Lim Tong Lim vs Philippine Fishing Gear Industries, among them the excess or loss.
ss or loss. These boats, the purchase
Inc.
Business Organization – Partnership, Agency, Trust –
Corporation by Estoppel
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
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.
Island Sales v. United 65 SCRA 554
DOCTRINE: Condonation by creditor of share in
partnership debt of one partner does not increase pro rata
liability of other partners.
FACTS:
The defendant company ( UNITED PIONEERS
GENERAL CONSTRUCTION COMPANY ET .AL ), a
general partnership duly registered under the laws of the
Philippines, purchased from theplaintiff ( ISLAND
SALES, INC) a motor vehicle on installment basis and for
this purpose executed apromissory note for P9,440.00,
payable in twelve (12) equal monthly installments of
P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of
every month thereafter, until fully paid, with the condition
that failure to pay any of said installments asthey fall due
would render the whole unpaid balance immediately due
and demandable.
Having failed to receive the installment due on July 22,
1961, the plaintiff sued the defendant company for the
unpaid balance amounting to P7,119.07. Benjamin C.
Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
Lumauig, and Augusto Palisoc were included as co-
defendants in their capacity as general partners of the
defendant company.
Daniel A. Guizona failed to file an answer and was
consequently declared in default. Subsequently, on
motion of the plaintiff, the complaint was dismissed
insofar as the defendant Romulo B. Lumauig is concerned.
When the case was called for hearing, the defendants and
their counsels failed to appear notwithstanding the notices
sent to them. Consequently, the trial court authorized the
plaintiff to present its evidence ex-parte , after which the
trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved
to reconsider the decision claiming that since there are five
(5) general partners, the joint and subsidiary liability of
each partner should notexceed one-fifth (1/5) of the
obligations of the defendant company. But the trial court
denied the said motion notwithstanding the conformity of
the plaintiff to limit the liability of the defendants Daco
and Sim to only one-fifth (1/5 ) of the obligations of the
defendant company.Hence, this appeal.
ISSUE: Whether the condonation of a partner’s
share in the debts of the company increases the remaining
partners’ liability?
RULING:
No. In the instant case, there were five (5) general partners
when the promissory note in question was executed for
and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin
C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the
obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not unmake
the said Lumauig as a general partner in the defendant
company. In so moving to dismiss the complaint, the
plaintiff merely condoned Lumauig's individual liability
to the plaintiff.
RATIO: Article 1816 of the Civil Code provides:
“All partners including industrial ones, shall be liable pro
rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may
be entered into in the name and for the account of the
partnership, under its signature and by a person
authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform”
Elmo Muñasque vs CA
Facts:
Elmo Muñasque, in behalf of “Galan and Muñasque”
partnership as Contractor, entered into a written contract
with Tropical Commercial Co., through its branch
manager Ramon Pons, for remodelling of Tropical’s
building in Cebu. The consideration for the entire services
is P25,000 to be paid: 30% upon signing of contract, and
balance on 3 equal instalments of P6,000 every 15working
days.
First payment of check worth P7,000 was payable to
Muñasque, who indorsed it to Galan for purposes of
depositing the amount and paying the materials already
used. But since Galan allegedly misappropriated
P6,183.37 of the check for personal use, Muñasque refused
to indorse the second check worth P6,000. Galan then
informed Tropical of the “misunderstanding” between
him and Muñasque and this prompted Tropical to change
the payee of the second check from Muñasque to “Galan
and Associates” (the duly registered name of Galan and
Muñasque partnership). Despite the misappropriation,
Muñasque alone was able to finish the project. The two
remaining checks were properly issued to Muñasque.
Muñasque filed a complaint for payment of sum of money
plus damages against Galan, Tropical and Pons for the
amount covered by the first and second checks. Cebu
Southern Hardware Co and Blue Diamond Glass Palace
were allowed as intervenors having legal interest claiming
against Muñasue and Galan for materials used.
TC:
- Muñasque and Pons jointly and severally liable to
intervenors
- Tropical and Pons absolved
CA affirmed with modification:
- Muñasque and Pons jointly liable to intervenors
Issue:
1. W/N Muñasque and Galan are partners?
2. W/N payment made by Tropical to Galan was
“good payment”?
3. W/N Galan should shoulder exclusively the
amounts payable to the intervenors (granting he
misappropriated the amount from the two checks)?
Held:
yes-yes-no!
 1. YES. Tropical had every right to presume the
existence of the partnership:
a. Contract states that agreement was entered into
by “Galan and Muñasque”
b. The first check issue in the name of Muñasque
was indorsed to Galan
The relationship was made to appear as a
partnership.
2. YES. Muñasque and Galan were partners when the
debts to the intervenors were incurred, hence, they
are also liable to third persons who extended credit
to their partnership.
There is a general presumption that each individual
partner is an authorized agent for the firm and that
he has authority to bind the firm in carrying on the
partnership transactions. The presumption is
sufficient to permit third persons to hold the firm
liable on transactions entered into by one of the
members of the firm acting apparently in its behalf
and within the scope of his authority
3. NO. Article 1816 BUT construed together with
Article 1824.
Art. 1816. “All partners, including industrial ones,
shall be liable pro rata x x x for the contracts which
may be entered into the name and for the account
of the partnership, under its signature and by a
person authorized x x x”
Art. 1824. “All partners are liable solidarily with the
partnership for everything chargeable to the
partnership under Articles 1822 and 1823”
Art. 1822. “Where, by any wrongful act or omission
of any partner acting in the ordinary course of the
business x x x or with the authority of his co-
partners, loss or injury is caused to any person x x
x”
Art. 1823. “The partnership is bound to make good
the loss:
(1) Where one partner acting within the
scope of his apparent authority receives
money or property of a third person and
misapplies it, and
(2) Where the partnership in the course of its
business receives money or property of a
third person x x x is misapplied by any
partner while it is in the custody of the
partnership.”
GR: In transactions entered into by the partnership,
the liability of the partners is merely joint
Exception: In transactions involving third persons
falling under Articles 1822 and 1823, such third
person may hold any partner solidarily liable for
the whole obligation with the partnership.
 Reason for exception: the law protects him, who in
good faith relied upon the authority if a partner,
whether real or apparent.
However, as between Muñasque and Galan, justice
also dictates reimbursement in favour of Muñasque
as Galan was proven to be in bad faith in his
dealings with his partner.
Deluao VS Casteel (Property Rights of Partners)
- Casteel was the original occupant and applicant of
a fishpond area since before the last World War. He
wanted to preclude subsequent applicants from
entering and spreading themselves within the area
by expanding his occupation thereof by the
construction of dikes and the cultivation of
marketable fishes.
- Thus, he borrowed P27, 000 from the Deluaos to
finance needed improvements for the fishpond,
and was compelled by force of this circumstance to
enter into the contract of partnership, with an
agreement to divide the fishpond after the award.
Eventually, Casteel administered the said property
and single-handedly opposed rival applicants who
occupied portions of the fishpond area. He
relentlessly pursued his claim to the said area up to
the Office of the DANR Secretary, until it was
finally awarded to him.
Issue: WON the parties can now validly divide the said
fishpond as agreed upon by them? NO.
Ruling:
- Spouses Deluaos’ statement that the beneficial right
over the fishpond in question is the "specific
partnership property" contemplated by art. 1811 of
the Civil Code is incorrect. A reading of the said
provision will show that what is meant is tangible
property, such as a car, truck or a piece of land, but
not an intangible thing such as the beneficial right
to a fishpond. If what they have in mind is the
fishpond itself, they are grossly in error. A fishpond
of the public domain can never be considered a
specific partnership property because only its use
and enjoyment — never its title or ownership — is
granted to specific private persons.
- Since we held as illegal the second part of the
contract of partnership between the parties to
divide the fishpond between them after the award,
a fortiori, no rights or obligations could have arisen
therefrom. Inescapably, no trust could have
resulted because trust is founded on equity and can
never result from an act violative of the law. Art.
1452 of the Civil Code does not support the
appellees' stand because it contemplates an
agreement between two or more persons to
purchase property — capable of private ownership
— the legal title of which is to be taken in the name
of one of them for the benefit of all. In the case at
bar, the parties did not agree to purchase the
 fishpond, and even if they did, such is prohibited
by law, a fishpond of the public domain not being
susceptible of private ownership.
- It must be observed that, despite the decisions of
the DANR Secretary in DANR cases 353 and 353-B
awarding the area to Casteel, and despite the
latter's proposal that they divide the fishpond
between them, the Deluaos unequivocally
expressed in their aforequoted letter their decision
not to share the fishpond with Casteel. This
produced the dissolution of the entire contract of
partnership (to jointly administer and to divide the
fishpond after the award) between the parties, not
to mention its automatic dissolution for being
contrary to law.
- Pettioner’s final proposition that only by giving
effect to the confirmed intention of the parties may
the cause of equity and justice be served, we must
state that since the contract of service is contrary to
law and, therefore, null and void, it is not and can
never be considered as the law between the parties.
G.R. No. L-68118 October 29, 1985
- JOSE P. OBILLOS, JR., SARAH P. OBILLOS,
ROMEO P. OBILLOS and REMEDIOS P.
OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE
and COURT OF TAX APPEALS, respondents.
- AQUINO, J.:
Facts:
- On March 2, 1973 Jose Obillos, Sr. bought two lots
with areas of 1,124 and 963 square meters of located
at Greenhills, San Juan, Rizal. The next day he
transferred his rights to his four children, the
petitioners, to enable them to build their residences.
The Torrens titles issued to them showed that they
were co-owners of the two lots.
- In 1974, or after having held the two lots for more
than a year, the petitioners resold them to the
Walled City Securities Corporation and Olga Cruz
Canada for the total sum of P313,050. They derived
from the sale a total profit of P134, 341.88 or P33,584
for each of them. They treated the profit as a capital
gain and paid an income tax on one-half thereof or
of P16,792.
- In April, 1980, the Commissioner of Internal
Revenue required the four petitioners to
pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on
their shares thereof. The petitioners are being held
liable for deficiency income taxes and penalties
totalling P127,781.76 on their profit of P134,336, in
addition to the tax on capital gains already paid by
them.
- The Commissioner acted on the theory that the four
petitioners had formed an unregistered partnership
or joint venture The petitioners contested the
assessments. Two Judges of the Tax Court
sustained the same. Hence, the instant appeal.
-
- Issue:
- Whether or not the petitioners had indeed formed
a partnership or joint venture and thus liable for
corporate tax.
- Held:
- The Supreme Court held that the petitioners should
not be considered to have formed a partnership just
because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the
profit among themselves. To regard so would result
in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy.
That eventuality should be obviated.
- As testified by Jose Obillos, Jr., they had no such
intention. They were co-owners pure and simple.
To consider them as partners would obliterate the
distinction between a co-ownership and a
partnership. The petitioners were not engaged in
any joint venture by reason of that isolated
transaction.
- *Article 1769(3) of the Civil Code provides that
"the sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or
interest in any property from which the returns are
derived". There must be an unmistakable intention
to form a partnership or joint venture.*
- Their original purpose was to divide the lots for
residential purposes. If later on they found it not
feasible to build their residences on the lots because
of the high cost of construction, then they had no
choice but to resell the same to dissolve the co-
ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership
which was in the nature of things a temporary state.
It had to be terminated sooner or later.
- They did not contribute or invest additional '
capital to increase or expand the properties, nor
was there an unmistakable intention to form
partnership or joint venture.
- WHEREFORE, the judgment of the Tax Court is
reversed and set aside. The assessments are
cancelled. No costs.
-
-
All co-ownerships are not deemed unregistered
partnership.—Co-Ownership who own properties
which produce income should not automatically be
considered partners of an unregistered partnership,
or a corporation, within the purview of the income
tax law. To hold otherwise, would be to subject the
income of all
- Co-ownerships of inherited properties to the tax on
corporations, inasmuch as if a property does not produce
an income at all, it is not subject to any kind of income
tax, whether the income tax on individuals or the income
tax on corporation.
- As compared to other cases:
- Commissioner of Internal Revenue, L-19342, May
25, 1972, 45 SCRA 74, where after an extrajudicial
settlement the co-heirs used the inheritance or the
incomes derived therefrom as a common fund to
 produce profits for themselves, it was held that
they were taxable as an unregistered partnership.
- This case is different from Reyes vs. Commissioner
of Internal Revenue, 24 SCRA 198, where father and
son purchased a lot and building, entrusted the
administration of the building to an administrator
and divided equally the net income, and from
Evangelista vs. Collector of Internal Revenue, 102
Phil. 140, where the three Evangelista sisters
bought four pieces of real property which they
leased to various tenants and derived rentals
therefrom. Clearly, the petitioners in these two
cases had formed an unregistered partnership.
Litton vs. Hill
Facts:
- Litton sold and delivered to Ceron, one of the
managing partners of Hill & Ceron, a certain
number of mining claims. By virtue of said
transaction, Ceron delivered to plaintiff a
document (receipt) acknowledging that he
received from Litton certain share certificates of
Big Wedge Mining Company totalingP1870.Ceron
paid to Litton P1, 150 leaving a balance of P720.
Litton was unable to collect the unpaid balance
from Hill & Ceron or from its surety. Litton filed a
complaint against the defendants for the recovery
of the balance. The court ordered Ceron to
personally pay the amount claimed and absolved
the partnership, Hill and the surety.CA affirmed
the decision of the court.
- Issue: Did the transaction bind the partnership or
Ceron only?
- Held: While the transaction was entered into by
Ceron, it bound the partnership. Robert Hill had
the same power to buy and sell; that in said
partnership Hillas well as Ceron made the
transaction as partners in equal parts; that on the
date of the transaction, February 14, 1934, the
partnership between Hill and Ceron was in
existence. After this date, or on February 19th, Hill
&Ceron sold shares of the Big Wedge; and when
the transaction was entered into with Litton, it was
neither published in the newspapers nor stated in
the commercial registry that the partnership Hill &
Ceron had been dissolved. The SC dissented from
the view of the CA that for one of the partner’s
tobind the partnership the consent of the other is
necessary. Third persons, like the plaintiff, are not
bound in entering into a contract with any of the
two partners, to ascertain whether or not this
partner with whom the transaction is made has
the consent of the other partner. The public need
not make inquires as to the agreements had
between the partners. Its knowledge is enough
that it is contracting with the partnership which is
represented by one of the managing partners. The
second paragraph of the articles of partnership of
Hill & Ceron reads inpart: Second: That the
purpose or object for which this co-partnership is
organized is to engage in the business of
brokerage in general, such as stock and bond
brokers, real brokers, investment security brokers,
shipping brokers, and other activities pertaining to
the business of brokers in general. The kind of
business in which the partnership Hill & Ceron is
to engage being thus determined, none of the two
partners, under article 130 of the Code of
Commerce, may legally engage in the business of
brokerage in general as stock brokers, security
brokers and other activities pertaining to the
business of the partnership. Ceron, therefore,
could not have entered into the contract of sale of
shares with Litton as a private individual, but as a
managing partner of Hill & Ceron The stipulation
in the articles of partnership that any of the two
managing partners may contract and sign in the
name of the partnership with the consent of the
other, undoubtedly creates an obligation between
the two partners, which consists in asking the
other's consent before contracting for the
partnership. This obligation of course is not
imposed upon a third person who contracts with
the partnership. Neither is it necessary for the
third person to ascertain if the managing partner
with whom he contracts has previously obtained
the consent of the other. A third person may and
has a right to presume that the partner with whom
he contracts has, in the ordinary and natural
course of business, the consent of his co-partner;
for otherwise he would not enter into the contract.
The third person would naturally not presume
that the partner with whom he enters into the
transaction is violating the articles of partnership
but, on the contrary, is4By Joy Co
- Acting in accordance therewith. And this finds
support in the legal presumption that the ordinary
course of business has been followed. If we are to
interpret the articles of partnership in question by
holding that it is the obligation of the third person
to inquire whether the managing co-partner of the
one with whom he contracts has given his consent
to said contract, which is practically casting upon
him the obligation to get such consent, this
interpretation would, in similar cases, operate to
hinder effectively the transactions, a thing not
desirable and contrary to the nature of business
which requires promptness and dispatch one the
basis of good faith and honesty which are always
presumed.
MARTINEZ v. ONG PONG COArellano, CJ (1910)
MARTINEZ delivered to Ong Pong Co and Ong Lay
(ONGS) the sum of P1,500. The ONGS, in a private
document, acknowledged that they had received the
money with the agreement that the will invest it in a store,
and the profits or losses therefrom was to be divided with
MARTINEZ in equal shares.
Later, MARTINEZ filed a complaint in order to compel the
ONGS to render him an accounting of the partnership, or
else to refund him the P1,500 that he had given them.
Ong Pong Co alone appeared to answer the complaint. He
admitted the fact of the agreement, but he alleged that Ong
Lay(deceased) was the one who had managed the
business, and that nothing had resulted therefrom except
the loss of the capital of P1,500, to which loss MARTINEZ
agreed to bear.
CFI rendered decision ordering Ong Pong Co to return to
MARTINEZ one-half of the capital of P1,500 (P750) plus
P90 asone-half of the profits, calculated at the rate of 12%
per annum for the six months that the store was supposed
to have been open(total of P840) with legal interest of 6%
until the full payment, with costs. Hence, this appeal by
Ong Pong Co.
ISSUE: WON MARTINEZ is entitled to the capital he
contributed to the partnership.
HELD: YES. The ONGS failed to fulfill their obligation as
partners who, acting as MARTINEZ’s agents in receiving money,
did not render proper accounting therefor. Such renders
them jointly liable for the losses, solidarity not having
been established. CFI decision is AFFRIMED in this regard
but REVERSED in as much as it found that the capital
invested earned profits. Thus, the CFI ruling awarding
MARTINEZ another P840 is DELETED. Ong PongCo is
only liable to pay MARTINEZ half of the capital, or P750,
representing half of the loss which both ONGS
should jointly bear due to their omission, to earn legal
interest of 6% from time of filing this complaint, and costs.
RATIO: In his defense, Ong Pong Co raised the issue
of the closure/failure of the store by virtue of ejectment
proceedings instituted against them. THIS, however, has
no real significance in the determination of the merits of
this case.
To be sure, the whole action is based upon the fact that the
ONGS received capital from MARTINEZ for the purpose
of organizing a store. The ONGS, according to the
agreement, were to handle the said money and invest it in
a store which was the object of the association.
The ONGS had no special agreement vesting in one sole
person the management of the business. Thus, both ONGS
were the actual administrators thereof; and as such
administrators, they were the agents of the company and
incurred the liabilities peculiar to every agent, among
which is that of rendering account to the principal of their
transactions, and paying him everything they may have
received by virtue of the mandatum.
Since neither of them has rendered such account nor
proven the losses, they are therefore obliged to refund the
money that they received for the purpose of establishing
the said store.
There is no evidence presented that the entire capital or
any part thereof was lost. Without proof, the allegation
that the effects of the store were ejected is, as earlier
mentioned, of no moment. Even if we assume this to be
true, it could still not be inferred that the ejectment was
due to the fact that no rents were paid, and that the rent
was not paid on account of the loss of the capital belonging
to the partnership.
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES,
namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ
B. OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA,
JR.,
vs. THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342, May 25, 1972
FACTS:
Julia Buñales died leaving as heirs her surviving
spouse, Lorenzo T. Oña and her five children. A civil case
was instituted in the CFI of Manila for the settlement of
her estate. Oña, the surviving spouse, was appointed
administrator of the estate of said deceased. He submitted
the project of partition, which was approved by the Court.
Because three of the heirs, namely, Luz, Virginia and
Lorenzo, Jr, all surnamed Oña, were still minors when the
project of partition was approved, Lorenzo Oña, their
father and administrator of the estate filed a petition with
the CFI of Manila for the appointment as guardian of said
minors. The Court appointed him guardian of the persons
and property of the aforenamed minors. The heirs have
undivided ½ interest in 10 parcels of land, 6 houses and
money from the War Damage Commission.
Although the project of partition was approved by
the Court, no attempt was made to divide the properties
and the properties remained under the management of
Lorenzo Oña who used said properties in business by
leasing or selling them and investing the income derived
therefrom and proceeds from the sales thereof in real
properties and securities.
CIR decided that petitioners formed an
unregistered partnership and therefore, subject to the
corporate income tax, pursuant to Section 24, in relation to
Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners corporate income taxes for 1955 and
1956. Petitioners protested against the assessment and
asked for reconsideration of the ruling of respondent that
they have formed an unregistered partnership. Finding no
merit in petitioners' request, CIR denied it.
ISSUE:
WON petitioners formed an unregistered
partnership.
RULING:
Yes, petitioners formed an unregistered
partnership.
 Supreme Court held that that instead of actually
distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, “the
properties remained under the management of Lorenzo T.
Oña who used said properties in business by leasing or
selling them and investing the income derived therefrom
and the proceeds from the sales thereof in real properties
and securities.
It is thus incontrovertible that petitioners did not,
contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is
admitted that during the material years herein involved,
some of the said properties were sold at considerable
profit, and that with said profit, petitioners engaged, thru
Lorenzo T. Oña, in the purchase and sale of corporate
securities. It is likewise admitted that all the profits from
these ventures were divided among petitioners
proportionately in accordance with their respective shares
in the inheritance.
As already indicated, for tax purposes, the co-
ownership of inherited properties is automatically
converted into an unregistered partnership the moment
the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a
project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding
testate or intestate proceeding., the petitioners formed an
unregistered partnership.
Among the reasons for holding the appellants
therein to be unregistered co-partners for tax purposes,
that their common fund "was not something they found
already in existence" and that "it was not a property
inherited by them pro indiviso," but it is certainly far
fetched to argue therefrom, as petitioners are doing here,
that ergo, in all instances where an inheritance is not
actually divided, there can be no unregistered co-
partnership.
000 Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Co Oyo vs. Hon. Ramolete and Tan Put
TOPIC: Property Rights of a Partner
PONENTE: Barredo, J.:
DOCTRINE: A partner’s right to accounting for properties of the
partnership that are within the custody or control of the other
partners shall apply only when there is proof that such properties,
registered in the individual names of the other partners, have been
acquired from the use of partnership funds.
FACTS
 Respondent Tan Put filed a complaint against spouses Lim
Tanhu and Dy Ochay, spouses Alfonso Leonardo Ng Sua and
Co Oyo and their son Eng Chong Leonardo for the share of
Tee Hoon Lim Po Chuan in the partnership.
 Tan Put alleged the following:
 i. that she is the widow of Tee Hoon Lim Po
Chuan, who was a partner in the commercial
partnership, Glory Commercial Company
with Antonio Lim Tanhu and Alfonso Ng
Sua.
ii. that the defendant-petitioners, through fraud
and machination, took actual and active
management of the partnershi and although
Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendant-
petitioners managed to use the funds of the
partnership to purchase lands in the cities of
Cebu, Lapulapu, Mandaue, and the
municipalities of Talisay and Minglanilla.
iii. that after the death of her husband, the
defendants, without liquidation of the
partnership, organized a corporation with the
paid-up capital from the partnership. She
contends that one-third of the interest belongs
to her late husband.
iv. When her husband died, he asked the
defendants to liquidate the partnership but the
defendants never did. Later on, she was made
to sign a quitclaim of all her rights and
interest in the partnership in consideration of
P65,000.00. Said quitclaim was in the Hands
of Lim Tanhu and a copy was never given to
her.
v. That she gave some of her money to her
husband for the start-up capital of the
partnership
 Defendant-petitioners replied to her complaint alleging:
i. Ang Siok Tin is the legitimate wife, still
living, and with whom Tee Hoon had four
legitimate children, a twin born in 1942, and
two others, all residing in Hong Kong. Tee
Hoon died in 1966 and as a result of which
the partnership was dissolved and what
corresponded to him were all given to his
legitimate wife and children.
ii. Tan Put is aware that she is the common law
wife of Tee Hoon.
 Defendants also filed a counterclaim against Tan Put for
causing delay in the operations of the business.
 (Note: This case involves a lot of appeals; motion to quash
and 2 petitions for certiorari but I will stick to the partnership
issue only.)
 Tan Put asked the lower court to dismiss the complaint as to
the spouses Leonardo Ng Sua but retained with respects to
Tanhu and Ochay.
The lower court allowed the dismissal in part and allowed a
motion to hold the petitioners in default, and motion to present
evidence ex-parte. (The judge here was very biased).
ISSUE: Whether or not Tan Put, the common law wife of Tee Hoon,
has a right on behalf of Tee Hoon to claim his share in the partnership.
HELD: NO.
RATIO:
1. Tan Put cannot be considered as a legal party in interest
because she was unable to prove that her marriage was valid
and subsisting. There was no marriage contract shown nor
evidence to support that such a marriage existed.
2. An agreement with Tee Hoon was shown and signed by Tan
Put that she received P40,000 for her subsistence when they
terminated their relationship of common-law marriage and
promised not to interfere with each other’s affairs.
3. Stated differently, since the existence of the quitclaim has
been duly established without any circumstance to detract
from its legal import, the court should have held that plaintiff
was bound by her admission therein that she was the common-
law wife only of Po Chuan and what is more, that she had
 already renounced for valuable consideration whatever claim extending the effects of its order of dismissal of the action dated
she might have relative to the partnership Glory Commercial October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay,
Co. Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is
4. In the light of all these circumstances, We find no alternative hereby permanently enjoined from taking any further action in said
but to hold that plaintiff Tan Put's allegation that she is the civil case gave and except as herein indicated. Costs against private
widow of Tee Hoon Lim Po Chuan has not been satisfactorily respondent.
established and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was
that of a common-law wife and furthermore, that all her claims
against the company and its surviving partners as well as those
against the estate of the deceased have already been settled
and paid.
5. If Po Chuan was in control of the affairs and the running of
the partnership, how could the defendants have defrauded him
of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control
of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to
what is taken by a partner without the consent of the other
partner or partners.
6. Accordingly, defendants have no obligation to account to
anyone for such acquisitions in the absence of clear proof that
they had violated the trust of Po Chuan during the existence
of the partnership.

Dispositive Portion: IN VIEW OF ALL THE FOREGOING, the

petition is granted. All proceedings held in respondent court in its Civil
Case No. 12328 subsequent to the order of dismissal of October 21,
1974 are hereby annulled and set aside, particularly the ex-
parte proceedings against petitioners and the decision on December
20, 1974. Respondent court is hereby ordered to enter an order