he formed with
He likewise informed private respondent Pacfor that ATM Marketing Corp. now private respondent Pacfor, and also an employee of the partnership. Petitioner insists
occupies Pacfor Phils.' office premises, and demanded payment of his separation that an industrial partner may at the same time be an employee of the partnership,
pay. provided there is such an agreement, which, in this case, is the "Side Agreement" and
the "Revised Operating and Profit Sharing Agreement." We hold that petitioner is an
Petitioner filed his complaint for illegal dismissal, recovery of separation pay, and employee of private respondent Pacfor and that no partnership or co-ownership
payment of attorney's fees with the NLRC. exists between the parties.

Private respondent directed petitioner to explain why he should not be disciplined In a partnership, the members become co-owners of what is contributed to the firm
for serious misconduct and conflict of interest; charged petitioner anew with serious capital and of all property that may be acquired thereby and through the efforts of
misconduct for the latter's alleged act of fraud and misrepresentation in authorizing the members. The property or stock of the partnership forms a community of goods,
the release of an additional peso salary for himself, besides the dollar salary agreed a common fund, in which each party has a proprietary interest. In fact, the New Civil
upon by the parties. Private respondent also accused petitioner of disloyalty and Code regards a partner as a co-owner of specific partnership property. Each partner
representation of conflicting interests for having continued using the Pacfor Phils.' possesses a joint interest in the whole of partnership property. If the relation does
office for operations of HEPI not have this feature, it is not one of partnership. This essential element, the
community of interest, or co-ownership of, or joint interest in partnership property
LA: ruled in favor of petitioner, finding there was constructive dismissal. By is absent in the relations between petitioner and private respondent Pacfor.
directing petitioner to turn over all office records and materials, regardless of Petitioner is not a part-owner of Pacfor Phils. William Gleason, private respondent
whether he may have retained copies, private respondent Pacfor virtually deprived Pacfor's President established this fact when he said that Pacfor Phils. is simply a
petitioner of his job by the gradual diminution of his authority as resident manager. "theoretical company" for the purpose of dividing the income 50-50. He stressed that
Petitioner's position as resident manager whose duty, among others, was to maintain petitioner knew of this arrangement from the very start, having been the one to
the security of its business transactions and communications was rendered propose to private respondent Pacfor the setting up of a representative office, and
meaningless. "not a branch office" in the Philippines to save on taxes. Thus, the parties in this case,
merely shared profits. This alone does not make a partnership.
NLRC: in favor of Private respondent Pacfor. He set aside the July 30, 2001 decision
of the labor arbiter, for lack of jurisdiction and lack of merit. It held there was no Besides, a corporation cannot become a member of a partnership in the absence of
employer-employee relationship between the parties. Based on the two express authorization by statute or charter. This doctrine is based on the following
agreements between the parties, it concluded that petitioner is not an considerations: (1) that the mutual agency between the partners, whereby the
employee of private respondent Pacfor, but a full co-owner (50/50 equity). corporation would be bound by the acts of persons who are not its duly appointed
 PARTNERSHIP [1st SET]
13
(DIONNE) || D2014

and authorized agents and officers, would be inconsistent with the policy of the law of the service car. It was also during this period when private respondent Pacfor sent
that the corporation shall manage its own affairs separately and exclusively; and, (2) letters to its clients in the Philippines, particularly Intercontinental Paper Industries,
that such an arrangement would improperly allow corporate property to become Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its
subject to risks not contemplated by the stockholders when they originally invested letter to DAVCOR, private respondent Pacfor replied to the client's request for an
in the corporation. No such authorization has been proved in the case at bar. invoice payment extension, and formulated a revised payment program for DAVCOR.
This is one unmistakable proof that private respondent Pacfor exercises control over
(This part goes into the employer-employee relationship bit, I dont think its the petitioner.
important but I included it na din if ever magtanong re: paano nagging employee)
DISPOSITIVE: IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals'
Be that as it may, we hold that on the basis of the evidence, an employer-employee January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution,
relationship is present in the case at bar. The elements to determine the existence of affirming the December 20, 2001 Decision of the National Labor Relations
an employment relationship are: (a) the selection and engagement of the employee; Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor
(b) the payment of wages; (c) the power of dismissal; and (d) the employer's power Arbiter isREINSTATED with the MODIFICATION that the amount of P250,000.00
to control the employee's conduct. The most important element is the employer's representing an alleged increase in petitioner's salary shall be deducted from the
control of the employee's conduct, not only as to the result of the work to be done, grant of separation pay for lack of evidence.
but also as to the means and methods to accomplish it.43
SO ORDERED.
In the instant case, all the foregoing elements are present. First, it was private
respondent Pacfor which selected and engaged the services of petitioner as its VOTE: Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur
resident agent in the Philippines. Second, as stipulated in their Side Agreement,
private respondent Pacfor pays petitioner his salary amounting to $65,000 per
annum which was later increased to $78,000. Third, private respondent Pacfor holds ANGELES v. SECRETARY OF JUSTICE
the power of dismissal, as may be gleaned through the various memoranda it issued
against petitioner, placing the latter on preventive suspension while charging him (July 29, 2005)
with various offenses, including willful disobedience, serious misconduct, and gross
neglect of duty, and ordering him to show cause why no disciplinary action should be Oscar Angeles and Emerita Angeles, petitioners, v. The Hon. Secretary of Justice and
taken against him. Felino Mercado, respondents

DOCTRINE:The purpose of registration of the contract of partnership with the SEC is
Lastly and most important, private respondent Pacfor has the power of control over
to give notice to third parties. Failure to register the contract of partnership does not
the means and method of petitioner in accomplishing his work.
affect the liability of the partnership and of the partners to third persons, nor does it
affect the partnerships juridical personality. A partnership may exist even if the
The power of control refers merely to the existence of the power, and not to the partners do not use the words partner or partnership.
actual exercise thereof. The principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not the actual exercise of the NATURE: Special civil action. Certiorari.
right by interfering with the work, but the right to control, which constitutes the test
of the existence of an employer-employee relationship.44 In the case at bar, private PONENTE: Carpio, J.
respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as
private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an FACTS:
agent of the corporation, a representative of Pacfor, who transacts business, and
accepts service on its behalf. Angeles spouses filed a criminal complaint for estafa against Mercado, their
brother-in-law
This right of control was exercised by private respondent Pacfor during the period of o Claimed that Mercado convinced them to enter into a contract of antichresis,
November to December 2000, when it directed petitioner to turn over to it all to last for 5 years, covering 8 parcels of land planted with fruit-bearing
records of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway lanzones trees in Nagcarlan, Laguna and owned by Juan Sanzo
fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of o The parties agreed that Mercado would administer the ands and complete the
settlement and ordered petitioner to transfer title and turn over to it the possession necessary paperwork
 PARTNERSHIP [1st SET]
14
(DIONNE) || D2014

o After 3 years, the Angeles spouses asked for an accounting from Mercado, and ISSUES/HELD:
they claim that only after this demand for an accounting did thy discover that
Mercado had put the contract of antichresis over the subject land under 1. W/N the Sec. of Justice committed grave abuse of discretion in dismissing
Mercado and his spouses names the appeal - No
Mercado denied the Angeles spouses allegations 2. W/N a partnership existed between Mercado and the Angeles spouses - Yes
o Claimed that there exists an industrial partnership, colloquially known as 3. W/N there was misappropriation by Mercado No
sosyo industrial, between him and his spouse as industrial partners and the
Angeles spouses as financiers, and that this had existed since 1991, before the RATIO/RULING:
contract of antichresis over the subject land
o Mercado used his and his spouses earnings as part of the capital in the 1. Angeles spouses fail to convince that the Secretary of Justice committed grave
business transactions which he entered into in behalf of the Angeles spouses. abuse of discretion when he dismissed their appeal. Moreover, they committed a
It was their practice to enter into business transactions with other people procedural error when they failed to file a motion for reconsideration of the Sec. of
under the name of Mercado because the Angeles spouses did not want to be Justices resolution, which is already enough reason to dismiss the case.
identified as the financiers
o Attached bank receipts showing deposits in behalf of Emerita Angeles and 2. Angeles spouses allege that they had no partnership with Mercado, relying on Arts.
contracts under his name for the Angeles spouses 1771 to 1773 of the Civil Code.
During the barangay conciliation proceedings, Oscar Angeles stated that there
was a written sosyo industrial agreement: capital would come from the Angeles The Angeles spouses position that there is no partnership because of the lack of a
spouses while the profit would be divided evenly between Mercado and the public instrument indicating the same and a lack of registration with the SEC
Angeles spouses holds no water
Provincial Prosecution Office: first recommended the filing of a criminal o The Angeles spouses contributed money to the partnership and not
information for estafa, but after Mercado filed his counter-affidavit and moved for immovable property
reconsideration, issued an amended resolution dismissing the complaint o Mere failure to register the contract of partnership with the SEC does not
Angeles spouses appealed to Sec. of Justice, saying that the document evidencing invalidate a contract that has the essential requisites of a partnership. The
the contract of antichresis executed in the name of the Mercado spouses, instead purpose of registration is to give notice to third parties.
of the Angeles spouses, and that such document alone proves Mercados Failure to register does not affect the liability of the partnership and of the
misappropriation of their P210, 000 partners to third persons, nor does it affect the partnerships juridical personality
Sec. of Justice: dismissed the appeal The Angeles spouses admit to facts that prove the existence of a partnership
o Angeles spouses failed to show sufficient proof that Mercado deliberately o A contract showing a sosyo industrial or industrial partnership
deceived them in the transaction o Contribution of money & industry to a common fund
o Mercado satisfactorily explained that the Angeles spouses do not want to be o Division of profits between the Angeles spouses and Mercado
revealed as the financiers
o Under the circumstances, it was more likely that the Angeles spouses knew 3. Mercado satisfactorily explained that the Angeles spouses do not want to be
from the very start that the questioned document was not really in their revealed as the financiers, thus the document which was in the name of Mercado and
names his spouse fail to convince that there was deceit or false representation that induced
o A partnership truly existed between the Angeles spouses and Mercado, which the Angeles spouses to part with their money
was clear from the fact that they contributed money to a common fund and
divided the profits among themselves. Even the RTC of Sta. Cruz, Laguna, which handled the civil case filed by the
o Angeles spouses acknowledged their joint business venture in the barangay Angeles spouses against Mercado and Leo Cerayban stated that it was the
conciliation proceedings although they assailed the manner the business was practice to have the contracts secured in Mercados name as the Angeles spouses
conducted fear being kidnapped by the NPA or being questioned by the BIR as Oscar Angeles
o Although the legal formalities for the formation were not adhered to, the was working with the government.
partnership relationship was evident.
o There is no estafa where money is delivered by a partner to his co-partner on Accounting of the proceeds is not a proper subject for the present case.
the latters representation that the amount shall be applied to the business of
their partnership. In case of the money received, the co-partners liability is DISPOSITION: Petition for certiorari dismissed. Decision of Sec. of Justice affirmed.
civil in nature
VOTE: 1st Division, all concur.
 PARTNERSHIP [1st SET]
15
(DIONNE) || D2014

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
D. MUTUAL AGENCY
issued the check for P50,000 in favor of Jose Gatchalian and
E. DISTINGUISH FROM company, and the said partner, in the same capacity, collected the
said check.
1. Co-ownership; Co-possession All these circumstances repel the idea that the plaintiffs organized
2. Tenancy in common; joint tenancy and formed a community of property only.
2. Having organized and constituted a partnership of a civil nature, the said
3. Joint Ventures entity is the one bound to pay the income tax which the defendant collected
4. Joint Adventures under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2
of Act No. 3761.
5. Joint accounts
PASCUAL v. CIR
6. Cuentas en Participacion
(October 18, 1988)
7. Agency
GATCHALIAN v. CIR DOCTRINE: There must be a clear intent to form a partnership, the existence of a
April 29, 1939 juridical personality different from the individual partners, and the freedom of each
party to transfer or assign the whole property.
PONENTE: Imperial, J.
NATURE: Petition for review on certiorari of the decision of the Court of Tax Appeals
FACTS: (CTA) affirming the decision of the Commissioner of Internal Revenue.
The 15plaintiff are all residents of the municipality of Pulilan, Bulacan,
purchased one sweepstakes ticket valued at two pesos (P2), divided in various PONENTE: Gancayo, J.
amounts among themselves. FACTS:
o the said ticket was registered in the name of Jose Gatchalian and
Company; Petitioners Mariano Pascual and Renato P. Dragon are siblings.
o The ticket won 50,000 pesos. 1965 Bought 2 Parcels of Land
Plaintiff submitted 15 income tax returns for exemption from the 1,499 tax on
the lottery winnings, asking that the tax be divided according to the amount paid 1966 Bought another 3 Parcels of Land
by each plaintiff; 1968 Sold the first to Parcels of Land
o CIR denied the plaintiffs request for exemption, stating that the
plaintiffs are a partnership; 1970 Sold the remaining 3 Parcels.

They realized a total of P 60,000.00 profit, and paid the corresponding capital gains
ISSUE:
by availing of the tax amnesty in the years 1973 74.
1. Whether the plaintiffs formed a partnership, or merely a community of
property without a personality of its own; Formed a partnership of a civil BIR Commissioner assessed that the siblings owed P107,101.70 for corporate income
nature. tax being an unregistered partnership.
2. Whether they should pay the tax collectively or whether the latter should
be prorated among them and paid individually; Collectively. Petitioners assert that they are not a partnership, but are co-owners who have paid
their corresponding capital gains in 73 and 74.
HELD: ISSUES:
1. 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 W/N the Siblings were an unregistered partnership which was liable to pay
for the sole purpose of dividing equally the prize which they may win, corporate tax?
as they did in fact in the amount of P50,000;
 PARTNERSHIP [1st SET]
16
(DIONNE) || D2014

HELD: NATURE: Petition to review the decision of the Court of Tax Appeals
No, they were co-owners. PONENTE: Aquino, J.
RATIO/RULING: FACTS:
The CTA anchored their ruling on an earlier case of Evangelista. Which held that the For at least one year after their receipt of two parcels of land from their
requisite for a partnership is a) an agreement to contribute money, property or father, petitioners resold said lots to the Walled City Securities Corporation and Olga
industry in a common fund, and b) intent to divide the profits among the contracting Cruz Canda, for which they earned a profit of P134,341.88 or P33,584 for each of
parties. them. They treated the profit as a capital gain and paid an income tax on one-half
thereof or of P16,792.
In the present case, there is no evidence that petitioners entered into an agreement
One day before the expiration of the five-year prescriptive period, the
to contribute money, property or industry to a common fund and that they intended
Commissioner of Internal Revenue, Commissioner acting on the theory that the four
to divide the profits among themselves. Commissioner merely assumed the presence
petitioners had formed an unregistered partnership or joint venture, required the
of these elements.
four petitioners to pay corporate income tax on the total profit of P134,336 in
Also, the earlier ruling in Evangelista showed that there were several transactions, addition to individual income tax on their shares thereof, a 50% fraud surcharge and
which showed the character of habitually peculiar to business transactions engaged a 42% accumulated interest. Further, the Commissioner considered the share of the
in for the purpose of gain was present. profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere
capital gain of which is taxable) and required them to pay deficiency income taxes
The common ownership of property does not in itself create a partnership between aggregating P56,707.20 including the 50% fraud surcharge and the accumulated
the owners, though they may use it for purpose of making gains; and they may, interest.
without becoming partners, agree among themselves as to the management, and use The petitioners contested the assessments. Two Judges of the Tax Court
of such property and applications of the proceeds therefrom. sustained the same. Judge Roaquin dissented. Hence, the instant appeal.

The sharing of returns does not in itself establish a partnership whether or not the ISSUES:Whether or not petitioners have indeed formed a partnership or joint
persons sharing therein have a joint or common right or interest in the property. venture and thus, liable for corporate income tax.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to
HELD &RATIO/RULING:We hold that it is error to consider the petitioners
transfer or assign the whole property.
as having formed a partnership under article 1767 of the Civil Code simply because
they allegedly contributed P178,708.12 to buy the two lots, resold the same and
There must be intent to create a PARTNERSHIP with a distinct juridical personality divided the profit among themselves.
to that of the partners. To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the dictum that the
DISPOSITION: Petition is GRANTED decision of the CTA is REVERSED and SET power to tax involves the power to destroy. That eventuality should be obviated.
ASIDE As testified by Jose Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners would obliterate the
VOTE: 3rd Division. Cruz, Grino-Aquino, Medialdea, JJ. Concur distinction between a co-ownership and a partnership. The petitioners were not
Narvasa, J. Took no part engaged in any joint venture by reason of that isolated transaction.
Article 1769(3) of the Civil Code provides that "the sharing of gross returns
does not of itself establish a partnership, whether or not the persons sharing them
OBILLOS v. CIR have a joint or common right or interest in any property from which the returns are
(October 29, 1985) derived". There must be an unmistakable intention to form a partnership or joint
venture.
DOCTRINE: The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived. There must be an DISPOSITION:WHEREFORE, the judgment of the Tax Court is reversed and set aside.
unmistakable intention to form a partnership or joint venture. The assessments are cancelled. No costs.

 PARTNERSHIP [1st SET]
17
(DIONNE) || D2014

VOTE: 2nd Division. Abad Santos, Escolin, Cuevas, Alampayconcur. Concepcion Jr. on 2. No
leave. 3. Yes
RATIO/RULING:
RIVERA v. PEOPLES BANK

(April 7, 1942)
First Issue
DOCTRINE: In the absence of clear proof of the contrary, the SC gives full faith and
1. The TCs conclusion is predicated on the assumption that Stephenson was
credit to the certificate of deposit, which recites in effect that the funds in question
the exclusive owner of the funds deposited in the bank, which assumption
belonged to persons A and B; that they were joint owners and that either of them
was in turn based on the facts (1) that the account was originally opened in
could withdraw any part or the whole of said account during the lifetime of both, and
the name of Stephenson alone and (2) that Ana Rivera "served only as
the balance, if any, upon the death of either, belonged to the survivor.
housemaid of the deceased."
NATURE: The question raised in this appeal is the validity of the survivorship 2. But it not infrequently happens that a person deposits money in the
agreement made by and between Edgar Stephenson, now deceased, and Ana Rivera, bank in the name of another; and in the instant case it also appears
appellant herein that Ana Rivera served her master for about nineteen years without
actually receiving her salary from him. The fact that subsequently
PONENTE: Ozaeta, J. Stephenson transferred the account to the name of himself and/or Ana
FACTS: Rivera and executed with the latter the survivorship agreement in
question although there was no relation of kinship between them but
Ana Rivera was employed by Edgar Stephenson as housekeeper. Stephenson opened only that of master and servant, nullifies the assumption that
an account in his name with the defendant Peoples Bank. Stephenson was the exclusive owner of the bank account.
When there was a balance of P2,072 in said account, the survivorship agreement in 3. In the absence of clear proof of the contrary, the SC gives full faith and
question was executed and the said account was transferred to the name of "Edgar credit to the certificate of deposit, which recites in effect that the funds
Stephenson and/or Ana Rivera." At the time of Stephenson's death Ana Rivera held in question belonged to Edgar Stephenson and Ana Rivera; that they
the deposit book, and there was a balance in said account of P701.43, which Ana were joint owners and that either of them could withdraw any part or
Rivera claimed but which the bank refused to pay to her upon advice of its attorneys the whole of said account during the lifetime of both, and the balance,
who gave the opinion that the survivorship agreement was of doubtful validity. if any, upon the death of either, belonged to the survivor.

Ana Rivera instituted the present action against the bank, and Minnie Stephenson,
administratix of the estate of the deceased, intervened and claimed the amount for Second issue:
the estate, alleging that the money deposited in said account was and is the exclusive
property of the deceased.
1. Prima facie, SC thinks it is valid. It is an aleatory contract supported by
TC: held that the agreement in question, viewed from its effect during the lives of the law a lawful consideration the mutual agreement of the joint
parties, was a mere power of attorney authorizing Ana Rivera to withdraw the depositors permitting either of them to withdraw the whole deposit during
deposit, which power terminated upon the death of the principal, Edgar Stephenson; their lifetime, and transferring the balance to the survivor upon the death of
but that, viewed from its effect after the death of either of the parties, the agreement one of them. The trial court said that the Civil Code "contains no provisions
was a donation mortis causa with reference to the balance remaining at the death of sanctioning such an agreement" SC thinks it is covered by article 1790 of
one of them, which, not having been executed with the formalities of a testamentary the Civil Code.
disposition as required by the Civil Code, was of no legal effect. 2. Furthermore, "it is well established that a bank account may be so
created that two persons shall be joint owners thereof during their
ISSUES:
mutual lives, and the survivor take the whole on the death of the
1.WON the survivorship agreement was a mere power of attorney from Stephenson other. The right to make such joint deposits has generally been held not to
to Ana Rivera, or that it is a gift mortis causa of the bank account in question from be done with by statutes abolishing joint tenancy and survivorship
him to her. generally as they existed at common law."
3. Although the survivorship agreement is per se not contrary to law, its
2. WON the survivorship agreement is valid operation or effect may be violative of the law. For instance, if it be
HELD: shown in a given case that such agreement is a mere cloak to hide an
 PARTNERSHIP [1st SET]
18
(DIONNE) || D2014

inofficious donation, to transfer property in fraud of creditors, or to defeat partnership, it may nevertheless enter into a joint venture with
the legitime of a forced heir, it may be assailed and annulled upon such another where the nature of that venture is in line with the
grounds. No such vice has been imputed and established against the business authorized by its charter (Wyoming-Indiana Oil Gas Co. vs.
agreement involved in the case.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.)
There is nothing in the record to indicate that the venture in which
DISPOSITION: The agreement appealed from is reversed and another judgment will
plaintiff is represented by Gregorio Araneta, Inc. as "its managing
be entered in favor of the plaintiff ordering the defendant bank to pay to her the sum
partner" is not in line with the corporate business of either of them.
of P701.43, with legal interest thereon from the date of the complaint, and the costs
in both instances. So ordered.

VOTE: All concur

HEIRS OF TANG ENG KEE v. CA

TUASON v. BOLANOS October 3, 2000
FACTS:
FACTS: The common-law spouse and children of TAN ENG KEE (the plaintiffs) filed suit
against the decedent's brother TAN ENG LAY for accounting, liquidation and
This was an action to recover possesion of registered land situated in barrio Tatalon,
winding up of the alleged partnership formed after World War II between
Quezon City.
Tan Eng Kee and Tan Eng Lay;
The plaintiff was represented by a corporation, the law firm Araneta & Araneta. o After the second World War, Tan Eng Kee and Tan Eng Lay, pooling
their resources and industry together, entered into a partnership
ISSUE: engaged in the business of selling lumber and hardware and
construction supplies named "Benguet Lumber" which they jointly
WON the case should be dismissed on the ground that the case was not brought by managed until Tan Eng Kee's death.
the real property in interest
o Petitioners claim that in 1981, Tan Eng Lay and his children caused the

HELD: conversion of the partnership "Benguet Lumber" into a corporation
called "Benguet Lumber Company." The incorporation was purportedly
No. a ruse to deprive Tan Eng Kee and his heirs of their rightful
participation in the profits of the business.
There is nothing to the contention that the present action is not RTC granted the petitioner for accouting and determined that Tan Eng Kee and
brought by the real party in interest, that is, by J. M. Tuason and Co., Tan Eng Lay had entered into a joint venture, but the CA reversed such decision,
Inc. What the Rules of Court require is that an action be brought in the hence the present petition.
name of, but not necessarily by, the real party in interest. (Section 2, ISSUE: Was there a partnership between Tan Eng Kee and Tan Eng Lay? No.
Rule 2.) HELD:
The complaint is signed by the law firm of Araneta and Araneta, PLAINTIFFS CLAIM THAT because of the pooling of resources, the post-war
"counsel for plaintiff" and commences with the statement "comes now Benguet Lumber was eventually established. That the father of the plaintiffs and
plaintiff, through its undersigned counsel." It is true that the complaint Lay were partners, is obvious from the fact that: (1) they conducted the affairs of
also states that the plaintiff is "represented herein by its Managing the business during Kee's lifetime, jointly, (2) they were the ones giving orders
Partner Gregorio Araneta, Inc.", another corporation. to the employees, (3) they were the ones preparing orders from the suppliers,
There is nothing against one corporation being represented by (4) their families stayed together at the Benguet Lumber compound, and (5) all
another person, natural or juridical, in a suit in court. their children were employed in the business in different capacities.
The contention that Gregorio Araneta Inc. cannot act as managing o HOWEVER: These are not evidences supporting the existence of a
partner for plaintiff on the theory that it is illegal for two partnership. There was no partnership whatsoever. Except for a
corporations to enter into a partnership is without merit, for the firm name, there was no firm account, no firm letterheads submitted as
true rule is that though a corporation has no power into a evidence, no certificate of partnership, no agreement as to profits and
 PARTNERSHIP [1st SET]
19
(DIONNE) || D2014

losses, and no time fixed for the duration of the partnership. There was such inference shall be drawn if such profits were received in
even no attempt to submit an accounting corresponding to the period payment:
after the war until Kee's death in 1984. It had no business book, no (a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
written account nor any memorandum for that matter and no license
(c) As an annuity to a widow or representative of a deceased
mentioning the existence of a partnership. partner;
(d) As interest on a loan, though the amount of payment
On profits earned: Tan Eng Kee was only an employee, not a partner. Even if the vary with the profits of the business;
payrolls as evidence were discarded, petitioners would still be back to square one, so (e) As the consideration for the sale of a goodwill of a
to speak, since they did not present and offer evidence that would show that Tan Eng business or other property by installments or otherwise.
Kee received amounts of money allegedly representing his share in the profits of the
enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if DISPOSITIVE: There being no partnership, it follows that there is no dissolution,
any, as his share in the profits of Benguet Lumber Company for any particular period. winding up or liquidation to speak of. Hence, the petition must fail.
Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the
profits of the business between themselves, which is one of the essential features of a AURBACH v. SANITARY WARES
partnership.
(December 15, 1989)
On power to give orders: even a mere supervisor in a company, factory or store DOCTRINE: The rule is that whether the parties to a particular contract have thereby
gives orders and directions to his subordinates. So long, therefore, that an established among themselves a joint venture or some other relation depends upon
employee's position is higher in rank, it is not unusual that he orders around those their actual intention which is determined in accordance with the rules governing the
lower in rank. interpretation and construction of contracts.

On preparing supply orders: even a messenger or other trusted employee, over NATURE: Consolidated petitions seek the review of the amended decision of the
whom confidence is reposed by the owner, can order materials from suppliers for Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier
and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily decision dated June 5, 1986, of the then Intermediate Appellate Court
have to perform this particular task. It is, thus, not an indication that Tan Eng Kee
PONENTE: Gutierrez, Jr., J.
was a partner.
FACTS:
On staying in the premises of Benguet Lumber: although Tan Eng Kee, together
with his family, lived in the lumber compound and this privilege was not accorded to - In 1961, Saniwares, a domestic corporation was incorporated for the
other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan primary purpose of manufacturing and marketing sanitary wares. One
Eng Lay. Naturally, close personal relations existed between them. Whatever of the incorporators, Mr. Baldwin Young went abroad to look for foreign
privileges Tan Eng Lay gave his brother, and which were not given the other partners, European or American who could help in its expansion plans. On
employees, only proves the kindness and generosity of Tan Eng Lay towards a blood August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United
relative. States entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to participate in
In determining whether a partnership exists, these rules shall apply: the ownership of an enterprise which would engage primarily in the
(1) Except as provided by Article 1825, persons who are not partners business of manufacturing in the Philippines and selling here and abroad
as to each other are not partners as to third persons; vitreous china and sanitary wares. The parties agreed that the business
(2) Co-ownership or co-possession does not of itself establish a operations in the Philippines shall be carried on by an incorporated
partnership, whether such co-owners or co-possessors do or do enterprise and that the name of the corporation shall initially be "Sanitary
not share any profits made by the use of the property; Wares Manufacturing Corporation."
(3) The sharing of gross returns does not of itself establish a - 3. Articles of Incorporation
partnership, whether or not the persons sharing them have a joint (a) The Articles of Incorporation of the Corporation shall be substantially in
or common right or interest in any property which the returns are the form annexed hereto as Exhibit A and, insofar as permitted under
derived; Philippine law, shall specifically provide for
(4) The receipt by a person of a share of the profits of a business is (1) Cumulative voting for directors:
a prima facie evidence that he is a partner in the business, but no xxx xxx xxx
 PARTNERSHIP [1st SET]
20
(DIONNE) || D2014

5. Management among the other six (6) nominees for the four (4) remaining positions of
(a) The management of the Corporation shall be vested in a Board of directors and that the body decided not to break the tie.
Directors, which shall consist of nine individuals. As long as American- - These incidents triggered off the filing of separate petitions by the
Standard shall own at least 30% of the outstanding stock of the parties with the Securities and Exchange Commission (SEC). The two
Corporation, three of the nine directors shall be designated by American- petitions were consolidated and tried jointly by a hearing officer who
Standard, and the other six shall be designated by the other stockholders of rendered a decision upholding the election of the Lagdameo Group
the Corporation. and dismissing the quo warranto petition of Salazar and Chamsay. The
ASI Group and Salazar appealed the decision to the SEC en banc which
- The agreement contained provisions designed to protect it as a affirmed the hearing officer's decision.
minority group, including the grant of veto powers over a number of - The SEC decision led to the filing of two separate appeals with the
corporate acts and the right to designate certain officers, such as a member Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David
of the Executive Committee whose vote was required for important Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and
corporate transactions. by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions
- The joint enterprise thus entered into by the Filipino investors and the were consolidated and the appellate court in its decision ordered the
American corporation prospered. Unfortunately, with the business remand of the case to the Securities and Exchange Commission with the
successes, there came a deterioration of the initially harmonious directive that a new stockholders' meeting of Saniwares be ordered
relations between the two groups. According to the Filipino group, a convoked as soon as possible, under the supervision of the Commission.
basic disagreement was due to their desire to expand the export - Upon a motion for reconsideration filed by the appellees (Lagdameo
operations of the company to which ASI objected as it apparently had Group) the appellate court (Court of Appeals) rendered the
other subsidiaries of joint joint venture groups in the countries where questioned amended decision. Petitioners Wolfgang Aurbach, John
Philippine exports were contemplated. On March 8, 1983, the annual Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign
stockholders' meeting was held. the following errors:
- The ASI group nominated three persons namely; Wolfgang Aurbach, John - I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION
Griffin and David P. Whittingham. The Philippine investors nominated six, OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS
namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated - II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE
chairman, Baldwin Young ruled the last two nominations out of order on NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND
the basis of section 5 (a) of the Agreement, the consistent practice of the THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS
parties during the past annual stockholders' meetings to nominate only WITHOUT DUE PROCESS OF LAW.
nine persons as nominees for the nine-member board of directors, and the - Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended
legal advice of Saniwares' legal counsel. decision on the following grounds:
- There were protests against the action of the Chairman and heated - 11.1. That Amended Decision would sanction the CA's disregard of binding
arguments ensued. An appeal was made by the ASI representative to the contractual agreements entered into by stockholders and the replacement
body of stockholders present that a vote be taken on the ruling of the of the conditions of such agreements with terms never contemplated by the
Chairman. A series of events then ensued that culminated in the eventual stockholders but merely dictated by the CA .
adjournment of the meeting and where the ASI Group, Luciano E. Salazar
- 11.2. The Amended decision would likewise sanction the deprivation of the
and other stockholders, allegedly representing 53 or 54% of the shares of
property rights of stockholders without due process of law in order that a
Saniwares, decided to continue the meeting at the elevator lobby of the
favored group of stockholders may be illegally benefitted and guaranteed a
American Standard Building. The continued meeting was presided by
continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis
75975-76)
of the cumulative votes cast earlier in the meeting, the ASI Group
- On the other hand, the petitioners in G.R. No. 75951 contend that:
nominated its four nominees; Wolfgang Aurbach, John Griffin, David
- THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself,
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED
thus the said five directors were certified as elected directors by the Acting
INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE
Secretary, Andres Gatmaitan, with the explanation that there was a tie
AGREEMENT AND THE LAW.
 PARTNERSHIP [1st SET]
21
(DIONNE) || D2014

- THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT body are all consistent with a joint venture and not with an ordinary
PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS corporation. As stated by the SEC:
DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF - According to the unrebutted testimony of Mr. Baldwin Young, he negotiated
SANTWARES. (P. 24, Rollo-75951) the Agreement with ASI in behalf of the Philippine nationals. He testified
- that ASI agreed to accept the role of minority vis-a-vis the Philippine
National group of investors, on the condition that the Agreement should
ISSUES: contain provisions to protect ASI as the minority.
The main issue hinges on who were the duly elected directors of Saniwares for the - An examination of the Agreement shows that certain provisions were
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer included to protect the interests of ASI as the minority. For example, the
this question the following factors should be determined: (1) the nature of the vote of 7 out of 9 directors is required in certain enumerated corporate acts.
business established by the parties whether it was a joint venture or a ASI is contractually entitled to designate a member of the Executive
corporation and (2) whether or not the ASI Group may vote their additional 10% Committee and the vote of this member is required for certain transactions.
equity during elections of Saniwares' board of directors. The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares. ASI is also given the
HELD: right to designate the president and plant manager. The Agreement further
In the instant cases, our examination of important provisions of the Agreement provides that the sales policy of Saniwares shall be that which is normally
as well as the testimonial evidence presented by the Lagdameo and Young followed by ASI and that Saniwares should not export "Standard" products
Group shows that the parties agreed to establish a joint venture and not a otherwise than through ASI's Export Marketing Services. Under the
corporation. Agreement, ASI agreed to provide technology and know-how to Saniwares
and the latter paid royalties for the same.
- It is pertinent to note that the provisions of the Agreement requiring a 7 out
RATIO/RULING: of 9 votes of the board of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement) an effective veto
- There are two groups in this case, the Lagdameo group composed of power. Furthermore, the grant to ASI of the right to designate certain
Filipino investors and the American Standard Inc. composed of foreign officers of the corporation; the super-majority voting requirements for
investors. The ASI Group and petitioner Salazar contend that the actual amendments of the articles and by-laws; and most significantly to the issues
intention of the parties should be viewed strictly on the Agreement dated of tms case, the provision that ASI shall designate 3 out of the 9 directors
August 15, 1962 wherein it stated the parties intention was to form a and the other stockholders shall designate the other 6, clearly indicate that
corporation and not a joint venture. there are two distinct groups in Saniwares, namely ASI, which owns 40% of
- The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the the capital stock and the Philippine National stockholders who own the
actual intention of the parties should be viewed strictly on the "Agreement" balance of 60%, and that 2) ASI is given certain protections as the minority
dated August 15,1962 wherein it is clearly stated that the parties' intention stockholder.
was to form a corporation and not a joint venture. - Premises considered, we believe that under the Agreement there are two
- They specifically mention number 16 under Miscellaneous Provisions which groups of stockholders who established a corporation with provisions for a
states: special contractual relationship between the parties, i.e., ASI and the other
xxx xxx xxx stockholders. (pp. 4-5)
c) nothing herein contained shall be construed to constitute any of the - Section 5 (a) of the agreement uses the word "designated" and not
parties hereto partners or joint venturers in respect of any transaction "nominated" or "elected" in the selection of the nine directors on a six
hereunder. (At P. 66, Rollo-GR No. 75875) to three ratio. Each group is assured of a fixed number of directors in
- They object to the admission of other evidence which tends to show that the board.
the parties' agreement was to establish a joint venture presented by the - Moreover, ASI in its communications referred to the enterprise as joint
Lagdameo and Young Group on the ground that it contravenes the parol venture. Baldwin Young also testified that Section 16(c) of the Agreement
evidence rule under section 7, Rule 130 of the Revised Rules of Court. that "Nothing herein contained shall be construed to constitute any of the
- In the instant cases, our examination of important provisions of the parties hereto partners or joint venturers in respect of any transaction
Agreement as well as the testimonial evidence presented by the hereunder" was merely to obviate the possibility of the enterprise being
Lagdameo and Young Group shows that the parties agreed to establish treated as partnership for tax purposes and liabilities to third parties.
a joint venture and not a corporation. The history of the organization of - Quite often, Filipino entrepreneurs in their desire to develop the
Saniwares and the unusual arrangements which govern its policy making industrial and manufacturing capacities of a local firm are constrained
 PARTNERSHIP [1st SET]
22
(DIONNE) || D2014

to seek the technology and marketing assistance of huge multinational Secondly, even assuming that Saniwares is technically not a close
corporations of the developed world. Arrangements are formalized corporation because it has more than 20 stockholders, the undeniable fact
where a foreign group becomes a minority owner of a firm in exchange for is that it is a close-held corporation. Surely, appellants cannot honestly claim
its manufacturing expertise, use of its brand names, and other such that Saniwares is a public issue or a widely held corporation.
assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or As correctly held by the SEC Hearing Officer:
monopolistic operations and merely uses the joint venture arrangement to - It is said that participants in a joint venture, in organizing the joint
gain a foothold or test the Philippine waters, so to speak. Or the venture deviate from the traditional pattern of corporation
covetousness may come later. As the Philippine firm enlarges its operations management. A noted authority has pointed out that just as in close
and becomes profitable, the foreign group undermines the local majority corporations, shareholders' agreements in joint venture corporations
ownership and actively tries to completely or predominantly take over the often contain provisions which do one or more of the following: (1)
entire company. This undermining of joint ventures is not consistent require greater than majority vote for shareholder and director action; (2)
with fair dealing to say the least. To the extent that such subversive give certain shareholders or groups of shareholders power to select a
actions can be lawfully prevented, the courts should extend protection specified number of directors; (3) give to the shareholders control over the
especially in industries where constitutional and legal requirements selection and retention of employees; and (4) set up a procedure for the
reserve controlling ownership to Filipino citizens. settlement of disputes by arbitration.
- The Lagdameo Group stated in their appellees' brief in the Court of Appeal: - Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not
- In fact, the Philippine Corporation Code itself recognizes the right of necessarily imply that agreements regarding the exercise of voting rights
stockholders to enter into agreements regarding the exercise of their are allowed only in close corporations. As Campos and Lopez-Campos
voting rights. explain:
- Paragraph 2 refers to pooling and voting agreements in particular. It is
Sec. 100. Agreements by stockholders.- submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or
xxx xxx xxx pooling agreements to protect their interests, as long as they do not
intend to commit any wrong, or fraud on the other stockholders not
parties to the agreement. Of course, voting or pooling agreements are
2. An agreement between two or more stockholders, if in writing and signed perhaps more useful and more often resorted to in close corporations. But
by the parties thereto, may provide that in exercising any voting rights, the they may also be found necessary even in widely held corporations.
shares held by them shall be voted as therein provided, or as they may Moreover, since the Code limits the legal meaning of close corporations to
agree, or as determined in accordance with a procedure agreed upon by those which comply with the requisites laid down by section 96, it is
them. entirely possible that a corporation which is in fact a close corporation will
not come within the definition. In such case, its stockholders should not be
Appellants contend that the above provision is included in the Corporation precluded from entering into contracts like voting agreements if these are
Code's chapter on close corporations and Saniwares cannot be a close otherwise valid. In short, even assuming that sec. 5(a) of the Agreement
corporation because it has 95 stockholders. Firstly, although Saniwares had relating to the designation or nomination of directors restricts the
95 stockholders at the time of the disputed stockholders meeting, these 95 right of the Agreement's signatories to vote for directors, such
stockholders are not separate from each other but are divisible into groups contractual provision, as correctly held by the SEC, is valid and binding
representing a single Identifiable interest. For example, ASI, its nominees upon the signatories thereto, which include appellants.
and lawyers count for 13 of the 95 stockholders. The YoungYutivo family
count for another 13 stockholders, the Chamsay family for 8 stockholders,
the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If
the members of one family and/or business or interest group are DISPOSITION:
considered as one (which, it is respectfully submitted, they should be for WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED
purposes of determining how closely held Saniwares is there were as of 8 and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the
March 1983, practically only 17 stockholders of Saniwares. (Please refer to Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11 Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R.
December 1984 and Annex "A" thereof). Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other
 PARTNERSHIP [1st SET]
23
(DIONNE) || D2014

respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. The supposed contract is void, for being contrary to Articles 1771, 1772, and 1773 of
Nos. 75975-76 and G.R. No. 75875. SO ORDERED. the Civil Code.

VOTE: 3rd Division. Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., The memorandum, on its face, contains typewritten entries, personal in tone, but is
took no part. unsigned and undated. As an unsigned document, there can be no quibbling that
CONCURRING/DISSENTING OPINION: None.
ADDITIONAL NOTES: Sorry mahaba at magulo. Essentially just read the doctrine
and the underlined portions sa ratio. Yung doctrine lang naman ang importante, the 1) The memorandum does not meet the public instrumentation
rest of the discussions show the HOW and WHY of the doctrine na joint venture nga requirements exacted under Article 1771 of the Civil Code.
yung intent.
2) Moreover, being unsigned and doubtless referring to a partnership
LITONJUA v. LITONJUA involving more than P3,000.00 in money or property, The
Memorandum cannot be presented for notarization, let alone registered
(Dec 13, 2005) with the Securities and Exchange Commission (SEC), as called for under the
DOCTRINE: Article 1772 of the Code.

A Partnership must be in a public document if:

3) And inasmuch as the inventory requirement under the succeeding
1) Immoveable Property and Real Rights contributed to it. Article 1773 goes into the matter of validity when immovable property is
a. If it involves immoveable property, inventory of such is needed contributed to the partnership, the next logical point of inquiry turns on the
signed by the partners. (else VOID) nature of petitioners contribution, if any, to the supposed partnership.
2) It involves capital P 3,000 (must be filed in the SEC)
NATURE: Petition for review on certiorari Petitioner, then goes on to allege that, assuming arguendo, that the contract was not
one of partnership that the same actually established an innominate contract and
PONENTE: Garcia, J. was a source of actionable rights.
FACTS: Court ruled even as a innominate contract, it would be void as in violation of the
Aurelio (Petitioner) and Eduardo Litonjua are brothers. statute of frauds. (Being its performance was to be done 1 year after perfection of
the contract.)
Aurelio alleges that he had a partnership with his brother Eduardo evidenced by a
private memorandum (unsigned) executed by Eduardo which said he was giving DISPOSITION: Petition is DENIED ruling of the CA AFFIRMED
10% of the equity or 1 million pesos, and that they would work together in VOTE: 1st Division. Panganiban, Sandoval-Gutierrez, Corona, Carpio-Morales concur
maintaining the family business.

A third person Yang was also alleged to be a member in the joint venture and BOURNS v. CARMAN
partnership.
(December 4, 1906)
Here Aurelio files for an action of Specific Performance against his partners, to FRANK S. BOURNS, Plaintiff-Appellee , vs. D. M. CARMAN, ET AL., Defendants-
render an accounting and give him his share of the profits. Appellants.
ISSUES: W/N there is a Valid Partnership?
DOCTRINE:
HELD: No, the contract was void or at most unenforceable. A partnership, the existence of which was only known to those who had an interest in
the same, being no mutual agreements between the partners and without a corporate
RATIO/RULING:
name indicating to the public in some way that there were other people besides the
The supposed contract of partnership was evidenced by a private memorandum one who ostensibly managed and conducted the business, is exactly the accidental
(unsigned), in which Eduardo expressed his desire to train his brother, and partnership of cuentas en participacion defined in article 239 of the Code of
promising him a 10% share or 1 million pesos. Commerce.
Those who contract with the person under whose name the business of
such partnership of cuentas en participacion is conducted, shall have only a
 PARTNERSHIP [1st SET]
24
(DIONNE) || D2014

right of action against such person and not against the other persons Those who contract with the person under whose name the business of
interested, and the latter, on the other hand, shall have no right of action such partnership of cuentas en participacion is conducted, shall have only a
against the third person who contracted with the manager unless such right of action against such person and not against the other persons
manager formally transfers his right to them. (Art 242 of the code Of interested, and the latter, on the other hand, shall have no right of action
Commerce.) It follows, therefore that the plaintiff has no right to demand against the third person who contracted with the manager unless such
from the appellants the payment of the amount claimed in the complaint, as manager formally transfers his right to them. (Art 242 of the code Of
Lo-Chim-Lim was the only one who contracted with him. Commerce.) It follows, therefore that the plaintiff has no right to demand
from the appellants the payment of the amount claimed in the complaint, as
NATURE: Appeal from a judgment of the CFI Lo-Chim-Lim was the only one who contracted with him.
PONENTE: MAPA, J.:
RATIO/RULING:
FACTS: It seems that the alleged partnership between Lo-Chim-Lim and the
The plaintiff in this action seeks to recover the sum of $437.50, balance due appellants was formed by verbal agreement only. At least there is no
on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. evidence tending to show that the said agreement was reduced to writing,
The contract relating to the said work was entered into by the said Lo- or that it was ever recorded in a public instrument.
Chim-Lim, acting as in his own name with the plaintiff, and it appears that Moreover, that partnership had no corporate name. The plaintiff himself
the said Lo-Chim-Lim personally agreed to pay for the work himself. alleges in his complaint that the partnership was engaged in business under
The plaintiff, however, has brought this action against Lo-Chim-Lim and his the name and style of Lo-Chim-Lim only, which according to the evidence
codefendants jointly, alleging that, was the name of one of the defendants.
o at the time the contract was made, they were the joint proprietors On the other hand, it does not appear that there was any mutual
and operators of the said lumber yard engaged in the purchase agreement, between the parties, and if there were any, it has not been
and sale of lumber under the name and style of Lo-Chim-Lim. shown what the agreement was. As far as the evidence shows it seems that
o that the other defendants were the partners of Lo-Chim-Lim in the the business was conducted by Lo-Chim-Lim in his own name, although he
said lumber-yard business. gave to the appellants a share was has been shown with certainty.
The court below dismissed the action as to the defendants D. M. Carman o The contracts made with the plaintiff were made by Lo-Chim-Lim
and Fulgencio Tan-Tongco on the ground that they were not the partners of individually in his own name, and there is no evidence that the
Lo-Chim-Lim, Vicente Palanca and Go-Tauco only excepted to the said partnership over contracted in any other form.
judgment, moved for a new trial, and have brought the case to this court by Under such circumstances we find nothing upon which to consider this
bill of exceptions. partnership other than as a partnership of cuentas en participacion. It may
The evidence of record shows, according to the judgment of the court, "That be that, as a matter of fact, it is something different, but a simple business
Lo-Chim-Lim had a certain lumber yard in Calle Lemery of the city of conducted by Lo-Chim-Lim exclusively, in his own name, the names of other
Manila, and that he was the manager of the same, having ordered the persons interested in the profits and losses of the business nowhere
plaintiff to do some work for him at his sawmill in the city of Manila; and appearing.
that Vicente Palanca was his partner, and had an interest in the said A partnership constituted in such a manner, the existence of which was only
business as well as in the profits and losses thereof . . .," and that Go-Tuaco known to those who had an interest in the same, being no mutual
received part of the earnings of the lumber yard in the management of agreements between the partners and without a corporate name indicating
which he was interested. to the public in some way that there were other people besides the one who
CFI: "Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had a lumber yard in Calle ostensibly managed and conducted the business, is exactly the accidental
Lemmery of the city of Manila in the year 1904, and participated in the partnership of cuentas en participacion defined in article 239 of the Code of
profits and losses of business and that Lo-Chim-Lim was managing partner Commerce.
of the said lumber yard." In other words, coparticipants with the said Lo-
Chim-Lim in the business in question. DISPOSITION: The judgment appealed from this hereby reversed and the appellants
are absolved of the complaint without express provisions as to the costs of both
ISSUES: What is the real legal nature of the participation which the appellants had in instances.
Lo-Chim-Lim's lumber yard and consequently their liability toward the plaintiff? VOTE: EN BANC; Arellano, C.J., Torres, Johnson, Carson, Willard and Tracey, JJ.,
concur
HELD:
The partnership is a partnership of cuentas en participacion. SEVILLA v. CA
 PARTNERSHIP [1st SET]
25
(DIONNE) || D2014

(April 16, 1988) ISSUES: WON there was a partnership between Tourist World Service and Lina
Sevilla
DOCTRINE: A joint venture, including a partnership, presupposes generally a HELD: NO
of standing between the joint co-venturers or partners, in which each party has
an equal proprietary interest in the capital or property contributed and where RATIO/RULING:
each party exercises equal rights in the conduct of the business.
1. The Court is asked to declare the true nature of the relation between Lina
NATURE: Appeal by certiorari Sevilla and Tourist World Service, Inc. The respondent Court of see fit to
rule on the question, the crucial issue, in its opinion being "whether or not
PONENTE: Sarmiento, J. the padlocking of the premises by the Tourist World Service, Inc. without
FACTS: the knowledge and consent of the appellant Lina Sevilla entitled the latter
to the relief of damages prayed for and whether or not the evidence for
1. On the strength of a contract entered into by and between Mrs. Segundina the said appellant supports the contention that the appellee Tourist
Noguera and the Tourist World Service, Inc., represented by Mr. Eliseo World Service, Inc. unilaterally and without the consent of the
Canilao, the Tourist World Service, Inc. leased the premises belonging to appellant disconnected the telephone lines of the Ermita branch office
Noguera at Mabini St., Manila for the formers use as a branch office. When of the appellee Tourist World Service, Inc.
the branch office was opened, the same was run by the herein appellant 2. Tourist World Service, Inc., insists, on the other hand, that Lina
Lina Sevilla. SEVILLA was a mere employee, being "branch manager" of its Ermita
"branch" office and that inferentially, she had no say on the lease
2. The Tourist World Service, Inc. appears to have been informed that Lina
executed with the private respondent, Segundina Noguera.
Sevilla was connected with a rival firm, the Philippine Travel Bureau, and,
3. The petitioners contend, however, that relation between the between
since the branch office was anyhow losing, the Tourist World Service
parties was one of joint venture, but concede that "whatever might have
considered closing down its office. This was firmed up by two resolutions of
been the true relationship between Sevilla and Tourist World Service," the
the board of directors of Tourist World Service, Inc. the first abolishing the
Rule of Law enjoined Tourist World Service and Canilao from taking the law
office of the manager and vice-president of the Tourist World Service, Inc.,
into their own hands, in reference to the padlocking now questioned.
Ermita Branch, and the second, authorizing the corporate secretary to
4. The Court finds the resolution of the issue material, for if, as the private
receive the properties of the Tourist World Service then located at the said
respondent, Tourist World Service, Inc., maintains, that the relation
branch office. To comply with the mandate of the Tourist World Service, the
between the parties was in the character of employer and employee, the
corporate secretary Gabino Canilao went over to the branch office, and,
courts would have been without jurisdiction to try the case, labor disputes
finding the premises locked, and, being unable to contact Lina Sevilla, he
being the exclusive domain of the Court of Industrial Relations, later, the
padlocked the premises on June 4, 1962 to protect the interests of the
Bureau Of Labor Relations, pursuant to statutes then in force.
Tourist World Service.
5. The records will show that the petitioner, Lina Sevilla, was not subject
3. When neither the appellant Lina Sevilla nor any of her employees could
to control by the private respondent Tourist World Service, Inc., either
enter the locked premises, a complaint was filed by the herein
as to the result of the enterprise or as to the means used in connection
appellants against the appellees with a prayer for the issuance of
therewith.
mandatory preliminary injunction. Both appellees answered with
a. In the first place, under the contract of lease covering the Tourist
counterclaims. For apparent lack of interest of the parties therein, the
Worlds Ermita office, she had bound herself in solidum as and for
trial court ordered the dismissal of the case without prejudice.
rental payments, an arrangement that would be like claims of a
4. The appellee Segundina Noguera sought reconsideration of the order
master-servant relationship. True the respondent Court would
dismissing her counterclaim which the court a quo, in an order dated June
later minimize her participation in the lease as one of mere
8, 1963, granted permitting her to present evidence in support of her
guaranty, that does not make her an employee of Tourist World,
counterclaim.
since in any case, a true employee cannot be made to part with his
5. Appellant Lina Sevilla refiled her case against the herein appellees and after
own money in pursuance of his employer's business, or otherwise,
the issues were joined, the reinstated counterclaim of Segundina Noguera
assume any liability thereof. In that event, the parties must be
and the new complaint of appellant Lina Sevilla were jointly heard
bound by some other relation, but certainly not employment.
following which the court a quo ordered both cases dismiss for lack of merit
b. In the second place, and as found by the Appellate Court, '[w]hen
the branch office was opened, the same was run by the herein
 PARTNERSHIP [1st SET]
26
(DIONNE) || D2014

appellant Lina O. Sevilla payable to Tourist World Service, Inc. by assumed a personal obligation for the operation thereof, holding herself
any airline for any fare brought in on the effort of Mrs. Lina Sevilla. solidarily liable for the payment of rentals. She continued the business,
Under these circumstances, it cannot be said that Sevilla was using her own name, after Tourist World had stopped further operations.
under the control of Tourist World Service, Inc. "as to the means Her interest, obviously, is not to the commissions she earned as a result of
used." Sevilla in pursuing the business, obviously relied on her her business transactions, but one that extends to the very subject matter of
own gifts and capabilities. the power of management delegated to her. It is an agency that, as we said,
6. It is further admitted that Sevilla was not in the company's payroll. For cannot be revoked at the pleasure of the principal. Accordingly, the
her efforts, she retained 4% in commissions from airline bookings, the revocation complained of should entitle the petitioner, Lina Sevilla, to
remaining 3% going to Tourist World. Unlike an employee then, who damages.
earns a fixed salary usually, she earned compensation in fluctuating
amounts depending on her booking successes. DISPOSITION: WHEREFORE, the Decision promulgated on January 23, 1975 as well
7. The fact that Sevilla had been designated 'branch manager" does not make as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is
her Tourist World's employee. As we said, employment is determined by hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service,
the right-of-control test and certain economic parameters. Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the
8. In rejecting Tourist World Service, Inc.'s arguments however, we are petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of
not, as a consequence, accepting Lina Sevilla's own, that is, that the P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for
parties had embarked on a joint venture or otherwise, a partnership. nominal and/or temperate damages.
And apparently, Sevilla herself did not recognize the existence of such
a relation. In her letter of November 28, 1961, she expressly 'concedes
your [Tourist World Service, Inc.'s] right to stop the operation of your VOTE: All concur
branch office in effect, accepting Tourist World Service, Inc.'s control over
the manner in which the business was run. A joint venture, including a PHILEX v. MINING CORP.
partnership, presupposes generally a of standing between the joint co-
venturers or partners, in which each party has an equal proprietary FACTS:
interest in the capital or property contributed and where each party
exercises equal rights in the conduct of the business. Petitioner Philex Mining Corp. entered into an agreement with Baguio Gold, where
9. Furthermore, the parties did not hold themselves out as partners, and the former agreed to manage the mining operations of the latter.
the building itself was embellished with the electric sign "Tourist
World Service, Inc. in lieu of a distinct partnership name. The agreement was evidenced by a Power of Attorney.
10. It is the Court's considered opinion, when the petitioner, Lina Sevilla,
agreed to (wo)man the private respondent, Tourist World Service, It was indicated in the said document, that Baguio Gold would
Inc.'s Ermita office, she must have done so pursuant to a contract of contribute P11M under its owner's account plus any of its income
agency. It is the essence of this contract that the agent renders services "in that is left in the project, in addition to its actual mining claim.
representation or on behalf of another. In the case at bar, Sevilla solicited
airline fares, but she did so for and on behalf of her principal, Tourist World Meanwhile, petitioner's contribution would consist of its
Service, Inc. As compensation, she received 4% of the proceeds in the expertise in the management and operation of mines, and of the
concept of commissions. And as we said, Sevilla herself based on her letter
manager's account which is comprised of P11M in funds.
of November 28, 1961, pre-assumed her principal's authority as owner of
the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that The compensation of the MANAGER shall be fifty per cent (50%)
the ties had contemplated a principal agent relationship, rather than a of the net profit of the project before income tax.
joint managament or a partnership.
11. But unlike simple grants of a power of attorney, the agency that we hereby The mining suffered serious loses which ended business of both parties evidenced by
declare to be compatible with the intent of the parties, cannot be revoked at their execution of a compromise agreement.
will. The reason is that it is one coupled with an interest, the agency having
been created for mutual interest, of the agent and the principal. It appears The CIR assessed Philex Mining for tax deficiencies. It stressed that Philex entered
that Lina Sevilla is a bona fide travel agent herself, and as such, she had into a partnership with Baguio Gold.
acquired an interest in the business entrusted to her. Moreover, she had
 PARTNERSHIP [1st SET]
27
(DIONNE) || D2014

Petitioner denied the allegations of the CIR and maintained that its advances of held that it may enter into a joint venture which is akin to a particular
money and property to Baguio Gold were in a nature of a loan as evidenced by the partnership:
compromise agreement.
o under Philippine law, a joint venture is a form of partnership and
ISSUE:
should be governed by the law of partnerships

WON the parties entered into a contract of agency coupled with an interest which is
not revocable at will
II. KINDS OF PARTNERSHIP
HELD: A. UNIVERSAL

No. An examination of the Power of Attorney reveals that a partnership or joint B. PARTICULAR
venture was indeed intended by the parties. C. GENERAL

In an agency coupled with interest, it is the agency that cannot be revoked D. LIMITED
or withdrawn by the principal due to an interest of a third party that E. AT WILL
depends upon it, or the mutual interest of both principal and agent. In this
case, the non-revocation or non-withdrawal under paragraph 5(c) applies F. FOR A TERM OR UNDERTAKING
to the advances made by petitioner who is supposedly the agent and not the
G. COMMERCIAL
principal under the contract. Thus, it cannot be inferred from the
stipulation that the parties relation under the agreement is one of agency H. PROFESSIONAL
coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that I. BY ESTOPPEL APPARENT
the relationship of the parties was one of agency and not a partnership. ORTEGA v. CA
Although the said provision states that this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS is (err walang nakaassign ditto?)
outstanding, inclusive of the MANAGERS account, it does not necessarily
follow that the parties entered into an agency contract coupled with an III. KINDS OF PARTNER
interest that cannot be withdrawn by Baguio Gold.
The main object of the Power of Attorney was not to confer a power in A. INDUSTRIAL
favor of petitioner to contract with third persons on behalf of Baguio Gold
B. CAPITALIST
but to create a business relationship between petitioner and Baguio Gold, in
which the former was to manage and operate the latters mine through the C. MANAGING
parties mutual contribution of material resources and industry. The
D. BY ESTOPPEL
essence of an agency, even one that is coupled with interest, is the agents
ability to represent his principal and bring about business relations
between the latter and third persons.
The strongest indication that petitioner was a partner in the Sto. Nino Mine
is the fact that it would receive 50% of the net profits as compensation
under paragraph 12 of the agreement. The entirety of the parties
contractual stipulations simply leads to no other conclusion than that
petitioners compensation is actually its share in the income of the joint
venture. Article 1769 (4) of the Civil Code explicitly provides that the
receipt by a person of a share in the profits of a business is prima facie
evidence that he is a partner in the business.
While a corporation, like the petitioner, cannot generally enter into a
contract of partnership unless authorized by law or its charter, it has been