CIR VS.
SUTER “A husband and a wife may not enter
FACTS:
A limited partnership named William J.
Suter 'Morcoin' Co., Ltd was formed 30
September 1947 by William J. Suter as the
general partner, and Julia Spirig and Gustav
Carlson. They contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00. it was
also duly registered with the SEC. The firm
engaged, among other activities, in the
importation, marketing, distribution and
operation of automatic phonographs, radios,
television sets and amusement machines, their
parts and accessories. On 1948 Suter and Spirig
got married and in effect Carlson sold his share
to the couple, the same was also registered with
the SEC.
The limited partnership had been filing
its income tax returns as a corporation, without
objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959
when the latter, in an assessment, consolidated
the income of the firm and the individual
incomes of the partners-spouses Suter and
Spirig resulting in a determination of a
deficiency income tax against respondent Suter
in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
ISSUE:
Whether or not the limited partnership
has been dissolved after the marriage of Suter
and Spirig and buying the interest of limited
partner Carlson.
RULING:
No, the limited partnership was not
dissolved.
into a contract of general co-partnership,
because under the Civil Code, which applies in
the absence of express provision in the Code of
Commerce, persons prohibited from making
donations to each other are prohibited from
entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of
partners necessarily brings about the
dissolution of a pre-existing partnership. “
What the law prohibits was when the
spouses entered into a universal partnership. In
the case at bar, the partnership was a particular
type of partnership.
Lim Tong Lim vs. Philippine Fishing Gears
Industries Inc.
Business Organization – Partnership, Agency,
Trust – Corporation by Estoppel
Facts:
It was established that Lim Tong Lim
requested Peter Yao to engage in commercial
fishing with him and one Antonio Chua. The
three agreed to purchase two fishing boats but
since they do not have the money they
borrowed from one Jesus Lim (brother of Lim
Tong Lim). They again borrowed money and
they agreed to purchase fishing nets and other
fishing equipments. Now, Yao and Chua
represented themselves as acting in behalf of
“Ocean Quest Fishing Corporation” (OQFC) they
contracted with Philippine Fishing Gear
Industries (PFGI) for the purchase of fishing nets
amounting to more than P500k.
They were however unable to pay PFGI
and so they were sued in their own names
because apparently OQFC is a non-existent
corporation. Chua admitted liability and asked
for some time to pay. Yao waived his rights. Lim
Tong Lim however argued that he’s not liable
because he was not aware that Chua and Yao
represented themselves as a corporation; that
the two acted without his knowledge and
consent.
ISSUE
Whether or not Lim Tong Lim is liable.
HELD:
Yes. From the factual findings of both
lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business,
which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus
Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the
loan with the proceeds of the sale of the boats,
and to divide equally among them the excess or
loss. These boats, the purchase and the repair
of which were financed with borrowed money,
fell under the term “common fund” under
Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an
intangible like credit or industry. That the
parties agreed that any loss or profit from the
sale and operation of the boats would be
divided equally among them also shows that
they had indeed formed a partnership.
Lim Tong Lim cannot argue that the
principle of corporation by estoppels can only
be imputed to Yao and Chua. Unquestionably,
Lim Tong Lim benefited from the use of the nets
found in his boats, the boat which has earlier
been proven to be an asset of the partnership.
Lim, Chua and Yao decided to form a
corporation. Although it was never legally
formed for unknown reasons, this fact alone
does not preclude the liabilities of the three as
contracting parties in representation of it.
Clearly, under the law on estoppel, those acting
on behalf of a corporation and those benefited
by it, knowing it to be without valid existence,
are held liable as general partners.
Ortega vs. CA
FACTS:
On December 19, 1980, respondent
Misa associated himself together, as senior
partner with petitioners Ortega, del Castillo, Jr.,
and Bacorro, as junior partners. On Feb. 17,
1988, respondent Misa wrote a letter stating
that he is withdrawing and retiring from the
firm and asking for a meeting with the
petitioners to discuss the mechanics of the
liquidation. On June 30, 1988, petitioner filed a
petition to the Commision's Securities
Investigation and Clearing Department for the
formal dissolution and liquidation of the
partnership. On March 31, 1989, the hearing
officer rendered a decision ruling that the
withdrawal of the petitioner has not dissolved
the partnership. On appeal, the SEC en banc
reversed the decision and was affirmed by the
Court of Appeals. Hence, this petition.
ISSUE:
Whether or not the Court of Appeals
has erred in holding that the partnership is a
partnership at will and whether or not the Court
of Appeals has erred in holding that the
withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith
HELD:
 No. The SC upheld the ruling of the CA
regarding the nature of the partnership. The SC
further stated that a partnership that does not
fix its term is a partnership at will. The birth and
life of a partnership at will is predicated on the
mutual desire and consent of the partners. The
right to choose with whom a person wishes to
associate himself is the very foundation and
essence of that partnership. Its continued
existence is, in turn, dependent on the
constancy of that mutual resolve, along with
each partner's capability to give it, and the
absence of a cause for dissolution provided by
the law itself. Verily, any one of the partners
may, at his sole pleasure, dictate a dissolution of
the partnership at will. He must, however, act in
good faith, not that the attendance of bad faith
can prevent the dissolution of the partnership
but that it can result in a liability for damages.
Woodhouse vs. Halili
G.R. No. L-4811 July 31, 1953
Doctrine: Fraud
FACTS:
On November 29, 1947, plaintiff
Woodhouse entered into a written agreement
with defendant Halili stating among others that:
1) that they shall organize a partnership for the
bottling and distribution of Mission soft drinks,
plaintiff to act as industrial partner or manager,
and the defendant as a capitalist, furnishing the
capital necessary therefore; 2) that plaintiff was
to secure the Mission Soft Drinks franchise for
and in behalf of the proposed partnership and
3) that the plaintiff was to receive 30 per cent of
the net profits of the business.
Prior to entering into this agreement,
plaintiff had informed the Mission Dry
Corporation of Los Angeles, California, that he
had interested a prominent financier (defendant
herein) in the business, who was willing to
invest half a milliondollars in the bottling and
distribution of the said beverages, and
requested, in order that he may close the deal
with him, that the right to bottle and distribute
be granted him for a limited time under the
condition that it will finally be transferred to the
corporation. Pursuant to this request, plaintiff
was given “a thirty days’ option on exclusive
bottling and distribution rights for the
Philippines”. The contract was finally signed by
plaintiff on December 3, 1947.
When the bottling plant was already in
operation, plaintiff demanded of defendant that
the partnership papers be executed. Defendant
Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of
the contract of partnership; 2) accounting of
profits and 3)share thereof of 30 percent with
4) damages in the amount of P200,000. The
Defendant on the other hand claims that: 1) the
defendant’s consent to the agreement, was
secured by the representation of plaintiff that
he was the owner, or was about to become
owner of an exclusive bottling franchise, which
representation was false, and that plaintiff did
not secure the franchise but was given to
defendant himself 2) that defendant did not fail
to carry out his undertakings, but that it was
plaintiff who failed and 3)that plaintiff agreed to
contribute to the exclusive franchise to the
partnership, but plaintiff failed to do so with a
4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits
and to pay plaintiff 15 % of the profits and that
the 2) execution of contract cannot be enforced
upon parties. Lastly, the 3) fraud wasn’t proved
ISSUES:
1. WON plaintiff falsely represented
that he had an exclusive franchise to bottle
Mission beverages
2. WON false representation, if it
existed, annuls the agreement to form the
partnership
HELD:
1. Yes. Plaintiff did make false
representations and this can be seen through
his letters to Mission Dry Corporation asking for
the latter to grant him temporary franchise so
that he could settle the agreement with
defendant. The trial court reasoned, and the
plaintiff on this appeal argues, that plaintiff only
undertook in the agreement “to secure the
Mission Dry franchise for and in behalf of the
proposed partnership.” The existence of this
provision in the final agreement does not
militate against plaintiff having represented that
he had the exclusive franchise; it rather
strengthens belief that he did actually make the
representation. The defendant believed, or was
made to believe, that plaintiff was the grantee
of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be
transferred to the name of the partnership, and
that, upon its dissolution or termination, the
same shall be reassigned to the plaintiff.
Again, the immediate reaction of
defendant, when in California he learned that
plaintiff did not have the exclusive franchise,
was to reduce, as he himself testified, plaintiff’s
participation in the net profits to one half of
that agreed upon. He could not have had such a
feeling had not plaintiff actually made him
believe that he(plaintiff) was the exclusive
grantee of the franchise.
2. No. In consequence, article 1270 of
the Spanish Civil Code distinguishes two kinds of
(civil) fraud, the causal fraud, which may be
ground for the annulment of a contract, and the
incidental deceit, which only renders the party
who employs it liable for damages only. The
Supreme Court has held that in order that fraud
may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo
incidente) inducement to the making of the
contract.
The record abounds with circumstances
indicative of the fact that the principal
consideration, the main cause that induced
defendant to enter into the partnership
agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle
and distribute for the defendant or for the
partnership. The original draft prepared by
defendant’s counsel was to the effect that
plaintiff obligated himself to secure a franchise
for the defendant. But if plaintiff was guilty of a
false representation, this was not the causal
consideration, or the principal inducement, that
led plaintiff to enter into the partnership
agreement. On the other hand, this supposed
ownership of an exclusive franchise was actually
the consideration or price plaintiff gave in
exchange for the share of 30 per cent granted
him in the net profits of the partnership
business. Defendant agreed to give plaintiff 30
per cent share in the net profits because he was
transferring his exclusive franchise to the
partnership.
Having arrived at the conclusion that
the contract cannot be declared null and void,
may the agreement be carried out or executed?
The SC finds no merit in the claim of plaintiff
that the partnership was already a fait accompli
from the time of the operation of the plant, as it
is evident from the very language of the
agreement that the parties intended that the
execution of the agreement to form a
partnership was to be carried out at a later
date. , The defendant may not be compelled
against his will to carry out the agreement nor
execute the partnership papers. The law
recognizes the individual’s freedom or liberty to
do an act he has promised to do, or not to do it,
as he pleases.
Dispostive Portion:
With modification above indicated, the
judgment appealed from is hereby affirmed.
Aguila vs. CA
Business Organization – Partnership, Agency,
Trust – Identity Separate and Distinct
FACTS:
In April 1991, the spouses Ruben and
Felicidad Abrogar entered into a loan
agreement with a lending firm called A.C. Aguila
& Sons, Co., a partnership. The loan was for
P200k. To secure the loan, the spouses
mortgaged their house and lot located in a
subdivision. The terms of the loan further
stipulates that in case of non-payment, the
property shall be automatically appropriated to
the partnership and a deed of sale be readily
executed in favor of the partnership. She does
have a 90 day redemption period.
Ruben died, and Felicidad failed to
make payment. She refused to turn over the
property and so the firm filed an ejectment case
against her (wherein she lost). She also failed to
redeem the property within the period
stipulated. She then filed a civil case against
Alfredo Aguila, manager of the firm, seeking for
the declaration of nullity of the deed of sale.
The RTC retained the validity of the deed of
sale. The Court of Appeals reversed the RTC.
The CA ruled that the sale is void for it is a
pactum commissorium sale which is prohibited
under Art. 2088 of the Civil Code (note the
disparity of the purchase price, which is the
loan amount, with the actual value of the
property which is after all located in a
subdivision).
ISSUE:
Whether or not the case filed by
Felicidad shall prosper.
HELD:
No. Unfortunately, the civil case was
filed not against the real party in interest. As
pointed out by Aguila, he is not the real party in
interest but rather it was the partnership A.C.
Aguila & Sons, Co. The Rules of Court provide
that “every action must be prosecuted and
defended in the name of the real party in
interest.” A real party in interest is one who
would be benefited or injured by the judgment,
or who is entitled to the avails of the suit. Any
decision rendered against a person who is not a
real party in interest in the case cannot be
executed. Hence, a complaint filed against such
a person should be dismissed for failure to state
a cause of action, as in the case at bar.
Under Art. 1768 of the Civil Code, a
partnership “has a juridical personality separate
and distinct from that of each of the partners.”
The partners cannot be held liable for the
obligations of the partnership unless it is shown
that the legal fiction of a different juridical
personality is being used for fraudulent, unfair,
or illegal purposes. In this case, Felicidad has
not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover,
the title to the subject property is in the name
of A.C. Aguila & Sons, Co. It is the partnership,
not its officers or agents, which should be
impleaded in any litigation involving property
registered in its name. A violation of this rule
will result in the dismissal of the complaint.
ANG PUE & COMPANY, ET AL., v SECRETARY OF
COMMERCE AND INDUSTRY
Facts:
On May 1, 1953, Ang Pue and Tan Siong,
both Chinese citizens, organized the partnership
Ang Pue & Company for a term of five years.
Prior to the expiration of the five-year term, the
partners amended the original articles of
partnership so as to extend the term of life of
the partnership to another five years. However,
when the amended articles were presented for
registration in the Office of the SEC, registration
was refused upon the ground that the extension
was in violation of RA 1180 –an act prohibiting
the extension of the term of a partnership not
wholly formed by Filipinos.
Law:
On June 19, 1954 Republic Act No. 1180
was enacted to regulate the retail business. It
provided, among other things, that, after its
enactment, a partnership not wholly formed by
Filipinos could continue to engage in the retail
business until the expiration of its term.
Ruling:
To organize a corporation or a
partnership that could claim a juridical
personality of its own and transact business as
such, is not a matter of absolute right but a
privilege which may be enjoyed only under such
terms as the State may deem necessary to
impose.
Afisco Insurance Corp. vs. CA
Facts:
AFISCO and 40 other non-life insurance
companies entered into a Quota Share
Reinsurance Treaties with Munich, a non-
resident foreign insurance corporation, to cover
for All Risk Insurance Policies over machinery
erection, breakdown and boiler explosion. The
treaties required petitioners to form a pool, to
which AFISCO and the others complied. On April
14, 1976, the pool of machinery insurers
submitted a financial statement and filed an
“Information Return of Organization Exempt
from Income Tax” for the year ending 1975, on
the basis of which, it was assessed by the
commissioner of Internal Revenue deficiency
corporate taxes. A protest was filed but denied
by the CIR.
Petitioners contend that they cannot be
taxed as a corporation, because (a) the
reinsurance policies were written by them
individually and separately, (b) their liability was
limited to the extent of their allocated share in
the original risks insured and not solidary, (c)
there was no common fund, (d) the executive
board of the pool did not exercise control and
management of its funds, unlike the board of a
corporation, (e) the pool or clearing house was
not and could not possibly have engaged in the
business of reinsurance from which it could
have derived income for itself. They further by the said companies. Clearly, there is no
contend that remittances to Munich are not double taxation.
dividends and to subject it to tax would be
As to the argument on prescription, the
tantamount to an illegal double taxation, as it
would result to taxing the same premium prescriptive period was totaled under the
Section 333 of the NIRC, because the taxpayer
income twice in the hands of the same taxpayer.
Finally, petitioners argue that the government’s cannot be located at the address given in the
information return filed and for which reason
right to assess and collect the subject
Information Return was filed by the pool on there was delay in sending the assessment.
Further, the law clearly states that the
April 14, 1976. On the basis of this return, the
BIR telephoned petitioners on November 11, prescriptive period will be suspended only if the
taxpayer informs the CIR of any change in the
1981 to give them notice of its letter of
assessment dated March 27, 1981. Thus, the address.
petitioners contend that the five-year
prescriptive period then provided in the NIRC
had already lapsed, and that the internal Heirs of Tan Eng Kee vs. CA
revenue commissioner was already barred by
Business Organization – Partnership, Agency,
prescription from making an assessment.
Trust – Periodic Accounting – Profit Sharing
Held:
Facts:
A pool is considered a corporation for
Benguet Lumber has been around even
taxation purposes. Citing the case of Evangelista
before World War II but during the war, its
v. CIR, the court held that Sec. 24 of the NIRC
stocks were confiscated by the Japanese. After
covered these unregistered partnerships and
the war, the brothers Tan Eng Lay and Tan Eng
even associations or joint accounts, which had
Kee pooled their resources in order to revive
no legal personalities apart from individual
the business. In 1981, Tan Eng Lay caused the
members. Further, the pool is a partnership as
conversion of Benguet Lumber into a
evidence by a common fund, the existence of
corporation called Benguet Lumber and
executive board and the fact that while the pool
Hardware Company, with him and his family as
is not in itself, a reinsurer and does not issue
the incorporators. In 1983, Tan Eng Kee died.
any insurance policy, its work is indispensable,
Thereafter, the heirs of Tan Eng Kee demanded
beneficial and economically useful to the
for an accounting and the liquidation of the
business of the ceding companies and Munich,
partnership.
because without it they would not have
received their premiums. Tan Eng Lay denied that there was a
partnership between him and his brother. He
As to the claim of double taxation, the
said that Tan Eng Kee was merely an employee
pool is a taxable entity distinct from the
of Benguet Lumber. He showed evidence
individual corporate entities of the ceding
consisting of Tan Eng Kee’s payroll; his SSS as an
companies. The tax on its income is obviously
employee and Benguet Lumber being the
different from the tax on the dividends received
employee. As a result of the presentation of
said evidence, the heirs of Tan Eng Kee filed a
criminal case against Tan Eng Lay for allegedly
fabricating those evidence. Said criminal case
was however dismissed for lack of evidence.
ISSUE:
Whether or not Tan Eng Kee is a
partner.
HELD:
No. There was no certificate of
partnership between the brothers. The heirs
were not able to show that there was an
agreement between the brothers as to the
sharing of profits. All they presented were
circumstantial evidence which in no way proved
partnership.
It is obvious that there was no partnership
whatsoever. Except for a firm name, there was
no firm account, no firm letterheads submitted
as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time
fixed for the duration of the partnership. There
was even no attempt to submit an accounting
corresponding to the period after the war until
Kee’s death in 1984. It had no business book,
no written account nor any memorandum for
that matter and no license mentioning the
existence of a partnership.
In fact, Tan Eng Lay was able to show
evidence that Benguet Lumber is a sole
proprietorship. He registered the same as such
in 1954; that Kee was just an employee based
on the latter’s payroll and SSS coverage, and
other records indicating Tan Eng Lay as the
proprietor.
Also, the business definitely amounted
to more P3,000.00 hence if there was a
partnership, it should have been made in a
public instrument.
But the business was started after the
war (1945) prior to the publication of the New
Civil Code in 1950?
Even so, nothing prevented the parties
from complying with this requirement.
Also, the Supreme Court emphasized
that for 40 years, Tan Eng Kee never asked for
an accounting. The essence of a partnership is
that the partners share in the profits and losses.
Each has the right to demand an accounting as
long as the partnership exists. Even if it can be
speculated that a scenario wherein “if excellent
relations exist among the partners at the start
of the business and all the partners are more
interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing
in the profits is perfectly plausible.” But in the
situation in the case at bar, the deferment, if
any, had gone on too long to be plausible. A
person is presumed to take ordinary care of his
concerns. A demand for periodic accounting is
evidence of a partnership which Kee never did.
The Supreme Court also noted:
In determining whether a partnership
exists, these rules shall apply:
(1) Except as provided by Article 1825,
persons who are not partners as to each other
are not partners as to third persons;
(2) Co-ownership or co-possession does
not of itself establish a partnership, whether
such co-owners or co-possessors do or do not
share any profits made by the use of the
property;
 (3) The sharing of gross returns does
not of itself establish a partnership, whether or
not the persons sharing them have a joint or
common right or interest in any property which
the returns are derived;
(4) The receipt by a person of a share of
the profits of a business is prima facie evidence
that he is a partner in the business, but no such
inference shall be drawn if such profits were
received in payment:
(a) As a debt by installment or
otherwise;
(b) As wages of an employee or rent to
a landlord;
(c) As an annuity to a widow or
representative of a deceased partner;
(d) As interest on a loan, though the
amount of payment vary with the profits of the
business;
(e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise.
Pascual and Dragon v. CIR
G.R. No. 78133, October 18, 1988
[GANCAYCO, J.]
FACTS:
Petitioners bought two (2) parcels of
land and a year after, they bought another three
(3) parcels of land. Petitioners subsequently
sold the said lots in 1968 and 1970, and realized
net profits. The corresponding capital gains
taxes were paid by petitioners in 1973 and 1974
by availing of the tax amnesties granted in the
said years. However, the Acting BIR
Commissioner assessed and required
Petitioners to pay a total amount of
P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970.
Petitioners protested the said assessment
asserting that they had availed of tax amnesties
way back in 1974. In a reply, respondent
Commissioner informed petitioners that in the
years 1968 and 1970, petitioners as co-owners
in the real estate transactions formed an
unregistered partnership or joint venture
taxable as a corporation under Section 20(b)
and its income was subject to the taxes
prescribed under Section 24, both of the
National Internal Revenue Code that the
unregistered partnership was subject to
corporate income tax as distinguished from
profits derived from the partnership by them
which is subject to individual income tax; and
that the availment of tax amnesty under P.D.
No. 23, as amended, by petitioners relieved
petitioners of their individual income tax
liabilities but did not relieve them from the tax
liability of the unregistered partnership. Hence,
the petitioners were required to pay the
deficiency income tax assessed.
ISSUE:
Whether the Petitioners should be
treated as an unregistered partnership or a co-
ownership for the purposes of income tax.
RULING:
The Petitioners are simply under the
regime of co-ownership and not under
unregistered partnership.
By the contract of partnership two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with
the intention of dividing the profits among
themselves (Art. 1767, Civil Code of the
Philippines). In the present case, there is no
evidence that petitioners entered into an
agreement to contribute money, property or
industry to a common fund, and that they
intended to divide the profits among
themselves. The sharing of returns does not in
itself establish a partnership whether or not the
persons sharing therein have a joint or common
right or interest in the property. There must be
a clear intent to form a partnership, the
existence of a juridical personality different
from the individual partners, and the freedom
of each party to transfer or assign the whole
property. Hence, there is no adequate basis to
support the proposition that they thereby
formed an unregistered partnership. The two
isolated transactions whereby they purchased
properties and sold the same a few years
thereafter did not thereby make them partners.
They shared in the gross profits as co- owners
and paid their capital gains taxes on their net
profits and availed of the tax amnesty thereby.
Under the circumstances, they cannot be
considered to have formed an unregistered
partnership which is thereby liable for corporate
income tax, as the respondent commissioner
proposes.
SARDANE VS. COURT OF APPEALS and Romeo
J. Acojedo
FACTS:
Petitioner Sardane is the owner of a
Sardane Trucking Services. One day Sardane
borrowed money from Acojedo by making
promises and issuing several promissory notes.
On the due date, Acojedo wanted his money
back but instead of paying Sardane apologized
for his failure to pay on time, and he promised
Acojedo that he would pay him next time. After
so many failed attempts to collect his money –
Acojedo got mad and finally decided to seek the
intervention of the court. Now after so many
failed attempts to collect the promised
payment, Mr. Acojedo (Private Respondent),
with so much hate on his heart, finally filed a
collection case against Sardane. Even during the
scheduled date of the trial, Sardane, as usual he
did not show up. On motion by the petitioner
(herein private respondent), the Court issued an
order declaring Sardane in default and
eventually after presentation of evidence ex
parte, the court rendered judgment by default
in favor of the petitioner. Sardane then
appealed to the CFI, and he claimed that the
promissory notes were his contribution to the
partnership; and that there is no contract of
loan; thus he is not indebted to Acojedo. The
CFI, believing the arguments of Sardane, ruled
on his favor thereby reversing the decision of
the lower court by dismissing the complaint and
ordered the plaintiff-appellee Acojedo to pay
said defendant-appellant P500.00 for moral
damages
ISSUE:
Whether or not a partnership existed?
HELD:
NONE. The fact that he had received
50% of the net profits does not conclusively
establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil
Code is explicit that while the receipt by a
person of a share of the profits of a business is
prima facie evidence that he is a partner in the
business, no such inference shall be drawn if
such profits were received in payment as wages
of an employee. Furthermore, herein petitioner
had no voice in the management of the affairs
of the basnig. Under similar facts, this Court in
the early case of Fortis vs. Gutierrez Hermanos,
denied the claim of the plaintiff therein that he
was a partner in the business of the defendant.
The same rule was reiterated in Bastida vs.
Menzi & Co., Inc., et al. which involved the same
factual and legal milieu.
DELUAO v. CASTEEL
G.R. No. L-21906; December 24, 1968
Ponente: J. Castro
FACTS:
In 1940 Nicanor Casteel unsuccessfully
registered a fishpond in a big tract of swampy
land, 178.76 hectares, in the then sitio of
Malalag, municipality of Padada, Davao for 3
consecutive times because the Bureau of
Fisheries did not act upon his previous
applications.
Despite the said rejection, Casteel did
not lose interest. Because of the threat poised
upon his position by the other applicants who
entered upon and spread themselves within the
area, Casteel realized the urgent necessity of
expanding his occupation thereof by
constructing dikes and cultivating marketable
fishes. But lacking financial resources at that
time, he sought financial aid from his uncle
Felipe Deluao.
Moreover, upon learning that portions
of the area applied for by him were already
occupied by rival applicants, Casteel
immediately filed a protest. Consequently, two
administrative cases ensued involving the area
in question.
However, despite the finding made in
the investigation of the above administrative
cases, the Director of Fisheries nevertheless
rejected Casteel's application on October 25,
1949, required him to remove all the
improvements which he had introduced on the
land, and ordered that the land be leased
through public auction
On November 25, 1949 Inocencia
Deluao (wife of Felipe Deluao) as party of the
first part, and Nicanor Casteel as party of the
second part, executed a contract —
denominated a "contract of service". On the
same date the above contract was entered into,
Inocencia Deluao executed a special power of
attorney in favor of Jesus Donesa
On November 29, 1949 the Director of
Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this
rejection, Deluao reiterated his claim over the
same area in the two administrative cases and
asked for reinvestigation of the application of
Nicanor Casteel over the subject fishpond.
The Secretary of Agriculture and Natural
Resources rendered a decision ordering Casteel
to be reinstated in the area and that he shall
pay for the improvement made thereupon.
Sometime in January 1951 Nicanor Casteel
forbade Inocencia Deluao from further
administering the fishpond, and ejected the
latter's representative (encargado), Jesus
Donesa, from the premises.
ISSUE:
 Whether the reinstatement of Casteel
over the subject land constitute a dissolution of
the partnership between him and Deluao

HELD:

Yes, the reinstatement of Casteel

dissolved his partnership with Deluao.

The Supreme Court ruled that the

arrangement under the so-called "contract of
service" continued until the decision both dated
Sept. 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR
Cases 353 and 353-B.

This development, by itself, brought

about the dissolution of the partnership. Since
the partnership had for its object the division
into two equal parts of the fishpond between
the appellees and the appellant after it shall
have been awarded to the latter, and therefore
it envisaged the unauthorized transfer of one
half thereof to parties other than the applicant
Casteel, it was dissolved by the approval of his
application and the award to him of the
fishpond.

The approval was an event which made

it unlawful for the members to carry it on in
partnership. Moreover, subsequent events
likewise reveal the intent of both parties to
terminate the partnership because each refused
to share the fishpond with the other.