G.R. No.

L-66653 June 19, 1986

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.
Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.

PARAS, J.:
Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of Tax
Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal Revenue"
which ordered petitioner Commissioner of Internal Revenue to grant in favor of private respondent
Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously overpaid branch profit
remittance tax.
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines
through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro
Manila.
Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent
company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15%
branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of
P6,499,999.30 computed as follows:
Amount applied for remittance................................ P7,647,058.00
Deduct: 15% branch profit
remittance tax ..............................................1,147,058.70
Net amount actually remitted.................................. P6,499,999.30
Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually
remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private
respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of
P172,058.90 representing alleged overpaid branch profit remittance tax, computed as follows:
Profits actually remitted .........................................P6,499,999.30
Remittance tax rate .......................................................15%
Branch profit remittance tax-
due thereon ......................................................P 974,999.89
Branch profit remittance
tax paid .............................................................Pl,147,058.70
Less: Branch profit remittance
tax as above computed................................................. 974,999.89
Total amount refundable........................................... P172,058.81
On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as
C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81.
On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads
ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in
favor of petitioner Burroughs Limited the amount of P 172,058.90. Without pronouncement as to costs.
SO ORDERED.
Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before this
Court with the prayers as herein earlier stated upon the sole issue of whether the tax base upon which the
15% branch profit remittance tax shall be imposed under the provisions of section 24(b) of the Tax Code, as
amended, is the amount applied for remittance on the profit actually remitted after deducting the 15% profit
remittance tax. Stated differently is private respondent Burroughs Limited legally entitled to a refund of the
aforementioned amount of P172,058.90.
We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which
states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be
subject to a tax of fifteen per cent (15 %) ...
In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal
Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base
upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad
and not on the total branch profits out of which the remittance is to be made. " The said ruling is hereinbelow
quoted as follows:
In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15%
branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax Code shall be imposed,
please be advised that the 15% branch profit tax shall be imposed on the branch profits actually remitted
abroad and not on the total branch profits out of which the remittance is to be made.
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in
the amount of P172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70
and the remittance tax that should have been paid of P974,999,89, computed as follows
Profits actually remitted......................................... P6,499,999.30
Remittance tax rate.............................................................. 15%
Remittance tax due................................................... P974,999.89
is well-taken. As correctly held by respondent Court in its assailed decision-
Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b) (2)
of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad
and not on the total branch profit out of which the remittance is to be made. Based on such ruling petitioner
should have paid only the amount of P974,999.89 in remittance tax computed by taking the 15% of the
profits of P6,499,999.89 in remittance tax actually remitted to its head office in the United States, instead of
Pl,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit
remittance tax in the amount of P172,058.90.
Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-
82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said
memorandum circular states
Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the
tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as
profit to be remitted abroad.
Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue
Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance
tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given
retroactive effect in the light of Section 327 of the National Internal Revenue Code which provides-
Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shag not be given retroactive application if the revocation, modification,
or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer
deliberately misstates or omits material facts from his return or in any document required of him by the
Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad
faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)
The prejudice that would result to private respondent Burroughs Limited by a retroactive application of
Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited
does not fall under any of them.
WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and
Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by
herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the
limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the importation, marketing, distribution and
operation of automatic phonographs, radios, television sets and amusement machines, their parts and
accessories. It had an office and held itself out as a limited partnership, handling and carrying merchandise,
using invoices, bills and letterheads bearing its trade-name, maintaining its own books of accounts and bank
accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was
duly recorded with the Securities and Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax against respondent Suter in the amount of P2,678.06
for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to the
Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing that of
the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J.
Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of
his participation of P2,000.00 in the partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig and
their subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical personality of the partnership should be
disregarded for income tax purposes because the spouses have exclusive ownership and control of the
business; consequently the income tax return of respondent Suter for the years in question should have
included his and his wife's individual incomes and that of the limited partnership, in accordance with Section
45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens, residents or non-residents, only
one consolidated return for the taxable year shall be filed by either spouse to cover the income of both
spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in 1948 is
not a ground for dissolution of the partnership, either in the Code of Commerce or in the New Civil Code,
and that since its juridical personality had not been affected and since, as a limited partnership, as contra
distinguished from a duly registered general partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation
of law because of the marriage of the only general partner, William J. Suter to the originally limited partner,
Julia Spirig one year after the partnership was organized is rested by the appellant upon the opinion of now
Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th
Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code,
which applies in the absence of express provision in the Code of Commerce, persons prohibited from
making donations to each other are prohibited from entering into universal partnerships. (2 Echaverri 196) It
follows that the marriage of partners necessarily brings about the dissolution of a pre-existing partnership. (1
Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. was
not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish
Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947), a universal
partnership requires either that the object of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners may acquire by their industry or work
during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal
partnership, since the contributions of the partners were fixed sums of money, P20,000.00 by William Suter
and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It follows that William J.
Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the
Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition,
1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid Article
1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran
constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de
los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y
hay que estar a la norma general segun la que toda persona es capaz para contratar mientras no sea
declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma
tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the
causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a single proprietorship, is
equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately
owned and contributed by them before their marriage; and after they were joined in wedlock, such
contributions remained their respective separate property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common
property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its
own, distinct and separate from that of its partners (unlike American and English law that does not recognize
such separate juridical personality), the bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The
limited partnership's separate individuality makes it impossible to equate its income with that of the
component members. True, section 24 of the Internal Revenue Code merges registered general co-
partnerships (compaias colectivas) with the personality of the individual partners for income tax purposes.
But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be
extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding
the fiction of legal personality of the corporations involved therein are not applicable to the present case. In
the cited cases, the corporations were already subject to tax when the fiction of their corporate personality
was pierced; in the present case, to do so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their individual capacities. The corporations, in the
cases cited, merely served as business conduits or alter egos of the stockholders, a factor that justified a
disregard of their corporate personalities for tax purposes. This is not true in the present case. Here, the
limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate
business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had
been filing its own income tax returns as such independent entity. The change in its membership, brought
about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax.
As far as the records show, the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a business conduit to
dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that income to be included
in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it
would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand
results in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but
not the former, because it is in the case of compaias colectivas that the members, and not the firm, are
taxable in their individual capacities for any dividend or share of the profit derived from the duly registered
general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp.
88-89).lawphi 1.nt

But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in
Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of
the wife's parapherna become conjugal only when no longer needed to defray the expenses for the
administration and preservation of the paraphernal capital of the wife. Then again, the appellant's argument
erroneously confines itself to the question of the legal personality of the limited partnership, which is not
essential to the income taxability of the partnership since the law taxes the income of even joint accounts
1
that have no personality of their own. Appellant is, likewise, mistaken in that it assumes that the conjugal
partnership of gains is a taxable unit, which it is not. What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable year, their
consequences would be different, as their contributions in the business partnership are not the same.
The difference in tax rates between the income of the limited partnership being consolidated with, and when
split from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it by requiring the limited partnership to pay tax on its
own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
July 30, 1979
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO,
HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P. FELICIANO, BENILDO G.
HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G.
GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E. FERNANDEZ,
ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and ALICE
V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME
"OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN M. DE
LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS S. J. SAYOC, EDUARDO DE LOS
ANGELES, and JOSE F. BUENAVENTURA, petitioners.
RESOLUTION
MELENCIO-HERRERA, J.: +. wph!1

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander Sycip,
who died on May 5, 1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who died on February
14, 1976, praying that they be allowed to continue using, in the names of their firms, the names of partners
who had passed away. In the Court's Resolution of September 2, 1976, both Petitions were ordered
consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its business under a firm name which
includes the name of a deceased partner; in fact, Article 1840 of the Civil Code explicitly sanctions the
practice when it provides in the last paragraph that:
t.hqw

The use by the person or partnership continuing the business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make the individual property of the deceased partner
1
liable for any debts contracted by such person or partnership.
2. In regulating other professions, such as accountancy and engineering, the legislature has authorized
the adoption of firm names without any restriction as to the use, in such firm name, of the name of a
 2
deceased partner; the legislative authorization given to those engaged in the practice of accountancy a
profession requiring the same degree of trust and confidence in respect of clients as that implicit in the
relationship of attorney and client to acquire and use a trade name, strongly indicates that there is no
fundamental policy that is offended by the continued use by a firm of professionals of a firm name which includes
the name of a deceased partner, at least where such firm name has acquired the characteristics of a "trade
3
name."
3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a
deceased partner in the firm name of a law partnership because Canon 33 of the Canons of Professional
Ethics adopted by the American Bar Association declares that: t.hqw

... The continued use of the name of a deceased or former partner when permissible by local custom, is not
4
unethical but care should be taken that no imposition or deception is practiced through this use. ...
4. There is no possibility of imposition or deception because the deaths of their respective deceased
partners were well-publicized in all newspapers of general circulation for several days; the stationeries now
being used by them carry new letterheads indicating the years when their respective deceased partners
were connected with the firm; petitioners will notify all leading national and international law directories of the
5
fact of their respective deceased partners' deaths.
5. No local custom prohibits the continued use of a deceased partner's name in a professional firm's
6
name; there is no custom or usage in the Philippines, or at least in the Greater Manila Area, which recognizes
7
that the name of a law firm necessarily Identifies the individual members of the firm.
6. The continued use of a deceased partner's name in the firm name of law partnerships has been
consistently allowed by U.S. Courts and is an accepted practice in the legal profession of most countries in
8
the world.
The question involved in these Petitions first came under consideration by this Court in 1953 when a law firm
in Cebu (the Deen case) continued its practice of including in its firm name that of a deceased partner, C.D.
Johnston. The matter was resolved with this Court advising the firm to desist from including in their firm
designation the name of C. D. Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitled Register
of Deeds of Manila vs. China Banking Corporation. The law firm of Perkins & Ponce Enrile moved to
intervene as amicus curiae. Before acting thereon, the Court, in a Resolution of April 15, 1957, stated that it
"would like to be informed why the name of Perkins is still being used although Atty. E. A. Perkins is already
dead." In a Manifestation dated May 21, 1957, the law firm of Perkins and Ponce Enrile, raising substantially
the same arguments as those now being raised by petitioners, prayed that the continued use of the firm
name "Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved: t.hq w

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and Associates for their
continued use of the name of the deceased E. G. Perkins, the Court found no reason to depart from the
policy it adopted in June 1953 when it required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to
desist from including in their firm designation, the name of C. D. Johnston, deceased. The Court believes
that, in view of the personal and confidential nature of the relations between attorney and client, and the high
standards demanded in the canons of professional ethics, no practice should be allowed which even in a
remote degree could give rise to the possibility of deception. Said attorneys are accordingly advised to drop
the name "PERKINS" from their firm name.
Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.
The Court finds no sufficient reason to depart from the rulings thus laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon,
Mabanta and Reyes" are partnerships, the use in their partnership names of the names of deceased
partners will run counter to Article 1815 of the Civil Code which provides: t.hq w

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name
of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be subject to
the liability, of a partner.
It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of
living partners and. in the case of non-partners, should be living persons who can be subjected to liability. In
fact, Article 1825 of the Civil Code prohibits a third person from including his name in the firm name under
pain of assuming the liability of a partner. The heirs of a deceased partner in a law firm cannot be held liable
as the old members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon 34 of the
Canons of Professional Ethics "prohibits an agreement for the payment to the widow and heirs of a
deceased lawyer of a percentage, either gross or net, of the fees received from the future business of the
deceased lawyer's clients, both because the recipients of such division are not lawyers and because such
payments will not represent service or responsibility on the part of the recipient. " Accordingly, neither the
widow nor the heirs can be held liable for transactions entered into after the death of their lawyer-
predecessor. There being no benefits accruing, there ran be no corresponding liability.
Prescinding the law, there could be practical objections to allowing the use by law firms of the names of
deceased partners. The public relations value of the use of an old firm name can tend to create undue
advantages and disadvantages in the practice of the profession. An able lawyer without connections will
have to make a name for himself starting from scratch. Another able lawyer, who can join an old firm, can
initially ride on that old firm's reputation established by deceased partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, the first
factor to consider is that it is within Chapter 3 of Title IX of the Code entitled "Dissolution and Winding Up."
The Article primarily deals with the exemption from liability in cases of a dissolved partnership, of the
individual property of the deceased partner for debts contracted by the person or partnership which
continues the business using the partnership name or the name of the deceased partner as part thereof.
What the law contemplates therein is a hold-over situation preparatory to formal reorganization.
Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than of a
professional partnership, with no saleable good will but whose reputation depends on the personal
qualifications of its individual members. Thus, it has been held that a saleable goodwill can exist only in a
9
commercial partnership and cannot arise in a professional partnership consisting of lawyers. t.hq w

As a general rule, upon the dissolution of a commercial partnership the succeeding partners or parties have
the right to carry on the business under the old name, in the absence of a stipulation forbidding it, (s)ince the
name of a commercial partnership is a partnership asset inseparable from the good will of the firm. ... (60
Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand, t.hqw

... a professional partnership the reputation of which depends or; the individual skill of the members, such as
partnerships of attorneys or physicians, has no good win to be distributed as a firm asset on its dissolution,
however intrinsically valuable such skill and reputation may be, especially where there is no provision in the
partnership agreement relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)
C. A partnership for the practice of law cannot be likened to partnerships formed by other professionals
or for business. For one thing, the law on accountancy specifically allows the use of a trade name in
10
connection with the practice of accountancy. t.hq w

A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a
particular purpose. ... It is not a partnership formed for the purpose of carrying on trade or business or of
11
holding property." Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law
12
practice is improper.
The usual reason given for different standards of conduct being applicable to the practice of law from those
pertaining to business is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey of the Legal Profession, (The Lawyer from
Antiquity to Modern Times, p. 5) defines a profession as "a group of men pursuing a learned art as a
common calling in the spirit of public service, no less a public service because it may incidentally be a
means of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession from business are:
1. A duty of public service, of which the emolument is a byproduct, and in which one may attain the
highest eminence without making much money.
2. A relation as an "officer of court" to the administration of justice involving thorough sincerity, integrity,
and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness to resort to
current business methods of advertising and encroachment on their practice, or dealing directly with their
13
clients.
"The right to practice law is not a natural or constitutional right but is in the nature of a privilege or franchise.
14 15
It is limited to persons of good moral character with special qualifications duly ascertained and certified. The
right does not only presuppose in its possessor integrity, legal standing and attainment, but also the exercise of a
16
special privilege, highly personal and partaking of the nature of a public trust."
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association" in
support of their petitions.
It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased or
former partner in the firm name of a law partnership when such a practice is permissible by local custom but
the Canon warns that care should be taken that no imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits or allows the continued use of a
deceased or former partner's name in the firm names of law partnerships. Firm names, under our custom,
Identify the more active and/or more senior members or partners of the law firm. A glimpse at the history of
the firms of petitioners and of other law firms in this country would show how their firm names have evolved
and changed from time to time as the composition of the partnership changed. t.hq w

The continued use of a firm name after the death of one or more of the partners designated by it is proper
only where sustained by local custom and not where by custom this purports to Identify the active members.
...
There would seem to be a question, under the working of the Canon, as to the propriety of adding the name
of a new partner and at the same time retaining that of a deceased partner who was never a partner with the
new one. (H.S. Drinker, op. cit., supra, at pp. 207208) (Emphasis supplied).
The possibility of deception upon the public, real or consequential, where the name of a deceased partner
continues to be used cannot be ruled out. A person in search of legal counsel might be guided by the
familiar ring of a distinguished name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased
partner's name in the firm name of law partnerships. But that is so because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners Salazar,
et al. quoted in their memorandum, the New York Supreme Court sustained the use of the firm name
Alexander & Green even if none of the present ten partners of the firm bears either name because the
practice was sanctioned by custom and did not offend any statutory provision or legislative policy and was
adopted by agreement of the parties. The Court stated therein: t.hq w

The practice sought to be proscribed has the sanction of custom and offends no statutory provision or
legislative policy. Canon 33 of the Canons of Professional Ethics of both the American Bar Association and
the New York State Bar Association provides in part as follows: "The continued use of the name of a
deceased or former partner, when permissible by local custom is not unethical, but care should be taken that
no imposition or deception is practiced through this use." There is no question as to local custom. Many
firms in the city use the names of deceased members with the approval of other attorneys, bar associations
and the courts. The Appellate Division of the First Department has considered the matter and reached The
conclusion that such practice should not be prohibited. (Emphasis supplied)
xxx xxx xxx
Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use of the firm name
18
herein is also sustainable by reason of agreement between the partners.
Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom has been
defined as a rule of conduct formed by repetition of acts, uniformly observed (practiced) as a social rule,
19
legally binding and obligatory. Courts take no judicial notice of custom. A custom must be proved as a fact,
20
according to the rules of evidence. A local custom as a source of right cannot be considered by a court of
21
justice unless such custom is properly established by competent evidence like any other fact. We find such
proof of the existence of a local custom, and of the elements requisite to constitute the same, wanting herein.
Merely because something is done as a matter of practice does not mean that Courts can rely on the same for
purposes of adjudication as a juridical custom. Juridical custom must be differentiated from social custom. The
former can supplement statutory law or be applied in the absence of such statute. Not so with the latter.
22
Moreover, judicial decisions applying or interpreting the laws form part of the legal system. When the
Supreme Court in the Deen and Perkins cases issued its Resolutions directing lawyers to desist from including
the names of deceased partners in their firm designation, it laid down a legal rule against which no custom or
practice to the contrary, even if proven, can prevail. This is not to speak of our civil law which clearly ordains that
23
a partnership is dissolved by the death of any partner. Custom which are contrary to law, public order or public
24
policy shall not be countenanced.
The practice of law is intimately and peculiarly related to the administration of justice and should not be
considered like an ordinary "money-making trade." t.hq w

... It is of the essence of a profession that it is practiced in a spirit of public service. A trade ... aims primarily
at personal gain; a profession at the exercise of powers beneficial to mankind. If, as in the era of wide free
opportunity, we think of free competitive self assertion as the highest good, lawyer and grocer and farmer
may seem to be freely competing with their fellows in their calling in order each to acquire as much of the
world's good as he may within the allowed him by law. But the member of a profession does not regard
himself as in competition with his professional brethren. He is not bartering his services as is the artisan nor
exchanging the products of his skill and learning as the farmer sells wheat or corn. There should be no such
thing as a lawyers' or physicians' strike. The best service of the professional man is often rendered for no
equivalent or for a trifling equivalent and it is his pride to do what he does in a way worthy of his profession
even if done with no expectation of reward, This spirit of public service in which the profession of law is and
ought to be exercised is a prerequisite of sound administration of justice according to law. The other two
elements of a profession, namely, organization and pursuit of a learned art have their justification in that they
25
secure and maintain that spirit.
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal
and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names "SYCIP"
and "OZAETA" from their respective firm names. Those names may, however, be included in the listing of
individuals who have been partners in their firms indicating the years during which they served as such.
SO ORDERED.
Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ., concur
Fernando, C.J. and Abad Santos, J., took no part.

Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the
contrary view, as explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of
delicadeza that the undersigned did not participate in the disposition of these petitions, as the law office of
Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership of Quisumbing, Sycip, and
Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the undersigned, and
the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the
undersigned wishes to invite the attention of all concerned, and not only of petitioners, to the last sentence
of the opinion of Justice Ameurfina Melencio-Herrera: 'Those names [Sycip and Ozaeta] may, however, be
included in the listing of individuals wtes
AQUINO, J., dissenting:
I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their
petition of June 10, 1975, prayed for authority to continue the use of that firm name, notwithstanding the
death of Attorney Alexander Sycip on May 5, 1975 (May he rest in peace). He was the founder of the firm
which was originally known as the Sycip Law Office.
On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta &
Reyes, in their petition of August 13, 1976, prayed that they be allowed to continue using the said firm name
notwithstanding the death of two partners, former Justice Roman Ozaeta and his son, Herminio, on May 1,
1972 and February 14, 1976, respectively.
They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in
1957 by Justice Ozaeta and his son and that, as to the said law firm, the name Ozaeta has acquired an
institutional and secondary connotation.
Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner
as part of the partnership name, is cited to justify the petitions. Also invoked is the canon that the continued
use by a law firm of the name of a deceased partner, "when permissible by local custom, is not unethical" as
long as "no imposition or deception is practised through this use" (Canon 33 of the Canons of Legal Ethics).
I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads
of the two firms (as the case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are
dead or the period when they served as partners should be stated therein.
Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to
retain the clients who had customarily sought the legal services of Attorneys Sycip and Ozaeta and to
benefit from the goodwill attached to the names of those respected and esteemed law practitioners. That is
a legitimate motivation.
The retention of their names is not illegal per se. That practice was followed before the war by the law firm of
James Ross. Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph
and Carrascoso, his name was retained in the firm name with an indication of the year when he died. No
one complained that the retention of the name of Judge Ross in the firm name was illegal or unethical.

# Separate Opinions
FERNANDO, C.J., concurring:
The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the
contrary view, as explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of
delicadeza that the undersigned did not participate in the disposition of these petitions, as the law office of
Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership of Quisumbing, Sycip, and
Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the undersigned, and
the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the
undersigned wishes to invite the attention of all concerned, and not only of petitioners, to the last sentence
of the opinion of Justice Ameurfina Melencio-Herrera: 'Those names [Sycip and Ozaeta] may, however, be
included in the listing of individuals wtes
AQUINO, J., dissenting:
I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their
petition of June 10, 1975, prayed for authority to continue the use of that firm name, notwithstanding the
death of Attorney Alexander Sycip on May 5, 1975 (May he rest in peace). He was the founder of the firm
which was originally known as the Sycip Law Office.
On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta &
Reyes, in their petition of August 13, 1976, prayed that they be allowed to continue using the said firm name
notwithstanding the death of two partners, former Justice Roman Ozaeta and his son, Herminio, on May 1,
1972 and February 14, 1976, respectively.
They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in
1957 by Justice Ozaeta and his son and that, as to the said law firm, the name Ozaeta has acquired an
institutional and secondary connotation.
Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner
as part of the partnership name, is cited to justify the petitions. Also invoked is the canon that the continued
use by a law firm of the name of a deceased partner, "when permissible by local custom, is not unethical" as
long as "no imposition or deception is practised through this use" (Canon 33 of the Canons of Legal Ethics).
I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads
of the two firms (as the case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are
dead or the period when they served as partners should be stated therein.
Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to
retain the clients who had customarily sought the legal services of Attorneys Sycip and Ozaeta and to
benefit from the goodwill attached to the names of those respected and esteemed law practitioners. That is
a legitimate motivation.
The retention of their names is not illegal per se. That practice was followed before the war by the law firm of
James Ross. Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph
and Carrascoso, his name was retained in the firm name with an indication of the year when he died. No
one complained that the retention of the name of Judge Ross in the firm name was illegal or unethical.
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,
respondents.

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by the
appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several subsequent amendments to the articles of partnership
on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . .
. to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas
O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics
of liquidation, and more particularly, my interest in the two floors of this building. I would like to have this
resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our employees
including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of
our employees have been thwarted by the other partners. Not only have they refused to give meaningful
increases to the employees, even attorneys, are dressed down publicly in a loud voice in a manner that
deprived them of their self-respect. The result of such policies is the formation of the union, including the
assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department
(SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that
the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa &
Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the
profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in
such amounts as maybe proven during the trial and which the Commission may deem just and equitable
under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the
1
partnership interest."
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of
Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled
that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his
withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as
it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
2
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the parties.
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well
as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R.
SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve
and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto
the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26 February
1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the
liquidation should be to the extent of Attorney Misa's interest or participation in the partnership which could
be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's
share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient
proof had been shown to indicate that the partnership assets were in any such danger of being lost,
removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following
issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. 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; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and
now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We
quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this
matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or
undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not a
partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and entities with respect to their legal and
other affairs; and to appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite
undertaking. There would therefore be no need to provide for articles on partnership at will as none would so
exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or
 3
definable period of completion.
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
4 5
partnership but that it can result in a liability for damages.
In passing, neither would the presence of a period for its specific duration or the statement of a particular
6
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. Among
7
partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although
not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a
possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to
8
be associated in the carrying on, as might be distinguished from the winding up of, the business. Upon its
dissolution, the partnership continues and its legal personality is retained until the complete winding up of its
9
business culminating in its termination.
The liquidation of the assets of the partnership following its dissolution is governed by various provisions of
10
the Civil Code; however, an agreement of the partners, like any other contract, is binding among them and
normally takes precedence to the extent applicable over the Code's general provisions. We here take note of
paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated
and paid in accordance with the existing agreements and his partnership participation shall revert to the
Senior Partners for allocation as the Senior Partners may determine; provided, however, that with respect to
the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the
6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at
the time of such death or retirement shall be determined by two (2) independent appraisers, one to be
appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the
case may be. In the event of any disagreement between the said appraisers a third appraiser will be
appointed by them whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above
mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
11
P5,000.00 in the case of the new Junior Partner.
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the
dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves
it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission on
their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly,
12
not against their will. Indeed, for as long as the reason for withdrawal of a partner is not contrary to the dictates
of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith
cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept
of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
G.R. No. L-49982 April 27, 1988
ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.

GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists between members of the
same family arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of
Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell Company of the
Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known as
Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance
rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint
1
affidavit was executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles They
agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station
of the family. They negotiated with SHELL. For practical purposes and in order not to run counter to the
company's policy of appointing only one dealer, it was agreed that petitioner would apply for the dealership.
Respondent Remedios helped in managing the bussiness with petitioner from May 3, 1966 up to February 16,
1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL
wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover
advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the
2
Joint Affidavit dated 11 April 1966 executed by the co-owners."
For sometime, the petitioner submitted financial statements regarding the operation of the business to
private respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty.
Angeles, a demand was made on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to make a profit of P 87,293.79
3
and that by the year ending 1969, a profit of P 150,000.00 was realized.
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to
December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be
subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an
amount of no less than P l50,000.00 with interest at the rate of 1% per month from date of demand until full
payment thereof for the entire duration of the business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14
Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding judge
of Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and ordering
private respondents to pay petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion
for reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who was the newly
appointed presiding judge of the same branch, set aside the aforesaid derision and rendered another
decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new
judgment is hereby rendered in favor of the plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public instrument embodying all the provisions of the
partnership agreement entered into between plaintiffs and defendant as provided for in Article 1771, Civil
Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up
to the time this order is issued, the same to be subject to examination and audit by the plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the
business in the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per month
from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of
plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a decision was rendered by the Court of Appeals on November
28,1978 affirming in toto the decision of the lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not
satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging that the
respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge
Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by and among the petitioner and the private
respondents as regards the ownership and or operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additional
Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos.
45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF
THE PHILIPPINES LIMITED a corporation duly licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced
rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we
can use the said amount to augment our capital investment in the operation of that gasoline station
constructed ,by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement we
have entered into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire to
help us in aumenting our capital investment in the operation of the said gasoline station, has agreed to give
us the said amount of P 15,000.00, which amount will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said
sum as ADVANCED RENTALS to us be applied as monthly rentals for the sai two lots under our Lease
Agreement starting on the 25th of May, 1966 until such time that the said of P 15,000.00 be applicable,
which time to our estimate and one-half months from May 25, 1966 or until the 10th of October, 1966 more
or less;
(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES
LIMITED execute an instrument for us to sign embodying our conformity that the said amount that it will
generously grant us as requested be applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407,
Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro
Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL by the herein CO-OWNERS and
another Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS
Remedios and MARIA ESTANISLAO for the lease of adjoining portions of two parcels of land at Aurora
Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly rental of PESOS THREE
THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased
land, and as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in cash
the amount of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit
of Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured
the conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of
them to accumulate the equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be
treated as additional cash deposit to SHELL under the same terms and conditions of the aforementioned
Cash Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among
the CO-OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-
OWNERS, collectively, under the above describe two Lease Agreements, one dated 13th November 1963
and the other dated 19th March 1964 to enable DEALER to increase his existing cash deposit to SHELL,
from P 10,000 to P 25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably
assign to SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall due, monthly,
commencing 24th May 1966, until such time that the monthly rentals accumulated, shall be equal to P
l5,000.
2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by
DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement,
therefore, cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from
SHELL petroleum products, on credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms and conditions of the above-
mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P
15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the operation
of the gasoline station, which advance rentals shall be credited as rentals from May 25, 1966 up to four and
one-half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the
private respondents and petitioners assigned to SHELL the monthly rentals due them commencing the 24th
of May 1966 until such time that the monthly rentals accumulated equal P 15,000.00 which private
respondents agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer.
As above-stated it provided therein that "This agreement, therefore, cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint
Affidavit, whatever partnership agreement there was in said previous agreement had thereby been
abrogated. We find no merit in this argument. Said cancelling provision was necessary for the Joint Affidavit
speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to
the P 15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the
previous one. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit that the
P 15,000.00 represents the "capital investment" of the parties in the gasoline station business and it speaks
of petitioner as the sole dealer, but this is as it should be for in the latter document SHELL was a signatory
and it would be against its policy if in the agreement it should be stated that the business is a partnership
with private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such partnership agreement between the
parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty. Angeles.
4
Petitioner submitted to private respondents periodic accounting of the business. Petitioner gave a written
authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their "common
5
business' aming negosyo). Respondent Remedios assisted in the running of the business. There is no doubt
that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund
6
with the intention of dividing the profits among themselves. The sole dealership by the petitioner and the
issuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated
policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion
based on the said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This decision
is immediately executory and no motion for extension of time to file a motion for reconsideration shag
beentertained.
SO ORDERED

G.R. No. L-18703 August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,
vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION, petitioners-appellants.
Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants.
Antonio Sanz for appellee.
ROMUALDEZ, J.:
The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein, a
motion was presented by the appellants praying this court that this case be considered purely a moot
question now, for the reason that subsequent to the decision appealed from, the partnership Campos Rueda
& Co., voluntarily filed an application for a judicial decree adjudging itself insolvent, which is just what the
herein petitioners and appellants tried to obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts stated by the appellants in
their motion aforesaid. The question raised in this case is not purely moot one; the fact that a man was
insolvent on a certain day does not justify an inference that he was some time prior thereto.
Proof that a man was insolvent on a certain day does not justify an inference that he was on a day some
time prior thereto. Many contingencies, such as unwise investments, losing contracts, misfortune, or
accident, might happen to reduce a person from a state of solvency within a short space of time. (Kimball vs.
Dresser, 98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos Rueda &
Co. insolvent in December, 1921, as prayed for in this case, and another to declare it insolvent in July, 1922,
as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the
appellants in various sums amounting to not less than P1,000, payable in the Philippines, which were not
paid more than thirty days prior to the date of the filing by the petitioners of the application for involuntary
insolvency now before us. These facts were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven, nor alleged, that the members of the
aforesaid firm were insolvent at the time the application was filed; and that was said partners are personally
and solidarily liable for the consequence of the transactions of the 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 this court, on the ground that this finding of the lower court is erroneous.
The fundamental question that presents itself for decision is whether or not a limited partnership, such as the
appellee, which has failed to pay its obligation 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.
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 predicated, this partnership must suffer the consequences of
such a 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, partnerships have no juridical personality
independent from that of its members; and if now they have such personality for the purpose of the
insolvency law, it is only by virtue of general law enacted by the Congress of the United States on July 1,
1898, section 5, paragraph (h), of which reads thus:
In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the
partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners
not adjudged bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership
business as expeditiously as its nature will permit, and account for the interest of the partner or partners
adjudged bankrupt.
The general consideration that these partnership had no juridical personality and the limitations prescribed in
subsection (h) above set forth gave rise to the conflict noted in American decisions, as stated in the case of
In re Samuels (215 Fed., 845), which mentions the two apparently conflicting doctrines, citing one from In re
Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186 Fed., 481).
But there being in our insolvency law no such provision as that contained in section 5 of said Act of
Congress of July 1, 1898, nor any rule similar thereto, and the juridical personality of limited partnership
being recognized by our statutes from their formation in all their acts and contracts the decision of American
courts on this point can have no application in this jurisdiction, nor we see any reason why these
partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency of their members,
provided the partnership has, as such, committed some of the acts of insolvency provided in our law. Under
this view it is unnecessary to discuss the other points raised by the parties, although in the particular case
under consideration it can be added that the liability of the limited partners for the obligations and losses of
the partnership is limited to the amounts paid or promised to be paid into the common fund except when a
limited partner should have included his name or consented to its inclusion in the firm name (arts. 147 and
148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty days
to pay its obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and the
International Banking Corporation, the case comes under paragraph 11 of section 20 of Act No. 1956, and
consequently the petitioners have the right to a judicial decree declaring the involuntary insolvency of said
partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership Campos
Rueda & Co. is and was on December 28, 1921, insolvent and liable for having failed for more than thirty
days to meet its obligations with the three petitioners herein, and it is ordered that this proceeding be
remanded to the Court of First Instance of Manila with instruction to said court to issue the proper decrees
under section 24 of Act No. 1956, and proceed therewith until its final disposition.
It is so ordered without special finding as to costs.

G.R. No. L-8576 February 11, 1915

VARGAS and COMPANY, plaintiff-appellee,
vs.
CHAN HANG CHIU, ET AL., defendants-appellants.
Rohde and Wright for appellants.
Escaler and Salas for appellee.
MORELAND, J.:
This is an action brought to set aside a judgment of the justice's court of Manila on the ground that the
plaintiff here, the defendant in the action in which the judgment was secured, was not served with summons
and that, therefore, the justice's court acquired no jurisdiction to render the judgment was that the same is
null and void. Judgment was entered in favor of plaintiff declaring the judgment in controversy void and
setting it aside. This appeal is from that judgment.
It appears from the record that the plaintiff is a merchantile association duly organized under the laws of the
Philippine Islands and presumably registered as required by law. On the 19th day of August, 1911, an action
was begun by Chan Hang Chiu against the plaintiff in this case to recover a sum of money. The summons
and complaint were placed in the hands of the sheriff, who certified that on the 19th day of August, 1911, he
served the same on Vargas & Co. by 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. Thereafter
execution was duly issued and the property of Vargas & Co. levied on for the payment thereof. Thereupon
Vargas & Co. paid the amount of the judgment and costs under protest, with notice that it would sue to
recover the amount paid. The execution was returned satisfied and there the matter rested until the present
action was brought.
The contention of plaintiff is, and that contention is supported by the decision of the court below, 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.
Plaintiff also contends, and this contention is likewise supported by the court below, that, even admitting that
service on the managing agent of the plaintiff is sufficient service, as a matter of fact no service was really
made on the managing agent of the company but, rather, on an employee or salesman of the company, who
had no powers of management or supervision and who was not competent to receive service on behalf of
the company within the provisions of section 396 of the Code of Civil Procedure.
We are of the opinion that neither of these contentions can be sustained. As to the first, we may say that 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 juridicial 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. This very action is an illustration of the practice in vogue in the Philippine Islands. 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 the States, in which 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. This follows naturally for the reason that, 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.
From what has been said it is apparent that the plaintiff in this action is acting contrary to its own contention
by bringing the action in the name of the company be 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.
Article 35 of the Civil Code provides:
The following are judicial persons:
1. The corporation, associations, and institutions of public interest recognized by law.
2. The associations of private interest, be they civil, commercial, or industrial, to which the law grants proper
personality, independent of that of each member thereof.
Article 38 provides: "Judicial persons may acquire and possess property of all kinds, as well as contract
obligations and institute civil or criminal actions in accordance with the laws and rules of their
establishment."
Article 116 of the Code of Commerce provides in part: "After a commercial association has been
established, it shall have legal representation in all its acts and contracts."
These provisions have been the foundation of the practice followed without interruption for many years that
association of the class to which plaintiff belongs have an independent and separate legal entity sufficient to
permit them to sue and be sued in the company name and to be served with process through the chief
officer or managing agent thereof or any other official of the company specified by law.
As to the second contention, we may say that the presumption is that a judgment rendered by a justice's
court is a valid and enforceable judgment where the record discloses that all of the steps necessary to
confer jurisdiction on the court have been taken. In the case before us it affirmatively appears that the
service of process was made on the person the sheriff certified was the managing agent of the defendant
company. The sheriff's certificate serves as prima facie evidence of the existence of the facts stated therein.
The record, therefore, discloses, so far as the fact of service is concerned, that it was duly made on the
managing agent of the company as required by section 396, paragraph 1, of the Code of Civil Procedure. In
attacking the judgement on the ground that service was not made on the managing agent of the company, it
is incumbent on the plaintiff to overcome the presumption arising from the sheriff's certificate before the
attack will succeed. Endeavoring to overcome the presumption referred to, plaintiff offered as a witness one
Tomas O. Segovia, an employee of the plaintiff company. He testified that he was a bookkeeper and that as
such he was well acquainted with the business of the company and that the person Macapinlac referred to in
the sheriff's certificate as managing agent of the plaintiff company was an agent for the sale of plows, of
which the plaintiff company was a manufacturer; and that he had no other relations with the company than
that stated. During the course of the examination this question was put to and answer elicited from this
witness:
How do you know that they were not summoned, or that they did not know of this case brought before the
justice of the peace of the city of Manila?
I being the bookkeeper and the general attorney-in-fact to Vargas & Co., in Iloilo, ought to know whether
they have been notified or summoned, but I only knew about it when the sheriff appeared in our office to
make the levy.
This is the only witness who testified in the case. It does not appear when he became the bookkeeper of the
company, or that he was in such a position that he could know or did know personally the acts of the
company and its relations to Macapinlac. He does not testify of his own knowledge to the essential facts
necessary to controvert the statements contained it the sheriff's certificate of service. His testimony is rather
negative than positive, it being at all times possible, in spite of his evidence, indeed, in strict accord
therewith, that Vargas & Co., of which the witness was neither official nor manager, could have appointed a
managing agent for the company or could have removed him without the personal knowledge of the witness.
The witness had no personal knowledge of the relation between the company and Macapinlac. He never
saw the contract existing between them. He did not hear the agreement between them nor did he know of
his own knowledge what the relations between the company and Macapinlac were. His testimony besides
being negative in character has in it many of the elements of hearsay and is not at all satisfactory. It would
have been very easy to present one of the members of the company, or all of them, who engaged
Macapinlac, who know the relations between him and the company, to testify as to what those relations
were and to deny, if that were the fact, that Macapinlac was such an agent or official of the company as is
within the purview of section 396 above referred to. The facts stated in the certificate of the sheriff will not be
considered as overcome and rebutted except on clear evidence showing the contrary. The evidence of the
bookkeeper, who is the only witness for the company, is not satisfactory in any sense and is quite
insufficient to overcome the presumption established by the sheriff's certificate.
In view of these considerations it is not necessary to consider the question presented by the payment by the
plaintiff company of the judgment.
The judgment appealed from is reversed and the complaint dismissed on the merits, without costs in this
instance. So ordered.

G.R. No. L-48113 April 7, 1947

NGO TIAN TEK and NGO HAY, petitioner,
vs.
PHILIPPINE EDUCATION CO., INC., respondent.
Tansinsin and Yatco for petitioner.
Marcial Esposo for respondent.
PARAS, J.:
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.
Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ., concur.

Separate Opinions
FERIA, J., concurring and dissenting:
I concur in the majority except that portion thereof which deals with the question whether an
assignee for collection merely is entitled to sue in his own name, which need not be discussed, in
view of the finding of the Court of Appeals that there is nothing "simulated in the assignment" which
according to the very opinion of the majority "precludes us from ruling that the respondent company
is not a bona fide assignee;" because such being the conclusion of fact of the Court of Appeals, this
Supreme Court can not modify or reverse that conclusion and find that respondent Philippine
Education Co. was not a bona fide assignee, and the assignment was not absolute, but made merely
for collection in order that said respondent may sue in its own name.
But I dissent from the majority opinion when it further says:
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 114, 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 exiting at the time of or
before notice of the assignment."
The reason for my dissenting is that, after quoting the finding of the Court of Appeals and stating
that said conclusion precludes this Court "from ruling that the respondent company is not a bona
fide assignee," the majority should have stopped then and there. But having preferred to adduce an
additional ratio decidendi, and assume that the assignment was for collection only and not an
absolute and bona fide one, in order to meet the latter's argument, because the Court of Appeals'
conclusion is that the assignment was not simulated, that is, absolute and bona fide, the majority
should have quoted and discussed the second and third sentences of paragraph 144, page 958, of
the Corpus Juris, quoted and relied on by the petitioner, which refers to an assignment that is not
absolutely and bona fide made. However the majority opinion did not do so, and quotes and bases
its conclusion to the contrary on the first sentence of said paragraph, not relied on by the petitioner,
and which deals with absolute and bona fide assignment, and to the provision of section 114 of the
Code of Civil Procedure on set-off and defenses which defendant may set up to an action instituted
by a bona fide assignee.
To clearly show the error, we transcribe below section 144, page 958, of Corpus Juris quoted and
underlined by the petitioner in his brief:
144. G. Assignments for Collection. When a chose, 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. Under the statutes of most jurisdictions, the assignee may
prosecute an action thereon in his own name as the real party in interest or as a trustee of an
express trust; but, 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.
An assignment merely for collection does not transfer the beneficial ownership to the assignee.
It is not only convenient but necessary to point this error in the present concurring and dissenting
opinion, for the conclusion set forth in the above quoted portion of the majority decision is
misleading; because it apparently lays down the ruling that an assignee not bona fide to whom a
credit was assigned, not absolutely, but for collection merely may sue in his own name (a debatable
question which has not yet been passed upon squarely by this Court [ Annotation; 64 L. R. A., 585]),
but the premise on which the majority's conclusion or ruling is predicated in said portion of the
Corpus Juris quoted in the opinion, which is a wrong premise laid down, not by the petitioner, but by
the writer himself of the majority opinion.

G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants,
vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.
Felicisimo E. Escaran for plaintiffs-appellants.
Office of the Solicitor General for defendant-appellee.
DIZON, J.:
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.

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents

GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint venture for income
tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on
May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of
land were sold by petitioners in 1968 toMarenir Development Corporation, while the three parcels of
land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net
profit of P60,000.00 in the sale made in 1970. 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, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana,
petitioners were assessed and required 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 in a letter of June 26, 1979 asserting that they had availed
of tax amnesties way back in 1974.
In a reply of August 22, 1979, 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
1
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.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA
2
Case No. 3045. In due course, the respondent court by a majority decision of March 30, 1987,
affirmed the decision and action taken by respondent commissioner with costs against petitioners.
3
It ruled that on the basis of the principle enunciated in Evangelista an unregistered partnership was
in fact formed by petitioners which like a corporation was subject to corporate income tax distinct from
that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the
circumstances of this case, although there might in fact be a co-ownership between the petitioners,
there was no adequate basis for the conclusion that they thereby formed an unregistered
partnership which made "hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the
respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING
EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT
AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN
BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP
EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT
OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
4
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista.
In the said case, petitioners borrowed a sum of money from their father which together with their
own personal funds they used in buying several real properties. They appointed their brother to
manage their properties with full power to lease, collect, rent, issue receipts, etc. They had the real
properties rented or leased to various tenants for several years and they gained net profits from the
rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a
corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,
as well as to the residence tax for corporations and the real estate dealers' fixed tax. With respect to
the tax on corporations, the issue hinges on the meaning of the terms corporation and partnership
as used in sections 24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships (companies collectives), a tax
upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participation), associations or insurance companies,
but does not include duly registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
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.
Pursuant to this article, 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 at bar, 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, we are fully satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not a property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of transactions. On
February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of
lots (24) acquired and transcations undertaken, as well as the brief interregnum between each,
particularly the last three purchases, is strongly indicative of a pattern or common design that was
not limited to the conservation and preservation of the aforementioned common fund or even of the
property acquired by petitioners in February, 1943. In other words, one cannot but perceive a
character of habituality peculiar to business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948
inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let,
for petitioners do not even suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely,
Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over
fifteen (15) years, since the first property was acquired, and over twelve (12) years, since Simeon
Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating
the set up already adverted to, or on the causes for its continued existence. They did not even try to
offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on
the existence of said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and, hence, those cases are not
5
in point.
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. Respondent commissioner and/ or his representative 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.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots
showing that the purpose was not limited to the conservation or preservation of the common fund or
even the properties acquired by them. The character of habituality peculiar to business transactions
engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor
make any improvements thereon. In 1966, they bought another three (3) parcels of land from one
seller. It was only 1968 when they sold the two (2) parcels of land after which they did not make any
additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The
transactions were isolated. The character of habituality peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The business was under
the management of one of the partners. Such condition existed for over fifteen (15) years. None of
the circumstances are present in the case at bar. The co-ownership started only in 1965 and ended
in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation 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) Co-ownership 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;
From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture
into a partnership. Or the sharing of the gross returns does not of itself establish a partnership
whether or not the persons sharing therein have a joint or common right or interest in the property.
This only means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership, the existence of
a juridical personality different from that of the individual partners, and the freedom to transfer or
assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons contribute funds to buy
certain real estate for profit in the absence of other circumstances showing a contrary intention
cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross
returns of that enterprise in proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no common stock or capital,
and no community of interest as principal proprietors in the business itself which the proceeds
derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are
only tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding
as tenants in common, and to divide the profits of disposing of it, the brother and the other not
being entitled to share in plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass.
341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b)
generally participating in both profits and losses; (c) and such a community of interest, as far as
third persons are concerned as enables each party to make contract, manage the business, and
dispose of the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree
among themselves as to the management, and use of such property and the application of the
6
proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.)
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 clear evidence of co-ownership 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
7
held individually liable as partners for this unpaid obligation of the partnership p. However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they
are thereby relieved of any further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax
Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby
rendered relieving petitioners of the corporate income tax liability in this case, without
pronouncement as to costs.
SO ORDERED.