1768

FACTS:

Rueda vs Pacific Commercial

Facts: This case involves the application by the petitioner for a

judicial decree adjudging itself insolvent. The limited partnership
of Campos Rueda & Co. Was, and is, indebted to Pacific Commercial
Co., the Asiatic Petroleum Co. and the International Banking
Corporation in various sums amounting to not less than Php1000.00,
payable in the Philippines, which were not paid more than thirty days
prior to the date of their filing of the application for involuntary
insolvency. The lower court denied the petition because it was not
proven, nor alleged, that the members of the aforesaid firm were
insolvent at the time of the application was filed; and that as said
partners are personally and solidarity liable for the consequences of
the transaction of partnership, it cannot be adjudged insolvent so
long as the partners are not alleged and proven to be insolvent.
From this judgment, the petitioners appeal to the Supreme Court.

CLV:
The decision in Campos Rueda & Co. v. Pacific Commercial Co., 44
Phil. 916 (1923), demonstrates how the separate juridical personality
accorded to a partnership arrangement makes certain rules on
insolvency work differently as compared to American jurisprudence
on the same matter. In Campos Rueda a petition for involuntary
insolvency was filed by the creditors of the limited partnership for an
act of insolvency provided under the Insolvency Act (i.e., having
failed to its obligations with three creditors for more than thirty
days). The trial court denied the petition on the ground that it was
not proven, nor alleged, that the partners of the firm were insolvent
at the time the application was filed; and that as said partners are
personally and solidary liable for the consequences of the
transactions of the partnership, it cannot be adjudged insolvent so
long as the partners are not alleged and proven to be insolvent. In
ruling that the denial of the petition for insolvency was in error, the
Court held
Unlike the common law, the Philippine statutes consider a limited
partnership as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts (art. 116, Code
of
Commerce). This being so and the juridical personality of a limited
partnership being different from that of its members, it must, on
general principle, answer for, and suffer, the consequence of its acts
as such an entity capable of being the subject of rights and
obligations. If, as in the instant case, the limited partnership of
Campos Rueda & Co. failed to pay its obligations with three creditors
for a period of more than thirty days, which failure constitutes, under
our Insolvency Law, one of the acts of bankruptcy upon which an
adjudication of involuntary insolvency can be predicted, this
partnership must suffer the consequences of such failure, and must
be adjudged insolvent. We are not unmindful of the fact that some
courts of the United States have held that a partnership may not be
adjudged insolvent in an involuntary insolvency proceeding unless all
of its members are insolvent, while others have maintained a
contrary view. But it must be borne in mind that under the American
common law, partnership have no juridical personality independent
from that of its members; and if now they have such personality for
the purposes of the insolvency law. (Ibid, at pp. 918-919)

Issue:
Whether or not a limited partnership, such as the petitioner, which
has failed to pay its obligations with three creditors for more than
thirty days, may be held to have committed an act of insolvency,
and thereby be adjudged insolvent against its will.
Held: In the Philippines, a limited partnership duly organized in
accordance with law has a personality distinct from that of its
members. If it commits an act of bankruptcy, such as that of
failing for more than 30 days to pay debts amounting to
PhP1000.000 or more, it may be adjudged insolvent on the petition
of three of its creditors although its members may not be
insolvent. Under our Insolvency Law, one of the acts of bankruptcy
upon which an adjudication of involuntary insolvency is predicated is
the failure of a partnership to pay its obligations with three creditors
for a period of more than 30 days.
On the contrary, some courts of the United States have held that a
partnership may not be adjudged insolvent in an involuntary
insolvency proceeding unless all of its members are insolvent, while
others have maintained a contrary view. Nevertheless, it must be
borne in mind that under American common law, partnerships have
no juridical personality independent from that of its members.
Therefore, it having been proven that the partnership Campos Rueda
& Co. failed for more than 30 days to pay its obligations to the
herein respondents, the partnership have the right to a judicial
decree declaring the involuntary insolvency of said partnership.

Vargas & Co. vs. Chan, 29 Phil. 446 [1915]

CLV:
In Vargas & Co. v. Chan, 29 Phil. 446 (1915), in denying the
contention that since the defendant sued was a partnership that
summons must be served upon each of the partners, the Court held

[I]t has been the universal practice in the Philippine Islands since
American occupation, and was the practice prior to that time, to
treat companies of the class to which the plaintiff belongs as legal or
juridical entities and to permit them to sue and be sued in the name
of the company, the summons being served solely on the managing
agent or other official of the company by the section of the Code of
Civil Procedure. (Ibid, at p. 448)

Synopsis:
Vargas appealing the judgment of CFI which ruled in favor of Chan
Hang Chiu in a suit for collection of a sum of money filed by the
latter against Vargas.
Vargas' defense is that Chan Hang Chiu did not serve summons on
all of the partners of Vargas and instead served summons on just a
managing partner; and even if the summons were made to the
managing agent, it was not sufficient because such managing agent
did not really have any powers of management or supervision to be
competent to receive the service of the summons. Vargas said the
lack of summons did not vest jurisdiction over the RTC over Vargas
and Co.
The SC held that Vargas is contradicting itself in filing the petition
under the name of the partnership, then requiring that the summons
be served on the individual members instead of to the partnership
itself. It was held that the partnership has a separate personality
apart from the members. On the 2nd contention, it was held that the
testimony presented by Vargas was not sufficient to overturn the
presumption that summons had been served as evidenced by the
sheriff's certificate of service of summons.
Facts:

On the 19th day of August, 1911, an action was begun by

Chan Hang Chiu against the plaintiff in this case as a

mercantile association duly organized under the laws of the

Philippine Islands, to recover a sum of money. The summons
and complaint were placed in the hands of the sheriff,
delivering to and leaving with one Jose Macapinlac personally
true copies thereof, he being the managing agent of said
Vargas & Co. at the time of such service. On July 2, 1912, the
justice's court rendered judgment against Vargas & Co. for the
sum of 372.28. It is plaintiffs contention that Vargas & Co.
being a partnership, it is necessary, in bringing an action
against it, to serve the summons on all of the partners,
delivering to each one of them personally a copy thereof; and
that the summons in this case having been served on the
managing agent of the company only, the service was of no
effect as against the company and the members thereof and
the judgment entered by virtue of such a service was void.
Issue: Whether or not it is indispensable in bringing an action
to a partnership to serve summons to all parties thereof.
Held: No, it is dispensable. Reasons:
1. It has been the universal practice in the Philippine Islands
since American occupation, and was the practice prior to that
time, to treat companies of the class to which the plaintiff
belongs as legal or juridical entities and to permit them to sue
and be sued in the name of the company, the summons being
served solely on the managing agent or other official of the
company specified by the section of the Code of Civil
Procedure referred to. The plaintiff brings this action in the
company name and not in the name of the members of the
firm. Actions against companies of the class to which plaintiff
belongs are brought, according to the uninterrupted practice,
against such companies in their company names and not
against the individual partners constituting the firm. In case
the individual members of the firm must be separately served
with process, the rule also prevails that they must be parties
to the action, either plaintiffs or defendant, and that the action
cannot be brought in the name of or against the company
itself.

2. If it is necessary to serve the partners individually, they are

entitled to be heard individually in the action and they must,
therefore, be made parties thereto so that they can be heard.
It would be idle to serve process on individual members of a
partnership if the litigation were to be conducted in the name
of the partnership itself and by the duly constituted officials of
the partnership exclusively.
In this case, is apparent that the plaintiff is acting contrary to
its own contention by bringing the action in the name of the
company. If not served with process, then the action should be
brought in the individual names of the partners and not in the
name of the company itself.

Ngo Tian Tek vs. Phil. Education Co., 78 Phil. 275 [1947]
CLV:
In Ngo Tian Tek v. Phil. Education Co., 78 Phil. 275 (1947), the Court
held that the death of either of the two partners is not a ground for
the dismissal of a pending suit against the partnership, as a
partnership possesses a personality distinct from any of the partners.
Full text:
The plaintiff, Philippine Education Co., Inc., instituted in the Court of
First Instance of Manila an action against the defendants, Vicente Tan
alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for
the recovery of some P16,070.14, unpaid cost of merchandise
purchased by Lee Guan Box Factory from the plaintiff and five other
corporate entities which, though not parties to the action, had
previously assigned their credits to the plaintiff, together with
attorney's fees, interest and costs. /by agreement of the parties, the
case was heard before a referee, Attorney Francisco Dalupan, who in
due time submitted his report holding the defendants jointly and
severally liable to the plaintiff for the sum of P16,070.14 plus
attorney's fees and interest at the rates specified in the report. On
March 6, 1939, the Court of First Instance of Manila rendered
judgment was affirmed by the Court of Appeals in its decision of
January 31, 1941, now the subject of our review at the instance of
the partnership Ngo Tian Tek and Ngo Hay, petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals
whose findings of fact are conclusive, "as far back as the year 1925,
the Modern Box Factory was established at 603 Magdalena Street,
Manila. It was at first owned by Ngo Hay, who three years later was
joined by Ngo Tian Tek as a junior partner. The modern Box Factory
dealt in pare and similar merchandise and purchased goods from the
plaintiff and its assignors in the names of the Modern Box Factory,
Ngo Hay and Co., Go Hay Box Factory, or Go Hay. Then about the
year 1930, the Lee Guan Box Factory was established a few meters
from the Modern Box Factory, under the management of Vicente Tan.
When that concern, through Vicente Tan, sought credit with the
plaintiff and its assignors, Ngo Hay, in conversations and interviews
with their officers and employees, represented that he was the
principal owner of such factory, that the Lee Guan Box Factory and
the Modern Box Factory belonged to the same owner, and that the
Lee Guan Box Factory was a subsidiary of the Modern Box Factory.
There is evidence that many goods purchased in the name of the Lee
Guan Box Factory were delivered to the Modern Box Factory by the

employees of the plaintiff and its assignors upon the express

direction of Vicente Tan. There is also evidence that the collectors of
the sellers were requested by Vicente Tan to collect and did collect
from the Modern Box Factory the bills against the Lee Guan Box
Factory. In the fact the record shows many checks signed by Ngo Hay
or Ngo Tian Tek in payment of accounts of the Lee Guan Box Factory.
Furthermore, and this seems to be conclusive-Ngo Hay, testifying
for the defense, admitted that 'he' was the owner of the Lee Guan
Box Factory in and before the year 1934, but that in January, 1935,
'he' sold it, by the contract of sale Exhibit 7, to Vicente Tan, who had
been his manager of the business. Tan declared also that before
January, 1935, the Lee Guan Box Factory pertained to Ngo Hay and
Ngo Tian Tek. The contract Exhibit 7 was found by the referee, to be
untrue and simulated, for various convincing reasons that need no
repetition here. And the quoted statements serve effectively to
confirm the evidence for the plaintiff that it was Ngo Hay's
representations of ownership of, and responsibility for, Lee Guan Box
Factory that induced them to open credit for that concern. It must be
stated that in this connection to answer appellant's fitting
observation that the plaintiff and the assignors have considered
Ngo Hay, the Modern Box Factory and Ngo Hay and Co. as one and
the same, through the acts of the partners themselves, and that the
proof as to Ngo Hay's statements regarding the ownership of Lee
Guan Box Factory must be taken in that view. Ngo Hay was wont to
say 'he' owned the Modern Box Factory, meaning that he was the
principal owner, his other partner being Ngo Tian Tek. Now, it needs
no demonstration for appellant does not deny it that the
obligations of the Lee Guan Box Factory must rest upon its known
owner. And that owner in Ngo Tian Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals
erred in holding that Lee Guan Box Factory was a subsidiary of the
Modern Box Factory and in disregarding the fact that the contracts
evidencing the debts in question were signed by Vicente Tan alias
Chan Sy, without any indication that tended to involve the Modern
Box Factory or the petitioner. In the first place, we are concluded by
the finding of the Court of Appeals regarding the ownership by the
petitioner of Lee Guan Box Factory. Secondly, the circumstances that
Vicente Tan alias Chan Sy acted in his own name cannot save the
petitioner, in view of said ownership, and because contracts entered
into by a factor of a commercial establishment known to belong to a
well known enterprise or association, shall be understood as made
for the account of the owner of such enterprise or association, even
when the factor has not so stated at the time of executing the same,

provided that such contracts involve objects comprised in the line

and business of the establishment. (Article 286, Code of Commerce.)
The fact that Vicente Tan did not have any recorded power of
attorney executed by the petitioner will not operate to prejudice third
persons, like the respondent Philippine Education Co., Inc., and its
assignors. (3 Echavarri, 133.)
Another defense set up by the petitioner is that prior to the
transactions which gave rise to this suit, Vicente Tan had purchased
Lee Guan Box Factory from Ngo Hay under the contract, Exhibit 7;
and the petitioner assails, under the second assignment of error, the
conclusion of the Court of Appeals that said contract is simulated.
This contention is purely factual and must also be overruled.
The petitioner questions the right of the respondent Philippine
Education Co., Inc., to sue for the credits assigned by the five entities
with which Lee Guan Box Factory originally contracted, it being
argued that the assignment, intended only for purposes of collection,
did not make said respondent the real party in interest. The
petitioner has cited 5 Corpus Juris, section 144, page 958, which
points out that "under statutes authorizing only a bona fide assignee
of choses in action to sue thereon in his own name, an assignee for
collection merely is not entitled to sue in his own name."
The finding of the Court of Appeals that there is nothing "simulated
in the assignment," precludes us from ruling that respondent
company is not a bona fide assignee. Even assuming, however, that
said assignment was only for collection, we are not prepared to say
that, under section 114 of the Code of Civil Procedure, in force at the
time this action was instituted, ours is not one of those jurisdictions
following the rule that "when a choose, capable of legal assignment,
is assigned absolutely to one, but the assignment is made for
purpose of collection, the legal title thereto vests in the assignee,
and it is no concern of the debtor that the equitable title is in
another, and payment to the assignee discharges the debtor." (5 C.
J., section 144, p. 958.) No substantial right of the petitioner could
indeed be prejudiced by such assignment, because section 114 of
the Code of Civil Procedure reserves to it "'any set-off or other
defense existing at the time of or before notice of the assignment.'"

Petitioner's allegation that "fraud in the inception of the debt is

personal to the contracting parties and does not follow assignment,"
and that the contracts assigned to the respondent company "are
immoral and against public policy and therefore void," constitute

defenses on the merits, but do not affect the efficacy of the

assignment. It is obvious that, apart from the fact that the petitioner
can not invoke fraud of its authorship to evade liability, the appealed
decision is founded on an obligation arising, not from fraud, but from
the very contracts under which merchandise had been purchased by
Lee Guan Box Factory.

The fourth and fifth assignments of error relate to the refusal of the
Court of Appeals to hold that the writ of attachment is issued at the
commencement of this action by the Court of First Instance is illegal,
and to award in favor of the petitioner damages for such wrongful
attachment. For us to sustain petitioner's contention will amount to
an unauthorized reversal of the following conclusion of fact of the
Court of Appeals: "The stereotyped manner in which defendants
obtained goods on credit from the six companies, Vicente Tan's
sudden disappearance, the execution of the fake sale Exhibit 7 to
throw the whole responsibility upon the absent or otherwise
insolvent Tan, defendant's mercurial and unbelievable theories as to
the ownership of the Modern Box Factory and Lee Guan Box Factory
obviously adopted in a vain effort to meet or explain away the
evidentiary force of plaintiff's documentary evidence are much too
significant to permit a declaration that the attachment was not
justified."
Regarding the suggestion in petitioner's memorandum that this case
should be dismissed because of the death of Ngo Hay, it is sufficient
to state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a
partnership possessing a personality distinct from any of the
partners.
The appealed decision is affirmed, with costs against the petitioner.
So ordered.

Aguila, Jr. vs. Court of Appeals, 316 SCRA 246 [1999]

CLV:
The piercing doctrine also found recognition, albeit by way of obiter,
inAguila, Jr. v. Court of Appeals, 319 SCRA 246 (1999), but only in the
limited area of determining standing in a suit brought against claims
pertaining to the partnership. In Aguila, Jr. the complaint was filed
against the partners and officers to enforce essentially a partnership
obligation. In ruling that the judgment rendered by the trial court
(affirmed by the Court of Appeals) against the individual defendants
was void, the Court held
Under Art. 1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners.
The partners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair, or illegal
purposes. In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private
respondent with the consent of her late husband, and A.C. Aguila &
Sons, Co., represented by petitioner. Hence, it is the partnership, not
its officers, or agents, which should be impleaded in any litigation
involving property registered in its name. A violation of this rule will
result to dismissal of the complaint. We cannot understand why both
the Regional Trial Court and the Court of Appeals sidestepped this
issue when it was squarely raised before them by petitioner. (At p. *)

Facts: The petitioner herein is the manager of A.C. Aguila & Sons,
Co., a partnership engaged in lending activities, while the private
respondent and her late husband were the registered owners of a
house and lot, covered by a transfer certificate of title.
Sometime in 1991, the private respondent and A.C. Aguila & Sons,
Co., represented by the petitioner, entered into a Memorandum of
Agreement. In this agreement, a deed of absolute sale shall be
executed by the private respondent in favor of A.C. Aguila & Sons,
Co., giving the former an option to repurchase and obliging the
same to deliver peacefully the possession of the property to A.C.
Aguila & Sons, Co., within 15 days after the expiration of the said
90 days grace period.

When the private respondent failed to redeem the property within

the grace period, the petitioner caused the cancellation of the
transfer certificate of title under the private respondents name and
the issuance of a new certificate of title in the name of A.C. Aguila &
Sons, Co. Subsequently, the private respondent was asked to
vacate the premises, however she refused. Because of this
refusal, A.C. Aguila & Sons, Co. filed an ejectment case against
her.
The MTC ruled in favor of A.C. Aguila & Sons, Co., on the ground
that the private respondent did not redeem the subject property
before the expiration of the 90-day period provided in the MOA. She
filed an appeal before the RTC, but failed again. Then, she filed a
petition for declaration of nullity of a deed of sale with the RTC. She
alleged that the signature of her husband on the deed of sale
was a forgery because he was already to be dead when the deed
was supposed to have been executed. It appears however that
the she filed a criminal complaint for falsification against the
petitioner.
RTC: DENIED. The plaintiff never questioned receiving from A.C.
Aguila & Sons, Co. the sum of P200,000.00 representing her loan
from the
defendant. Common sense dictates that an established lending
and realty firm like Aguila would not part with Php200,000.00 to the
spouses, who are virtual strangers to it, without simultaneous
accomplishment and signing of all the required documents,
more particularly the Deed of Absolute Sale to protect its interest.
CA: REVERSED. The transaction between the parties is indubitably
an equitable mortgage. Considering that the private respondent
(vendor) was paid the price which is unusually inadequate (240
sq. m. subdivision lot for only Php200,000.00 in the year 1991),
has retained possession of the property and has continued paying
real taxes over the subject property.
Petitioner:
1. He is not the real party in interest but A.C. Aguila & Sons, Co.;
2. The judgment in the ejectment case is a bar to the filing of the
complaint for declaration of nullity of a deed of sale in this case; and
3. The contract between the parties is a pacto de retro sale and
not an equitable mortgage.

Held: The petition is meritorious. 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. Moreover, under Article 1768 of the New 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, the private respondent ahs not shown that A.C. Aguila &
Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. and the
MOA was executed between the private respondent, with the
consent of her husband, and A.C. Aguila & Sons, Co., represented by
the petitioner. Hence, it is the partnership, not its officers or
agents, which should be impleaded in any litigation involving
property registered in its name.
We cannot understand why both the RTC and the CA sidestepped this
issue when it was squarely raised before them by the petitioner.
The courts conclusion is that the petitioner is not the real party in
interest against whom this action should be prosecuted. It is
unnecessary to discuss the other issues raised by him in his appeal.

Ang Pue & Co. vs. Sec. of Commerce and Industry,

Ruling:

Synopsis

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

Ang Pue appeals a dismissed petition for declaratory relief filed at

the RTC. Ang Pue wants to be able to extend for another five years
their partnership pursuant to their article of co-partnership which
provides that after five years and upon the consent of the two
partners, the partnership could be extended for another five years.
Ang Pue was constituted on May 1, 1953. On June 19, 1954, the
Retail Act, which limits only to Filipinos the retail business was
enacted. The Retail Act allows partnerships of non-Filipinos to
continue existing until the expiration of the said partnership.
On April 1958, before the expiration of Ang Pue's term, the partners
agreed to extend the life of the partnership. When they registered it
to SEC, SEC refused to register, citing the Retail Act. Hence the
petition to RTC which was denied and now being appealed in this
case.
SC held that the stipulation in the articles of partnership that it could
be extended will still be subject to the laws that will be existing at
the time that such extension is to be executed. Otherwise, such an
extension would be a clear violation of the Retail Act. Also,
organizing a partnership or a corporation is a privilege and not a
right.
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.

FULL:
Action for declaratory relief filed in the Court of First Instance of Iloilo
by Ang Pue & Company, Ang Pue and Tan Siong against the
Secretary of Commerce and Industry to secure judgment "declaring
that plaintiffs could extend for five years the term of the partnership
pursuant to the provisions of plaintiffs' Amendment to the Article of
Co-partnership."
The answer filed by the defendant alleged, in substance, that the
extension for another five years of the term of the plaintiffs'
partnership would be in violation of the provisions of Republic Act No.
1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese
citizens, organized the partnership Ang Pue & Company for a term of
five years from May 1, 1953, extendible by their mutual consent. The
purpose of the partnership was "to maintain the business of general
merchandising, buying and selling at wholesale and retail,
particularly of lumber, hardware and other construction materials for
commerce, either native or foreign." The corresponding articles of
partnership (Exhibit B) were registered in the Office of the Securities
& Exchange Commission on June 16, 1953.
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.
On April 15, 1958 prior to the expiration of the five-year term of
the partnership Ang Pue & Company, but after the enactment of the
Republic Act 1180, the partners already mentioned amended the
original articles of part ownership (Exhibit B) so as to extend the
term of life of the partnership to another five years. When the
amended articles were presented for registration in the Office of the
Securities & Exchange Commission on April 16, 1958, registration
was refused upon the ground that the extension was in violation of
the aforesaid Act.

From the decision of the lower court dismissing the action, with
costs, the plaintiffs interposed this appeal.

The question before us is too clear to require an extended

discussion. 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. That the State, through Congress, and in the manner
provided by law, had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by
Filipinos may engage in the retail business can not be seriously
disputed. That this provision was clearly intended to apply to
partnership already existing at the time of the enactment of the law
is clearly showing by its provision giving them the right to continue
engaging in their retail business until the expiration of their term or
life.
To argue that because the original articles of partnership provided
that the partners could extend the term of the partnership, the
provisions of Republic Act 1180 cannot be adversely affect
appellants herein, is to erroneously assume that the aforesaid
provision constitute a property right of which the partners can not be
deprived without due process or without their consent. The
agreement contain therein must be deemed subject to the law
existing at the time when the partners came to agree regarding the
extension. In the present case, as already stated, when the partners
amended the articles of partnership, the provisions of Republic Act
1180 were already in force, and there can be not the slightest doubt
that the right claimed by appellants to extend the original term of
their partnership to another five years would be in violation of the
clear intent and purpose of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.

Heirs of Tan Eng Kee vs. Court of Appeals, 341 SCRA 740 [2000]
CLV:
In contrast, we should consider the decision in Heirs of Tan Eng Kee
v. Court of Appeals, 341 SCRA 740 (2000), where a partnership was
insisted to have been constituted yet no direct evidence of the
contribution to a common fund or sharing of profits had been
adduced during trial. The Court held
Besides, it is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan Eng Kee never
asked for an accounting. The essence of a partnership is that the
partners share in the profits and losses. Each has the right to
demand an accounting as long as the partnership exists. We have
allowed a scenario wherein [i] excellent relations exists 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. [Fue Lung
v. IAC, 169 SCRA 764, 755
(1989)]. But in the situation in the case at bar, the deferment, if any,
had gone 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. (Ibid, at pp. 755-756, citing Estanislao, Jr.
v. Court of Appeals, 160 SCRA 830, 837 [1988]).
Facts:
Benguet Lumber has been around even before World War II but
during the war, its stocks were confiscated by the Japanese. After the
war, the brothers Tan Eng Lay and Tan Eng Kee pooled their
resources in order to revive the business. In 1981, Tan Eng Lay
caused the conversion of Benguet Lumber into a corporation called
Benguet Lumber and Hardware Company, with him and his family as
the incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of
Tan Eng Kee demanded for an accounting and the liquidation of the
partnership.
Tan Eng Lay denied that there was a partnership between him and
his brother. He said that Tan Eng Kee was merely an employee of
Benguet Lumber. He showed evidence consisting of Tan Eng Kees
payroll; his SSS as an employee and Benguet Lumber being the
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 what was the 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 Kees 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 latters 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.

Pascual vs. Commission of Internal Revenue, 166 SCRA 560 [1988]

under Sec. 20(b) and its income was subject to the taxes prescribed
under Sec. 24, both of the NIRC.

Synopsis:
Pascual and Dragon appealing CTA decision which found deficiency
corporate income taxes against them in the amount of P107,000
during the years 1968 and 1970. The CIR found that the two bought
2 parcels of land in 1965, and three parcels of land in 1966. They
sold the two parcels in 1968 and the three parcels in 1970, and
realized provide of about P225,000. The corresponding capital gains
tax were paid by the petitioners in 1973 and 1974 by availing of tax
amnesties during those years.
The CIR said that they formed an unregistered partnership which is
liable to pay corporate income tax, aside from the income taxes of
the individual partners therein. The defense is that the tax amnesty
absolved them from the tax, even if it is adjudged that they indeed
formed an unregistered partnership.
The CTA said that the tax amnesty relieved them only of the
individual income tax liability, but not the tax liability of the
unregistered partnership.
SC held that the case is different from Evangelista case, because the
transactions were isolated. The coownership does not necessarily
mean that they formed an unregistered partnership
Even if they shared in the gross proceeds in the sale, regardless of
whether each of them had interests over what had been sold, does
not ipso facto make them partners,

Facts:
Petitioners Pascual and Dragon bought two (2) parcels of land
on June 22, 1965 and another three (3) parcels of land on May 28,
1966. They sold the first two parcels in 1968 and the three parcels in
1970. They paid the corresponding capital gains taxes in 1973 and
1974 by availing of the tax amnesties granted in the said years.
However, in 1979, they were assessed and required to pay deficiency
corporate income taxes for the years 1968 and 1970.
The respondent Commissioner informed petitioners that in 1968 and
1970, petitioners as co-owners in real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation

Issue: WON the co-ownership between the petitioners constitutes an

unregistered partnership/joint venture which is taxable as a
corporation.
Held: The co-ownership between the petitioners does not constitute
an unregistered partnership. The petitioners shall be relieved of the
corporate tax liability.
There is no evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and that
they intended to divide the profits among themselves. Respondent
commissioner and/or his representatives just assumed these
conditions to be present on the basis of the fact that petitioners
purchased certain parcels of land and became co-owners thereof.
The purchase of the lands and the subsequent sale thereof were
isolated transactions. In this case, the character of habituality
peculiar to business transactions for the purpose of gain was not
present.
In Evangelista vs CIR, the court stated that there are two essential
elements of a partnership: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. In the said case, there was a
series of transactions where petitioners purchased 24 lots which
demonstrate the character of habituality peculiar to business
transactions.
The court also held that that the sharing of returns does not in itself
establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. There must
be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of
each party to transfer or assign the whole property.
In the present case, there is no adequate basis to support the
proposition that the petitioners formed an unregistered partnership
on the basis of their co-ownership. The two isolated transactions did
not make them partners. They shared in the gross profits as coowners and paid their capital gains taxes on their net profits and
availed of tax amnesty. Under these circumstances, they cannot be
considered to have formed an unregistered partnership.

ISSUE:
Whether petitioners formed an unregistered partnership subject to
corporate income tax (partnership vs. co-ownership)
RULING: Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a partnership or a
co-ownership. Said article paragraphs 2 and 3, provides:(2) Coownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any
profits made by the use of the property; (3) The sharing of gross
returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any
property from which the returns are derived; 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 clear intent to form a partnership, the
existence of a juridical personality different from the individual
partners, and the freedom of each party to transfer or assign the
whole property. In the present case, there is clear evidence of coownership between the petitioners. There is no adequate basis to
support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners
and paid their capital gains taxes on their net profits and availed of
the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent
commissioner proposes. And even assuming for the sake of
argument that such unregistered partnership appears to have been
formed, since there is no such existing unregistered partnership with
a distinct personality nor with assets that can be held liable for said
deficiency corporate income tax, then petitioners can be held
individually liable as partners for this unpaid obligation of the
partnership.

Ona vs. Commissioner of Internal Revenue, 45 SCRA 74 [1972]

CLV:
The decision in Ona v. Commissioner of Internal Revenue, 45 SCRA
74 (1972), is illustrative of this principle. In Ona, in the project
partition agreed upon by the heirs the agreed to keep the properties
of the estate together and to divide the profits in proportion to their
stipulated interests therein. In holding that there was thereupon
constituted among the co-heirs an unregistered partnership subject
to corporate income tax under the Tax Code, the Court held
It is thus incontrovertible that petitioners did not, contrary to their
contention, merely limited 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. Ona, 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. . . the moment petitioners
allowed not only the incomes from their respective shares of the
inheritance but even the inherited properties themselves to be used
by Lorenzo T. Ona as a common fund in undertaking several
transactions or in business, with the intention of deriving profits to
be shared by them proportionally, such act was tantamount to
actually contributingsuch incomes to a common fund and, in effect,
they thereby formed an unregistered partnership. (Ibid, at p. 81)
FACTS:
Julia Buales died leaving as heirs her surviving spouse, Lorenzo T.
Oa and her five children. A civil case was instituted in the CFI of
Manila for the settlement of her estate. Oa, 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 Oa, were still minors when the project of partition was
approved, Lorenzo Oa, 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 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 Oa 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. Oa 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. Oa, 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 copartnership.

Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666 [1939]

CLV:
Gatchalian v. Collector of Internal Revenue, 67 Phil. 666 (1939),
where fifteen people contributed money to buy a sweepstakes ticket
with the intention to divide the prize which they may win, and in fact
the ticket won third prize, the Court ruled that they had formed a
partnership which was subject to tax as a corporate taxpayer.
Likewise, inGallemet v. Tabilaran, 20 Phil. 241 (1911), the Court held
that when land is purchased with equal funds to be contributed by
the parties, and it was the clear intention to divide the property
between the two of them after acquisition, there could not have been
formed a partnership.

Facts: Plaintiffs purchased, in the ordinary course of business, from

one of the duly authorized agents of the National Charity
Sweepstakes Office one ticket for the sum of two pesos (P2), said
ticket was registered in the name of Jose Gatchalian and Company.
The ticket won one of the third-prizes in the amount of P50,000.
Jose Gatchalian was required to file the corresponding income tax
return covering the prize won. Defendant-Collector made an
assessment against Jose Gatchalian and Co. requesting the payment
of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan,
Bulacan. Plaintiffs, however through counsel made a request for
exemption. It was denied.
Plaintiffs failed to pay the amount due, hence a warrant of distraint
and levy was issued. Plaintiffs paid under protest a part of the tax
and penalties to avoid the effects of the warrant. A request that the
balance be paid by plaintiffs in installments was made. This was
granted on the condition that a bond be filed.
Plaintiffs failed in their installment payments. Hence a request for
execution of the warrant of distraint and levy was made. Plaintiffs
paid under protest to avoid the execution.
A claim for refund was made by the plaintiffs, which was dismissed,
hence the appeal.
Issue: Whether the plaintiffs formed a partnership hence liable for
income tax.

Held: Yes. According to the stipulation facts the plaintiffs organized a

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

Reyes vs. Commissioner of Internal Revenue (24 SCRA 198 [1968]

CLV:
In contrast, in Reyes v. Commissioner of Internal Revenue, 24 SCRA
198 (1968), the Court found that where father and son purchased a
lot and building and had it administered by an administrator, and
divided equally the net income, there was a partnership formed
because profit was the original intention for the common fund.
FACTS: 1. Petitioners Florencio and Angel Reyes, father and son,
purchased a lot and building for P 835,000.00. 2. The amount of P
375,000.00 was paid. 3. The balance of P 460,000.00 was left, which
represents the mortgage obligation of the vendors with the China
Banking Corporation, which mortgage obligations were assumed by
the vendees. 4. The initial payment of P 375,000.00 was shared
equally by the petitioners. 5. At the time of the purchase, the
building was leased to various tenants, whose rights under the lease
contracts with the original owners, the purchaser, petitioners herein,
agreed to respect. 6. Petitioners divided equally the income of
operation and maintenance. 7. The gross income from rentals of the
building amounted to about P 90,000.00 annually. 8. An assessment
was made against petitioners by the CIR. 9. The assessment sought
to be reconsidered was futile. 10. On appeal to the Court of Tax
Appeals, the CTA ruled that petitioners are liable for the income tax
due from the partnership formed by petitioners.
ISSUE: Are petitioners subject to the tax on corporations provided for
in the National Internal Revenue Code?
HELD: After referring to another section of the NIRC, which explicitly
provides that the term corporations includes partnerships
and then to Article 1767 of the Civil Code of the Philippines, defining
what a contract of partnership is, the opinion goes on to state that
the essential elements of a partnership are two, namely: a) an
agreement to contribute money, property or industry to a common
fund; and b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case, for,
admittedly, petitioners have agreed to , and did, contribute money
and property to a common fund. Hence, the issue narrows down to
their intent in acting as they did. Upon consideration of all the facts
and circumstances surrounding the case, it was determined that
their purpose was to engage in real estate transaction for monetary
gain and then divide the same among themselves, hence taxable.

Obillos, Jr. vs. Commissioner of Internal Revenue, 139 SCRA 436

[1985]