COMPILED CASE DIGEST IN PARTNERSHIP

ART 1767

In The Matter of the Petition for Authority to Continue Use of the Firm Name
“Ozaeta,Romulo, De Leon…” etc.92 SCRA 1July 30, 1979
Facts:
The surviving partners of Atty. Herminio Ozaeta filed a petition praying that they be
allowed to continue using, in the name of their firm, the names of their partner who passed
away with 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 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 liable for any debts contracted by such person or partnership.
2. 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 deceased partner.
3. Cannon 33 of the CPE provides that 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. ...
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.
5. No local custom prohibits the continued use of a deceased partner's name in a
professional firm's name.
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 the world.

Issue:
Whether or not the law firm is allowed to sustain the name of their deceased partner, in
the name of their firm.
Held:
No. The SC reasoned out through Justice MELENCIO-HERRERA, J with the following
arguments:
A. That the use in the partnership names of the names of deceased partners will run
counter to Article 1815 of the Civil Code which provides that “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. "

B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners,
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 commercial partnership and cannot arise in a
professional partnership consisting of lawyers.
C. A partnership for the practice of law cannot be likened to partnerships formed by other
professionals or for business. "The right to practice law is not a natural or constitutional
right but is in the nature of a privilege or franchise. 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 special privilege, highly personal and partaking of the nature of a public trust."
D. 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. Thus, 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. Custom has been defined as a rule of conduct formed by
repetition of acts, uniformly observed (practiced) as a social rule, legally binding and
obligatory. Courts take no judicial notice of custom. A custom must be proved as a fact,
according to the rules of evidence. A local custom as a source of right cannot be
considered by a court of 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.
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public
must bow to legal and ethical impediment.

Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA, SEC
and Joaquin Misa; G.R. No. 109248 July 3, 1995; Vitug, J.
Facts:
On December 19, 1980, respondent Misa associated himself together, as senior partner
with petitioners Ortega, del Castillo, Jr., and Bacorro, as junior partners.
On Feb. 17, 1988, respondent Misa wrote a letter stating that he is withdrawing and
retiring from the firm and asking for a meeting with the petitioners to discuss the
mechanics of the liquidation.
On June 30, 1988, petitioner filed a petition to the Commision's Securities Investigation
and Clearing Department for the formal dissolution and liquidation of the partnership.
On March 31, 1989, the hearing officer rendered a decision ruling that the withdrawal of
the petitioner has not dissolved the partnership.
On appeal, the SEC en banc reversed the decision and was affirmed by the Court of
Appeals.
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;
Held:
1. Yes. A partnership that does not fix its term is a partnership at will. Here, the partnership
agreement (amended articles of 19 August 1948) does not provide for a specified period
or undertaking.
2. No. Any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership but that it can result in a liability for
damages.
3. No. 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. Here, 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, not against their will.

TOCAO V. COURT OF APPEALS342 SCRA 20 (2000)

Facts:
Petitioner William T. Bello introduced private respondent Nenita Anay to petitioner Tocao,
who conveyed her desire to enter into a joint venture with her for the importation and local
distribution of kitchen cookwares.
Belo acted the capitalist, Tocao as president and general manager, and Anay as head of
the marketing department (considering her experience and established relationship with
West Bend Company, (manufacturer of kitchen wares in Wisconsin, U.S.A) and later,
vice-president for sales.
The parties agreed further that Anay would be entitled to:(1) ten percent (10%) of the
annual net profits of the business;(2) overriding commission of six percent (6%) of the
overall weekly production;(3) thirty percent (30%) of the sales she would make; and(4)
two percent (2%) for her demonstration services. The same was not reduced to writing
on the strength of Belo’s assurances.
Later, Anay was able to secure the distributorship of cookware products from the West
Bend Company. They operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocao’s name.
Due to Anay’s excellent job performance she was given a plaque of appreciation. Also, in
a memo signed by Belo, Anaywas given 37% commission for her personal sales "up
Dec31/87,” apart from the 10% share in profits. However, on October 1987, Anay learned
that Marjorie Tocao terminated her as vice-president of Geminesse Enterprise. Anay
attempted to contact Belo but all attempts failed. But, Anay still received her five percent
(5%) overriding commission up to December 1987. The following year, 1988, she did not
receive the same commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed a complaint for sum of money with damages against
Tocao and Belo before the RTC of Makati. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception of its business operation until she
was “illegally dismissed” to determine her ten percent (10%) share in the net profits. She
further prayed that she be paid the five percent (5%) “overriding commission“ on the
remaining 150 West Bend cookware sets before her “dismissal.”
On their answer, Tocao and Belo asserted that the alleged agreement was not reduced
to writing nor ratified, hence, unenforceable, void, or nonexistent.
Both trial court and court of appeals ruled that a business partnership existed and ordered
the defendants to pay.
Issue:
1. Whether or not a partnership existed.
2. Whether or not the parties are entitled to damages.

Held:
1. Yes. To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money, property or
industry to a common fund; and (2) intention on the part of the partners to divide the profits
among themselves. It may be constituted in any form; a public instrument is necessary
only where immovable property or real rights are contributed thereto. This implies that
since a contract of partnership is consensual, an oral contract of partnership is as good as
a written one. Here, private respondent Anay contributed her expertise in
the business of distributorship of cookware to the partnership and hence, under the law,
she was the industrial or managing partner.

2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership but that it can result in a liability for
damages. An unjustified dissolution by a partner can subject him to action for damages
because by the mutual agency that arises in a partnership, the doctrine of delectus
personae allows the partners to have the power, although not necessarily the right to
dissolve the partnership. In this case, petitioner Tocao’s unilateral exclusion of private
respondent from the partnership is shown by her memo to the Cubao office plainly stating
that private respondent was, as of October 9, 1987, no longer the vice-president for sales
of Geminesse Enterprise is considered unjustified. Hence, private defendant, Anay, is
entitled for damages.
TUASON VS. BOLANOSGR. No. L-4935. May 28, 195495 Phil. 106
Facts:
Plaintiff’s complaint against defendant was to recover possession of a registered land. In
the complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc.,
another corporation.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession under claim of ownership, adverse to the
entire world by defendant and his predecessors in interest" from "time immemorial".
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession thereof
to plaintiff and to pay the latter a monthly rent.
Defendant appealed directly to the Supreme Court and contended, among others, that
Gregorio Araneta, Inc. cannot act as managing partner for plaintiff on the theory that it is
illegal for two corporations to enter into a partnership.
Issue:
Whether or not a corporation may enter into a joint venture with another corporation.
Ruling:
Yes. The true rule is that "though a corporation has no power to enter into a partnership,
it may nevertheless enter into a joint venture with another where the nature of that venture
is in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2.Fletcher Cyc. of Corp., 1082.). Here, there is nothing
in the record to indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not in line with the corporate business of either
of them.

WOLFGANG AURBACH v. SANITARY WARES MANUFACTURING CORPORATION,

GR No. 75875, 1989-12-15
Facts:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin
Young went abroad to look for foreign partners, European or American who could help in
its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in
Delaware, United States entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to participate in the ownership of
an enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares.
On March 8, 1983, the annual stockholders' meeting proceeded to the election of the
members of the board of directors. During the election, the chairman, Baldwin Young
ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement,
the consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors, and the
legal advice of Saniwares' legal counsel.
These incidents triggered off the filing of two separate petitions by the parties with the
Securities and Exchange Commission (SEC).
One was for preliminary injunction filed by Saniwares, Emesto V. Lagdameo, Baldwin
Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F.
Lee against Luciano Salazar and Charles Chamsay.
As a reaction a quo warranto and application for receivership was filed by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay
against the group of Young and Lagdameo and Avelino F. Cruz.
The hearing officer (SEC) who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay.
The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed
the hearing officer's decision.
Petitioners appealed to IAC which ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders' meeting of Saniwares
be ordered convoked as soon as possible, under the supervision of the Commission. But,
it was amended upon a motion for reconsideration filed by the appellees Lagdameo
Group.
On the basis of the decision of IAC, the petitioners filed its petition to the SC.
The main issue hinges on who were the duly elected directors of Saniwares for the year
1983 during its annual stockholders' meeting held on March 8, 1983. To answer this
question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2) whether
or not the ASI Group may vote their additional 10% equity during elections of Saniwares'
board of directors.

Issue:
Whether it was a joint venture or a corporation.
Held:
Yes. The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation
and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC
MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751,
128 P 2nd 668)
In the instant cases, our examination of important provisions of the Agreement as well as
the testimonial evidence presented by the Lagdameo and Young Group shows that the
parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making
body are all consistent with a joint venture and not with an ordinary corporation.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained
shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the
enterprise being treated as partnership for tax purposes and liabilities to third parties.

City of Manila v Francisco Gambe, et al; G.R. L-No. 3666 ; August 17, 1909
Facts:
The plaintiff commenced an action in the Court of First Instance of the city of Manila
against the defendants, Francisco Gambe, Manuel Perez, Antonio Herranz, and Florencio
Garriz, who constitute the commercial firm of Herranz & Garriz, for the purpose of
recovering the sum of five thousand dollars ($5,000), United States currency, for certain
damages occasioned by the steamship Alfred to the "Spanish Bridge" in the city of
Manila.
After a consideration of the facts adduced during the trial, the Honorable Judge Rohde,
then one of the judges of the Court of First Instance of the city of Manila, rendered a
judgment against the said Francisco Gambe, for the sum of $1,300, United States
currency, and for the costs.
Francisco Gambe was a pilot and member of the Pilot's Association of Manila and was at
the time of the alleged accident and injury in charge of said steamship Alfred. Judge
Rohde dismissed the cause as to the other defendants.
An appealed was made to the SC but it was denied and the execution of the decision of
the lower court was ordered but it was returned unsatisfied.
In accordance with the provisions of section 431 of the Code of Procedure in Civil Actions,
the plaintiff attempted to attach whatever money or effects which the defendant had in the
said Pilots' Association of Manila. These attachments were directed to the Hongkong and
Shanghai Banking Corporation, the Hon. W. Morgan Shuster, Collector of Customs, as
well as Francisco Aguado, who was the chief of the said Pilot's Association. The petition
for these attachments was filed in the court of first instance of Manila which was denied
on the ground that the above-named respondents, either as officers of the association or
members thereof, have not in their control, nor do they possess any property, money, or
effects which would be the subject of a levy under execution against said Gambe.
Because of this decision, the plaintiff appealed to this court on the ground that the court
below erred in not ordering the respondents, as officers or members of the Pilots'
Association, to deliver to the plaintiff, the city of Manila, the P800, Philippine currency,
which the said defendant Gambe, against whom the plaintiff has an execution pending
for the sum of P2,670, Philippine currency, has in the treasury of the association.
Issue:
Whether or not the said Pilots' Association had debts, credits, or personal property, not
capable of manual delivery, in its possession or under its control, belonging to the
defendant.
Held:
No. The association has a distinct and separate entity from the individual members who
make it up. From the evidence that was adduced before the lower court we are of the
opinion, and so hold, that the said association had no debts, credits, or personal property,
not capable of manual delivery, in its possession, belonging to the defendant (Gambe),
which are subject to be attached in accordance with the provisions of section 431. It is,
therefore, hereby ordered that the plaintiff take nothing in this action and that the plaintiff
be charged with the costs of both instances.

LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.317 SCRA 728,
G.R. No. 136448, Nov. 3, 1999, Panganiban, J.
FACTS:
Antonio Chua and Peter Yap bought nets of various sizes and floats from Philippine
Fishing Gear (PFG) for Ocean Quest Fishing Corporation (OQF), saying that petitioner
was also involved with OQF despite not being a signatory to the agreement. The total
price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000
were also sold to the Corporation.
They failed to pay the purchase price, hence PFG filed a collection case against OQF.
PFG also alleged that OQF is a non-existent corporation by virtue of a certification by the
SEC.
RTC issued the writ of attachment on the nets, and was sold at a public auction with the
proceeds deposited to the court.
RTC ruled that partnership existed between the three (Chua, Yao, Lim) based (1) on the
testimonies of the witnesses presented and (2) on the Compromise Agreement executed
by the three.
On appeal, CA affirmed.
ISSUE:
Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.
HELD:
Yes. Art 1767 of the NCC provides that “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.”
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their
Compromise Agreement, they subsequently revealed their intention to pay the loan with
the proceeds of the sale of the boats, and to divide equally among them the excess or
loss. These boats, the purchase and the repair of which were financed with borrowed
money, fell under the term "common fund" under Article 1767. The contribution to such
fund need not be cash or fixed assets; it could be an intangible like credit or industry. That
the parties agreed that any loss or profit from the sale and operation of the boats would
be divided equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat,
but also to that of the nets and the floats. The fishing nets and the floats, both essential
to fishing, were obviously acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted
the main assets of the partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
EVANGELISTA & Co. vs. ABAD SANTOS
Facts:
In 1955, A co-partnership was formed under the name of "Evangelista & Co" between
Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution ofP17,500 each. And
that the profits and losses "shall be divided and distributed among the partners ... in the
proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P.
Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and 30%
for the fourth partner Estrella Abad Santos."
Note that at this time, she was and still a Judge of the City Court of Manila when the that
partnership was formed.
Several years thereafter (1963), respondent filed suit against the three other partners in
the Court of First Instance of Manila, alleging that the partnership, which was also made
a party-defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to refuse and
let her examine the partnership books or to give her information regarding the partnership
affairs to pay her any share in the dividends declared by the partnership. She therefore
prayed that the defendants be ordered to render accounting to her of the partnership
business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed
profits of the partnership; denied likewise that the plaintiff ever demanded that she be
allowed to examine the partnership books; and byway of affirmative defense alleged that
the amended Articles of Co-partnership did not express the true agreement of the parties,
which was that the plaintiff was not an industrial partner; that she did not in fact contribute
industry to the partnership; and that her share of 30% was to be based on the profits
which might be realized by the partnership only until full payment of the loan which it had
obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.
Issue:
Whether the plaintiff-appellee (respondent here) is an industrial partner as claimed by her
or merely a profit sharer entitled to 30% of the net profits that may be realized by the
partnership from June 7, 1955 until the mortgage loan from the Rehabilitation Finance
Corporation shall be fully paid, as claimed by appellants (herein petitioners)."
Held:
Yes. Article 1767 of the New Civil Code which provides that "By 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, 'does not
specify the kind of industry that a partner may thus contribute, hence the said services
may legitimately be considered as appellee's contribution to the common fund.
Another article of the same Code relied upon appellants reads:' ART. 1789. An
industrial partner cannot engage in business for himself, unless the partnership
expressly permits him to do so; and if he should do so, the capitalist partners may either
exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for
himself seeks to prevent any conflict of interest between the industrial partner and the
partnership, and to insure faithful compliance by said partner with this prestation. There
is no pretense, however, even on the part of the appellee is engaged in any business
antagonistic to that of appellant company, since being a Judge of one of the branches of
the City Court of Manila can hardly be characterized as a business and that the appellee
has faithfully complied with her prestation.
It is clear that even as she was and still is a Judge of the City Court of Manila, she has
rendered services for appellants without which they would not have had the wherewithal
to operate the business for which appellant company was organized.

Fernandez v De La Rosa; 1 Phil. 671; G.R. No. 413, February 02, 1903.
Facts:
The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the
.defendant to form a partnership for the purchase of cascoes and the carrying on of the
business of letting the same for hire in Manila, the defendant to buy the cascoes and each
partner to furnish for that purpose such amount of money as he could, the profits to be
divided proportionately; that in the same January the plaintiff furnished the defendant 300
pesos to purchase a casco, which the defendant did purchase for 500 pesos of Dona
Isabel Vales, taking the title in his own name;
The plaintiff furnished further sums aggregating about 300 pesos for repairs on this casco;
that on the fifth of the following March he furnished the defendant 825 pesos to purchase
another casco, which the defendant did purchase for 1,000 pesos of Luis R. Yangco,
taking the title to this casco also in his own name;
That in April the parties undertook to draw up articles of partnership but they failed to
arrive in an agreement for the contents of it. Hence, no written agreement was executed.
The defendant having in the meantime had the control and management of the two
cascoes.
The plaintiff made a demand for an accounting upon him, which the defendant refused to
render, denying the existence of the partnership altogether.
At some time subsequently to the failure of the attempt to agree upon partnership articles
and after the defendant had been operating the cascoes for some time, the defendant
returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and one of 825
pesos.
Issues:
(1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a result of the act of the defendant
in receiving back the 1,125 pesos?
Held:
(1) Yes. The essential points upon which the minds of the parties must meet in a
contract of partnership are, therefore, (1) mutual contribution to a common stock, and (2)
a joint interest in the profits. If the contract contains these two elements the partnership
relation results, and the law itself fixes the incidents of this relation if the parties fail to do
so. (Civil Code, sees. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the cascoes
in question. This establishes the first element of the contract, namely, mutual contribution
to a common stock. The second element, namely, the intention to share profits, appears
to be an unavoidable deduction from the fact of the purchase of the cascoes in common,
in the absence of any other explanation of the object of the parties in making the purchase
in that form, and,. it may be added, in view of the admitted fact that prior to the purchase
of the first casco the formation of a partnership had been a subject of negotiation between
them.

It is thus apparent that a complete and perfect contract of partnership was entered
into by the parties. The execution of a written agreement was not necessary in order to
give efficacy to the verbal contract of partnership as a civil contract, the contributions of
the partners not having been in the form of immovables or rights in immovables. (Civil
Code, art. 1667.)
 (2) No. There was no intention on the part of the plaintiff in accepting the money to
relinquish his rights as a partner, nor is there any evidence that by anything that he said
or by anything that he omitted to say he gave the defendant any ground whatever to
believe that he intended to relinquish them. On the contrary he notified the defendant that
he waived none of his rights in the partnership. Nor was the acceptance of the money an
act which was in itself inconsistent with the continuance of the partnership relation, as
would have been the case had the plaintiff withdrawn his entire interest in the partnership.
There is, therefore, nothing upon which a waiver, either express or implied, can be
predicated. The defendant might have himself terminated the partnership relation at any
time, if he had chosen to do so, by recognizing the plaintiff's right in the partnership
property and in the profits. Having failed to do this he can not be permitted to force a
dissolution upon his copartner upon terms which the latter is unwilling to accept.

Council Red Men vs. Veterans Army; G.R. No. 3186 ; March 7, 1907
Facts:
This case involves the Veteran Army of the Philippines. Their Constitution provides for
the organization of posts.
Among the posts thus organized is the General Henry W. Lawton Post, No. 1. March 1,
1903: a contract of lease of parts of a certain buildings in the city of Manila was signed
by Lewis, Stovall, and Hayes (as trustees of the Apache Tribe, No. 1, Improved Order of
Red Men) as lessors, and McCabe (citing for and on behalf of Lawton Post, Veteran Army
of the Philippines) as lessee.
The lease was for the term of two years commencing February 1, 1903, and ending
February 28, 1905. The Lawton Post occupied the premises in controversy for thirteen
months, and paid the rent for that time. Thereafter, it abandoned the premises.
Council Red Men then filed an action to recover the rent for the unexpired term of the
lease.
Judgment was rendered acquitting Mc Cabe but finding Veteran Army of the Philippines
liable to pay for the unexpired term.
It is claimed by the Veterans Army that the action cannot be maintained by the Council
Red Men because it never contracted, either with the Council Red Men or with Apache
Tribe, No. 1, and never authorized anyone to so contract in its name.
Issue:
Whether or not Article 1695 of the Civil Code is applicable to the Veteran Army of the
Philippines.
Held:
No. Article 1695 of the Civil Code provides as follows: "Should no agreement have been
made with regard to the form of management, the following rules shall be observed: 1. All
the partners shall be considered as agents, and whatever any one of them may do by
himself shall bind the partnership; but each one may oppose the act of the others before
they may have produced any legal effect."
In this case, the constitution of the Veteran Army of the Philippines makes provision for
the management of its affairs, so that article 1695 of the Civil Code, making each member
an agent of the partnership in the absence of such provision, is not applicable to that
organization.
Moreover, the contract of lease is not binding on the Veterans Army absent showing that
it was authorized in a meeting of the department. Here, no evidence was offered to show
that the department had never taken any such action. In fact, the proof shows that the
transaction in question was entirely between Apache Tribe, No. 1, and the Lawton Post,
and there is nothing to show that any member of the department ever knew anything
about it, or had anything to do with it.
We, therefore, hold that no contract, such as the one in question, is binding on the Veteran
Army of the Philippines.

ARTICLE 1768
TOCAO V. COURT OF APPEALS
342 SCRA 20 (2000)
FACTS:

William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The
three agreed to form a joint venture for the sale of cooking wares. Belo was
to contribute P2.5 million; Tocao also contributed some cash and she shall
also act as president and general manager; and Anay shall be in charge of
marketing. Belo and Tocao specifically asked Anay because of her experience
and connections as a marketer. They agreed further that Anay shall receive
the following:
 10% share of annual net profits
 6% overriding commission for weekly sales
 30% of sales Anay will make herself
 2% share for her demo services

They operated under the name Geminesse Enterprise, this name was however
registered as a sole proprietorship with the Bureau of Domestic Trade under
Tocao. The joint venture agreement was not reduced to writing because Anay
trusted Belo’s assurances.

The venture succeeded under Anay’s marketing prowess. But then the
relationship between Anay and Tocao soured. One day, Tocao advised one of
the branch managers that Anay was no longer a part of the company. Anay
then demanded that the company be audited and her shares be given to her.

ISSUE:

WON there is a partnership.

HELD:

YES. The Supreme Court held that to be considered a juridical personality, a

partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and
(2) intention on the part of the partners to divide the profits among
themselves.

It may be constituted in any form; a public instrument is necessary only where

immovable property or real rights are contributed thereto. This implies that
since a contract of partnership is consensual, an oral contract of partnership
is as good as a written one.

In this case, Private respondent Anay contributed her expertise in the business
of distributorship of cookware to the partnership and hence, under the law,
she was the industrial or managing partner. Petitioner Belo had a proprietary
interest. He presided over meetings regarding matters affecting the operation
of the business. Moreover, his having authorized in writing giving Anay 37%
of the proceeds of her personal sales, could not be interpreted otherwise than
that he had a proprietary interest in the business. This is inconsistent with his
claim that he merely acted as a guarantor.

Even though it was not reduced to writing, for a partnership can be instituted
in any form. The fact that it was registered as a sole proprietorship is of no
moment for such registration was only for the company’s trade name.

Anay was not even an employee because when they ventured into the
agreement, they explicitly agreed to profit sharing this is even though Anay
was receiving commissions because this is only incidental to her efforts as a
head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully from
a partnership is an innocent partner. Hence, the guilty partner must give him
his due upon the dissolution of the partnership as well as damages or share
in the profits “realized from the appropriation of the partnership business and
goodwill.” An innocent partner thus possesses “pecuniary interest in every
existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.”

An unjustified dissolution by a partner can subject him to action for damages

because by the mutual agency that arises in a partnership, the doctrine
of delectus personae allows the partners to have the power, although not
necessarily the right to dissolve the partnership.

Tocao’s unilateral exclusion of Anay from the partnership is shown by her

memo to the Cubao office plainly stating that Anay was, as of October 9, 1987,
no longer the vice-president for sales of Geminesse Enterprise. By that memo,
petitioner Tocao effected her own withdrawal from the partnership and
considered herself as having ceased to be associated with the partnership in
the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business.

CAMPOS, RUEDA & CO VS. PACIFIC COMMERCIAL

44 PHIL 916

FACTS:

Campos, Rueda & Co., a limited partnership, is indebted to the appellants:

Pacific Commercial Co., Asiatic Petroleum Co, and International Banking
Corporation amounting to not less than P1,000.00 (which were not paid more
than 30 days prior to the date of the filing by petitioners of the application for
voluntary insolvency).
The trial court denied their petition on the ground that it was not proven, nor
alleged, that the members of the firm were insolvent at the time the
application was filed. It also held that the partners are personally and solidarily
liable for the consequences of the transactions of the partnership.

ISSUE:

WON a limited partnership 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.
HELD:
YES. The Supreme Court said that a limited partnership is a juridical entity
for all intents and purposes, which personality is recognized in all its acts and
contracts. This juridical personality of a limited partnership being different
from that of its members must, answer for, and suffer, the consequence of its
acts as such an entity capable of being the subject of rights and obligations.
If 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.
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. 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.

VARGAS & CO. VS. CHAN HANG CHIU

29 Phil 446 (1915)

FACTS:

On the 19th day of August, 1911, an action was begun by Chan Hang Chiu
against the plaintiff in this case as a mercantile association duly organized
under the laws of the Philippine Islands, to recover a sum of money.

The summons and complaint were placed in the hands of the sheriff, delivering
to and leaving with one Jose Macapinlac personally true copies thereof, he
being the managing agent of said Vargas & Co. at the time of such service.

On July 2, 1912, the justice's court rendered judgment against Vargas & Co.
for the sum of 372.28. It is plaintiff’s contention that Vargas & Co. being a
partnership, it is necessary, in bringing an action against it, to serve the
summons on all of the partners, delivering to each one of them personally a
copy thereof; and that the summons in this case having been served on the
managing agent of the company only, the service was of no effect as against
the company and the members thereof and the judgment entered by virtue of
such a service was void.

ISSUE:

WON it is indispensable in bringing an action to a partnership to serve

summons to all parties thereof.

HELD:

NO. It is dispensable. The Supreme Court ruled 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 juridical entities and to permit them to sue and be sued in
the name of the company, the summons being served solely on the managing
agent or other official of the company specified by the section of the Code of
Civil Procedure referred to.

The plaintiff brings this action in the company name and not in the name of
the members of the firm. Actions against companies of the class to which
plaintiff belongs are brought, according to the uninterrupted practice, against
such companies in their company names and not against the individual
partners constituting the firm. In case the individual members of the firm must
be separately served with process, the rule also prevails that they must be
parties to the action, either plaintiffs or defendant, and that the action cannot
be brought in the name of or against the company itself.

If it is necessary to serve the partners individually, they are entitled to be

heard individually in the action and they must, therefore, be made parties
thereto so that they can be heard. It would be idle to serve process on
individual members of a partnership if the litigation were to be conducted in
the name of the partnership itself and by the duly constituted officials of the
partnership exclusively. In this case, is apparent that the plaintiff is acting
contrary to its own contention by bringing the action in the name of the
company. If not served with process, then the action should be brought in the
individual names of the partners and not in the name of the company itself.
 NGO TIAN TEK VS. PHIL. EDUCATION CO.
78 PHIL. 275 (1947)

FACTS:

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.

ISSUE:

WON the death of any of the partner in a partnership is a ground for the
dismissal of a pending case.

RULING:

NO. The Supreme Court said that 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.

TAI TONG CHUACHE VS. INSURANCE COMMISSION

158 SCRA 336 (1988)

FACTS:

Complainants Palomo acquired a parcel of land and a building located in Davao

City. They assumed the mortgage of the building in favor of SSS, which
building was insured with respondent SSS Accredited Group of Insurers for
P25K.
On April 19, 1975, Azucena Palomo obtained a P100K loan from Tai Tong
Chuache Inc. (TTCC) and executed a mortgage over the land and the building
in favor of Tai Tong Chuache & Co. as security of payment. On April 25, 1975,
Arsenio Chua, representative of TTCC insured the latter's interest with
Travellers Multi-Indemnity Corporation (Travellers) for P100K (P70K for bldg
and P30K for the contents thereof).

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy, covering the
building for P50K with respondent Zenith Insurance Corporation (ZIC).
Another Fire Insurance Policy was later procured from respondent Philippine
British Assurance Company (PBAC), covering the same building for P50K and
contents thereof for P70K. On July 31, 1975, the building and the contents
were totally razed by fire.

Based on the computation of the loss, including the Travellers, respondents,

ZIC, PBAC, and SSS paid their corresponding shares of the loss. Complainants
were paid the following: P41,546.79 by PBAC, P11,877.14 by ZIC, and
P5,936.57 by SSS. Demand was made from respondent Travellers for its share
in the loss but was refused. Hence, complainants demanded from the other 3
respondents the balance of each share in the loss based on the computation
excluding Travellers Multi-Indemnity in the amount of P30,894.31 (P5,732.79-
ZIC: P22,294.62, PBAC: and P2,866.90, SSS) but was refused, hence, this
action.

ISSUE:

WON petitioner Tai Tong has insurable interest in the said policy. YES.
WON Arsenio Lopez Chua acts as the managing partner of the partnership.
YES.

HELD:

YES. First, respondent insurance commission based its findings on mere

inference. Respondent Insurance Commission absolved respondent insurance
company from liability on the basis of the certification issued by the then CFI,
that in a certain civil action against the Palomos, Arsenio Lopez Chua stands
as the complainant and not Tai Tong Chuache. From said evidence respondent
commission inferred that the credit extended by herein petitioner to the
Palomos secured by the insured property must have been paid. Such is a
glaring error which this Court cannot sanction.

Second, it has been held in a long line of cases that when the creditor is in
possession of the document of credit, he need not prove non-payment for it
is presumed. The validity of the insurance policy taken by petitioner was not
assailed by private respondent. Moreover, petitioner's claim that the loan
extended to the Palomos has not yet been paid was corroborated by Azucena
Palomo who testified that they are still indebted to herein petitioner. So at the
time of the fire, petitioner as mortgagee still had insurable interest therein.

And third, petitioner's declaration that Arsenio Lopez Chua acts as the
managing partner of the partnership was corroborated by respondent
insurance company. Thus Chua as the managing partner of the
partnership may execute all acts of administration including the right
to sue debtors of the partnership in case of their failure to pay their
obligations when it became due and demandable. Or at the least, Chua
being a partner of petitioner Tai Tong Chuache & Company is an agent
of the partnership. Being an agent, it is understood that he acted for
and in behalf of the firm.

AGUILA, JR. VS. COURT OF APPEALS

316 SCRA 246 (1999)

FACTS:

Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C. Aguila & Sons, Co.,
a partnership engaged in lending activities. Felicidad S. Vda. de Abrogar
(private respondent) and her late husband, Ruben M. Abrogar, were the
registered owners of a house and lot, covered by Transfer Certificate of Title
No. 195101, in Marikina, Metro Manila.

On April 18, 1991, private respondent, with the consent of her late husband,
and A.C. Aguila & Sons, Co., represented by petitioner, entered into a
Memorandum of Agreement which provided that A.C. Aguila & Sons, Co. shall
buy the property from private respondent for P200,000 subject to an option
to repurchase for P230,000 (valid for 90 days), etc. On the same day, the
parties likewise executed a deed of absolute sale, dated June 11, 1991,
wherein private respondent, with the consent of her late husband, sold the
subject property to A.C. Aguila & Sons, Co., represented by petitioner, for
P200,000,00.

In a special power of attorney dated the same day, April 18, 1991, private
respondent authorized petitioner to cause the cancellation of TCT No. 195101
and the issuance of a new certificate of title in the name of A.C. Aguila and
Sons, Co., in the event she failed to redeem the subject property as provided
in the Memorandum of Agreement. Private respondent failed to redeem the
property. Pursuant to the special power of attorney mentioned above,
petitioner caused the cancellation of TCT No. 195101 and the issuance of a
new certificate of title in the name of A.C. Aguila and Sons, Co. Private
respondent then received a letter dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate
the premises within 15 days after receipt of the letter and surrender its
possession peacefully to A.C. Aguila & Sons, Co.

Otherwise, the latter would bring the appropriate action in court. Upon the
refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court,
Branch 76, Marikina, Metro Manila. MeTC, Marikina, MM (April 3, 1992): Ruled
in favor of A.C. Aguila & Sons, Co. Private respondent appealed to RTC Pasig,
CA, and then SC but she still lost. Private respondent then filed a petition for
declaration of nullity of a deed of sale filed by Felicidad S. Vda. de Abrogar
against Alfredo N. Aguila, Jr. She alleged that the signature of her husband on
the deed of sale was a forgery because he was already dead when the deed
was supposed to have been executed on June 11, 1991.
On April 11, 1995, the RTC, Marikina, MM dismissed the case.

On November 29,1990, the CA reversed the ruling of the RTC. Hence, this
petition for review on certiorari. Petitioner now contends that: (1) he is not
the real party in interest but A.C. Aguila & Co., against which this case should
have been brought; (2) the judgment in the ejectment case is a bar to the
filing of the complaint for declaration of nullity of a deed of sale in this case;
and (3) the contract between A.C. Aguila & Sons, Co. and private respondent
is a pacto de retro sale and not an equitable mortgage as held by the appellate
court.

ISSUE:

WON the real party in interest is A.C. Aguila & Co. and not petitioner.

HELD:

YES. Under Art. 1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the partners." The
partners cannot be held liable for the obligations of the partnership unless it
is shown that the legal fiction of a different juridical personality is being used
for fraudulent, unfair, or illegal purposes.

In this case, private respondent has not shown that A.C. Aguila & Sons, Co.,
as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C.
Aguila & Sons, Co. and the Memorandum of Agreement was executed between
private respondent, with the consent of her late husband, and A.C. Aguila &
Sons, Co., represented by petitioner.

Hence, it is the partnership, not its officers or agents, which should be

impleaded in any litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the complaint.

ANG PUE & COMPANY, ET AL., VS.

SECRETARY OF COMMERCE AND INDUSTRY
5 SCRA 645 (1962)

FACTS:
On May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the
partnership Ang Pue & Company for a term of five years. Prior to the expiration
of the five-year term, the partners amended the original articles of partnership
so as to extend the term of life of the partnership to another five years.
However, when the amended articles were presented for registration in the
Office of the SEC, registration was refused upon the ground that the extension
was in violation of RA 1180 –an act prohibiting the extension of the term of a
partnership not wholly formed by Filipinos.
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. The partners agreed to extend
the partnership for another five years. However, the Securities & Exchange
Commission refused registration because it violates R.A. No. 1180.

ISSUE:
WON the right to organize a partnership is an absolute right, hence, the
partners have the right to extend the original term of their partnership
notwithstanding R.A. No. 1180.

HELD:

NO. The Supreme Court stated that “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.”

Moreover, even if it was provided in the original articles of partnership that

the partners could extend the term of the partnership, R.A. No. 1180 applies
to them. According to the Supreme Court, the agreement contained 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.

ARTICLE 1769

HEIRS OF TAN ENG KEE V. COURT OF APPEALS

341 SCRA 740 (2000)

FACTS:

The heirs of Tan Eng Kee filed a suit against the decedent’s brother Tan Eng
Lay. The complaint alleged that after the Second World War, the brothers,
pooling their resources and industry together, entered into a partnership
engaged in the selling of lumber and hardware and construction supplies. They
named their enterprise “Benguet Lumber” which they jointly managed until
Tan Kee’s death. Petitioners averred that the business prospered due to the
hard work and thrift of the alleged partners.

However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership “Benguet Lumber” into a corporation called
“Benguet Lumber Company.” The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful participation in the profits
of the business. Petitioners prayed for accounting of the partnership assets,
and the dissolution, and winding up of the alleged partnership formed after
the World War II between Tan Eng Kee and Tan Eng Lay.

The Regional Trial court found that Benguet Lumber is a joint venture which
is akin to a particular partnership, and declared that the assets of Benguet
Lumber are the same assets turned over to Benguet lumber Co. and as such
the heirs or legal representatives of the deceased Tan Eng Kee have a legal
right to share in the said assets. The Court of Appeals reversed the judgment
of the Trial Court.

ISSUE:

WON a partnership existed between Tan Eng Kee and Tan Eng Lay.
HELD:

NO. In order to constitute a partnership, it must be established that (1) two

or more persons bound themselves to contribute money, property, or industry
to a common fund, and (2) they intend to divide the profits among
themselves. The best evidence of the partnership’s existence would have been
the contract of partnership itself, or the articles of partnership but there is
none.

The alleged partnership, though, was never formally organized. In addition,

petitioners point out that the New Civil Code was not yet in effect when the
partnership was allegedly formed sometime in 1945, although the contrary
may well be argued that nothing prevented the parties from complying with
the provisions of the New Civil Code when it took effect on August 30, 1950.
A review of the record persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The evidence presented by petitioners
falls short of the quantum of proof required to establish a partnership. It is
indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an accounting.

The essence of a partnership is that the partners share in the profits and
losses. Each has the right to demand an accounting as long as the partnership
exists. A demand for periodic accounting is evidence of a partnership.

During his lifetime, Tan Eng Kee appeared never to have made any such
demand for accounting from his brother. This brings us to the matter of
Exhibits “4” to “4-U” for private respondents, consisting of payrolls purporting
to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as
it was then called. Exhibits “4” to “4-U” in fact shows that Tan Eng Kee
received sums as wages of an employee.

In connection therewith, Article 1769 of the Civil Code provides: In

determining whether a partnership exists, these rules shall apply: XXX (4) The
receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but no such inference shall be
drawn if such profits were received in payment: (a) As a debt by installment
or otherwise; (b) As wages of an employee or rent to a landlord; (b) As an
annuity to a widow or representative of a deceased partner; (d) As interest
on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee
was only an employee, not a partner. Even if the payrolls as evidence were
discarded, petitioners would still be back to square one, so to speak, since
they did not present and offer evidence that would show that Tan Eng Kee
received amounts of money allegedly representing his share in the profits of
the enterprise. Petitioners failed to show how much their father, Tan Eng Kee,
received, if any, as his share in the profits of Benguet Lumber Company for
any particular period. Hence, they failed to prove that Tan Eng Kee and Tan
Eng Lay intended to divide the profits of the business between themselves,
which is one of the essential features of a partnership. Nevertheless,
petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee
were commanding the employees; that both were supervising the employees;
that both were the ones who determined the price at which the stocks were
to be sold; and that both placed orders to the suppliers of the Benguet Lumber
Company. They also point out that the families of the brothers Tan Eng Kee
and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege
not extended to its ordinary employees.

Even the aforesaid circumstances, when taken together are not persuasive
indicia of a partnership. They only tend to show that Tan Eng Kee was involved
in the operations of Benguet Lumber, but in what capacity is unclear. We
cannot discount the likelihood that as a member of the family, he occupied a
niche above the rank-and-file employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such as his residence in the Benguet
Lumber Company compound. He would have moral, if not actual, superiority
over his fellow employees, thereby entitling him to exercise powers of
supervision. It may even be that among his duties is to place orders with
suppliers. Again, the circumstances proffered by petitioners do not provide a
logical nexus to the conclusion desired; these are not inconsistent with the
powers and duties of a manager, even in a business organized and run as
informally as Benguet Lumber Company.

PASCUAL VS. COMMISSIONER OF INTERNAL REVENUE

166 SCRA 560 (1988)

FACTS:

On June 22, 1965, petitioners Mariano Pascual and Renato Dragon 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 to Marenir 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 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 asserting that they had availed of
tax amnesties way back in 1974.

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 the
National Internal Revenue Code.

ISSUE:

WON respondent is correct in its presumptive determination that petitioners

formed an unregistered partnership thus subject to corporate income tax.

HELD:

NO. The Supreme Court held that 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 Evangelista, 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.

Reliance of the lower court to the case of Evangelista v. Collector is untenable.

In order to constitute a partnership interest 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. 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.

OÑA VS. COMMISSIONER OF INTERNAL REVENUE

45 SCRA 74 (1972)

FACTS:

Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her
five children. A civil case was instituted for the settlement of her state, in
which Oña was appointed administrator and later on the guardian of the three
heirs who were still minors when the project for partition was approved. This
shows that the heirs have undivided ½ interest in 10 parcels of land, 6 houses
and money from the War Damage Commission.

Although the project of partition was approved by the Court, no attempt was
made to divide the properties and they remained under the management of
Oña who used said properties in business by leasing or selling them and
investing the income derived therefrom and the proceeds from the sales
thereof in real properties and securities. As a result, petitioners’ properties
and investments gradually increased. Petitioners returned for income tax
purposes their shares in the net income but they did not actually receive their
shares because this left with Oña who invested them.

Based on these facts, CIR decided that petitioners formed an unregistered

partnership and therefore, subject to the corporate income tax, particularly
for years 1955 and 1956. Petitioners asked for reconsideration, which was
denied hence this petition for review from CTA’s decision.

ISSUE:

W/N there was a co-ownership or an unregistered partnership.

W/N the petitioners are liable for the deficiency corporate income tax.

HELD:

There was an unregistered partnership. The Tax Court found that instead of
actually distributing the estate of the deceased among themselves pursuant
to the project of partition, the heirs allowed their properties to remain under
the management of Oña and let him use their shares as part of the common
fund for their ventures, even as they paid corresponding income taxes on their
respective shares.
YES. For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the moment the said
common properties and/or the incomes derived therefrom are used as a
common fund with intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a project partition either
duly executed in an extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding. The reason is simple. From the
moment of such partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for each of them to
manage and dispose of as exclusively his own without the intervention of the
other heirs, and, accordingly, he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to be held in
common with his co-heirs under a single management to be used with the
intent of making profit thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were executed, for the purpose,
for tax purposes, at least, an unregistered partnership is formed.

For purposes of the tax on corporations, our National Internal Revenue Code
includes these partnerships —

The term “partnership” includes a syndicate, group, pool, joint venture or

other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on… (8 Merten’s Law of
Federal Income Taxation, p. 562 Note 63; emphasis ours.)

with the exception only of duly registered general copartnerships — within the
purview of the term “corporation.” It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned,
and are subject to the income tax for corporations. Judgment affirmed.

JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.THE COLLECTOR OF INTERNAL

REVENUE, defendant-appellee.

FACTS OF THE CASE:

That plaintiff are all residents of the municipality of Pulilan, Bulacan. Prior to December 15,
1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket valued at two pesos (P2),
subscribed and paid therefor the amounts as follows:

Jose Gatchalian P0.18; . Gregoria Cristobal .18; Saturnina Silva .08; Guillermo Tapia .13;
Jesus Legaspi .15; Jose Silva .07; Tomasa Mercado .08; Julio Gatchalian .13; Emeliana Santiago .13;
Maria C. Legaspi .16; Francisco Cabral .13; Gonzalo Javier .14; Maria Santiago .17; Buenaventura
Guzman . 13 and Mariano Santos .14, totaled P2.00.
 That immediately thereafter, plaintiffs purchased from one of the duly authorized agents of the
National Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2) and
that the said ticket was registered in the name of Jose Gatchalian and Company;

That as a result of the drawing of the sweepstakes on December 15, 1934, the above-
mentioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000 in favor of
Jose Gatchalian & Company.

That on January 8, 1935, the defendant made an assessment against Jose Gatchalian &
Company requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan,
Bulacan, giving to said Jose Gatchalian & Company until January 20, 1935 within which to pay the
said amount of P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof.

SSUE;

Whether or not the plaintiff organized a partnership and said entity is bound to pay income tax.

Held:

YES. According to the stipulation facts the plaintiffs organized a partnership of a civil nature
because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil
Code). The partnership was not only formed, but upon the organization thereof and the winning of the
prize, Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his
capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in favor of
Jose Gatchalian and company, and the said partner, in the same capacity,

Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected under the aforesaid section 10 (a) of Act
No. 2833, as amended by section 2 of Act No. 3761.

FLORENCIO REYES and ANGEL REYES, petitioners,

vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS, respondents.

FACTS OF THE CASE:

Father and son, purchased a lot and building, known as the Gibbs Building, situated at 671
Dasmariñas Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving a
balance of P460,000.00, representing the mortgage obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed by the vendees. The initial payment of
P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was leased
to various tenants, whose rights under the lease contracts with the original owners, the purchasers,
petitioners herein, agreed to respect. The administration of the building was entrusted to an
administrator who collected the rents; kept its books and records and rendered statements of accounts
to the owners; negotiated leases; made necessary repairs and disbursed payments, whenever
necessary, after approval by the owners; and performed such other functions necessary for the
conservation and preservation of the building. Petitioners divided equally the income of operation and
maintenance. The gross income from rentals of the building amounted to about P90,000.00 annually.
The respondent Court of Tax Appeals applying the appropriate provisions of the National Internal
Revenue Code, the first of which imposes an income tax on corporations

ISSUE:

Whether or not the petitioner formed a partnership and is subject to tax on corporations
provided for in `Sec. 24 24 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code

HELD:

YES. As penned by the present Chief Justice, "9 After referring to another section of the National
Internal Revenue Code, which explicitly provides that the term corporation "includes partnerships"
and then to Article 1767 of the Civil Code of the Philippines, defining what a contract of partnership
is, the opinion goes on to state that "the essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is undoubtedly present in the case 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, are fully satisfied that their purpose was to engage in
real estate transactions for monetary gain and then divide the same among themselves, . It is,
therefore, clear that petitioners herein constitute a partnership, insofar as said Code is concerned,
and are subject to the income tax for corporations.."10

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P.

OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

FACTS OF THE CASE:

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with
areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he
transferred his rights to his four children, the petitioners, to enable them to build their residences. The
company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo).
Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled
City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit
as a capital gain and paid an income tax on one-half thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner
of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as
corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest,
or a total of P71,074.56. He considered the share of the profits of each petitioner in the sum of P33,584

as a " taxable in full (not a mere capital gain of which ½ is taxable) and required them to pay deficiency
income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated
interest.

ISSUE: Did the petitioners form a partnership under Article 1967?

HELD: NO. Division of Profits was merely incidental. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible
to build their residences on the lots because of the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to
the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be
terminated sooner or later.

ADOLFO CRUZ AZNAR VS. GARCIA

FACTS OF THE CASE:

Edward E. Christensen, an American citizen who was already residing in Davao, became
the manager of the Mindanao Estates in Padada. A group of laborers recruited from Argao, Cebu,
arrived to work in the said plantation. Among the group was, Bernarda Camporedondo, who
became an assistant to the cook. Thereafter, this girl and Edward E. Christensen, who was also
unmarried started living together as husband and wife and although the records failed to establish
the exact date when such relationship commenced, the lower court found the same to have been
continuous for over 30 years until the death of Christensen occurred on April 30, 1953. Out of
said relations, 2 children, Lucy and Helen Christensen, were allegedly born.

Upon the demise of the American, who had left a considerable amount of properties, his will
naming Adolfo Cruz Aznar as executor was duly presented for probate in court and became the
subject of Special Proceedings No. 622 of the Court of First Instance of Davao which he declares
that he has one (1) child named MARIA LUCY CHRISTENSEN (now Mrs. Bernard Daney) and
further declare that I now have no living ascendants and no descendants except my above named
daughter MARIA LUCY CHRISTENSEN DANEY.and give all the income from the rest, remainder,
and residue of my property and estate, real, personal and/or mixed, of whatsoever kind or
character, and wheresoever situated, of which he may be possessed.

ISSUE:
Whether or not in their cohabitation, an informal civil partnership exist and have an equal
interest in the properties acquired during said union and is entitled to participate therein if said
properties were the product of their joint effort.
HELD:
NO. — Before Republic Act No. 386 (Civil Code of the Philippines) went into operation on
August 30, 1950, this court had already that where a man and a woman, not suffering from any
impediment to contract marriage, live together as husband and wife, an informal civil partnership
exists, and each of them has an equal interest in the properties acquired during said union and is
entitled to participate therein if said properties were the product of their JOINT effort (Marata v.
Diono G.R. No. 24449, December 31, 1925)

In the case at bar, aside from the observation of the trial court that appellee was an illiterate
woman, there appears no evidence to prove appellee’s contribution or participation in the
acquisition of the properties involved; therefore, following the aforecited ruling of this Court,
appellee’s claim for 1/2 of the properties cannot be granted. Even assuming for the sake of
argument that this case falls under the provisions of Article 144 of the Civil Code which recognizes
the parties as co-owners of the properties acquires during the union, the law would be applicable
only as far as properties acquired after the Act are concerned and to no other, for such law cannot
be given retroactive effect to govern those already possessed before August 30, 1950.

[G.R. No. L-47045. November 22, 1988.]

NOBIO SARDANE, Petitioner, v. THE COURT OF APPEAL and ROMEO J. ACOJEDO

FACTS OF THE CASE:

Petitioner brought an action in the City Court of Dipolog for collection of a sum of
P5,217.26 based on promissory notes executed by the herein private respondent Nobio Sardane
in favor of the herein petitioner. Petitioner bases his right to collect on Exhibits B, C, D, E, F, and
G executed on different dates and signed by private respondent Nobio Sardane.

"It has been established in the trial court that on many occasions, the petitioner demanded the
payment of the total amount of P5,217.25. The failure of the private respondent to pay the said
amount prompted the petitioner to seek the services of lawyer who made a letter (Exhibit 1)
formally demanding the return of the sum loaned. Because of the failure of the private respondent
to heed the demands extra judicially made by the petitioner, the latter was constrained to bring
an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an
answer. On motion by the petitioner, the City Court of Dipolog issued an order dated May 18,
1976 declaring the private respondent in default and allowed the petitioner to present his
evidence ex-parte. Based on petitioner’s evidence, the City Court of Dipolog rendered judgment
by default in favor of the petitioner.

Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del
Norte,which based on the oral testimony for the therein private respondent Sardane that a
partnership existed between him and therein petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory notes, reversed the decision of the lower court by
dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-
appellant P500.00 each for actual damages, moral damages, exemplary damages and attorney’s
fees, as well as the costs of suit. Plaintiff-appellee then sought the review of said decision by
petition to the respondent Court.
ISSUE: Whether or not partnership existed between the two the petitioner and the respondent.
RULING:
The fact that he had received 50% of the net profits does not conclusively establish that
he was a partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit
that while the receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, no such inference shall be drawn if such profits were
received in payment as wages of an employee. Furthermore, herein petitioner had no voice in
the management of the affairs of the basnig. Under similar facts, this Court in the early case of
Fortis v. Gutierrez Hermanos, denied the claim of the plaintiff therein that he was a partner in
the business of the defendant. The same rule was reiterated in Bastida v. Menzi & Co., Inc., Et.
Al. which involved the same factual and legal milieu.

G.R. No. 5837 September 15, 1911

CATALINO GALLEMIT, plaintiff-appellant, vs.CEFERINO TABILIRAN, defendant-

appellee.

This suit concerns the partition of a piece of land held pro indiviso which the plaintiff and
the defendant had acquired in common from its original owner. By the refusal of the
defendant to divide the property, the plaintiff was compelled to bring the proper action for
the enforcement of partition, referred to in section 181 and following of the Code of Civil
Procedure.
The record shows it to have been duly proved that Catalino Gallemit and Ceferino
Tabiliran by mutual agreement acquired by purchase the land concerned, situate in
Tangian, municipality of Dapitan, from its original owner, Luis Ganong, for the sum of P44.
It was stipulated between the purchasers that they each should pay one-half of the price
and that the property should be divided equally between them. The vendor testified under
oath that the plaintiff Gallemit paid him the sum of P22, one-half of the price that it was
incumbent upon him to pay, and that four months afterwards the defendant paid his part
of the price, although, owing to the refusal of the defendant, who was then the justice of
the peace of the pueblo, to comply with the stipulation made, the deed of sale was not
executed, nor was a partition effected of the land which they had acquired. The defendant,
instead of delivering to the plaintiff the share that belonged to the latter, the proportionate
price for which the plaintiff had already paid, kept all the land which belonged to them in
common, in violation of the stipulations agreed upon, notwithstanding that he paid the
vendor only one-half of the price thereof.
*note that the plaintiff alleges that their agreement is a contract of partnership*
The RTC rendered a judgment in favor of the defendant. Hence, this petition to the
Supreme Court.
ISSUE: Whether or not the agreement was a contract of partnership.
Ruling: NO.
Considering the terms of the claim made by the plaintiff and those of the defendant's
answer, and the relation of facts contained in the judgment appealed from, it does not
appear that any contract of partnership whatever was made between them for the
purposes expressed in article 1665 of the Civil Code, for the sole transaction performed
by them was the acquisition jointly by mutual agreement of the land in question, since it
was undivided, under the condition that they each should pay one-half of the price thereof
and that the property so acquired should be divided between the two purchasers; and as,
under this title, the plaintiff and the defendant are the co-owners of the said land, the
partition or division of such property held in joint tenancy must of course be allowed, and
the present possessor of the land has no right to deny the plaintiff's claim on grounds or
reasons unsupported by proof.
*There is community of property when the ownership of a thing belongs to different persons undividedly. (Art. 392, Civil
Code.) No co-ownership shall be obliged to remain a party to the community. Each of them may ask at any time the
division of the thing owned in common. (Art. 400 of the same code.)

G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant, vs.FRANCISCO DE LA ROSA, defendant-appellee.

The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the
defendant to form a partnership for the purchase of cascoes and the carrying on of the
business of letting the same for hire in Manila, the defendant to buy the cascoes and each
partner to furnish for that purpose such amount of money as he could, the profits to be
divided proportionately; that in the same January the plaintiff furnished the defendant 300
pesos to purchase a casco designated as No. 1515, which the defendant did purchase
for 500 pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff
furnished further sums aggregating about 300 pesos for repairs on this casco; that on
March 5th he furnished the defendant 825 pesos to purchase another casco designated
as No. 2089, which the defendant did purchase for 1,000 pesos of Luis R. Yangco, taking
the title to this casco also in his own name; that in April the parties undertook to draw up
articles of partnership for the purpose of embodying the same in an authentic document,
but that the defendant having proposed a draft of such articles which differed materially
from the terms of the earlier verbal agreement, and being unwillingly to include casco No.
2089 in the partnership, they were unable to come to any understanding and no written
agreement was executed; that the defendant having in the meantime had the control and
management of the 2 cascoes, the plaintiff made a demand for an accounting upon him,
which the defendant refused to render, denying the existence of the partnership
altogether.
The defendant admits that the project of forming a partnership in the casco business in
which he was already engaged to some extent individually was discussed between
himself and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a
partner of the plaintiff in a bakery business, being also a party to the negotiations, but he
denies that any agreement was ever consummated. He denies that the plaintiff furnished
any money in January, 1900, for the purchase of casco No. 1515, or for repairs on the
same, but claims that he borrowed 300 pesos on his individual account in January from
the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The 825
pesos, which he admits he received from the plaintiff March 5, he claims was for the
purchase of casco No. 1515, which he alleged was bought March 12, and he alleges that
he never received anything from the defendant toward the purchase of casco No. 2089.
He claims to have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000
pesos for the second one.
Issue: Whether or not a partnership exist between the parties.
Ruling: YES.

"Partnership is a contract by which 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." (Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. If the contract contains these two elements the partnership relation
results, and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil
Code, secs. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the cascoes
in question. This establishes the first element of the contract, namely, mutual contribution
to a common stock. The second element, namely, the intention to share profits, appears
to be an unavoidable deduction from the fact of the purchase of the cascoes in common,
in the absence of any other explanation of the object of the parties in making the purchase
in that form, and, it may be added, in view of the admitted fact that prior to the purchase
of the first casco the formation of a partnership had been a subject of negotiation between
them.
Under other circumstances the relation of joint ownership, a relation distinct though
perhaps not essentially different in its practical consequence from that of partnership,
might have been the result of the joint purchase. If, for instance, it were shown that the
object of the parties in purchasing in company had been to make a more favorable bargain
for the two cascoes that they could have done by purchasing them separately, and that
they had no ulterior object except to effect a division of the common property when once
they had acquired it, the affectio societatiswould be lacking and the parties would have
become joint tenants only; but, as nothing of this sort appears in the case, we must
assume that the object of the purchase was active use and profit and not mere passive
ownership in common.

The execution of a written agreement was not necessary in order to give efficacy to the
verbal contract of partnership as a civil contract, the contributions of the partners not
having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)
The special provision cited, requiring the execution of a public writing in the single case
mentioned and dispensing with all formal requirements in other cases, renders
inapplicable to this species of contract the general provisions of article 1280 of the Civil
Code.
The result is that we hold and declare that a partnership was formed between the parties
in January, 1900, the existence of which the defendant is bound to recognize; that
cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff is
entitled to an accounting of the defendant's administration of such property, and of the
profits derived therefrom.

Afisco Insurance Corporation vs Court of Appeals

G.R. No. 112675 January 25, 1999

FACTS:

The petitioners are 41 non-life insurance corporations, organized and existing under the
laws of the Philippines. Upon issuance by them of Erection, Machinery Breakdown,
Boiler Explosion and Contractors' All Risk insurance policies, the petitioners on August
1, 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance
Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich),
a non-resident foreign insurance corporation. The reinsurance treaties required
petitioners to form a pool. Accordingly, a pool composed of the petitioners was formed
on the same day.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and
filed an "Information Return of Organization Exempt from Income Tax" for the year
ending in 1975, on the basis of which it was assessed by the Commissioner of Internal
Revenue deficiency corporate taxes in the amount of P1,843,273.60, and withholding
taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and
to the petitioners, respectively. These assessments were protested by the petitioners
through its auditors Sycip, Gorres, Velayo and Co.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest and
ordered the petitioners, assessed as "Pool of Machinery Insurers," to pay deficiency
income tax, interest, and withholding tax.

The CA ruled in the main that the pool of machinery insurers was a partnership taxable
as a corporation, and that the latter's collection of premiums on behalf of its members,
the ceding companies, was taxable income. It added that prescription did not bar the
Bureau of Internal Revenue (BIR) from collecting the taxes due, because "the taxpayer
cannot be located at the address given in the information return filed." Hence, this
Petition for Review before us

Issue: Whether or not the Clearing House, acting as a mere agent and performing
strictly administrative functions, and which did not insure or assume any risk in its own
name, was a partnership or association subject to tax as a corporation.
Ruling: YES.
The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the
pool is taxable as a corporation.
Petitioners contend that the Court of Appeals erred in finding that the pool of clearing
house was an informal partnership, which was taxable as a corporation under the NIRC.
They point out that the reinsurance policies were written by them "individually and
separately," and that their liability was limited to the extent of their allocated share in the
original risk thus reinsured.
Petitioners belie the existence of a partnership in this case, because (1) they, the
reinsurers, did not share the same risk or solidary liability, (2) there was no common
fund; (3) the executive board of the pool did not exercise control and management of its
funds, unlike the board of directors of a corporation; and (4) the pool or clearing house
"was not and could not possibly have engaged in the business of reinsurance from
which it could have derived income for itself."
The Court is not persuaded.

Art. 1767 of the Civil Code recognizes the creation of a contract of partnership when
"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." Its requisites
are: "(1) mutual contribution to a common stock, and (2) a joint interest in the profits." In
other words, a partnership is formed when persons contract "to devote to a common
purpose either money, property, or labor with the intention of dividing the profits
between
themselves." Meanwhile, an association implies associates who enter into a "joint
enterprise . . . for the transaction of business."

In the case before us, the ceding companies entered into a Pool Agreement or an
association that would handle all the insurance businesses covered under their quota-
share reinsurance treaty and surplus reinsurance treaty with Munich. The following
unmistakably indicates a partnership or an association covered by Section 24 of the
NIRC:

(1) The pool has a common fund, consisting of money and other valuables that are
deposited in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool.

(2) The pool functions through an executive board, which resembles the board of
directors of a corporation, composed of one representative for each of the ceding
companies.

(3) True, the pool itself is not a reinsurer and does not issue any insurance policy;
however, its work is indispensable, beneficial and economically useful to the business of
the ceding companies and Munich, because without it they would not have received
their premiums. The ceding companies share "in the business ceded to the pool" and in
the "expenses" according to a "Rules of Distribution" annexed to the Pool
Agreement. Profit motive or business is, therefore, the primordial reason for the pool's
formation. As aptly found by the CTA:

. . . The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact, that of the pool being used in the transaction
of business for profit. It is apparent, and petitioners admit, that their
association or coaction was indispensable [to] the transaction of the
business, . . . If together they have conducted business, profit must have
been the object as, indeed, profit was earned. Though the profit was
apportioned among the members, this is only a matter of consequence, as
it implies that profit actually resulted.

ARTICLE 1770

DELUAO v. CASTEEL
G.R. No. L-21906; December 24, 1968
Ponente: J. Castro

FACTS:

In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy

land, 178.76 hectares, in the then sitio of Malalag, municipality of Padada, Davao for 3
consecutive times because the Bureau of Fisheries did not act upon his previous
applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat poised
upon his position by the other applicants who entered upon and spread themselves
within the area, Casteel realized the urgent necessity of expanding his occupation
thereof by constructing dikes and cultivating marketable fishes. But lacking financial
resources at that time, he sought financial aid from his uncle Felipe Deluao.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed a protest. Consequently, two
administrative cases ensued involving the area in question.

However, despite the finding made in the investigation of the above administrative
cases, the Director of Fisheries nevertheless rejected Casteel's application on October
25, 1949, required him to remove all the improvements which he had introduced on the
land, and ordered that the land be leased through public auction

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first
part, and Nicanor Casteel as party of the second part, executed a contract —
denominated a "contract of service". On the same date the above contract was entered
into, Inocencia Deluao executed a special power of attorney in favor of Jesus Donesa

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim
over the same area in the two administrative cases and asked for reinvestigation of the
application of Nicanor Casteel over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision ordering

Casteel to be reinstated in the area and that he shall pay for the improvement made
thereupon.
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado), Jesus
Donesa, from the premises.

ISSUE:
Whether the reinstatement of Casteel over the subject land constitute a dissolution of
the partnership between him and Deluao

HELD:

Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

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

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

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

G.R. No. 31057 September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,vs.VICENTE POLISTICO, ET

AL., defendants-appellants.

FACTS:

This is an action to bring about liquidation of the funds and property of the association called
"Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants
were designated as president-treasurer, directors and secretary of said association.

This case is brought for 2nd time. In the 1st one, the court held then that in an action against the
officers of a voluntary association to wind up its affairs and enforce an accounting for money
and property in their possessions, it is not necessary that all members of the association be
made parties to the action. The court appointed commissioner of Insular Auditor's Office, to
examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive
whatever evidence. Commissioner's report show a balance of P24, 607.80 cash on hand.
Despite defendant’s objection to the report, the trial court rendered judgment holding said
association is unlawful. And sentenced defendants jointly and severally to return the amount
and documents to the plaintiffs and members of the association. The Appellant alleged that the
association being unlawful, some charitable institution to whom the partnership funds may be
ordered to be turned over, should be included, as a party defendant. Referring to Article 1666 of
the Civil Code which provides that :

“A partnership must have a lawful object, and must be established for the common
benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits
shall be given to charitable institutions of the domicile of the partnership, or, in default of such,
to those of the province.”

ISSUE: Whether or not charitable institution is a necessary party to this case.

Ruling: No.
 No charitable institution is a necessary party in the present case of determination of the rights
of the parties. The action which may arise from said article, in the case of unlawful partnership,
is that for the recovery of the amounts paid by the member from those in charge of the
administration of said partnership, and it is not necessary for the said parties to base their action
to the existence of the partnership, but on the fact that of having contributed some money to the
partnership capital. And hence, the charitable institution of the domicile of the partnership, and
in the default thereof, those of the province are not necessary parties in this case.

The article cited permits no action for the purpose of obtaining the earnings made by the
unlawful partnership, during its existence as result of the business in which it was engaged,
because for the purpose, as Manresa remarks, the partner will have to base his action upon the
partnership contract, which is to annul and without legal existence by reason of its unlawful
object; and it is self-evident that what does not exist cannot be a cause of action. Hence,
paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is
decreed, the profits cannot inure to the benefit of the partners, but must be given to some
charitable institution. The profits are so applied, and not the contributions, because this would
be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case,
for depriving the partner of the portion of the capital that he contributed, the circumstances of
the two cases being entirely different.

Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for
it any profits derived by him without the consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of the partnership or from any use by him
of its property.

ARTICLE 1771

G.R. No. 21639 September 25, 1924

ALBERT F. KIEL, plaintiff-appellee, vs.ESTATE OF P. S. SABERT, defendant-

appellant.

Facts:

In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public
lands situated in the municipality of Parang, Province of Cotabato, known as Parang
Plantation Company. Kiel subsequently took over the interest of Milfeil. In 1910, Kiel
and P. S. Sabert entered into an agreement to develop the Parang Plantation Company.
Sabert was to furnish the capital to run the plantation and Kiel was to manage it. They
were to share and share alike in the property. It seems that this partnership was formed
so that the land could be acquired in the name of Sabert, Kiel being a German citizen
and not deemed eligible to acquire public lands in the Philippines.

By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the
plantation. During the World War, he was deported from the Philippines.
On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan
Plantation Company, with a subscribed capital of P40,000. On April 10, 1922, P. S.
Sabert transferred all of his rights in two parcels of land situated in the municipality of
Parang, Province of Cotabato, embraced within his homestead application No. 21045
and his purchase application No. 1048, in consideration of the sum of P1, to the Nituan
Plantation Company.

In this same period, Kiel appears to have tried to secure a settlement from Sabert. At
least in a letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell all
property that I have for P40,000 or take in a partner who is willing to develop the
plantation, to take up the K. & S. debt no matter which way I will straiten out with you."
But Sabert's death came before any amicable arrangement could be reached and
before an action by Kiel against Sabert could be decided. So these proceedings against
the estate of Sabert.

Issue: Whether or not co-partnership existed between plaintiff and deceased Sabert.
Ruling: NO.

No partnership agreement in writing was entered into by Kiel and Sabert. The question
consequently is whether or not the alleged verbal co-partnership formed by Kiel and
Sabert has been proved, if we eliminate the testimony of Kiel and only consider the
relevant testimony of other witnesses. In performing this task, we are not unaware of the
rule of partnership that the declarations of one partner, not made in the presence of his
copartner, are not competent to prove the existence of a partnership between them as
against such other partner, and that the existence of a partnership cannot be
established by general reputation, rumor, or hearsay.

The testimony of the plaintiff's witnesses, together with the documentary evidence,
leaves the firm impression with us that Kiel and Sabert did enter into a partnership, and
that they were to share equally. Applying the tests as to the existence of partnership, we
feel that competent evidence exists establishing the partnership. Even more primary
than any of the rules of partnership above announced, is the injunction to seek out the
intention of the parties, as gathered from the facts and as ascertained from their
language and conduct, and then to give this intention effect.

G.R. No. 19892 September 6, 1923

TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

Following the presentation of an application to be adjudged an insolvent by the

"Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial
Company, Piñol & Company, Riu Hermanos, and W. H. Anderson & Company, filed a
motion in which the Court was prayed to enter an order: "(A) Declaring the individual
partners; (B) to require each of said partners to file an inventory of his property in the
manner required by section 51 of Act No. 1956; and (C) that each of said partners be
adjudicated insolvent debtors in this proceeding." The trial judge first granted the
motion, but, subsequently, on opposition being renewed, denied it. It is from this last
order that an appeal was taken in accordance with section 82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of some
importance and of some intricacy. The issue in the case relates to a determination of
the nature of the mercantile establishment which operated under the name of Teck
Seing & co., Ltd., and this issue requires us to look into, and analyze, the document
constituting Teck Seing & Co.,

Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not
a corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is
accidental partnership denominated cuenta en participacion (joint account association).

Issue: WON the partnership contract created a limited partnership.

Ruling: No.

The contract created was not a limited partnership but a general partnership even if
“Ltd.” Was used in the firm’s name to avoid liability for possible losses. The general rule is
that those who seek to avail themselves of the protection of laws permitting the creation
of limited partnerships must show a substantially full compliance with such laws. A
limited partnership that has NOT complied with the law of its creation is not considered
a limited partnership at all, but a GENERAL partnership in which all the members are
liable.

To establish a limited partnership there must be, at least, one general partner and
the name of the least one of the general partners must appear in the firm name. (Code
of Commerce, arts.122 [2], 146, 148.) But NEITHER of these requirements have been
fulfilled.

Article 125 of the Code of Commerce provides that the articles of general co-partnership
must state the names, surnames, and domiciles of the partners; the firm name; the
names, and surnames of the partners to whom the management of the firm and the use
of its signature is instrusted; the capital; the duration of the co-partnership; and
the amounts which, in a proper case, are to be given to each managing partner annually
for his private expenses, while the succeeding article of the Code provides that the
general co-partnership must transact business under the name of all its members, of
several of them, or of one only. It should be noted that all of the requirements of the
Code have been met, with the sole EXCEPTION of that relating to the composition of
the firm name.
What is said in Article 126 of the Code of Commerce relating to the general co-
partnership transacting business under the name of all its members or of several of
them or of one only, is wisely included in our commercial law for the protection of the
creditors than of the partners themselves.

The one object of the act is manifestly to protect the public against imposition and
fraud, prohibiting persons from concealing their identity by doing business under an
assumed name, making it unlawful to use other than their real names in transacting
business without a public record of who they are.

On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does
not contain the name of all or any of the partners as prescribed by the Code of
Commerce prevents the creation of a general partnership, Professor Jose A. Espiritu,
as amicus curiæ, states:

…If they intend to do a thing which in law constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such relation. Here, the intention of the
persons making up Teck Seing & co., Ltd. was to establish a partnership which they
erroneously denominated a limited partnership. If this was their purpose, all subterfuges
resorted to in order to evade liability for possible losses, while assuming their enjoyment
of the advantages to be derived from the relation, must be disregarded. The partners,
who have disguised their identity under a designation distinct from that of any of
the members of the firm should be penalized, and not the creditors who presumably
have dealt with the partnership in good faith.

Articles 127 and 237 of the Code of Commerce make all the members of the general
co-partnership liable personally and in solidum with all their property for the results of
the transactions made in the name and for the account of the partnership. Section 51 of
the Insolvency Law, likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. In other words, if a firm be insolvent,
but one or more partners thereof are solvent, the creditors may proceed both against
the firm and against the solvent partner or partners, first exhausting the assets of the
firm before seizing the property of the partners.

The court reach the conclusion that the contract of partnership found in the document
established a general partnership or, to be more exact, a partnership as this word is
used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be returned to the
court of origin for further proceedings pursuant to the motion presented by the creditors,
inconformity with the provisions of the Insolvency Law
ARTICLE 1773

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA

BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

Facts:

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint
venture agreement" with Respondent Manuel Torres for the development of a parcel of
land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering
the said parcel of land in favor of respondent, who then had it registered in his name. By
mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the development of the
subdivision. 4 All three of them also agreed to share the proceeds from the sale of the
subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the
bank.

According to petitioners, the project failed because of "respondent's lack of funds or

means and skills." They add that respondent used the loan not for the development of
the subdivision, but in furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the
Agreement. With the said amount, he was able to effect the survey and the subdivision
of the lots. He secured the Lapu Lapu City Council's approval of the subdivision project
which he advertised in a local newspaper. He also caused the construction of roads,
curbs and gutters. Likewise, he entered into a contract with an engineering firm for the
building of sixty low-cost housing units and actually even set up a model house on one
of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners
and their relatives had separately caused the annotations of adverse claims on the title
to the land, which eventually scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims, thereby forcing him to give up on
the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his
wife, who were however acquitted. Thereafter, they filed the present civil case which,
upon respondent's motion, was later dismissed by the trial court. On appeal, however,
the appellate court remanded the case for further proceedings. Thereafter, the RTC
issued its assailed Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition.

Issue: Whether or not the joint venture agreement is void under article 1773 of the Civil
code.

Ruling: NO.

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil
Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property

is contributed thereto, if an inventory of said property is not made, signed
by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument
an inventory of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which is a
complement of Article 1771, "The execution of a public instrument would be useless if
there is no inventory of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those who
contract with the partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the law when no such
inventory is made." The case at bar does not involve third parties who may be
prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their
claim that respondent should pay them 60 percent of the value of the property. They
cannot in one breath deny the contract and in another recognize it, depending on what
momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to
a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the
Joint Venture Agreement an ordinary contract from which the parties' rights and
obligations to each other may be inferred and enforced.

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,vs.SEVERINO MABATO and MABATO and

AGAD COMPANY, defendants-appellees.
Facts:

This is an appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the
Court of First Instance of Davao, we are called upon to determine the applicability of
Article 1773 of our Civil Code to the contract of partnership on which the complaint is
based.

Alleging that he and defendant Severino Mabato are — pursuant to a public instrument
dated August 29, 1952, " — partners in a fishpond business, to the capital of which
Agad contributed P1,000, with the right to receive 50% of the profits; that from 1952 up
to and including 1956, Mabato who handled the partnership funds, had yearly rendered
accounts of the operations of the partnership; and that, despite repeated demands,
Mabato had failed and refused to render accounts for the years 1957 to 1963, Agad
prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9,
1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of
P14,000, as his share in the profits of the partnership for the period from 1957 to 1963,
in addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership,
as well as the winding up of its affairs by a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the
existence of said partnership, upon the ground that the contract therefore had not been
perfected, despite the execution of the instrument, because Agad had allegedly failed to
give his P1,000 contribution to the partnership capital.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint
states no cause of action and that the lower court had no jurisdiction over the subject
matter of the case, because it involves principally the determination of rights over public
lands. After due hearing, the court issued the order appealed from, granting the motion
to dismiss the complaint for failure to state a cause of action.

Issue: Whether or not "immovable property or real rights" have been contributed to the
partnership under consideration.

Ruling: NO.

It should be noted, however, that, as stated in the instrument " the partnership was
established "to operate a fishpond", not to "engage in a fishpond business".
Moreover, none of the partners contributed either a fishpond or a real right to any
fishpond. Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph
4 of the instrument provides:

That the capital of the said partnership is Two Thousand (P2,000.00) Pesos
Philippine Currency, of which One Thousand (P1,000.00) pesos has been
contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been
contributed by Mauricio Agad.
 xxx xxx xxx

The operation of the fishpond mentioned in the public instrument, was the purpose of
the partnership. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.

WHEREFORE, the court finds that said Article 1773 of the Civil Code is not in point.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.WILLIAM J. SUTER and

THE COURT OF TAX APPEALS, respondents.

FACTS:

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.

Issue: 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.
Ruling: NO.

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,
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. It follows that the
marriage of partners necessarily brings about the dissolution of a pre-existing
partnership.

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.

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

The Insular Life vs. Ebrado

G.R. No. L-44059 October 28, 1977

Facts:

Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., a Policy for
a life insurance with a rider for Accidental, Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her as his wife.

Buenaventura C. Ebrado died as a result of when he was hit by a falling branch of a

tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage amount representing the face value of the policy.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the
designated beneficiary therein, although she admits that she and the insured
Buenaventura C. Ebrado were merely living as husband and wife without the benefit
of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured.
She asserts that she is the one entitled to the insurance proceeds, not the common-
law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular
Life Assurance Co., Ltd. commenced an action for Interpleader.

Issue: Whether or not a common-law wife named as beneficiary in the life insurance
policy of a legally married man can claim the proceeds thereof in case of death of the
latter.

Held: No, the SC held that the following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at

the time of donation;
2. Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason
of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought
by the spouse of the donor or donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.
 In essence, a life insurance policy is no different from a civil donation insofar as
the beneficiary is concerned. Both are founded upon the same consideration:
liberality. A beneficiary is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will receive the proceeds or
profits of said insurance. As a consequence, the proscription in Article 739 of the new
Civil Code should equally operate in life insurance contracts. The mandate of Article
2012 cannot be laid aside: any person who cannot receive a donation cannot be
named as beneficiary in the life insurance policy of the person who cannot make the
donation. Under American law, a policy of life insurance is considered as a testament
and in construing it, the courts will, so far as possible treat it as a will and determine
the effect of a clause designating the beneficiary by rules under which wins are
interpreted.

Policy considerations and dictates of morality rightly justify the institution of a

barrier between common law spouses in record to Property relations since such hip
ultimately encroaches upon the nuptial and filial rights of the legitimate family There
is every reason to hold that the bar in donations between legitimate spouses and
those between illegitimate ones should be enforced in life insurance policies since the
same are based on similar consideration As above pointed out, a beneficiary in a fife
insurance policy is no different from a donee. Both are recipients of pure beneficence.
So long as manage remains the threshold of family laws, reason and morality dictate
that the impediments imposed upon married couple should likewise be imposed upon
extra-marital relationship. If legitimate relationship is circumscribed by these legal
disabilities, with more reason should an illicit relationship be restricted by these
disabilities.

COMMISSIONER OF INTERNAL REVENUE, vs. WILLIAM J. SUTER and THE

COURT OF TAX APPEALS;
G.R. No. L-25532 February 28, 1969

FACTS:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by
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. 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. Commissioner of
Internal Revenue, on 1959 assessed and 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.

CIR Contention: 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:

(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; ....

Suter’s Contention: 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.

ISSUE:

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.

HELD:

NO. 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.

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
(compañias 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.

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 co-partnership (compañia 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
compañias 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.

WOLFGANG AURBACH v. SANITARY WARES MANUFACTURING

CORPORATION, GR No. 75875, 1989-12-15

Facts:
Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin
Young went abroad to look for foreign partners, European or American who could
help in its expansion plans. ASI, a foreign corporation domiciled in Delaware, United
States entered into an Agreement with Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares.

At the annual stockholders' meeting proceeded to the election of the members of the
board of directors. During the election, the chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors, and
the legal advice of Saniwares' legal counsel.
These incidents triggered off the filing of two separate petitions by the parties with
the Securities and Exchange Commission (SEC).

Issue:
Whether or not the nature of the partnership was a joint venture.

Held:
Yes. The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation depends upon
their actual intention which is determined in accordance with the rules governing the
interpretation and construction of contracts.

In the instant cases, upon SC’s examination of important provisions of the Agreement
as well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation. The
history of the organization of Saniwares and the unusual arrangements which govern
its policy making body are all consistent with a joint venture and not with an ordinary
corporation.

Moreover, ASI in its communications referred to the enterprise as joint venture.

Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein
contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.

TUAZON vs. BOLANOS

G.R. No. L-4935 May 28, 1954

FACTS: Plaintiff’s complaint against defendant was to recover possession of a

registered land. In the complaint, the plaintiff is represented by its Managing Partner,
Gregorio Araneta, Inc., another corporation. Defendant, in his answer, sets up
prescription and title in himself thru "open, continuous, exclusive and public and
notorious possession under claim of ownership, adverse to the entire world by
defendant and his predecessors in interest" from "time immemorial". After trial, the
lower court rendered judgment for plaintiff, declaring defendant to be without any
right to the land in question and ordering him to restore possession thereof to plaintiff
and to pay the latter a monthly rent. Defendant appealed directly to the Supreme
Court and contended, among others, that Gregorio Araneta, Inc. cannot act as
managing partner for plaintiff on the theory that it is illegal for two corporations to
enter into a partnership

Issue: Whether or not a corporation may enter into a joint venture with another
corporation.
HELD: YES, there is nothing to the contention that the present action is not brought
by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of
Court require is that an action be brought in the name of, but not necessarily by, the
real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-
law to bring the action, that is to file the complaint, in the name of the plaintiff. That
practice appears to have been followed in this case, since the complaint is signed by
the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its undersigned counsel." It is true that the
complaint also states that the plaintiff is "represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or juridical, in a suit in
court. The contention that Gregorio Araneta, Inc. cannot act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership
is without merit, for the true rule is that "though a corporation has no power to enter
into a partnership, it may nevertheless enter into a joint venture with another where
the nature of that venture is in line with the business authorized by its charter."
(Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc.
of Corp., 1082.) There is nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in
line with the corporate business of either of them.

ARTICLE 1784

JOSE FERNANDEZ, vs. FRANCISCO DE LA ROSA

G.R. No. 413 February 2, 1903

FACTS: Fernandez entered into a verbal agreement with the Dela Rosa to form a
partnership for the purchase of cascoes and the carrying on of the business of letting
the same for hire in Manila, the Dela Rosa to buy the cascoes and each partner to
furnish for that purpose such amount of money as he could, the profits to be divided
proportionately; that in the same January the Fernandez furnished the Dela Rosa 300
pesos to purchase a casco designated as No. 1515, which the Dela Rosa did purchase
for 500 pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff
furnished further sums aggregating about 300 pesos for repairs on this casco; that
on March 5th Fernandez furnished the Dela Rosa 825 pesos to purchase another casco
designated as No. 2089, which Dela Rosa did purchase for 1,000 pesos of Luis R.
Yangco, taking the title to this casco also in his own name; that in April the parties
undertook to draw up articles of partnership for the purpose of embodying the same
in an authentic document, but that Dela Rosa having proposed a draft of such articles
which differed materially from the terms of the earlier verbal agreement, and being
unwillingly to include casco No. 2089 in the partnership, they were unable to come
to any understanding and no written agreement was executed; that Dela Rosa having
in the meantime had the control and management of the 2 cascoes, Fernandez made
a demand for an accounting upon him, which Dela Rosa refused to render, denying
the existence of the partnership altogether.

Issue: Whether or not a partnership exist between the parties.

Ruling: YES.
"Partnership is a contract by which 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." (Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a
joint interest in the profits. If the contract contains these two elements the
partnership relation results, and the law itself fixes the incidents of this relation if the
parties fail to do so. (Civil Code, secs. 1689, 1695.)

Money was furnished by Fernandez and received by Dela Rosa with the understanding
that it was to be used for the purchase of the cascoes in question. This establishes
the first element of the contract, namely, mutual contribution to a common stock.
The second element, namely, the intention to share profits, appears to be an
unavoidable deduction from the fact of the purchase of the cascoes in common, in
the absence of any other explanation of the object of the parties in making the
purchase in that form, and, it may be added, in view of the admitted fact that prior
to the purchase of the first casco the formation of a partnership had been a subject
of negotiation between them.

Under other circumstances the relation of joint ownership, a relation distinct though
perhaps not essentially different in its practical consequence from that of partnership,
might have been the result of the joint purchase. If, for instance, it were shown that
the object of the parties in purchasing in company had been to make a more favorable
bargain for the two cascoes that they could have done by purchasing them
separately, and that they had no ulterior object except to effect a division of the
common property when once they had acquired it, the affectio societatiswould be
lacking and the parties would have become joint tenants only; but, as nothing of this
sort appears in the case, we must assume that the object of the purchase was active
use and profit and not mere passive ownership in common.

The execution of a written agreement was not necessary in order to give efficacy to
the verbal contract of partnership as a civil contract, the contributions of the partners
not having been in the form of immovables or rights in immovables. (Civil Code, art.
1667.) The special provision cited, requiring the execution of a public writing in the
single case mentioned and dispensing with all formal requirements in other cases,
renders inapplicable to this species of contract the general provisions of article 1280
of the Civil Code.