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Nature, Creation

Evangelista vs CIR (Intent)


Facts: Herein petitioners seek a review of CTAs decision holding them liable for
income tax, real estate dealers tax and residence tax. As stipulated, petitioners
borrowed from their father a certain sum for the purpose of buying real
properties. Within February 1943 to April 1994, they have bought parcels of land
from different persons, the management of said properties was charged to their
brother Simeon evidenced by a document. These properties were then leased or
rented to various tenants.
On September 1954, CIR demanded the payment of income tax on
corporations, real estate dealers fixed tax, and corporation residence tax to
which the petitioners seek to be absolved from such payment.
Issue: Whether petitioners are subject to the tax on corporations.
Ruling: The Court ruled that with respect to the tax on corporations, the issue
hinges on the meaning of the terms corporation and partnership as used in
Section 24 (provides that a tax shall be levied on every corporation no matter
how created or organized except general co-partnerships) and 84 (provides that
the term corporation includes among others, partnership) of the NIRC. Pursuant
to Article 1767, NCC (provides for the concept of partnership), its essential
elements are: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting parties.
It is of the opinion of the Court that the first element is undoubtedly present for
petitioners have agreed to, and did, contribute money and property to a
common fund. As to the second element, the Court fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves as indicated by the following circumstances:
1.
The common fund was not something they found already in existence nor
a property inherited by them pro indiviso. It was created purposely, jointly
borrowing a substantial portion thereof in order to establish said common fund;
2.
They invested the same not merely in one transaction, but in a series of
transactions. The number of lots acquired and transactions undertake is strongly
indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of

the property acquired. In other words, one cannot but perceive a character of
habitually peculiar to business transactions engaged in the purpose of gain;
3.
Said properties were not devoted to residential purposes, or to other
personal uses, of petitioners but were leased separately to several persons;
4.
They were under the management of one person where the affairs relative
to said properties have been handled as if the same belonged to a corporation or
business and enterprise operated for profit;
5.
Existed for more than ten years, or, to be exact, over fifteen years, since
the first property was acquired, and over twelve years, since Simeon Evangelista
became the manager;
6.
Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence.
The collective effect of these circumstances is such as to leave no room for
doubt on the existence of said intent in petitioners herein.
Also, petitioners argument that their being mere co-owners did not
create a separate legal entity was rejected because, according to the Court, the
tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When the NIRC includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. The qualifying expression found in Section 24 and
84(b) clearly indicates that a joint venture need not be undertaken in any of the
standard forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for purposes of the
tax on corporations. Accordingly, the lawmaker could not have regarded that
personality as a condition essential to the existence of the partnerships therein
referred to. For purposes of the tax on corporations, NIRC includes these
partnerships - with the exception only of duly registered general co partnerships
- within the purview of the term "corporation." 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.
As regards the residence of tax for corporations (Section 2 of CA No. 465), it is
analogous to that of section 24 and 84 (b) of the NIRC. It is apparent that the
terms "corporation" and "partnership" are used in both statutes with

substantially the same meaning. Consequently, petitioners are subject, also, to


the residence tax for corporations.

contribute to the exclusive franchise to the partnership, but plaintiff failed to do


so with a 4) counterclaim for P200,00 as damages.

Finally, on the issues of being liable for real estate dealers tax, they are also
liable for the same because the records show that they have habitually engaged
in leasing said properties whose yearly gross rentals exceeds P3,000.00 a year.

The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and
that the 2) execution of contract cannot be enforced upon parties. Lastly, the 3)
fraud wasnt proved

2 Woodhouse vs Halili

ISSUES: 1. WON plaintiff falsely represented that he had an exclusive franchise


to bottle Mission beverages

FACTS: On November 29, 1947, plaintiff Woodhouse entered into a written


agreement with defendant Halili stating among others that: 1) that they shall
organize a partnership for the bottling and distribution of Missionsoft drinks,
plaintiff to act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to
secure the Mission Soft Drinks franchise for and in behalf of the proposed
partnership and 3) that the plaintiff was to receive 30 per cent of the net profits
of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry
Corporation of Los Angeles, California, that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a
milliondollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to bottle
and distribute be granted him for a limited time under the condition that it will
finally be transferred to the corporation. Pursuant to this request, plaintiff was
given a thirty days option on exclusive bottling and distribution rights for the
Philippines. The contract was finally signed by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of
defendant that the partnership papers be executed. Defendant Halili gave
excuses and would not execute said agreement, thus the complaint by the
plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting
of profits and 3)share thereof of 30 percent with 4) damages in the amount of
P200,000. The Defendant on the other hand claims that: 1) the defendants
consent to the agreement, was secured by the representation of plaintiff that he
was the owner, or was about to become owner of an exclusive bottling franchise,
which representation was false, and that plaintiff did not secure the franchise but
was given to defendant himself 2) that defendant did not fail to carry out his
undertakings, but that it was plaintiff who failed and 3)that plaintiff agreed to

2. WON false representation, if it existed, annuls the agreement to form the


partnership
HELD: 1. Yes. Plaintiff did make false representations and this can be seen
through his letters to Mission Dry Corporation asking for the latter to grant him
temporary franchise so that he could settle the agreement with defendant. The
trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only
undertook in the agreement to secure the Mission Dry franchise for and in
behalf of the proposed partnership. The existence of this provision in the final
agreement does not militate against plaintiff having represented that he had the
exclusive franchise; it rather strengthens belief that he did actually make the
representation. The defendant believed, or was made to believe, that plaintiff
was the grantee of an exclusive franchise. Thus it is that it was also agreed upon
that the franchise was to be transferred to the name of the partnership, and
that, upon its dissolution or termination, the same shall be reassigned to the
plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself
testified, plaintiffs participation in the net profits to one half of that agreed
upon. He could not have had such a feeling had not plaintiff actually made him
believe that he(plaintiff) was the exclusive grantee of the franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two
kinds of (civil) fraud, the causal fraud, which may be ground for the annulment of
a contract, and the incidental deceit, which only renders the party who employs
it liable for damages only. The Supreme Court has held that in order that fraud
may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal
consideration, the main cause that induced defendant to enter into the

partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendants counsel was to the effect
that plaintiff obligated himself to secure a franchise for the defendant. But if
plaintiff was guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led plaintiff to enter into the
partnership agreement. On the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 per cent granted him in the net profits of the
partnership business. Defendant agreed to give plaintiff 30 per cent share in the
net profits because he was transferring his exclusive franchise to the
partnership.

firm for the building of housing units. But due to adverse claims in the land,
prospective buyers were scared off and the subdivision project eventually failed.

Having arrived at the conclusion that the contract cannot be declared null and
void, may the agreement be carried out or executed? The SC finds no merit in
the claim of plaintiff that the partnership was already a fait accompli from the
time of the operation of the plant, as it is evident from the very language of the
agreement that the parties intended that the execution of the agreement to form
a partnership was to be carried out at a later date. , The defendant may not be
compelled against his will to carry out the agreement nor execute the
partnership papers. The law recognizes the individuals freedom or liberty to do
an act he has promised to do, or not to do it, as he pleases. Dispostive Postion:
With modification above indicated, the judgment appealed from is hereby
affirmed.

ISSUE: Whether or not there exists a partnership.

3 Torres vs CA
Business Organization Partnership, Agency, Trust Sharing of Loss in a
Partnership Industrial Partner
In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture
agreement with Manuel Torres. Under the agreement, the sisters agreed to
execute a deed of sale in favor Manuel over a parcel of land, the sisters received
no cash payment from Manuel but the promise of profits (60% for the sisters and
40% for Manuel) said parcel of land is to be developed as a subdivision.
Manuel then had the title of the land transferred in his name and he
subsequently mortgaged the property. He used the proceeds from the mortgage
to start building roads, curbs and gutters. Manuel also contracted an engineering

The sisters then filed a civil case against Manuel for damages equivalent to 60%
of the value of the property, which according to the sisters, is whats due them
as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the
lower court
The sisters then appealed before the Supreme Court where they argued that
there is no partnership between them and Manuel because the joint venture
agreement is void.

HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a
partnership agreement whereby they agreed to contribute property (their land)
which was to be developed as a subdivision. While on the other hand, though
Manuel did not contribute capital, he is an industrial partner for his contribution
for general expenses and other costs. Furthermore, the income from the said
project would be divided according to the stipulated percentage (60-40). Clearly,
the contract manifested the intention of the parties to form a partnership.
Further still, the sisters cannot invoke their right to the 60% value of the
property and at the same time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters, nor
can it be blamed to Manuel (the sisters on their appeal did not show evidence as
to Manuels fault in the failure of the partnership). The sisters must then bear
their loss (which is 60%). Manuel does not bear the loss of the other 40%
because as an industrial partner he is exempt from losses.
4 Gatchalian vs CIR
Facts: Plaintiffs purchased, in the ordinary course of business, from one of the
duly authorized agents of the National Charity Sweepstakes Office one ticket for
the sum of two pesos (P2), said ticket was registered in the name of Jose
Gatchalian and Company. The ticket won one of the third-prizes in the amount of
P50,000.
Jose Gatchalian was required to file the corresponding income tax return
covering the prize won. Defendant-Collector made an assessment against Jose

Gatchalian and Co. requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan. Plaintiffs, however through
counsel made a request for exemption. It was denied.
Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy was
issued. Plaintiffs paid under protest a part of the tax and penalties to avoid the
effects of the warrant. A request that the balance be paid by plaintiffs in
installments was made. This was granted on the condition that a bond be filed.
Plaintiffs failed in their installment payments. Hence a request for execution of
the warrant of distraint and levy was made. Plaintiffs paid under protest to avoid
the execution.
A claim for refund was made by the plaintiffs, which was dismissed, hence the
appeal.
Issue: Whether the plaintiffs formed a partnership hence liable for income tax.
Held: Yes. According to the stipulation facts the plaintiffs organized a partnership
of a civil nature because each of them put up money to buy a sweepstakes ticket
for the sole purpose of dividing equally the prize which they may win, as they did
in fact in the amount of P50,000. The partnership was not only formed, but upon
the organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as
co-partner, as such collection the prize, the office issued the check for P50,000
in favor of Jose Gatchalian and company, and the said partner, in the same
capacity, collected the said check. All these circumstances repel the idea that
the plaintiffs organized and formed a community of property only.
5 Arbes vs Polistico
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. By agreement of the parties, the
court appointed a commissioner to examine all the books, documents, and
accounts of "Turnuhan Polistico & Co. The commissioner rendered his report,
showing a balance of the cash on hand in the amount of P24,607.80. The trial
court in accepting the report, rendered judgment, holding that the association
"Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and
severally to return the amount of P24,607.80, as well as the documents showing
the uncollected credits of the association, to the plaintiffs in this case, and to the

rest of the members of the said association represented by said plaintiffs. There
is no question that "Turnuhan Polistico & Co." is an unlawful partnership, but the
appellants allege that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be included, as a
party defendant. The appellants refer to article 1666 of the Civil Code,
particularly the second paragraph, which provides: 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 A CHARITABLE INSTITUTION IS A
NECESSARY PARTY IN 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. 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. In so ruling,
the court had the occasion of explaining the scope and spirit of the provision of
Article 1666 of the Civil Code (now Article 1770 of the New Civil Code). With
regard to Contributions of an Illegal Partnership: the court holds that (1) The
partner who limits himself to demanding only the amount contributed by him
need not resort to the partnership contract on which to base his action since
said contract does not exist in the eyes of the law, the purpose from which the
contribution was made has not come into existence, and the administrator of the
partnership holding said contribution retains what belongs to others, without any
consideration; for which reason he is not bound to return it and he who has paid
in his share is entitled to recover it. (2) Our Code does not state whether, upon
the dissolution of the unlawful partnership, the amounts contributed are to be
returned by the partners, because it only deals with the disposition of the profits;
but the fact that said contributions are not included in the disposal prescribed
profits, shows that in consequences of said exclusion, the general law must be
followed, and hence the partners should reimburse the amount of their
respective contributions. (3) Any other solution is immoral, and the law will not
consent to the latter remaining in the possession of the manager or
administrator who has refused to return them, by denying to the partners the
action to demand them. With regard to Profits of an Illegal Partnership: the court
holds that (1) The article cited above 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, 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. (2) Profits earned
in the course of the partnership, because they do not constitute or represent the
partner's contribution but are the result of the industry, business or speculation
which is the object of the partnership, and therefor, in order to demand the
proportional part of the said profits, the partner would have to base his action on
the contract which is null and void, since this partition or distribution of the
profits is one of the juridical effects thereof. (3) Furthermore, it would be immoral
and unjust for the law to permit a profit from an industry prohibited by it.
6 Tocao vs CA
7 Heirs of Jose Lim vs Juliet Villa Lim
8 Agad vs Mabato
Facts: Petitioner Mauricio Agad claims that he and defendant Severino Mabato
are partners in afishpond business to which they contributed P1000 each. As
managing partner, Mabato yearly renderedthe accounts of the operations of the
partnership. However, for the years 1957-1963, defendant failedto render the
accounts despite repeated demands. Petitioner filed a complaint against Mabato
to whicha copy of the public instrument evidencing their partnership is attached.
Aside from the share of profits
(P14,000) and attorneys fees (P1000), petitioner prayed for the dissolution of
the partnership and
winding up of its affairs.Mabato denied the existence of the partnership alleging
that Agad failed to pay hisP1000 contribution.He then filed a motion to dismiss
on the ground of lack of cause of action. The lower court dismissed thecomplaint
finding a failure to state a cause of action predicated upon the theory that the
contract of partnership is null and void, pursuant to Art. 1773 of our Civil Code,
because an inventory of thefishpond referred in said instrument had not been
attached thereto.Art. 1771. A partnership may be constituted in any form, except
where immovable property or realrights are contributed thereto, in which case a
public instrument shall be necessary. Art. 1773. A contract of partnership is void,
whenever immovable property is contributed thereto, if inventory of said

property is not made, signed by the parties; and attached to the public
instrument.
Issue: Whether or not immovable property or real rights have been contributed
to the partnership.
Held: Based on the copy of the public instrument attached in the complaint, the
partnership was established to operate a fishpond", and not to "engage in a
fishpond business. Thus, Mabatos contention that it is really inconceivable
how a partnership engaged in the
fishpond business could exist without said fishpond property (being) contributed
to the partnership is without merit. Their contributions were limited to P1000
each and neither a fishpond nor a real right thereto was contributed to the
partnership. Therefore, Article 1773 of the Civil Code finds no application in the
case at bar. Case remanded to the lower court for further proceedings.
9 Angeles vs Secretary of Justice
x
10 Litonjua vs Litonjua
Business Organization Partnership, Agency, Trust Partnership, how formed
Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered
into a contract of partnership with him. Aurelio showed as evidence a letter sent
to him by Eduardo that the latter is allowing Aurelio to manage their family
business (if Eduardos away) and in exchange thereof he will be giving Aurelio P1
million or 10% equity, whichever is higher. A memorandum was subsequently
made for the said partnership agreement. The memorandum this time stated
that in exchange of Aurelio, who just got married, retaining his share in the
family business (movie theatres, shipping and land development) and some
other immovable properties, he will be given P1 Million or 10% equity in all these
businesses and those to be subsequently acquired by them whichever is greater.

In 1992 however, the relationship between the brothers went sour. And so
Aurelio demanded an accounting and the liquidation of his share in the
partnership. Eduardo did not heed and so Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.

HELD: No. The partnership is void and legally nonexistent. The documentary
evidence presented by Aurelio, i.e. the letter from Eduardo and the
Memorandum, did not prove partnership.
The 1973 letter from Eduardo on its face, contains typewritten entries, personal
in tone, but is unsigned and undated. As an unsigned document, there can be no
quibbling that said letter does not meet the public instrumentation requirements
exacted under Article 1771 (how partnership is constituted) of the Civil Code.
Moreover, being unsigned and doubtless referring to a partnership involving
more than P3,000.00 in money or property, said letter cannot be presented for
notarization, let alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 (capitalization of a partnership) of the
Code. And inasmuch as the inventory requirement under the succeeding Article
1773 goes into the matter of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns on the nature of Aurelios
contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not a
public instrument and again, no inventory was made of the immovable property
and no inventory was attached to the Memorandum. Article 1773 of the Civil
Code requires that if immovable property is contributed to the partnership an
inventory shall be had and attached to the contract.
KINDS OF PARTNERSHIP
11 Ortega v. CA
FACTS: On December 19, 1980, respondent Misa associated himself together, as
senior partner with petitioners Ortega, del Castillo, Jr., and Bacorro, as junior
partners. On Feb. 17, 1988, respondent Misa wrote a letter stating that he is
withdrawing and retiring from the firm and asking for a meeting with the
petitioners to discuss the mechanics of the liquidation. On June 30, 1988,
petitioner filed a petition to the Commision's Securities Investigation and
Clearing Department for the formal dissolution and liquidation of the partnership.
On March 31, 1989, the hearing officer rendered a decision ruling that the
withdrawal of the petitioner has not dissolved the partnership. On appeal, the
SEC en banc reversed the decision and was affirmed by the Court of Appeals.
Hence, this petition.
ISSUE: Whether or not the Court of Appeals has erred in holding that the
partnership is a partnership at will and whether or not the Court of Appeals has

erred in holding that the withdrawal of private respondent dissolved the


partnership regardless of his good or bad faith
HELD: No. The SC upheld the ruling of the CA regarding the nature of the
partnership. The SC further stated that a partnership that does not fix its term is
a partnership at will. The birth and life of a partnership at will is predicated on
the mutual desire and consent of the partners. The right to choose with whom a
person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law itself. Verily, any one of
the partners may, at his sole pleasure, dictate a dissolution of the partnership at
will. He must, however, act in good faith, not that the attendance of bad faith
can prevent the dissolution of the partnership but that it can result in a liability
for damages.
12 Aguila v. CA
Business Organization Partnership, Agency, Trust Identity Separate and
Distinct

In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan
agreement with a lending firm called A.C. Aguila & Sons, Co., a partnership. The
loan was for P200k. To secure the loan, the spouses mortgaged their house and
lot located in a subdivision. The terms of the loan further stipulates that in case
of non-payment, the property shall be automatically appropriated to the
partnership and a deed of sale be readily executed in favor of the partnership.
She does have a 90 day redemption period.

Ruben died, and Felicidad failed to make payment. She refused to turn over the
property and so the firm filed an ejectment case against her (wherein she lost).
She also failed to redeem the property within the period stipulated. She then
filed a civil case against Alfredo Aguila, manager of the firm, seeking for the
declaration of nullity of the deed of sale. The RTC retained the validity of the
deed of sale. The Court of Appeals reversed the RTC. The CA ruled that the sale
is void for it is a pactum commissorium sale which is prohibited under Art. 2088
of the Civil Code (note the disparity of the purchase price, which is the loan

amount, with the actual value of the property which is after all located in a
subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.

HELD: No. Unfortunately, the civil case was filed not against the real party in
interest. As pointed out by Aguila, he is not the real party in interest but rather it
was the partnership A.C. Aguila & Sons, Co. The Rules of Court provide that
every action must be prosecuted and defended in the name of the real party in
interest. A real party in interest is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit. Any decision rendered
against a person who is not a real party in interest in the case cannot be
executed. Hence, a complaint filed against such a person should be dismissed
for failure to state a cause of action, as in the case at bar.

Under Art. 1768 of the Civil Code, a partnership has a juridical personality
separate and distinct from that of each of the partners. The partners cannot be
held liable for the obligations of the partnership unless it is shown that the legal
fiction of a different juridical personality is being used for fraudulent, unfair, or
illegal purposes. In this case, Felicidad has not shown that A.C. Aguila & Sons,
Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila
& Sons, Co. It is the partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its name. A violation
of this rule will result in the dismissal of the complaint.
13 Mendiola v. CA
x
14 Campos Rueda v. Pacific Commercial
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: Whether or not a limited partnership may be held to have committed an
act of insolvency.
Held: Yes. A limited partnerships juridical personality is different from the
personality of its members. On general principle, the limited partnership must
answer for and suffer the consequence of its acts. Under our Insolvency Law, one
of the acts of bankruptcy upon w/c an adjudication of involuntary insolvency can
be predicated is the failure to pay obligations.
The failure of Campos, Rueda & Co., to pay its obligations constitutes an act w/c
is specifically provided for in the Insolvency Law for declaration of involuntary
insolvency. The petitioners have a right to a judicial decree declaring the
involuntary insolvency of said partnership.
DISTINGUISH
15 Obillos v. CIR
Facts: In 1973, Jose Obillos completed payment on two lots located in Greenhills,
San Juan. The next day, he transferred his rights to his four children for them to
build their own residences. The Torrens title would show that they were coowners of the two lots. However, the petitioners resold them to Walled City
Securities Corporation and Olga Cruz Canda for P313k or P33k for each of them.
They treated the profit as capital gains and paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate income tax of their
shares, as this entire assessment is based on the alleged partnership under
Article 1767 of the Civil Code; simply because they contributed each to buy the
lots, resold them and divided the profits among them.
But as testified by Obillos, they have no intention to form the partnership and
that it was merely incidental since they sold the said lots due to high demand of
construction. Naturally, when they sell them as co-partners, it will result to the
share of profits. Further, their intention was to divide the lots for residential
purposes.

Issue: Was there a partnership, hence, they are subject to corporate income
taxes?
Court Ruling: Not necessarily. As Article 1769 (3) of the Civil Code provides: the
sharing of gross returns does not in itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any
property from which the returns are derived. There must be an unmistakeable
intention to form a partnership or joint venture.
In this case, the Commissioner should have investigated if the father paid
donor's tax to establish the fact that there was really no partnership.
16 Tuason v. Bolanos
Facts: Plaintiffs 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 & quot;. 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. can not 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: It is true that the complaint 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.
17 Heirs of Tan Eng Kee v. CA
Business Organization Partnership, Agency, Trust Periodic Accounting Profit
Sharing

Benguet Lumber has been around even before World War II but during the war,
its stocks were confiscated by the Japanese. After the war, the brothers Tan Eng
Lay and Tan Eng Kee pooled their resources in order to revive the business. In
1981, Tan Eng Lay caused the conversion of Benguet Lumber into a corporation
called Benguet Lumber and Hardware Company, with him and his family as the
incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of Tan Eng Kee
demanded for an accounting and the liquidation of the partnership.

Tan Eng Lay denied that there was a partnership between him and his brother.
He said that Tan Eng Kee was merely an employee of Benguet Lumber. He
showed evidence consisting of Tan Eng Kees payroll; his SSS as an employee
and Benguet Lumber being the employee. As a result of the presentation of said
evidence, the heirs of Tan Eng Kee filed a criminal case against Tan Eng Lay for
allegedly fabricating those evidence. Said criminal case was however dismissed
for lack of evidence.

ISSUE: Whether or not Tan Eng Kee is a partner.


HELD: No. There was no certificate of partnership between the brothers. The
heirs were not able to show what was the agreement between the brothers as to
the sharing of profits. All they presented were circumstantial evidence which in
no way proved partnership.
It is obvious that there was no partnership whatsoever. Except for a firm name,
there was no firm account, no firm letterheads submitted as evidence, no
certificate of partnership, no agreement as to profits and losses, and no time

fixed for the duration of the partnership. There was even no attempt to submit
an accounting corresponding to the period after the war until Kees death in
1984. It had no business book, no written account nor any memorandum for
that matter and no license mentioning the existence of a partnership.
In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole
proprietorship. He registered the same as such in 1954; that Kee was just an
employee based on the latters payroll and SSS coverage, and other records
indicating Tan Eng Lay as the proprietor.
Also, the business definitely amounted to more P3,000.00 hence if there was a
partnership, it should have been made in a public instrument.

(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but no such inference shall be
drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;

But the business was started after the war (1945) prior to the publication of the
New Civil Code in 1950?

(d) As interest on a loan, though the amount of payment vary with the profits of
the business;

Even so, nothing prevented the parties from complying with this requirement.

(e) As the consideration for the sale of a goodwill of a business or other property
by installments or otherwise.

Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never asked
for an accounting. The essence of a partnership is that the partners share in the
profits and losses. Each has the right to demand an accounting as long as the
partnership exists. Even if it can be speculated that a scenario wherein if
excellent relations exist among the partners at the start of the business and all
the partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly plausible.
But in the situation in the case at bar, the deferment, if any, had gone on too
long to be plausible. A person is presumed to take ordinary care of his concerns.
A demand for periodic accounting is evidence of a partnership which Kee never
did.
The Supreme Court also noted: In determining whether a partnership exists,
these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each
other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made by
the use of the property;

18 Aurbach v. Sanitary Wares


F: This consolidated petition assailed the decision of the CA directing a certain
MANNER OF ELECTION OFOFFICERS IN THE BOARD OF DIRECTORS*There are two
groups in this case, the
Lagdameo group
composed of Filipino investors and the
American Standard Inc
. (ASI) composed of foreign investors.The ASI Group and petitioner Salazar (G.R.
Nos. 75975-76) contend that the actual intention of theparties should be viewed
strictly on the "Agreement" dated August 15,1962 wherein it is clearly statedthat
the parties' intention was to form a corporation and not a joint venture.I: The
main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during itsannual stockholders' meeting held on March 8, 1983. To
answer this question the following factorsshould be determined:*(1) the nature
of the business established by the parties whether it was a joint venture or a
corporationandH:

While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at
third parties and is not inconsistent with, and does not preclude, the existence of
two distinct groups of stockholders in Saniwares one of which (the Philippine
Investors) shall constitute the majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident intention of the Philippine
Investors and ASI in entering into the Agreement is to enter into a joint venture
enterprise
*An examination of the Agreement shows that certain provisions were included
to protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts. ASI is contractually
entitled to designate a member of the Executive Committee and the vote of this
member is required for certain transactions
*The Agreement also requires a 75% super-majority vote for the amendment of
the articles and by-laws of Saniwares. ASI is also given the right to designate the
president and plant manager. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI and that
Saniwares should not export "Standard" products otherwise than through ASI's
Export Marketing Services. Under the Agreement, ASI agreed to provide
technology and know-how to Saniwares and the latter paid royalties for the
same.
*The legal concept of a joint venture is of common law origin. It has no precise
legal definition but it has been generally understood to mean an organization
formed for some temporary purpose. It is in fact hardly distinguishable from the
partnership, since their elements are similar community of interest in the
business, sharing of profits and losses, and a mutual right of control.
*The main distinction cited by most opinions in common law jurisdictions is that
the Partnership contemplates a general business with some degree of continuity,
while the joint venture is formed for the execution of a single transaction, and is
thus of a temporary nature.
19 Bourns v. Carman
FACTS: An action to recover the sum of $437.50 balance due on a contract for
the sawing of lumber yard of Lo-Chim-Lim was filed by Bourns (Plaintiff). The
contract was entered into by Lo-Chim-Lim, acting as in his own name with the
plaintiff, and it appears that Lo-Chim-Lim personally agreed to pay for the work

himself. The plaintiff brought the action against Lo-Chim-Lim and his codefendants jointly, alleging that at the time the contract was made, they were
the joint proprietors and operators of the said lumber yard engaged in the
purchase and sale of lumber under the name and style of Lo-Chim-Lim, hence
were partners. The lower court dismissed the action on the ground that
defendants D.M. Carman, Fulgencio and Tan-Tongco, except Vicente Palance and
Go-Tauco were not the partners of Lo-Chim-Lim.
ISSUE: Whether appellants are deemed partners of Lo-Chim-Lim and hence are
liable to Bourns
HELD: No. The alleged partnership between Lo-Chim-Lim and the appellants was
formed by verbal agreement only. There is no evidence tending to show that the
said agreement was reduced to writing, or that it was ever recorded in a public
instrument. Moreover, the partnership had no corporate name. The partnership
was engaged in business under the name and style of Lo-Chim-Lim only.
Moreover, it does not appear that there was any mutual agreement between the
parties and if there were any, it has not been shown what the agreement was.
The contracts made with the plaintiff were made by Lo-Chim-Lim individually in
his own name, and there is no evidence that the partnership over contracted in
any form. Hence, the partnership is one of cuentasen participacion. It is but a
simple business conducted by Lo-Chim-Lim exclusively in his own name. A
partnership constituted in such a manner, the existence of which was only
known to those who had an interest in the same, being no mutual agreements
between the partners and without a corporate name indicating to the public in
some way that there were other people besides the one who ostensibly
managed and conducted the business, is exactly the accidental partnership of
cuentas en participacion defined in Art. 239 of the Code of Commerce. Those
who contract with the person under whose name the business of such
partnership of cuentas en participacion is conducted, shall have only a right of
action against such person and not against the other persons interested, and the
latter, on the other hand, shall have no right of action against the third person
who contracted with the manager unless such manager formally transfers his
right to them.
20 Philex Mining Corp v. CIR
FACTS: BIR sent a letter to Philex asking it to settle its tax liabilities amounting to
P124 million. Philex protested the demand for payment stating that it has

pending claims for VAT input credit/refund amounting to P120 million. Therefore,
these claims for tax credit/refund should be applied against the tax liabilities.
In reply the BIR found no merit in Philexs position. On appeal, the CTA reduced
the tax liability of Philex.
ISSUES: Whether legal compensation can properly take place between the VAT
input credit/refund and the excise tax liabilities of Philex Mining Corp;
Whether the BIR has violated the NIRC which requires the refund of input taxes
within 60 days
Whether the violation by BIR is sufficient to justify non-payment by Philex
RULING: No, legal compensation cannot take place. The government and the
taxpayer are not creditors and debtors of each other.
Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim
for VAT input credit. Obviously, had the BIR been more diligent and judicious with
their duty, it could have granted the refund
No, despite the lethargic manner by which the BIR handled Philexs tax claim, it
is a settled rule that in the performance of government function, the State is not
bound by the neglect of its agents and officers. It must be stressed that the
same is not a valid reason for the non-payment of its tax liabilities.
21 AFISCO v. CA
DOCTRINE: Unregistered Partnerships and associations are considered as
corporations for tax purposes Under the old internal revenue code, A tax is
hereby imposed upon the taxable net income received during each taxable year
from all sources by every corporation organized in, or existing under the laws of
the Philippines, no matter how created or organized, xxx. Ineludibly, the
Philippine legislature included in the concept of corporations those entities that
resembled them such as unregistered partnerships and associations.
Insurance pool in the case at bar is deemed a partnership or association taxable
as a corporation In the case at bar, petitioners-insurance companies formed 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 is considered a partnership or association which
may be taxed as a ccorporation.

Double Taxation is not Present in the Case at Bar Double taxation means
taxing the same person twice by the same jurisdiction for the same thing. In
the instant case, the insurance pool is a taxable entity distince from the
individual corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the companies.
There is no double taxation.
FACTS: The petitioners are 41 non-life domestic insurance corporations. They
issued risk insurance policies for machines. The petitioners in 1965 entered into
a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the
Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a nonresident foreign insurance corporation.
The reinsurance treaties required
petitioners to form a pool, which they complied with.
In 1976, the pool of machinery insurers submitted a financial statement and filed
an Information Return of Organization Exempt from Income Tax for 1975. On
the basis of this, the CIR assessed a deficiency 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.
The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals
dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a partnership taxable as
a corporation, and that the latters collection of premiums on behalf of its
members, the ceding companies, was taxable income.
ISSUE/S: Whether or not the pool is taxable as a corporation.
Whether or not there is double taxation.
HELD: 1) Yes: Pool taxable as a corporation
Argument of Petitioner: 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 risks thus reinsured. Hence, the pool did not
act or earn income as a reinsurer. Its role was limited to its principal function of
allocating and distributing the risk(s) arising from the original insurance among
the signatories to the treaty or the members of the pool based on their ability to
absorb the risk(s) ceded[;] as well as the performance of incidental functions,
such as records, maintenance, collection and custody of funds, etc.

Argument of SC: According to Section 24 of the NIRC of 1975:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -A tax is hereby imposed upon the taxable net income received during each
taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, no matter how created or organized, but not
including duly registered general co-partnership (compaias colectivas), general
professional partnerships, private educational institutions, and building and loan
associations xxx.
Ineludibly, the Philippine legislature included in the concept of corporations
those entities that resembled them such as unregistered partnerships and
associations. Interestingly, the NIRCs inclusion of such entities in the tax on
corporations was made even clearer by the Tax Reform Act of 1997 Sec. 27 read
together with Sec. 22 reads:
SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this Code, an income tax of
thirty-five percent (35%) is hereby imposed upon the taxable income derived
during each taxable year from all sources within and without the Philippines by
every corporation, as defined in Section 22 (B) of this Code, and taxable under
this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx

xxx

(B) The term corporation shall include partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies, but does not include general professional
partnerships [or] a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating or consortium agreement
under a service contract without the Government.
General professional
partnerships are partnerships formed by persons for the sole purpose of
exercising their common profession, no part of the income of which is derived
from engaging in any trade or business.

Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section
24 covered these unregistered partnerships and even associations or joint
accounts, which had no legal personalities apart from their individual members.
Furthermore, 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 may be considered a partnership
because it contains the following elements: (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) While, the pool itself is not
a reinsurer and does not issue any policies; 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 pursuant to the
agreement with Munich. Profit motive or business is, therefore, the primordial
reason for the pools formation.
2) No: There is no double taxation.
Argument of Petitioner: Remittances of the pool to the ceding companies and
Munich are not dividends subject to tax. Imposing a tax would be tantamount to
an illegal double taxation, as it would result in taxing the same premium income
twice in the hands of the same taxpayer. Furthermore, even if such remittances
were treated as dividends, they would have been exempt under tSections 24 (b)
(I) and 263 of the 1977 NIRC , as well as Article 7 of paragraph 1and Article 5 of
paragraph 5 of the RP-West German Tax Treaty.
Argument of Supreme Court: Double taxation means taxing the same person
twice by the same jurisdiction for the same thing. In the instant case, the
insurance pool is a taxable entity distince from the individual corporate entities
of the ceding companies. The tax on its income is obviously different from the
tax on the dividends received by the companies. There is no double taxation.
Tax exemption cannot be claimed by non-resident foreign insurance corporattion;
tax exemption construed strictly against the taxpayer - Section 24 (b) (1)
pertains to tax on foreign corporations; hence, it cannot be claimed by the
ceding companies which are domestic corporations. Nor can Munich, a foreign
corporation, be granted exemption based solely on this provision of the Tax Code
because the same subsection specifically taxes dividends, the type of

remittances forwarded to it by the pool. The foregoing interpretation of Section


24 (b) (1) is in line with the doctrine that a tax exemption must be construed
strictissimi juris, and the statutory exemption claimed must be expressed in a
language too plain to be mistaken.
PARTNERS OBLIGATIONS
21 Lim Tanhu v. Remolete
FACTS: Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a
partner in the commercial partnership, Glory Commercial Company with Antonio
Lim Tanhu and Alfonso Ng Sua".
Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and
Eng Chong Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants managed to use the funds
of the partnership to purchase lands and buildings in the cities of Cebu,
Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla.
She alleged in her complaint that after the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation, continued the business of Glory Commercial
Company, by purportedly organizing a corporation known as the Glory
Commercial Company, Incorporated and sometime in the month of November,
1967, defendants, particularly Antonio Lim Tanhu, by means of fraud deceit, and
misrepresentations did then and there, induce and convince her to execute a
quitclaim of all her rights and interests, in the assets of the partnership of Glory
Commercial Company.
Thereafter, in the year 1968-69, the defendants who had earlier promised to
liquidate the aforesaid properties and assets in favor, among others of plaintiff
and until the middle of the year 1970 when the plaintiff formally demanded from
the defendants the accounting of real and personal properties of the Glory
Commercial Company, defendants refused and stated that they would not give
the share of the plaintiff.
ISSUE: Whether Tan has a right over the liquidated properties of the partnership
HELD: No, Tan has no right over the liquidated properties of the partnership
The Supreme Court held that there is no alternative but to hold that plaintiff Tan
Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been

satisfactorily established and that, on the contrary, the evidence on record


convincingly shows that her relation with said deceased was that of a commonlaw wife.
Moreover, the Supreme Court said that the lower courts committed an error by
awarding 1/3 of the partnership properties to Tan because there has been no
liquidation proceedings yet. And if there has not yet been any liquidation of the
partnership, the only right plaintiff could have would be to what might result
after much liquidation to belong to the deceased partner (her alleged husband)
and before this is finished, it is impossible to determine, what rights or interest, if
any the deceased had.
In other words, no specific amounts or properties may be adjudicated to the heir
or legal representative of the deceased partner without the liquidation being first
terminated.
22 Liwanag v. CA
Facts:Liwanag asked Isidora Rosales to join her and Thelma Tagbilaran in the
business of buyingand selling cigarettes. Under their agreement, Rosales would
give the money needed tobuy the cigarettes while Liwanag and Tabligan would
act as her agents, with acorresponding 40% commission to her if the goods are
sold; otherwise the money wouldbe returned to Rosales.
Rosales gave several cash advances amounting to 633,650.
Money was misappropriated. Rosales files a complaint of estafa against them.
Issue: 1. WON the parties entered into a partnership agreement; 2. if in the
negative, WONthe transaction is a simple loan
Held: 1. No. Even assuming that a contract of partnership was indeed entered
into by andbetween the parties, when money or property have been received by
a partner for a specificpurpose and he later misappropriated it, such partner is
guilty of estafa.2. No. In a contract of loan once the money is received by the
debtor, ownership over thesame is transferred. Being the owner, the borrower
can dispose of it for whatever purposehe may deem proper.
23 US v. Clarin
7 Phil 504 Business Organization Partnership, Agency, Trust Co-Partners
Liability Misappropriation

Sometime before 1910, Pedro Larin formed a partnership with Pedro Tarug,
Eusebio Clarin and Carlos de Guzman. Larin, being the capitalist, agreed to
contribute P172.00 to the partnership and the three others shall use said fund to
trade mangoes. The three industrial partners bought mangoes and sell them and
they earned P203.00 but they failed to give Larins share of the profits. Larin
charged them with the crime of estafa, but the provincial fiscal filed an
information only against Eusebio Clarin in which he accused him of appropriating
to himself not only the P172 but also the share of the profits that belonged to
Larin, amounting to P15.50. Clarin was eventually convicted.

ISSUE: Whether or not the conviction is correct.

HELD: No. The P172.00 having been received by the partnership, the business
commenced and profits accrued, the action that lies with the partner who
furnished the capital for the recovery of his money is not a criminal action for
estafa, but a civil one arising from the partnership contract for a liquidation of
the partnership and a levy on its assets if there should be any.
The then Penal Code provides that those who are guilty of estafa are those who,
to the prejudice of another, shall appropriate or misapply any money, goods, or
any kind of personal property which they may have received as a deposit on
commission for administration or in any other producing the obligation to deliver
or return the same, (as, for example, in commodatum, precarium, and other
unilateral contracts which require the return of the same thing received) does
not include money received for a partnership; otherwise the result would be that,
if the partnership, instead of obtaining profits, suffered losses, as it could not be
held liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer to the
charge of estafa, for which it would be sufficient to argue that the partnership
had received the money under obligation to return it.
24 Pang Lim v. Lo Seng
The partner who collects is authorized to manage and actually

Lo Seng and Pang Lim were partners in the business of running a distillery,
known as "El Progreso
The land on which said distillery is located was to thefirm of Lo Seng and Co. for
the term of three years.
Upon the expiration of this lease a new writtencontract, in the making of which
Lo Yao was represented by one Lo Shui as attorney in fact,became effective
whereby the lease was extended for fifteen years.
Pang Lim sold all his interest in the distillery to hispartner Lo Seng, thus placing
the latter in the position of sole owner
Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged
before a notary public a deed purporting to convey to Pang Lim and another
Chinaman named Benito Galvez, the entire distillery plant. But this document
was never recorded in the registry of property.
Thereafter, Pang Lim and Benito Galvez demanded possession from Lo Seng,
but the latter refused toyield; and the present action of unlawful detainer was
thereupon initiated by Pang Lim and Benito Galvez in the court of the justice of
the peace of Paombong to recover possession of the premises.
Plaintiff Pang Lim has occupied a double role in the transactions which gave rise
to this litigation, namely,first, as one of the lessees; and secondly, as one of the
purchasers now seeking to terminate the lease. Thesetwo positions are
essentially antagonistic and incompatible. Every competent person is by law
bondto maintain in all good faith the integrity of his own obligations; and no less
certainly is he bound torespect the rights of any person whom he has placed in
his own shoes as regards any contract previouslyentered into by himself.
Issue: WON Pang Lim, having been a participant in thecontract of lease now in
question, is in a position to terminate it: and this is a fatal obstacle to the
maintenance of the action of unlawful detainer by him.
Held: NO. While yet a partner in the firm of Lo Seng and Co.,Pang Lim
participated in the creation of this lease, and when he sold out his interest in
that firm to Lo Seng this operated as atransfer to Lo Seng of Pang Lim's interest
in the firm assets, including the lease; and Pang Lim cannot now be permitted,
inthe guise of a purchaser of the estate, to destroy an interest derived from
himself, and for which he has received full value.

Ratio: The bad faith of the plaintiffs in seeking to deprive thedefendant of this
lease is strikingly revealed in thecircumstance that prior to the acquisition of
thisproperty Pang Lim had been partner with Lo Sengand Benito Galvez an
employee. Both therefore hadbeen in relations of confidence with Lo Seng and
inthat position had acquired knowledge of thepossibilities of the property and
possibly anexperience which would have enabled them, in casethey had
acquired possession, to exploit the distillerywith profit.
it would be shocking to the moral sense if the condition of the law were found to
be such that PangLim, after profiting by the sale of his interest in abusiness,
worthless without the lease, could interveneas purchaser of the property and
confiscate for hisown benefit the property which he had sold for avaluable
consideration to Lo Seng.
Above all other persons in business relations,partners are required to exhibit
towards each otherthe highest degree of good faith. In fact the relationbetween
partners is essentially fiduciary, each beingconsidered in law, as he is in fact, the
confidentialagent of the other.
If one partner obtains in his own name and for hisown benefit the renewal of a
lease on property usedby the firm, to commence at a date subsequent to
theexpiration of the firm's lease, the partner obtainingthe renewal is held to be a
constructive trustee of thefirm as to such lease.

which will be the expansion of Southern Air Lines. Maglana et al then contributed
and delivered money to Lim.

But instead of using the money given to him to pay in full the aircrafts, Lim,
without the knowledge of Maglana et al, made an agreement with Pioneer
Insurance for the latter to insure the two aircrafts which were brought in
installment from Japan Domestic Airlines (JDA) using said aircrafts as security. So
when Lim defaulted from paying JDA, the two aircrafts were foreclosed by
Pioneer Insurance.

It was established that no corporation was formally formed between Lim and
Maglana et al.

ISSUE: Whether or not Maglana et al must share in the loss as general partners.

25 Catalan v. Gatchalian

HELD: No. There was no de facto partnership. Ordinarily, when co-investors


agreed to do business through a corporation but failed to incorporate, a de facto
partnership would have been formed, and as such, all must share in the losses
and/or gains of the venture in proportion to their contribution. But in this case, it
was shown that Lim did not have the intent to form a corporation with Maglana
et al. This can be inferred from acts of unilaterally taking out a surety from
Pioneer Insurance and not using the funds he got from Maglana et al. The record
shows that Lim was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and spare parts.

PARTNERS OBLIGATION INTER SE

27 Evangelista v. Abad Santos

26 Pioneer Insurance v. CA

FACTS: On October 9, 1954 a co-partnership was formed under the name of


"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership were
amended so as to include herein respondent, Estrella Abad Santos, as industrial
partner, with herein petitioners Domingo C. Evangelista, Jr., Leonarda Atienza
Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining
in that capacity, with a contribution of P17,500 each

as Lo Seng is vested with the possessory right asagainst Pang Lim, he cannot be
ousted either by PangLim or Benito Galvez. Having lawful possession asagainst
one cotenant, he is entitled to retain it against both.

175 SCRA 668 Business Organization Corporation Law When De Facto


Partnership Does Not Exist

Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965,
Lim convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes,
and Border Machinery and Heavy Equipment Company (BORMAHECO) to
contribute funds and to buy two aircrafts which would form part a corporation

On December 17, 1963 herein respondent filed suit against the three other
partners, 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 to let her examine the partnership books or to give her information
regarding the partnership affairs or to pay her any share in the dividends
declared by the partnership

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 by way 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.

ISSUE:

Whether Abad Santos is entitled to see the partnership books because she
is an industrial partner in the partnership

HELD: Yes, Abad Santos is entitled to see the partnership books.

The Supreme Court ruled that according to

ART. 1299. Any partner shall have the right to a formal account as to partnership
affairs:

(1)If he is wrongfully excluded from the partnership business or possession of its


property by his co-partners;

(2)If the right exists under the terms of any agreement;


(3)As provided by article 1807;
(4)Whenever other circumstances render it just and reasonable."

In the case at hand, the company is estopped from denying Abad Santos as an
industrial partner because it has been 8 years and the company never corrected
their agreement in order to show their true intentions. The company never
bothered to correct those up until Abad Santos filed a complaint.
28 Moran v. Court of Appeals
Business Organization Partnership, Agency, Trust Profit and Loss Sharing
Speculative Damages

In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership
agreement where they agreed to contribute P15k each for the purpose of
printing 95k posters of the delegates to the then 1971 Constitutional
Commission. Moran shall be in charge in managing the printing of the posters. It
was further agreed that Pecson will receive a commission of P1k a month
starting from April 1971 to December 1971; that the partnership is to be
liquidated on December 15, 1971.

Pecson partially fulfilled his obligation to the partnership when he issued P10k in
favor of the partnership. He gave the P10k to Moran as the managing partner.
Moran however did not add anything and, instead, he only used P4k out of the
P10k in printing 2,000 posters. He only printed 2,000 posters because he felt
that printing all 95k posters is a losing venture because of the delay by the
COMELEC in announcing the full delegates. All the posters were sold for a total of
P10k.

Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The
Court of Appeals affirmed the decision of the trial court but modified the same as
it ordered Moran to pay P47.5k for unrealized profit; P8k for Pecsons monthly

commissions; P7k as return of investment because the venture never took off;
plus interest.

ISSUE: Whether or not the CA judgment is correct.

29 Martinez v. Ong Pong Co


Martinez v. Ong Pong Co
Facts: Martinez delivered P1,500 to Ong Pong Co and Ong Lay to invest in a
store
They agreed that the profits and losses would be equally shared by all of them

HELD: No. The award of P47.5k for unrealized profit is speculative. There is no
evidence whatsoever that the partnership between the Moran and Pecson would
have been a profitable venture (because base on the circumstances then i.e. the
delay of the COMELEC in proclaiming the candidates, profit is highly unlikely). In
fact, it was a failure doomed from the start. There is therefore no basis for the
award of speculative damages in favor of Pecson. Further, there is mutual breach
in this case, Pecson only gave P10k instead of P15k while Moran gave nothing at
all.

As for the P8k monthly commission, this is without basis. The agreement does
not state the basis of the commission. The payment of the commission could
only have been predicated on relatively extravagant profits. The parties could
not have intended the giving of a commission inspite of loss or failure of the
venture. Since the venture was a failure, Pecson is not entitled to the P8k
commission.

As for the P7k award as return for Pecsons investment, the CA erred in his ruling
too. Though the venture failed, it did took off the ground as evidenced by the
2,000 posters printed. Hence, return of investment is not proper in this case.
There are risks in any business venture and the failure of the undertaking cannot
entirely be blamed on the managing partner alone, specially if the latter
exercised his best business judgment, which seems to be true in this case.

Martinez was demanding for the two Ongs to render an accounting or to refund
him the P1,500
Ong Pong Co alleged that Ong Lay, now deceased, was the one who managed
the business, and the capita of P1,500 resulted in a loss so that he should not be
made liable
Issue: WON Ong Pong Co is liable? YES What is the extent of his liability? joint
Held: The 2 partners (Ongs) were the administrators/managers and are obliged
to render accounting. Since neither of them rendered an account, nor proved the
alleged losses, they are obliged to return the capital to Martinez.
Where two partners receive from another a sum of money for the establishment
of a business, and agree to share with the latter the profits or losses that may
result therefrom, the said two persons, as the apparent administrators of the
partnership, acted as agents for the capitalist partner, and by virtue thereof are
bound to fulfill the contract which implies the management of the business.
Article 1796 is not applicable because no other money than that contributed as
capital was involved. The liability of the partners is joint. Ong Pong Co shall only
pay P750 to Martinez.
30 Agustin v. Inocencio
x
PARTNERS OBLIGATION TO PERSONAL/PSHIP CREDITORS
31 Litton v. Hill

Moran must however return the unused P6k of Pecsons contribution to the
partnership plus P3k representing Pecsons profit share in the sale of the printed
posters. Computation of P3k profit share is as follows: (P10k profit from the sale
of the 2,000 posters printed) (P4k expense in printing the 2k posters) = (P6k
profit); Profit 2 = P3k each.

FACTSOn February 14, 1934, the plaintiff sold and delivered to CarlosCeron, who
is one of the managing partners of Hill & Ceron, acertain number of mining
claims. Ceron paid to the plaintiff thesum or P1,150 leaving an unpaid balance of
P720, and unable tocollect this sum either from Hill & Ceron or from its
suretyVisayan Surety & Insurance Corporation, Litton filed a complaint in the

Court of First Instance of Manila against the saiddefendants for the recovery of
the said balance. The court, aftertrial, ordered Carlos Ceron personally to pay the
amount claimedand absolved the partnership Hill & Ceron, Robert Hill and
theVisayan Surety & Insurance Corporation. The CA affirmed thedecision of the
court on May 29, 1937, having reached theconclusion that Ceron did not intend
to represent and did not act for the firm Hill & Ceron in the transaction involved
in thislitigation.
Issue: Did the transaction bind the partnership or Ceron only?
Held:
While the transaction was entered into by Ceron, it boundthe partnership. Robert
Hill had the same power to buy and sell;that in said partnership Hill as well as
Ceron made thetransaction as partners in equal parts; that on the date of
thetransaction, February 14, 1934, the partnership between Hill andCeron was in
existence. After this date, or on February 19th, Hill& Ceron sold shares of the
BigWedge; and when the transactionwas entered into with Litton, it was neither
published in thenewspapers nor stated in the commercial registry that
thepartnership Hill & Ceron had been dissolved.The SC dissented from the view
of the CA that for one of thepartners to bind the partnership the consent of the
other isnecessary.Third persons, like the plaintiff, are not bound inentering into a
contract with any of the two partners, to ascertainwhether or not this partner
with whom the transaction is madehas the consent of the other partner.The
public need not makeinquires as to the agreements had between the partners.
Itsknowledge, is enough that it is contracting with the partnershipwhich is
represented by one of the managing partners.The second paragraph of the
articles of partnership of Hill &Ceron reads in part:
Second:That the purpose or object for which thiscopartnership is organized is
toengage in the businessof brokerage in general, such as stock and bond
brokers,realbrokers, investment security brokers, shippingbrokers, and other
activities pertainingto the businessof brokers in general.The kind of business in
which the partnership Hill & Ceron is toengage being thus determined, none of
the two partners, underarticle 130 of the Code of Commerce, may legally engage
in thebusiness of brokerage in general as stock brokers, securitybrokers and
other activities pertaining to the business of thepartnership. Ceron, therefore,
could not have entered into thecontract of sale of shares with Litton as a private
individual, but as a managing partner of Hill & CeronThe stipulation in the
articles of partnership that any of the twomanaging partners may contract and

sign in the name of thepartnership with the consent of the other, undoubtedly
createsan obligation between the two partners, which consists in askingthe
other's consent before contracting for the partnership.Thisobligation of course is
not imposed upon a third person whocontracts with the partnership. Neither is it
necessary for thethird person to ascertain if the managing partner with whom
hecontracts has previously obtained the consent of the other. Athird person may
and has a right to presume that the partnerwith whom he contracts has, in the
ordinary and natural courseof business, the consent of his copartner; for
otherwise he wouldnot enter into the contract.The third person would naturally
not presume that the partner with whom he enters into thetransaction is
violating the articles of partnership but, on thecontrary, is acting in accordance
therewith. And this findssupport in the legal presumption that the ordinary
course of business has been followed.If we are to interpret the articles of
partnership in question byholding that it is the obligation of the third person to
inquirewhether the managing copartner of the one with whom hecontracts has
given his consent to said contract, which ispractically casting upon him the
obligation to get such consent,this interpretation would, in similar cases, operate
to hindereffectively the transactions, a thing not desirable and contrary tothe
nature of business which requires promptness and dispatchone the basis of good
faith and honesty which are alwayspresumed.
Resolution:
Hill asked for a reconsideration, using the same arguments,saying that he did
not consent to the deal of Ceron. The SCreiterated what they said, and
mentioned that had Ceron in anyway stated to the appellant at the time of the
execution of thecontract, or if it could be inferred by his conduct, that he had
theconsent of Hill, and should it turn out later that he did not havesuch consent,
this alone would not annul the contract judgingfrom the provisions of article 130
of the Code of Commercereading as follows:No new obligation shall be
contracted against the will of one of the managing partners, should he have
expresslystated it; but if, however, it should be contracted it shallnot be annulled
for this reason, and shall have its effectswithout prejudice to the liability of the
partner orpartners who contracted it to reimburse the firm for anyloss
occasioned by reason thereof.
32 Goquiolay v. Sycip
FACTS: Tan Sin An and Goquiolay entered into a general commercial partnership
under the partnership name Tan Sin An and Antonio Goquiolay for the purpose

of dealing in real estate. The agreement lodged upon Tan Sin An the sole
management of the partnership affairs. The lifetime of the partnership was fixed
at ten years and the Articles of Co-partnership stipulated that in the event of
death of any of the partners before the expiration of the term, the partnership
will not be dissolved but will be continued by the heirs or assigns of the
deceased partner. But the partnership could be dissolved upon mutual
agreement in writing of the partners. Goquiolay executed a GPA in favor of Tan
Sin An. The plaintiff partnership purchased 3 parcels of land which was
mortgaged to La Urbana as payment of P25,000. Another 46 parcels of land
were purchased by Tan Sin An in his individual capacity which he assumed
payment of a mortgage debt for P35K. A downpayment and the amortization
were advanced by Yutivo and Co. The two obligations were consolidated in an
instrument executed by the partnership and Tan Sin An, whereby the entire 49
lots were mortgaged in favor of Banco HipotecarioTan Sin An died leaving his
widow, Kong Chai Pin and four minor children. The widow subsequently became
the administratrix of the estate. Repeated demands were made by Banco
Hipotecario on the partnership and on Tan Sin An. Defendant Sing Yee, upon
request of defendant Yutivo Sons , paid the remaining balance of the mortgage
debt, the mortgage was cancelled Yutivo Sons and Sing Yee filed their claim in
the intestate proceedings of Tan Sin An for advances, interest and taxes paid in
amortizing and discharging their obligations to La Urbana and Banco
Hipotecario. Kong Chai Pin filed a petition with the probate court for authority to
sell all the 49 parcels of land. She then sold it to Sycip and Lee in consideration
of P37K and of the vendees assuming payment of the claims filed by Yutivo Sons
and Sing Yee. Later, Sycip and Lee executed in favor of Insular Development a
deed of transfer covering the 49 parcels of land.When Goquiolay learned about
the sale to Sycip and Lee, he filed a petition in the intestate proceedings to set
aside the order of the probate court approving the sale in so far as his interest
over the parcels of land sold was concerned. Probate court annulled the sale
executed by the administratrix w/ respect to the 60% interest of Goquiolay over
the properties Administratrix appealed.The decision of probate court was set
aside for failure to include the indispensable parties. New pleadings were filed.
The second amended complaint prays for the annulment of the sale in favor of
Sycip and Lee and their subsequent conveyance to Insular Development. The
complaint was dismissed by the lower court hence this appeal.

widow succeeded her husband Tan Sin An in the sole management of the
partnership upon Tans death Whether or not the consent of the other partners
was necessary to perfect the sale of the partnership properties to Sycip and Lee?

HELD:

Kong Chai Pin became a mere general partner. By seeking authority to manage
partnership property, Tan Sin Ans widow showed that she desired to be
considered a general partner. By authorizing the widow to manage partnership
property (which a limited partner could not be authorized to do), Goqulay
recognized her as such partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate partnership property.
The articles did not provide that the heirs of the deceased would be merely
limited partners; on the contrary, they expressly stipulated that in case of death
of either partner, the co partnership will have to be continued with the heirs or
assignees. It certainly could not be continued if it were to be converted from a
general partnership into a limited partnership since the difference between the
two kinds of associations is fundamental, and specially because the conversion
into a limited association would leave the heirs of the deceased partner without
a share in the management. Hence, the contractual stipulation actually
contemplated that the heirs would become general partners rather than limited
ones.
33 Co-Pitco v. Yulo

34 Bachrach v. La Protectora
35 Island Sales, Inc. v. United Pioneers General Construction Company
36 Lim Tong Lim v. Philippine Fishing Gear
37 Munasque v. CA
38 MacDonald v. National City Bank

ISSUE/S: Whether or not a widow or substitute become also a general partner or


only a limited partner. Whether or not the lower court err in holding that the

39 Magdusa v. Albar

RIGHTS OF A PARTNER
40 Dan Fue Leung v IAC
FACTS:
The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 whichaffirmed the decision of the then
Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring
privaterespondent Leung Yiu a partner of petitioner Dan Fue Leung in the
business of Sun Wah Panciteria and ordering thepetitioner to pay to the private
respondent his share in the annual profits of the said restaurant.This case
originated from a complaint filed by respondent Leung Yiu with the then Court of
First Instance of Manila, BranchII to recover the sum equivalent to twenty-two
percent (22%) of the annual profits derived from the operation of Sun
WahPanciteria since October, 1955 from petitioner Dan Fue Leung.The Sun Wah
Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila,
was established sometime inOctober, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and in favor of
petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced
evidence during the trial of the case toshow that Sun Wah Panciteria was
actually a partnership and that he was one of the partners having contributed
P4,000.00to its initial establishment.The private respondents evidence is
summarized as follows:About the time the Sun Wah Panciteria started to become
operational, the private respondent gave P4,000.00 as hiscontribution to the
partnership. This is evidenced by a receipt wherein the petitioner acknowledged
his acceptance of theP4,000.00 by affixing his signature thereto. Furthermore,
the private respondent received from the petitioner the amount of P12,000.00
covered by the latter's Equitable Banking Corporation Check from the profits of
the operation of the restaurantfor the year 1974The petitioner denied having
received from the private respondent the amount of P4,000.00. He contested
and impugnedthe genuineness of the receipt. His evidence is summarized as
follows:The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from hissalaries as an employee at
Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant
amounting to a littlemore than P2,000.00 as capital in establishing Sun Wah
Panciteria. Petitioner presented various government licenses andpermits
showing the Sun Wah Panciteria was and still is a single proprietorship solely
owned and operated by himself alone.Fue Leung also flatly denied having issued
to the private respondent the receipt (Exhibit G) and the Equitable

BankingCorporation's Check No. 13389470 B in the amount of P12,000.00


(Exhibit B).
ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah
Panciteria?HELD:
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The
requisites of a partnership which are 1)two or more persons bind themselves
to contribute money, property, or industry to a common fund; and 2) intention
on thepart of the partners to divide the profits among themselves (Article 1767,
Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.110)-have been established. As
stated by the respondent, a partner shares not only in profits but also in the
losses of thefirm. If excellent relations exist among the partners at the start of
business and all the partners are more interested in seeing the firm grow rather
than get immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert his rights
anytime within ten years from the start of operations, such rightsare irretrievably
lost. The private respondent's cause of action is premised upon the failure of the
petitioner to give him theagreed profits in the operation of Sun Wah Panciteria.
In effect the private respondent was asking for an accounting of his interests in
the partnership.
41 Emnace v. CA
FACTS
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were
partners in a business concern known as Ma. Nelma Fishing Industry. Sometime
in January of 1986, they decided to dissolve their partnership and executed an
agreement of partition and distribution of the partnership properties among
them, consequent to Jacinto Divinagracia's withdrawal from the partnership.
Among the assets to be distributed were 5 fishing boats, 6 vehicles, 2 parcels of
land located at Sto. Nio and Talisay, Negros Occidental, and cash deposits in the
local branches of the Bank of the Philippine Islands and Prudential Bank.

Throughout the existence of the partnership, and even after Vicente Tabanao's
untimely demise, petitioner failed to submit to Tabanao's heirs any statement of
assets and liabilities of the partnership, and to render an accounting of the
partnership's finances. Consequently, Tabanao' s heirs, respondents herein, filed
against petitioner an action for accounting, payment of shares, division of assets

and damages. Petitioner filed a motion to dismiss the complaint on the grounds
of improper venue, lack of jurisdiction over the nature of the action or suit, and
lack of capacity of the estate of Tabanao to sue.
The trial court denied the motion to dismiss. It held that venue was properly laid
because, while realties were involved, the action was directed against a
particular person on the basis of his personal liability. Finally, the trial court held
that the heirs of Tabanao had a right to sue in their own names, in view of the
provision of Article 777 of the Civil Code, which states that the rights to the
succession are transmitted from the moment of the death of the decedent.
Petitioner filed a petition for certiorari before the Court of Appeals which was
dismissed.

ISSUE
1.
Whether the venue was improperly laid since the action is a real action
involving a parcel of land that is located outside the territorial jurisdiction of the
court a quo
2.
Whether the surviving spouse of Vicente Tabanao has legal capacity to sue
since she was never appointed as administratrix or executrix of his estate

RULING
1.
No. The records indubitably show that respondents are asking that the
assets of the partnership be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of the partnership are
parcels of land does not materially change the nature of the action. It is an
action in personam because it is an action against a person, namely, petitioner,
on the basis of his personal liability and not an action in rem where the action is
against the thing itself instead of against the person. In fact, it is only incidental
that part of the assets of the partnership under liquidation happen to be parcels
of land.

It also seeks the enforcement of, and petitioner's compliance with, the contract
that the partners executed to formalize the partnership's dissolution, as well as
to implement the liquidation and partition of the partnership's assets. Clearly, it

is a personal action that, in effect, claims a debt from petitioner and seeks the
performance of a personal duty on his part. In fine, respondents' complaint
seeking the liquidation and partition of the assets of the partnership with
damages is a personal action which may be filed in the proper court where any
of the parties reside. As it is, venue in this case was properly laid and the trial
court correctly ruled so.
2. Yes. The surviving spouse does not need to be appointed as executrix or
administratrix of the estate before she can file the action. She and her children
are complainants in their own right as successors of Vicente Tabanao. From the
very moment of Vicente Tabanao's death, his rights insofar as the partnership
was concerned were transmitted to his heirs, for rights to the succession are
transmitted from the moment of death of the decedent. Whatever claims and
rights Vicente Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more particularly by succession,
which is a mode of acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance of a person are
transmitted. Moreover, respondents became owners of their respective
hereditary shares from the moment Vicente Tabanao died.
42 US v. Clarin Supra
PSHIP OBLIGATIONS TO THE PARTNERS
43 Agustin v. Inocencio
44 Martinez v. Ong Pong Co
Dissolution, winding-up, termination
45 Idos v. CA
Facts:

In 1985, Eddie Alarilla and Irma Idos formed a partnership which they decided to
terminate after a year. To pay Alarillas share of the asset, Idos issued 4 post
dated checks. Alarilla was able to encash the first, second and fourth checks but
the third was dishonored for insufficiency of funds. He demanded payment but
Idos failed to pay. She claimed that the checks were issued as assurance of
Alarillas share in the assets of the partnership and that it was supposed to be

deposited until the stocks were sold. He filed an information for violation of BP
blg. 22 against Idos in which she was found guilty by the trial court.

Issue: Did the court confused and merged into one the legal concepts of
dissolution, liquidation and termination of a partnership?

Ruling: The partners agreement to terminate the partnership did not


automatically dissolved the partnership. They were in the process of winding-up
when the check in question was issued. The best evidenceof the existence of the
partnership, which was not yet terminated were the unsold goods and
uncollected receivables which were presented to the trial court. Article 1829 of
the Civil Code provides that on dissolution the partnership is not terminated but
continues until the winding-up of partnership affairs is completed. Since the
partnership has not been terminated, Idos and Alarilla remained co-partners. The
check was issued by petitioner to respondent as would a partner to another and
not as a payment by debtor to creditor. Thus, absent the first element of the
complained offense, the act is not punishable by the statute.
46 Singson v. Isabela Sawmill
Facts: In 1951, defendants entered into a contract of partnership under the firm
name Isabela Sawmill. In 1956 the plaintiff sold to the partnership a motor
truck and two tractors. The partnership was not able to pay their whole balance
even after demand was made. One of the partners withdrew from the
partnership but instead of terminating the said partnership it was continued by
the two remaining partners under the same firm name. Plaintiffs also seek the
annulment of the assignment of right with chattel mortgage entered into by the
withdrawing partner and the remaining partners. The appellants contend that
the chattel mortgage may no longer be nullified because it had been judicially
approved and said chattel mortgage had been judicially foreclosed.

Issue: Whether the withdrawal of one of the partners dissolved the partnership.

Ruling: It does not appear that the withdrawal of the partner was not published
in the newspapers. The appellees and the public in general had a right to expect

that whatever, credit they extended to the remaining partners could be enforced
against the properties of the partnership. The withdrawing partner cannot be
relieved from her liability to the creditor of the partnership due to her own fault
by not insisting on the liquidation of the partnership. Though she had acted in
good faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the consequences.
Technically, the partnership was dissolved by the withdrawal of one of the
partners. Through her acts of entering into a memorandum with the remaining
partners misled the creditors that they were doing business with the partnership.
Hence, from the order of the lower court ordering the withdrawing partner to pay
the plaintiffs, she is thus entitled for reimbursement from the remaining
partners.
47 Yu v. NLRC
Facts:

Benjamin Yu used to be the Assistant General Manager of Jade Mountain, a


partnership engaged in marble quarrying and export business. The majority of
the founding partners sold their interests in said partnership to Willy Co and
Emmanuel Zapanta without Yus knowledge. Said new partnership continued
operating under the same name and continued the businesss operations.
However, it transferred its main office from Makati to Mandaluyong. Said new
partnership did not anymore availed of the services of Yu. Thus, he filed a
complaint for illegal dismissal, recovery of unpaid wages and damages.

Ruling :

The legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired Yu in 1984 and the emergence
of a new firm composed of Willy Co and Emmanuel Zapanta in 1987. The new
partnership simply took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net assets, and then re-

assembling the said assets or most of them and opening a new business
enterprise. Not only the retiring partners but also the new partnership itself
which continued the business of the old, dissolved, one, are liable for the debts
of the preceding partnership.
48 Primelink Properties v. Lazatin-Magat
Business Organization Partnership, Agency, Trust Dissolution and Winding Up
Joint Venture Agreement Rights of Innocent Party

In 1994, Primelink Properties and the Lazatin siblings entered into a joint venture
agreement whereby the Lazatins shall contribute a huge parcel of land and
Primelink shall develop the same into a subdivision. For 4 years however,
Primelink failed to develop the said land. So in 1998, the Lazatins filed a
complaint to rescind the joint venture agreement with prayer for preliminary
injunction. In said case, Primelink was declared in default or failing to file an
answer and for asking multiple motions for extension. The trial court eventually
ruled in favor of the Lazatins and it ordered Primelink to return the possession of
said land to the Lazatins as well as some improvements which Primelink had so
far over the property without the Lazatins paying for said improvements. This
decision was affirmed by the Court of Appeals. Primelink is now assailing the
order; that turning over improvements to the Lazatins without reimbursement is
unjust; that the Lazatins did not ask the properties to be placed under their
possession but they merely asked for rescission.

trial court rescinded the joint venture agreement, the innocent party has the
right to wind up the partnership affairs.

With the rescission of the JVA on account of petitioners fraudulent acts, all
authority of any partner to act for the partnership is terminated except so far as
may be necessary to wind up the partnership affairs or to complete transactions
begun but not yet finished. On dissolution, the partnership is not terminated but
continues until the winding up of partnership affairs is completed. Winding up
means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.

It must be stressed, too, that although the Lazatins acquired possession of the
lands and the improvements thereon, the said lands and improvements
remained partnership property, subject to the rights and obligations of the
parties, inter se, of the creditors and of third parties and subject to the outcome
of the settlement of the accounts between the parties, absent any agreement of
the parties in their JVA to the contrary (here no agreement in the JVA as to
winding up). Until the partnership accounts are determined, it cannot be
ascertained how much any of the parties is entitled to, if at all.
CAUSES OF DISSOLUTION
49 Rojas v. Maglana
50 Bearneza v. Dequilla

ISSUE: Whether or not the improvements made by Primelink should also be


turned over under the possession of the Lazatins.

HELD: Yes. In the first place, even though the Lazatins did specifically pray for
possession the same (placing of improvements under their possession) is
incidental in the relief they prayed for. They are therefore entitled possession
over the parcel of land plus the improvements made thereon made by Primelink.

In this jurisdiction, joint ventures are governed by the laws of partnership. Under
the laws of partnership, when a partnership is dissolved, as in this case when the

51 Lichauco v. Lichauco
EFFECTS OF DISSOLN
52 Testate Estate of Mota v Serra
53 Bonnevie v. Hernandez
TRUSTS
54 Caezo v. Rojas
55 Policarpio v. Court of Appeals and Uy
56 Pealber v. Ramos 2009

57 Rizal Surety and Insurance Co., v. Court of Appeals 1996


58 Ringor, et al. v. Ringor 2004
59 Herbon, et al., v. Palad and Cayetano 2006
60 Tigno, et al., v. Court of Appeals and Tigno 1997
61 Morales v. Court of Appeals, et al., 1997
62 Quevada v. Court of Appeals and Villaverde 2006
63 Heirs of Timoteo Moreno
International Airport Authority,

and

Maria

Rotea

v.

Mactan-Cebu

64 Guaranteed Homes, Inc. v. Heirs of Maria P. Valdez, et al., 2009


65 Pilapil, et al., v. Heirs of Maximino R. Briones

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