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Benjamin Yu vs. NLRC

Facts:Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited". The partnership was originally organized with Lea and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all Taiwanese, as limited partners.

Benjamin Yu was hired by virtue of a Partnership Resolution, as Assistant General Manager with a monthly salary of P4,000.00. According to Yu, however, he actually received only half of his stipulated monthly salary, as promised by partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea and Rhodora Benda and Mr. Yu Chang, a limited partner, sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the firm's main office from Makati to Mandaluyong.

Having learned of the transfer of the firm's main office, petitioner Benjamin Yu reported to the Mandaluyong office for work and there he was informed by Willy Co that it was for him to decide whether or not he was responsible for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid.Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries, moral and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co contended that Benjamin Yu was never hired as an employee by the present or new partnership.

Labor Arbiter: Yu had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and attorney's fees.

NLRC (on appeal): Reversed the decision of the Labor Arbiter and dismissed petitioner's complaint. It held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was no law requiring the new partnership to absorb the employees of the old partnership.

 Benjamin Yu had not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the original members of the preceding partnership.

Issues:

(1) Whether the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) If indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership.

Held:(1) SC agreed with the NLRC. The legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

The applicable law in this connection is Article 1828 of the Civil Code which provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:(1) without violation of the agreement between the partners; XXX

(b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; XXX

(2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;

In the case at bar, just about all of the partners had sold their partnership interests, amounting to 82% of the total partnership interest, to Mr. Willy Co and Emmanuel Zapanta. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the old partners, was enough to constitute a new partnership.

The occurrences of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.

The legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs.

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In other words, the new partnership simply took over the business enterprise owned by the preceding 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.

(2) SC did not agree with NLRC. Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-à-vis any claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy.  The new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself.  It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole year.

Plus Moral Damages of Php 20,000 for Yu’s shabby treatment, legal interest of 6% per annum for unpaid wages and separation pay, and attorney’s fees of 10% of to the total amount due from Jade Mountain.

G.R. No. 413            February 2, 1903Jose Fernandez vs. Francisco de la Rosa

Facts:Fernandez and Dela Rosa entered into a verbal agreement to form a partnership for the purchase of cascoes and hiring the same in Manila. In their arrangement, each partner will furnish such amount of money for the purchase of the cascoes with the profits divided proportionally. Dela Rosa was designated to buy the cascoes. Thus, Fernandez furnished Dela Rosa 300 pesos for the purchase of casco no. 1515, 300 pesos for its repairs, and 825 for the purchase of casco no. 2089.

Subsequently, the parties undertook to draw up articles of partnership but no written agreement was executed because Dela Rosa allegedly presented a different draft of such articles, deliberately excluding casco no. 2089 in the partnership. This prompted Fernandez to demand for an accounting upon him.

Fernandez presented in evidence the following receipt: "I have this day received from D. Jose Fernandez eight hundred and

twenty-five pesos for the cost of a casco which we are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa." The casco being referred to be purchased “in company” according to the Supreme Court pertains to casco no. 2089, contrary to the claim of Dela Rosa that the same was for casco no. 1515.Dela Rosa admitted receiving 300 pesos as a loan from the bakery firm co-owned by Fernandez, and 825 pesos from Fernandez for the purchase of casco no. 1515 (not casco no. 2089) but maintained not receiving anything for the purchase of casco no. 2089. Verily, Dela Rosa, at some point, returned the sum of 1,125 pesos to Fernandez.

The lower court ruled in favor of Dela Rosa .

Issue:WON a partnership exists between Fernandez and Dela Rosa.

Held:Yes, a partnership exists between the parties.

Partnership is a contract by which two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. (Civil Code, art. 1665). The essential points upon which the minds of the parties must meet in a contract of partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint interest in the profits (Civil Code, secs. 1689, 1695.)

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

While the Supreme Court was unable to find that there was any specific verbal agreement of partnership, the same may be implied from the fact as to the purchase of the casco. It is thus apparent that a complete and perfect contract of partnership was entered into by the parties.

As to the absence of a written instrumentThe execution of a written agreement was not necessary in order to give efficacy to the verbal contract of partnership as a civil contract, the contributions of the partners not having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)

As to the return of Fernandez’s money contributionThe amount returned fell short of that which the plaintiff had contributed to the capital of the partnership, since it did not include the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is quite possible that a profit may have been realized from the business during the period in which the defendant have been administering it prior to the return of the money, and if so he still retained that sum in his

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hands. For these reasons the acceptance of the money by the plaintiff did not have the effect of terminating the legal existence of the partnership by converting it into a societas leonine.

There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a partner, nor is there any evidence that by anything that he said or by anything that he omitted to say he gave the defendant any ground whatever to believe that he intended to relinquish them. On the contrary he notified the defendant that he waived none of his rights in the partnership.

Collective partnership or en comandita A contract of partnership subject to a suspensive condition, postponing its operation until an agreement was reached as to the respective participation of the partners in the profits

Council Red Men vs. Veterans Army

Facts:This case involves the Veteran Army of the Philippines.

Their Constitution provides for the organization of posts. Among the posts thus organized is the General Henry W. Lawton Post, No. 1.

March 1, 1903: a contract of lease of parts of a certain buildings in the city of Manila was signed by Lewis, Stovall, and Hayes (as trustees of the Apache Tribe, No. 1, Improved Order of Red Men) as lessors, and McCabe (citing for and on behalf of Lawton Post, Veteran Army of the Philippines) as lessee.

The lease was for the term of two years commencing February 1, 903, and ending February 28, 1905.

The Lawton Post occupied the premises in controversy for thirteen months, and paid the rent for that time. Thereafter, it abandoned the premises.

Council Red Men then filed an action to recover the rent for the unexpired term of the lease.

Judgment was rendered in the court below on favor of the defendant McCabe, acquitting him of the complaint.

Judgment was rendered also against the Veteran Army of the Philippines for P1,738.50, and the costs.

It is claimed by the Veterans Army that the action cannot be maintained by the Council Red Men as this organization did not make the contract of lease.

It is also claimed that the action cannot be maintained against the Veteran Army of the Philippines because it never contradicted, either with the Council Red Men or with Apach Tribe, No. 1, and never authorized anyone to so contract in its name.

Issue:

Whether or not Article 1695 of the Civil Code is applicable to the Veteran Army of the Philippines. NO

Held: Council Red Men must show that the contract of lease was authorized by the Veterans Army

The view most favorable to the appellee (Council Red Men) is the one that makes the appellant (Veterans Army) a civil partnership. Assuming that is such, and is covered by the provisions of title 8, book 4 of the Civil Code, it is necessary for the appellee (Council Red Men) to prove that the contract in question was executed by some authorized to so by the Veteran Army of the Philippines.

Article 1695 of the Civil Code is not applicable in this caseArticle 1695 of the Civil Code provides as follows:

"Should no agreement have been made with regard to the form of management, the following rules shall be observed: 1. All the partners shall be considered as agents, and

whatever any one of them may do by himself shall bind the partnership; but each one may oppose the act of the others before they may have produced any legal effect."

One partner, therefore, is empowered to contract in the name of the partnership only when the articles of partnership make no provision for the management of the partnership business.

The constitution of the Veteran Army of the Philippines makes provision for the management of its affairs, so that article 1695 of the Civil Code, making each member an agent of the partnership in the absence of such provision, is not applicable to that organization.

In the case at bar we think that the articles of the Veteran Army of the Philippines do so provide. It is true that an express disposition to that effect is not found therein, but we think one may be fairly deduced from the contents of those articles. They declare what the duties of the several officers are. In these various provisions there is nothing said about the power of making contracts, and that faculty is not expressly given to any officer. We think that it was, therefore, reserved to the department as a whole; that is, that in any case not covered expressly by the rules prescribing the duties of the officers, the department were present. It is hardly conceivable that the members who formed this organization should have had the intention of giving to any one of the sixteen or more persons who composed the department the power to make any contract relating to the society which that particular officer saw fit to make, or that a contract when so made without consultation with, or knowledge of the other members of the department should bind it.

The contract of lease is not binding on the Veterans Army absent showing that it was authorized in a meeting of the department

We therefore, hold, that no contract, such as the one in question, is binding on the Veteran Army of the Philippines unless it was authorized at a meeting of the department. No evidence was offered to show that the department had never taken any such action.

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In fact, the proof shows that the transaction in question was entirely between Apache Tribe, No. 1, and the Lawton Post, and there is nothing to show that any member of the department ever knew anything about it, or had anything to do with it.

Judgment against the appellant is reversed, and the Veteran Army of the Philippines is acquitted of the complaint. No costs will be allowed to either party in this court.

NOTE: Whether a fraternal society, such as the Veteran Army of the Philippines, is a civil partnership is not decided.

Mariano P. Pascual vs. CIR and Court of Tax Appeals

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this petition.

Facts:On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.

Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.

Issue:Whether or not petitioners formed an unregistered partnership subject to corporate income tax. NO!

Held:Article 1767 of the Civil Code of the Philippines provides:By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a

common fund, with the intention of dividing the profits among themselves.

Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present.

Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property;(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; xxxx

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership. However, as petitioners have availed of the

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benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

Estanislao vs. CA, Estanislao and Santiago

Facts: Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at Quezon City which were then being leased to the Shell Company. They agreed to operate a gas station thereat with an initial investment of P 15,000.00 to be taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned by them in common.

They executed a joint affidavit where they agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the family. And in order not to run counter to the policy of Shell of appointing only one dealer, it was agreed that petitioner would apply for the dealership.

Thereafter, the parties entered into an Additional Cash Pledge Agreement which canceled and superseded the Joint Affidavit previously executed by the co-owners.

For sometime, petitioner submitted financial statements regarding the operation of the business to private respondents, but thereafter petitioner failed to render subsequent accounting. Hence, a demand was made on petitioner to render an accounting of the profits.

The financial report shows that the business was able to make a profit of P 87,293.79 for 1968 and P150, 000.00 for 1969 was realized.

Private respondents filed a complaint in the CFI of Rizal against petitioner:

1)     to execute a public document embodying all the provisions of the partnership agreement2)     to render a formal accounting3)     to pay the plaintiffs their lawful shares and participation in the net profits of the business

CFI ruled in favor of private respondents. CA affirmed.

Issue: Whether a partnership exists between members of the same family arising from their joint ownership of certain properties; YES

Held:Petitioner relies heavily on the provisions of the Joint Affidavit and the Additional Cash Pledge Agreement (See Full Text for contents). 

Petitioner contends that because of the stipulation in the Cash Pledge Agreement cancelling and superseding the previous Joint Affidavit, whatever partnership agreement there was in said previous agreement had thereby been abrogated. 

We find no merit in this argument. Said cancelling provision was necessary for the Joint Affidavit speaks of P15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount starting May 24, 1966.Further, evidence in the record shows that there was in fact such partnership agreement between the parties:

1. This is attested by the testimonies of private respondent Remedios Estanislao and Atty. Angeles.

2. Petitioner submitted to private respondents periodic accounting of the business.

3.  Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their "common business'.

4.  Respondent Remedios assisted in the running of the business.

There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the intention of dividing the profits among themselves.

The sole dealership by the petitioner and the issuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products.

Ang Pue vs. Sec of Commerce and Industry

Facts: On May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a term of five years from May 1, 1953, extendible by their mutual consent.

On June 19, 1954 Republic Act No. 1180 was enacted which provided that a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term.

Prior to the expiration of the five-year term of the partnership but after the enactment of the RA 1180, the partners amended the original articles of part ownership so as to extend the term of life of the partnership to another five years. When the amended articles were presented for registration in the Office of the Securities & Exchange Commission, registration was refused upon the ground that the extension was in violation of the aforesaid Act.

Ang Pue & Company filed an action for declaratory relief to secure judgment "declaring that plaintiffs could extend for five years the term of the partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Co-partnership." TC dismissed the same.

Issue:Whether the terms of partnership may still be extended for 5 more years; NO

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Held:To organize a corporation or a partnership that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose.

RA No. 1180  was clearly intended to apply to partnership already existing at the time of the enactment of the law.To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the provisions of Republic RA cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision constitute a property right of which the partners can not be deprived without due process or without their consent. The agreement contained therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension.

In the present case, as already stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180 were already in force, and there can be not the slightest doubt that the right claimed by appellants to extend the original term of their partnership to another five years would be in violation of the clear intent and purpose of the law aforesaid.

Obillos vs. CIR & Court of Tax Appeals

Facts: Jose Obillos, Sr. transferred his rights to his four children, the petitioners, to enable them to build their residences. Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots.

After having held the two lots for more than a year, the petitioners resold them from which they derived a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax of P16,792.One day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required the petitioners to pay corporate income tax in addition to individual income tax. Further, he considered the share of the profits of each petitioner as taxable in full and not a mere capital gain of which ½ is taxable. Petitioners are being held liable for deficiency income taxes and penalties totaling to P127,781.76.Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code.

Issue:Whether petitioners formed an unregistered partnership; NO 

It is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves.As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. Their original purpose was to divide the lots for residential purposes. The division of the profit was merely incidental to the dissolution of the co-ownership.

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.

All co-ownerships are not deemed unregistered partnership.—Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation.

In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the donor's tax.

Lim Tong Lim vs. Philippine Fishing

Facts:On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract for the purchase of fishing nets from the Philippine Fishing Gear Industries, Inc.. Chua and Yao claimed that they were engaged in a business venture with Lim Tong Lim, who however was not a signatory to the agreement.

Buyers, however, failed to pay for the fishing nets and the floats. Private respondents filed a collection suit against Chua, Yao and Lim Tong Lim. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission.

RTC ruled that defendants are jointly liable to plaintiff, that their joint liability could be presumed from the equal distribution of the profit and loss. CA affirmed.

Issue: Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership; YES

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that

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any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. 

Partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business.

Defense: Lim disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease.”

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture.

He would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.

The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.

Aguila vs. CA & Vda. De Abrogar

Facts: Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of Agreement (See full text for details). 

A.C Aguila bought the property of private respondent and her late husband for P200,000. On the same day, parties executed the deed of absolute sale.

Private respondent failed to redeem the property within the 90-day period. Hence, petitioner caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co.

Thereafter, private respondent was demanded to vacate the premises within 15 days after receipt of the letter and

surrender its possession peacefully to A.C. Aguila & Sons. Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an ejectment case.MTC ruled in favor of A.C. Aguila & Sons, Co. RTC and CA affirmed.

Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional Trial Court signature of her husband on the deed of sale was a forgery because he was already dead when the deed was supposed to have been executed on June 11, 1991.

RTC ruled in favor of petitioner. CA reversed ruling that transaction is an equitable mortgage. Petitioner now contends that he is not the real party in interest but A.C. Aguila & Co., against which this case should have been brought.

Issue: Whether petitioner is a real party in interest; NO

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

In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was executed between private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be impleaded in any litigation involving property registered in its name.

Ona & Heirs of Bunales vs. CIR

Facts: Julia Buñales died leaving as heirs her surviving spouse and her five children. The surviving spouse as administrator of the estate submitted the project of partition which was approved by the Court. 

Although the project of partition was approved by the Court, no attempt was made to divide the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oña who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. From said investments and properties petitioners derived such incomes as profits from installment sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests.

Commissioner of Internal Revenue decided that petitioners formed an unregistered partnership subject to the corporate income tax, pursuant to Section 24, in relation to Section 84(b),

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of the Tax Code. Petitioners were assessed for P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956. Petitioners protested but CIR denied the same.

Issue:WON petitioners are co-owners of the properties inherited by them from the deceased Julia Buñales and the profits derived from transactions involving the same or an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code;UNREGISTERED PARTNERSHIP

Held:Petitioners did not merely limit themselves to holding the properties inherited by them. Some of the said properties were sold at considerable profit, and from the said profit were the purchase and sale of corporate securities. All the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance.From the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the provisions of the Tax Code.

In cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws. Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as co-owners continues until the inheritance is actually and physically distributed among the heirs. After knowing their respective shares in the partition, they might decide to continue holding said shares under the common management of the administrator or executor or of anyone chosen by them and engage in business on that basis. 

Co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.

Partnerships under the civil code are different from that of unregistered partnerships which are considered as "corporations" under sections 24 and 84(b) of the NIRC.When 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. Section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships,"

In section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." The term "corporation" includes, among others, "joint accounts" and "associations", none of which has a legal personality of its own, independent of that of its members.

Kiel vs. Estate of P.S. Sabert

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

By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the plantation. During the World War, he was deported from the Philippines.

On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan Plantation Company, with a subscribed capital of P40,000. On April 10, 1922, P. S. Sabert transferred all of his rights in two parcels of land situated in the municipality of Parang, Province of Cotabato, embraced within his homestead application No. 21045 and his purchase application No. 1048, in consideration of the sum of P1, to the Nituan Plantation Company.

In this same period, Kiel appears to have tried to secure a settlement from Sabert. At least in a letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell all property that I have for P40,000 or take in a partner who is willing to develop the plantation, to take up the K. & S. debt no matter which way I will straiten out with you."

But Sabert's death came before any amicable arrangement could be reached and before an action by Kiel against Sabert could be decided. So these proceedings against the estate of Sabert.

Issues:(1) Whether a trust in the land had been established by the evidence in the case. NO(2) Whether a co-partnership between Kiel and the deceased Sabertexisted. YES

Held:It is conceivable, that the facts in this case could have been so presented to the court by means of allegations in the complaint, as to disclose characteristics of a resulting trust. But the complaint as framed asks for a straight money judgment against an estate. In no part of the complaint did plaintiff (Kiel) allege any interest in land, claim any interest in land, or pretend to establish a resulting trust in land. That Kiel did not care to press such an action is demonstrated by the relation of

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the fact of alienage with the rule, that a trust will not be created when, for the purpose of evading the law prohibiting one from taking or holding real property, he takes a conveyance thereof in the name of a third person.

No partnership agreement in writing was entered into by Kiel and Sabert. The question consequently is whether or not the alleged verbal copartnership formed by Kiel and Sabert has been proved, if we eliminate the testimony of Kiel and only consider the relevant testimony of other witnesses. In performing this task, we are not unaware of the rule of partnership that the declarations of one partner, not made in the presence of his copartner, are not competent to prove the existence of a partnership between them as against such other partner, and that the existence of a partnership cannot be established by general reputation, rumor, or hearsay.The testimony of the plaintiff's witnesses, together with the documentary evidence, leaves the firm impression with us that Kiel and Sabert did enter into a partnership, and that they were to share equally.

Applying the tests as to the existence of partnership, we feel that competent evidence exists establishing the partnership. Even more primary than any of the rules of partnership above announced, is the injunction to seek out the intention of the parties, as gathered from the facts and as ascertained from their language and conduct, and then to give this intention effect.

(The court remanded the case to the TC to determine how much Kiel is entitled to as for his share.)

Alicbusan vs. CA

Facts:Cesar Cordero and Leopoldo Alicbusan were partners in the operation of Baby’s Canteen located in the Philtranco terminal in Pasay City. Pursuant to their agreement, Cordero assumed the position of Managing partner while Alicbusan took care of accounting, records keeping and other comptrollership functions.

The partnership was to exist for a fixed term, between July 1981 up to July 1984. Upon expiration of the said period, both of them continued their relationship under the original term.

On May 11, 1990, Cordero filed a complaint for collection for various sums totaling P209, 497. 36 which he later on amended to P309, 681. 51. This represented the collectibles he had from Philtranco, by virtue of an arrangement whereby Philtranco employees were allowed to buy goods and items from Baby’s Canteen on credit, which payments were subsequently deducted by Philtranco from the employees’ salaries. Philtranco would remit the amount to them 15 days later.

According to Cordero, the remittances of salary deductions for the months of February up to May 1990 were withheld by Philtranco due to Alicbusan’s instigation. He averred that Alicbusan had done this in bad faith because of business

differences which arose between him and Alicbusan in another partnership operation in Quezon.

Alicbusan’s defense is to aver that he transferred all his rights and interests over Baby’s Canteen for the sum of P250,000 as evidenced by a Deed of Sale and Transfer of Right between the parties on April 5, 1989. Under the said deed Cordero allegedly bound himself to pay the downpayment of P50,000, while the balance would be payable in 20 monthly installments at P10,000 per month.

RTC ruled in favor of Cordero and Baby’s Canteen, upholding the existence of a partnership between Cordero and Alicbusan.

CA affirmed the ruling of the RTC.

Issue:Whether a partnership still exists between Cordero and Alicbusan.YES

Held:Cordero argues that the court should not have disregarded the legal presumptions in favor of the validity of the deed of sale os his partnership rights, namely:

1. that the private transactions have been fair and regular2. that the ordinary course of business has been followed3. there is sufficient consideration for a contract

However, these presumptions are disputable and can be rebutted by the evidence to the contrary. The calibration of this evidence and the relative weight accorded to them are within the exclusive domain of both the trial and appellate courts which cannot be set aside by the Supreme Court absent any showing that there is no evidence to support the conclusion already established.

Contrary to Alicbusan’s assertion, the record is replete with evidence establishing the fact that the deed of sale was fictitious and simulated.

First, payments were never made—the downpayment or the subsequent installments of P10,000. What were presented as payment were a series of checks with varying amounts.

Second, Alicbusan continued to perform his functions of comptrollership after the deed was signed. Alicbusan continued to oversee and check daily sales and report vouches. He was the approving authority as far as check vouchers were concerned. Furthermore, the evidence shows that he subsequently delegated this function to his wife. The balance sheet lists the Partner’s capital for each of them. During this time, Alicbusan did not object to his inclusion in the report as partner of Baby’s Canteen, which he would have if the sale were not terminated.

Hence Alicbusan is liable to pay Cordero P30,000 as moral damages.

Yulo vs. Yang Chiao Seng

Facts:

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Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and operate a theatre on the premises occupied by Cine Oro, PlazaSta. Cruz, Manila, the principal conditions of the offer being:

(1) Yang guarantees Yulo a monthly participation of P3,000;(2) partnership shall be for a period of 2 years and 6 months with the condition that if the land is expropriated, rendered impracticable for business, owner constructs a permanent building, then Yulo’s right to lease and partnership even if period agreed upon has not yet expired;(3) Yulo is authorized to personally conduct business in the lobby of the building; and(4) after Dec 31, 1947, all improvements placed by partnership shall belong to Yulo but if partnership is terminated before lapse of 1 and ½ years, Yang shall have right to remove improvements.

Parties established, “Yang and Co. Ltd.”, to exist from July 1,1945 – Dec 31, 1947.

The land on which the theater was constructed was leased by Yulo from owners, Emilia Carrion and Maria Carrion Santa Marina for an indefinite period but that after 1 year, such lease may be cancelled by either party upon 90-day notice. In Apr 1949, the owners notified Yulo of their desire to cancel the lease contract come July. Yulo and husband brought a civil action to declare the lease for a indefinite period. Owners brought their own civil action for ejectment upon Yulo and Yang.

CFI: Two cases were heard jointly; Complaint of Yulo and Yang dismissed declaring contract of lease terminated.

CA: Affirmed the judgment.In 1950, Yulo demanded from Yang her share in the profits of the business. Yang answered saying he had to suspend payment because of pending ejectment suit. Yulo filed present action in 1954, alleging the existence of a partnership between them and that Yang has refused to pay her shares

Defendant’s Position: The real agreement between plaintiff and defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to get around the prohibition contained in the contract of lease between the owners and the plaintiff against the sublease of the property.

Trial Court: Dismissal. It is not true that a partnership was created between them because defendant has not actually contributed the sum mentioned in the Articles of Partnership or any other amount. The agreement is a lease because plaintiff didn’t share either in the profits or in the losses of the business as required by Art 1769 (CC) and because plaintiff was granted a “guaranteed participation” in the profits belies the supposed existence of a partnership.

Issue:Was the agreement a contract a lease or a partnership?SUBLEASE

Held: The agreement was a sublease not a partnership.

The following are the requisites of partnership:1. two or more persons who bind themselves to

contribute money,property or industry to a common fund;

2. The intention on the part of the partners to divide the profits among themselves (Article 1761, CC)

Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any help or intervention in the management of the theatre. Neither has she demanded from defendant any accounting of the expenses and earnings of the business. She was absolutely silent with respect to any of the acts that a partner should have done; all she did was to receive her share of P3,000 a month which cannot be interpreted in any manner than a payment for the use of premises which she had leased from the owners.

Gatchalian vs. Collector of Internal Revenue

Policy: A partnership is formed when two or more persons contributed money to buy a sweepstakes ticket with the intention to divide the prize which they may win.

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

If a partnership had been formed by A, B, etc. then it was liable for income tax pursuant to law then in force; if merely a community of property, then such co-ownership was not liable, not having a legal personality of its own.

Issue: Did the plaintiff form a partnership or merely a communityof property?Partnership

Held:The plaintiff formed a partnership. Hence, they are liable to pay the income tax.

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

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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.

Having organized and constituted a partnership, the entity is bound to pay the income tax Act No. 2833. Being the partnership liable to the income tax, the tax must be paid collectively by the partnership and not by the plaintiffs individually.

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners, vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.

Facts:Eufemia, Manuela and Fransisca Evangelista were siblings who bought several (4) real estate properties from 1943-1944. The money to buy these properties came from a 59k loan from their father and from their own money.

1945 – they appointed their brother Simeon to “manage their properties with full power to lease, to collect and receive rents; to bring suits against defaulting tenants, to sign all letters, contract, etc.”

The Evangelista sisters leased the properties they bought to tenants, earning net profits:1945 – 5.8k1946 – 7.4k1947 – 12.6k

In 1954, the CIR demanded the payment of the following taxes:

Income taxes (1945-1949) – 6.1kReal estate dealer’s fixed tax (1946-9) – 527 pesosResidence taxes of corporation (1945-9) – 6.8k

The sisters filed a case with the CTA, claiming that they were not subject to the aforementioned taxes since the said taxes were imposed upon “corporations” provided for in Section 24 of Commonwealth Act 84.

Commonwealth Act 84:SEC. 24.Rate of tax on corporations.—There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships (compañias colectivas), a tax upon such income equal to the sum of the following:

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not include duly registered general copartnerships.

The sisters claim they are mere co-owners and not copartners.

Issue: Whether the Evangelistas were properly subject to the taxes assessed by the CIR. YES

HELD: Ruling summary:The SC upheld the ruling of the CTA against the Evangelistas because the two elements of a partnership were present:

1. there was an agreement to contribute money, property or industy to a common fund

2. they had the intent to divide the profits among the contracting parties

First element: agreement to contribute MPIThis element is undisputed because the sister pooled their own money and even borrowed money from their father. The funds they used to buy the properties were not something they found already in existence. They created it purposely.

Second element – intent to gain1. they invested the money in numerous properties

and entered into numerous transactions - 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; instead, the Court was convinced of the “habitual character” peculiar to business transactions engaged in the purpose of gain

2. lots they purchased were not residential, but were leased to tenants

3. appointment of Simeon as manager – Simeon’s appointment and his functions indicate that the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit.

4. ^ the aforementioned conditions have existed for over 10 years

5. The Evangelistas did not present nor explain their purpose in creating the set up or the causes for its continued existence.

The arrangement created by the sisters are covered by the taxThe tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships".

When our Internal Revenue Code 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. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships” which constitute precisely one of the most typical forms of partnerships in this jurisdiction. . Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized."

Again, pursuant to said section 84(b), the term "corporation" includes, among other, joint accounts, and "associations," none of which has a legal personality of its own, independent of that of its members.

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For purposes of tax on corporations, the NIRC includes partnershipsPartnerships included: syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on

Partnerships excluded: duly registered general copartnerships

Evangelista sisters also subject to real estate dealer taxReal estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property or his own account as principal and holding himself out as a full or part time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year.

Reyes vs. CIR

Facts: Petitioners Florencio and Angel Reyes, father and son, purchased a lot and building for P 835,000.00. The initial payment of P 375,000.00 was shared equally by them. The balance of P 460,000.00 was left, which represents the mortgage obligation of the vendors with a bank, which mortgage obligations were assumed by the vendees. At the time of the purchase, the building was leased to various tenants, whose rights under the lease contracts with the original owners, the purchaser, petitioners herein, agreed to respect. Petitioners divided equally the income of operation and maintenance. An assessment as to the income tax due was made against petitioners by the CIR. This assessment was appealed to the Court of Tax Appeals. The CTA ruled that petitioners are liable for the income tax due “from the partnership formed” by petitioners.

The CTA applied the provisions of the NIRC on corporations. The first cited provision imposes an income tax on corporations "organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships" a term, which according to the second provision cited, includes partnerships "no matter how created or organized, ...," and applying the leading case of Evangelista v. Collector of Internal Revenue.

Issue: Whether or not petitioners form a partnership as to make them liable to the income tax assessed by the CTA - YES

Held: Petitioners are subject to the tax on corporations as provided for in the NIRC. Applying the leading case of Evangelista v. Collector of Internal Revenue, and section 84(b) of the NIRC, which explicitly provides that the term corporation "includes partnerships" and to Article 1767 of the Civil Code of the Philippines, defining what a contract of partnership is, "the essential elements of a partnership are two, namely:

(a) an agreement to contribute money, property or industry to a common fund; and

(b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves.Also, the SC said that for purposes of the tax on corporations, our National Internal Revenue Code, include partnerships — with the exception only of duly registered general co-partnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.

Navarro vs. CA

CASE: Petition for annulment of judgment: by Sps Navarro; dismissed by the CA:

Facts:On July 23, 1976, Olivia V. Yanson filed a complaint against Lourdes Navarro for "Delivery of Personal Properties With Damages". The complaint incorporated an application for a writ of replevin.(*was subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as co-defendant.)

On July 27, 1976, then Executive Judge Oscar R. Victoriano approved Yansons’ application for a writ of replevin. By virtue of the same, Yanson has recovered the subject chattels.

Subsequently, the Presiding judge rendered a decision disposing that

1. all chattels already recovered by [Yanson] by virtue of the Writ of Replevin and as listed in the complaint are sustained to belong to [Yanson] being the owner of these properties;

2. the motor vehicle (Ford Fiera Jeep) registered in and which had remain in the possession of the [Navarro] was likewise declared to belong to Yanson, however, [Navarro] is ordered to reimburse [Yanson] the sum of P6,500.00 representing the amount advanced to pay part of the price for the Jeep.

3. [Navarro] was likewise ordered to return to [Yanson] such other equipment[s] as were brought by the latter to and during the operation of their business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of Replevin.

This decision was subsequently declared final and executory.

The trial court issued a writ of execution. The Sheriff's Return of Service declared that the writ was "duly served and satisfied". A receipt for the amount of P6,500.00 issued by Mrs.

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Lourdes Yanson, co-petitioner in this case, was likewise submitted by the Sheriff

Sps Navarro filed with the CA a petition for annulment of the trial court's decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to the evidence on record. (Which petition was outrightly dismissed by the CA due to absence of extrinsic or collateral fraud, observing further that an appeal was the proper remedy.)

Sps Navarro claim:

that the trial judge ignored evidence that would show that the parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the business of Air Freight Service Agency in Bacolod"; and

that the decision sustaining the writ of replevin is void since the properties belonging to the partnership do not actually belong to any of the parties until the final disposition and winding up of the partnership"

Sps Navarro keep on pressing that the idea of a partnership exists on account of the so-called admissions in judicio.

Issue:Whether a partnership existed between the parties in the present case.NO.

Held:As a premise, Article 1767 of the New Civil Code defines the contract of partnership:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proceeds among themselves.

xxx xxx xxxCorollary to this definition is the provision in determining whether a partnership exist as so provided under Article 1769, to wit:xxx xxx xxx

Furthermore, the Code provides under Article 1771 and 1772 that

1. while a partnership may be constituted in any form, a public instrument is necessary where immovables or any rights is constituted.

2. Likewise, if the partnership involves a capitalization of P3,000.00or more in money or property, the same must appear in a public instrument which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with these requirements shall only affect liability of the partners to third persons.

In consideration of the above, it is undeniable that both the plaintiff (Yanson) and the defendant-wife (Navarro) made admission to have entered into an agreement of operating

this Allied Air Freight Agency of which the Yanson personally constituted with the Manila Office in a sense that the Yanson did supply the necessary equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant the Cashier.

It was also admitted that part of this agreement was an equal sharing of whatever proceeds realized.

Consequently, Yanson brought into this transaction certain chattels in compliance with her obligation. The same has been done by the herein brother and Navarro who started to work in the business. A cursory examination of the evidences presented no proof that a partnership, whether oral or written had been constituted at the inception of this transaction.

True it is that even up to the filing of this complaint those movables brought by Yanson for the use in the operation of the business remain registered in her name.

While there may have been co-ownership or co-possessionof some items and/or any sharing of proceeds by way of advances received by both Yanson and Navarro, these are not indicative and supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is explicit.

In view of the above factual findings of the Court it follows inevitably therefore that there being no partnership that existed, any dissolution, liquidation or winding up is beside the point.

Biglangawa and Espiritu vs. Pastor Constantino

Facts:January 1950: Biglangawa and Espiritu appointed Constantino as their exclusive agent to develop the area they owned into a subdivision and sell them. As compensation they promised commission (of 30% on the gross sales) and a fee (of 10% on the collections made by him). He advanced all expenses in the development, administration and advertisement of such area

October 1951: Constantino was able to dispose more than half of the area

Later in October 1951: Owners terminated the contract but acknowledged that they will pay the unpaid commission in monthly installments (they had a practice of paying Constantino lesser than what was expressed on the January 1950 contract, such that, when liquidation was made, there was still a balance on Constantino’s commission)

March 1953: Owners refused to make the necessary settlement regarding the unpaid commission and the remaining fees due him

Constantino filed a CIVIL CASE against the owner.

April 1955: Pending such civil case, Constantino filed with the ROD a notice of LIS PENDENS on the area/property which was converted into a subdivision

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May 1955: Owners sold it to Santos. ROD made annotation of the LP on owners’ and Santos’ title

June 1955: They filed a PETITION for cancellation of said LP

July 1955: Lower court decided in favor of the owners and ordered the cancellation of the LP stating that – Constantino’s civil action was purely and clearly a claim for money judgment which does not affect the title or the right of possession of real property annotated with LP and it being a settled rule in this jurisdiction that a notice of lis pendens may be invoked as a remedy in cases where the very lis mota of the pending litigation concerns directly the possession of, or title to a specific real property

Constantino’s theory: Such holding that his was purely a money judgement claim is wrong. Instead he is contending that the agreement whereby he is to be paid commission and fee actually converted him into a partner and gave him 1/5 participation of the property itself, thus, his suit is one for the settlement and adjustment of partnership interest or a partition action or proceeding

Issue:Whether there is partnership amongst Constantino and Biglangawa/Espiritu. NONE

RULING:There is no word nor expression in the contract that suggests any idea of partnership. On the contrary, Constantino expressly avers in his complaint that Biglangawa and Espiritu “appointed him as their EXCLUSIVE AGENT to develop xxx”. Categorically, he referred to himself as agent, not a partner, entitled to compensation in the form of commission and/or fee, not participation and not in the form of share.

It is true that he made advances for the expenses incurred in the development and administration of the property but this was never considered as “contributions to business” as to make him a partner, otherwise, he would have stated that in his complaint. In fact, after a liquidation of these advances and the commissions due to appellant at the time of the termination of the agency, the whole balance was considered as Biglangawa and Espiritu’s indebtedness.

Hence, the lower court was right. His civil action was not one affecting the title of right of possession of the real property nor one to recover possession of real estate, or to quiet title, or to remove cloud upon title, or for partition, or any similar action affecting the title, use and occupation of the real estate and its buildings. Hence LP cannot lie.

FRANCISCO BASTIDA, plaintiff-appellee, vs.MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants. G.R. No. L-35840             March 31, 1933

Facts:Defendant Menzi & Co., Inc. through its president and general manager, J.M. Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to engage in the business of exploiting prepared fertilizers.

A fertilizer account was opened in the general ledger, and interest at the rate charged by the Bank of the Philippine Islands was debited or credited to that account on the daily balances of the fertilizer business. This was in accordance with appellant's established practice, to which the plaintiff assented.The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.

On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps to tobacco that it might need for its fertilizer business either in the Philippine Islands or for export to other countries.

White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and at the end of each year they prepared a balance sheet and a profit and loss statement of the fertilizer business. These statements were delivered to the plaintiff for examination, and after he had had an opportunity of verifying them he approved them without objection and returned them to Menzi & Co., Inc.

Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer business.

Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff that the contract for his services would not be renewed.

When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on hand materials and ingredients and two Ford trucks of the book value of approximately P75,000, and accounts receivable amounting to P103,000. There were claims outstanding and bills to pay. Before the net profits could be finally determined, it was necessary to dispose of the materials and equipment, collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss statement for the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused to accept it, and filed the present action.

Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed to the plaintiff that the old and damaged stocks on hand having a book value of P40,000, which the defendant corporation had been unable to dispose of, be sold at public or private sale, or divided between the parties. The plaintiff refused to agree to this. The defendant corporation then applied to the trial court for an order for the sale of the remaining property at public auction, but apparently the court did not act on the petition.During the liquidation the books of Menzi & Co., Inc., for the whole period of the contract in question were reaudited by White, Page & Co.., certain errors of bookkeeping were discovered by them. After making the corrections they found the balance due the plaintiff to be P21,633.20.

Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co., Inc., was obliged to furnish free of charge all the capital the partnership should need. He naturally reached very different conclusions from those of the auditors of Menzi Co., Inc.

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Issue: What is the relationship of plaintiff and defendant? Employer-Employee

Held:We come now to a consideration of appellant's assignment of error. After considering the evidence and the arguments of counsel, we are unanimously of the opinion that under the facts of this case the relationship established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising the mixing of the fertilizers.

Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it was a contract of copartnership. Exhibit A, as appears from the statement of facts, was in effect a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived by the corporation from certain fertilizer contracts.

Plaintiff was paid his share of the profits from those transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests. Plaintiff never made any objection to defendant's manner of keeping the accounts or to the charges. The business was continued in the same manner under the written agreement, Exhibit A, and for four years the plaintiff never made any objection. On the contrary he approved and signed every year the balance sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the defendant corporation had notified him that it would not renew it that the plaintiff began to make objections.

The trial court relied on article 116 of the Code of Commerce, which provides that articles of association by which two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be commercial, no matter what its class may be, provided it has been established in accordance with the provisions of this Code; but in the case at bar there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The business belonged to Menzi & Co., Inc.

The plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small percentage of the net profits, he was to receive 35 per cent of the net profits as compensation for his services. Menzi & Co., Inc., was to advanced him P300 a month on account of his participation in the profits. It will be noted that no provision was made for reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now well settled that the old rule that sharing profits as profits made one a partner is overthrown. (Mechem, second edition, p. 89.)It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become partners. Great stress in laid by the trial judge and plaintiff's attorneys on the fact that in the sixth paragraph of Exhibit A the phrase "en sociedad con" is used in providing that defendant corporation

not engage in the business of prepared fertilizers except in association with the plaintiff (en sociedad con). The fact is that en sociedad con as there used merely means en reunion con or in association with, and does not carry the meaning of "in partnership with".

The trial judge found that the defendant corporation had not always regarded the contract in question as an employment agreement, because in its answer to the original complaint it stated that before the expiration of Exhibit A it notified the plaintiff that it would not continue associated with him in said business. The trial judge concluded that the phrase "associated with", used by the defendant corporation, indicated that it regarded the contract, Exhibit A, as an agreement of copartnership.

In the first place, the complaint and answer having been superseded by the amended complaint and the answer thereto, and the answer to the original complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it into account. "Where amended pleadings have been filed, allegations in the original pleadings are held admissible, but in such case the original pleadings can have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil., 148.)

In the second place, although the word "associated" may be related etymologically to the Spanish word "socio", meaning partner, it does not in its common acceptation imply any partnership relation.

Heirs of Jose Lim vs. Lim

Facts:In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a partnership agreement with Jimmy Yu and Norberto Uy. The three contributed P50,000.00 each and used the funds to purchase a truck to start their trucking business.  A year later however, Jose Lim died. The eldest son of Jose Lim, Elfledo Lim, took over the trucking business and under his management, the trucking business prospered. Elfledo was able to but real properties in his name. From one truck, he increased it to 9 trucks, all trucks were in his name however. He also acquired other motor vehicles in his name.

In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack. Elfledo’s wife, Juliet Lim, took over the properties but she intimated to Jimmy and the heirs of Norberto that she could not go on with the business. So the properties in the partnership were divided among them.

Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do an accounting of all income, profits, and properties from the estate of Elfledo Lim as they claimed that they are co-owners thereof. Juliet refused hence they sued her.

The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the partnership that Jose Lim formed with Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim

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was the partner and not Elfledo Lim. The heirs testified that Elfledo was merely the driver of Jose Lim.

Issue: Who is the “partner” between Jose Lim and Elfledo Lim?Elfledo Lim

HELD: It is Elfledo Lim based on the evidence presented regardless of Jimmy Yu’s testimony in court that Jose Lim was the partner. If Jose Lim was the partner, then the partnership would have been dissolved upon his death .A partnership is dissolved upon the death of the partner.  Further, no evidence was presented as to the articles of partnership or contract of partnership between Jose, Norberto and Jimmy. Unfortunately, there is none in this case, because the alleged partnership was never formally organized.

But at any rate, the Supreme Court noted that based on the functions performed by Elfledo, he is the actual partner.The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto:

1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership;2.) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein;3.) all of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo;4.) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business; and5.) none of the heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime.

As repeatedly stressed in the case of Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and registered in the names of Elfledo and Juliet formed part of the estate of Jose, having been derived from Jose’s alleged partnership with Jimmy and Norberto.

Elfledo was not just a hired help but one of the partners in the trucking business, active and visible in the running of its affairs from day one until this ceased operations upon his demise. The extent of his control, administration and management of the partnership and its business, the fact that its properties were placed in his name, and that he was not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent that the other partners only contributed in the initial capital but had no say thereafter on how the business was ran. Evidently it was through Elfredo’s efforts and hard work that the partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by acting as the bookkeeper sans salary.

JOSE MIGUEL ANTON VS. SPOUSES ERNESTO OLIVA AND CORAZON OLIVA (G.R. NO. 182563 | 2011-04-11)

Facts:On September 9, 2008 respondents Ernesto and Corazon Oliva (the Olivas) filed an action for accounting and specific performance with damages against petitioner spouses Jose Miguel and Gladys Miriam Anton (the Antons) before the Regional Trial Court (RTC) of Quezon City.

The Olivas alleged that they entered into three Memoranda of Agreement (MOA) with Gladys Miriam, their daughter, and Jose Miguel, their son-in-law, setting up a business partnership covering three fast food stores, known as "Pinoy Toppings" that were to be established at SM Megamall, SM Cubao, and SM Southmall.

Under the MOAs, the Olivas wer,e entitled to 30% share of the net profits of the SM Megamall store and 20% in the cases of SM Cubao and SM Southmall stores.

The pertinent portions of the first MOA dated May 2, 1992, covering the SM Megamall store (see full text).

The pertinent terms of the second MOA dated May 6, 1993, covering the SM Cubao store (see full text).

The pertinent portions of the third MOA dated April 20, 1995, covering the SM Southmall Branch (see full text).

The Olivas alleged that while the Antons gave them a total of P2,547,000.00 representing their monthly shares of the net profits from the operations of the SM Megamall and SM Southmall stores, the Antons did not give them their shares of the net profits from the store at SM Cubao.

Further, Jose Miguel did not render to them an account of the operations of the three stores. And, beginning November 1997, the Antons altogether stopped giving the Olivas their share in the net profits of the three stores.

The Olivas demanded an accounting of partnership funds but, in response, Jose Miguel terminated their partnership agreements.

JOSE MIGUEL ALLEGED: that he and his wife, Gladys Miriam, never partnered with the Olivas in the operations of the three stores. The Antons merely borrowed money from the Olivas to finance the opening of those stores. Gladys Miriam, who managed the operations of the business, remitted to the Olivas the amounts due them even after the loans had been paid. If any accounting was needed, it should orily be for the purpose of ascertaining the correctness the payments made. GLADYS MIRIAM'S PART: she affirmed having managed the three stores up until she and Jose Miguel separated. They paid the Olivas in checks, representing their share in the profits of the business. Gladys Miriam filed a case for legal separation against her husband, Jose Miguel, prompting the latter to terminate their business partnership with her parents.

RTC: no partnership relation existed between the Olivas and the Antons but Jose Miguel had an obligation to render an accounting from the start of the business until the termination

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of their MOAs and, thereafter, pay the Olivas their share of the net profits, if any, plus interests.

CA: affirmed and modified the RTC decision.

Issue:Whether the CA erred in holding that, notwithstanding the absence of a partnership between the Olivas and the Antons, the latter have the obligation to pay the former their shares of the net profits of the three stores plus legal interest on those shares until they have been paid. NO.

HELD: The Court will not disturb the finding of both the RTC and the CA that, based on the terms of the MOAs and the circumstances surrounding its implementation, the relationship between the Olivas and the Antons was one of creditor-debtor, not of partnership.

The finding is sound since, although the MOA denominated the Olivas as "partners." the amounts they gave did not appear to be capital contributions to the establishment of the stores. Indeed, the stores had to pay the amounts back with interests. Moreover, the MOAs forbade the Olivas from interfering with the running of the stores. At any rate, none of the parties has made an issue of the common finding of the courts below respecting the nature of their relationship.

On Jose Miguel’s contention: since the Olivas were not the Antons' partners in the stores, they were not entitled to receive percentage shares of the net profits from the stores' operations.

But, as the CA correctly held, although the Olivas were mere creditors, not partners, the Antons agreed to compensate them for the risks they had taken. The Olivas gave the loans with no security and they were to be paid such loans only if the stores made profits. Had the business suffered loses and could not pay what it owed, the Olivas would have ultimately assumed those loses just by themselves. Still there was nothing illegal or immoral about this compensation scheme. Thus, unless the MOAs are subsequently rescinded on valid grounds or the parties mutually terminate them, the same remain valid and enforceable.

It did not matter that the Antons had already paid for two of the loans and their interests. Their obligation to share net profits with the Olivas was not extinguished by such payment. Indeed, the Antons paid the Olivas their share of the profits from two stores although the loans corresponding to them had in the meantime been paid. Only after Jose Miguel's marital relation with Gladys Miriam turned sour in November 1997 did he cease to pay the Olivas their shares of the profits.The CA also correctly ruled that, since the Olivas were mere creditors, not partners, they had no right to demand that the Antons make an accounting of the money loaned out to them. Still, the Olivas were entitled to know from the Antons how much net profits the three stores were making annually since the Olivas were entitled to certain percentages of those profits. Indeed, the third and second MO A directed the Antons to provide the Olivas with copies of the monthly sales reports from the operations of the stores involved, apparently to enable them to know how much were due them. There is no reason

why the Antons should not furnish the Olivas copies of similar reports from the operations of the store at SM Megamall, this merely being a consequence of the Antons' obligation to share with the Olivas the net profits from that store.

Jose Miguel also complains that the CA had no basis in awarding interest on the third loan covering the establishment of the SM SouthiAall store since the particular MOA did not provide for such interest. But, actually, the interests that the CA awarded to the Olivas referred, not to interests on the loans they gave, but to interest that their unpaid shares of the net profits of the three stores should earn on account of Jose Miguel's unjustified refusal to pay them beginning November 1997.

Given that the legal interests that the CA directed the Antons to pay referred to the Olivas' unpaid shares of the net profits of the three stores from November 1997, such interests cannot be regarded as forbearance for money that warrants an interest of 12% per annum. Rather, they were for unjust withholding of the Olivas" shares of the net profits from the Antons' three stores that would warrant an interest of 6% per annum.

The Court DENIES the petition and AFFIRMS the decisionof the Court of Appeals with MODIFICATIONS.

VICENTE W. PASTOR vs. MANUEL GASPAR, ET ALG.R. No. L-1256 October 23, 1903

Facts:In November, 1900, there existed in Manila a partnership composed of Macario Nicasio and the defendant Gaspar under the name "Nicasio and Gaspar." It owned the steam launch Luisa, and its only business was the relating to this launch.

On November 24, 1900, in its desire to increase this business, a contract was made between the firm of Nicasio and Gaspar on one side, and Eguia, Iboleon, and Monserrat, and one Hermoso on the other side.

This contract recites that Nicasio and Gaspar, by writing of the same date, have enlarged the business of their partnership; have bought 6 lorchas, and that, needing money with which to pay for the lorchas and the necessary repairs thereon, while Eguia et al. furnished them 28,000 pesos as loan. The firm of Nicasio and Gaspar then acknowledges the receipt of these amounts.

The 5th clause of the contract is as follows:Fifth. The partnership of Nicasio and Gaspar undertakes to return to the said Eguia, Monserrat, Iboleon, Pastor, and Hermoso the said total sum of 28,000 pesos within the period of ten years from the date of the instrument, and to guarantee the fulfillment of said payment they pledge to said parties the said lorchas Pepay, Lola, Consuelo, India, Niceta, and Castellana, in the sums respectively which said parties have furnished for the purchase and repair of said vessels, as before stated, ceding and assigning to said parties, in like proportions

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the profits and gains which may be realized from the exploitation of said vessels;

the said vessels to be the property of said Eguia, Monserrat, Iboleon, Pastor, and Hermoso, and of the parties of the first part, proportionate with the sums which the said parties have invested in said vessels;

the management of said vessels during the time in which said debt remains unpaid to remain with the partnership of Nicasio and Gaspar, with the understanding that whatever may be the result of the business of said vessels, neither the said partnership nor the parties of the first part shall become responsible for the payment of said debt, except in so far as the said vessels shall respond therefor, and in no event shall they respond therefor with any other property;

injuries to and all losses of said lorchas to be shared by all the parties hereto, as well as crews' expenses and other outlays necessary for the preservation of said vessels, in the proportion which corresponds to each party hereto according to his investment; the parties of the first part binding themselves not to encumber or pledge said vessels while said debt remains unsatisfied to the parties of the second part.The contract entered into on November 24, 1900, was dissolved and terminated in July, 1901, and the lorchas was sold by mutual consent.

In its complaint it was set forth that there was actually a partnership between the parties to the Nov. 24 contract, and that the consent of the agent of the plaintiff to its dissolution and the sale of the lorchas was obtained by fraud of the defendants.

Issue:Whether Pastor is a partner or a creditor.Creditor

Held:The opinion of the writer is that held by the court below, viz, that upon the face of the contract the plaintiff was a creditor and not a partner. The contract is not clearly drawn, but the following seem to indicate that the transaction was rather a loan than a contract of partnership:

(1) In the beginning it is twice stated positively that Nicasio and Gaspar are the only partners and the only persons interested in the partnership of Nicasio and Gaspar. These statements the plaintiff assented to when he signed the document.

(2) In the 2nd par, and again in the 4th, it is stated, also, distinctly and positively, that the money has been furnished as a loan.

(3) In the 5th paragraph, hereinbefore quoted, Nicasio and Gaspar bind themselves to repay the amount, something that they would not be bound to do were the contract one of partnership.

(4) In the same par. Nicasio and Gaspar create in favor of the plaintiff and his associates a right of pledge over the lorchas, a thing inconsistent with the idea of partnership.

This par. should not be construed as transferring the ownership of the lorchas themselves to the 2nd parties.

Although the words "las cuales" would grammatically refer to the preceding word "embarcaciones," yet such a construction would be inconsistent with what has been before stated in the same par. as to the pledge.

(5) By the same par. Nicasio and Gaspar are to be considered consignees only as long as they do not pay the debt. This indicates that they had a right to pay it.

(6) By the last clause of this par they bind themselves not to alienate the lorchas until they had paid the debt, indicating clearly that by paying the debt they could do so, a thing consistent with the idea of a partnership.

(7) By the 7th paragraph of this contract it is stated that the launch Luisa is not included in the contract.

The claim of the plaintiff that by this document he became a partner in the firm of Nicasio and Gaspar can not in any event be sustained. That firm was engaged in business with the launch Luisa. With this the plaintiff and his associates had nothing to do.

It appears, also, from this contract that when Nicasio and Gaspar enlarged their business they could devote themselves not only to the launch Luisa and the 6 lorchas in question but also to other craft. With such other business the plaintiff would have nothing to do. The most that he can claim is not that he was a partner in the firm of Nicasio and Gaspar, but that he and his associates, in connection with that firm, had formed another partnership to manage these lorchas.

The fact that the plaintiff was to share in the profits and losses of the business and that Nicasio and Gaspar should answer for the payment of the debt only with the lorchas, and not with their own property, indicates that the plaintiff was a partner. But these provisions are not conclusive.

As between themselves the parties could make any contract that pleased them, provided that it was not illegal (art. 1255, Civil Code). They could, in making this contract, if they chose, take some provision from the law of partnership and others from the law of loans. Loans with a right to receive a part of the profits in lieu of interest are not uncommon. As between the parties, such contract is not one of partnership.

The question on this case is whether the contract on its face creates a partnership or not. There can be no doubt as to his intention in signing this contract. the plaintiff did not believe that on its face it made him a partner. If he had so believed, he would not have signed it. If he was willing to sign a contract which on its face made him a partner, he and his associates would have joined with Nicasio and Gaspar in the amended articles of partnership which they signed on this very day, and this 2nd document would have been entirely unnecessary. The inference from these facts is so strong that it can not be overcome by the fact that in subsequent dealings the parties called themselves partners. The plaintiff undoubtedly wished to secure, as far as he could, the rights of a partner without making himself one.

The contract was that Nicasio and Gaspar should take the money of the other parties to the contract, manage the

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business as they saw fit, pay the investors their share of the profits as long as the business continued, and not to sell the lorchas until they had been so repaid. Anything more than this would have made the investors partners according to the instrument itself, the one thing which they were seeking to avoid.

It is further claimed by the plaintiff that, even if the contract itself did not make them partners, there was a verbal agreement that they should be partners. His exception is stated as follows in the bill of exceptions: "The plaintiff in his first testimony attempted to set forth the verbal agreements by virtue of which he was in reality a partner in the firm of Nicasio and Gaspar. The court ruled this evidence out for the reason that the name of the plaintiff does not appear in the articles of partnership of Nicasio and Gaspar. The plaintiff excepted to the ruling.

TOCAO vs. CAOCT. 4, 2000 GR No. 127405

Facts:Belo, Tocao and Anay entered into a joint venture to distribute cookware. Belo acted as capitalist, Tocao as president and general manager and Anay as head of the marketing department and VP of sales. They operated under the name Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s name.

The parties agreed that:a.Belo’s name should not appear in any documents relating to their transactions with West Bend Company.b.Anay would be entitled to 10% of the annual net profits, 6% overriding commission, 30% of the sales she makes and 2% of her demonstration services.

The agreement was not reduced to writing.

Anay received her commissions as agreed in 1987. In 1988, however, she did not receive the same commission, prompting her to file a complaint for sum of money with damages against Tocao and Belo.

Tocao and Belo answered that the “alleged agreement” with Anay that was “neither reduced in writing, nor ratified,” was “either unenforceable or void or inexistent.” There could not have been a partnership because Geminesse Enterprise was the sole proprietorship of Tocao. Also, they alleged that Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, hence was only an employee.

Trial court and CA ruled in favor of Anay.

Issues:Whether Anay was a partner or employee in the business? Partner.Whether there was dissolution of the partnership?NO.

Held:(1st Issue) They parties entered into a partnership.

There was indeed an “oral partnership agreement between Tocao, Belo and Anay. It did not matter that the agreement was not in writing because Article 1771 of the Civil Code provides that a partnership may be “constituted in any form.”

The fact that Geminesse Enterprise was registered in Tocao’s name is not determinative of whether or not the business was managed and operated by a sole proprietor or a partnership. Indubitably then, the business name Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for petitioner Tocao’s various business activities, which included the distributorship of cookware.

If Tocao was Anay’s employer, it is difficult to believe that they shall receive the same income in the business. In a partnership, each partner must share in the profits and losses of the venture, except that the industrial partner shall not be liable for the losses. As an industrial partner, Anay had the right to demand for a formal accounting of the business and to receive her share in the net profit.

Tocao underscores the fact that the Court of Appeals did not return the “unaccounted and unremitted stocks of Geminesse Enterprise amounting to P208,250.00. Obviously a ploy to offset the damages awarded to Anay, that claim, more than anything else, proves the existence of a partnership between them.

(2nd Issue) There was unjustified dissolution of the partnership by Tocao.

In this case, petitioner Tocao’s unilateral exclusion of Anay from the partnership is shown by her memo to the Cubao office plainly stating that Anay was no longer the VP for sales of Geminesse Enterprise. By that memo, Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business.

The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, Tocao and Anay remained as co-partners.

Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business. The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in Tocao’s claim for stocks that had been entrusted to Anay in the pursuit of the partnership business.

A mere falling out between partners does not convert the partnership into a sham organization. The partnership exists until dissolved under the law. Since the partnership created has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner, by virtue of the principle of delectus personae.

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

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can prevent the dissolution of the partnership but that it can result in a liability for damages.

An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily the right to dissolve the partnership.

A partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits “realized from the appropriation of the partnership business and goodwill.” An innocent partner thus possesses “pecuniary interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled.

Sardane vs. CA

Facts: Acojedo brought an action in the City Court of Dipolog for collection of a sum of P5,217.25 based on promissory notes executed by the herein private respondent Nobio Sardane in favor of the herein petitioner.

It has been established in the trial court that on many occasions, Acoejdo demanded the payment of the total amount of P5,217.25. Due to failure to pay upon extrajudicial demand (demand letter from a lawyer), Acojedo sought to collect by filing this case.

City Court of Dipolog issued an order dated May 18, 1976 declaring the private respondent in default and allowed the petitioner to present his evidence ex-parte. The City Court of Dipolog rendered judgment by default in favor of the petitioner.Private respondent filed a motion to lift the order of default which was granted.

CITY COURT OF DIPOLOG After the trial on the merits, the City Court of Dipolog rendered its decision in favor of Acojedo and against Sardaje as follows:

(a) Ordering the Sardaje to pay unto the plaintiff the sum of (P5,217.25) plus legal interest to commence from April 23, 1976 when this case was filed in court;

(b) pay the plaintiff the sum of P200.00 as attorney's fee and to pay the cost of this proceeding. 3

APPEAL TO CFI: Sardane appealed to the Court of First Instance of Zamboanga del Norte which reversed the decision. He said that he is a partner and that the PNotes are evidence of his share in the common fund. CFI concluded that the promissory notes involved were merely receipts for the contributions to said partnership and, therefore, upheld the claim that there was ambiguity in the promissory notes, hence parol evidence was allowable to vary or contradict the terms of the represented loan contract.

CA: Acojedo then sought the review of said decision by petition to the CA. The issue on whether the oral testimony for

the therein private respondent Sardane that a partnership existed between him and therein petitioner Acojedo are admissible to vary the meaning of the abovementioned promissory notes was raised in this appeal. CA said that the exceptions to the rule do not apply in this case as there is no ambiguity in the writings in question, thus the issue is.

Issue: Whether a partnership exists between Acojedo and Sardane primarily based on the Promissory notes presented as evidence? NO

Held:ON THE PROMISSORY NOTES:In the case at bar, the promissory notes containing a promise to pay a sum certain in money, payable on demand and the promise to bear the costs of litigation in the event of the private respondent's failure to pay the amount loaned when demanded extrajudicially. THE PNotes clearly denote that the Sardane is obliged to return the sum loaned to him. On their face, nothing appears to be vague or ambigous, for the terms of the promissory notes clearly show that it was incumbent upon the private respondent to pay the amount involved in the promissory notes if and when the petitioner demands the same.

It was clearly the intent of the parties to enter into a contract of loan for how could an educated man like the private respondent be deceived to sign a promissory note yet intending to make such a writing to be mere receipts of the petitioner's supposed contribution to the alleged partnership existing between the parties?

OTHER EVIDENCE: It has been established in the trial court that, the private respondent has been engaged in business for quite a long period of time--as owner of the Sardane Trucking Service, entering into contracts with the government for the construction of wharfs and seawall; and a member of the City Council of Dapitan. It indeed puzzles the COURT how Sardane could have been misled into signing a document containing terms which he did not mean them to be.

Court of Appeals held, and SC agrees, that even if evidence aliunde other than the promissory notes may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private parties hereto.

As manager of the basnig Sarcado he naturally has some degree of control over the operations, and maintenance thereof had to be exercised by herein petitioner.

The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the private respondent herein.

petitioner had no voice in the management of the affairs of the basnig.

Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the

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business, no such inference shall be drawn if such profits were received in payment as wages of an employee.

In Fortis vs. Gutierrez Hermanos,  in denying the claim of the plaintiff therein that he was a partner in the business of the defendant, declared:

This contention cannot be sustained. It was a mere contract of employment. The plaintiff had no voice nor vote in the management of the affairs of the company. The fact that the compensation received by him was to be determined with reference to the profits made by the defendant in their business did not in any sense make him a partner therein. ...

Bastida vs. Menzi & Co., Inc., et al.  which involved the same factual and legal milieu.There are other considerations noted by respondent Court which negate herein petitioner's pretension that he was a partner and not a mere employee indebted to the present private respondent.

Thus, in an action for damages herein petitioner did not ask to be joined as a party plaintiff.

Also, although he contends that herein private respondent is the treasurer of the alleged partnership, yet it is the latter who is demanding an accounting. Among others.

WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against herein petitioner.

Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a)

Note: This is a digest of the mother case from which this case was based. Just in case pangutan-on, and dili sad masabtan ni na case without this backgrounder.

VICTORIANO BORLASAS, ET AL., plaintiffs-appellants, vs. VICENTE POLISTICO, ET AL., defendants-appellees.In the month of April, 1911, the plaintiffs and defendants, together with several hundred other persons, formed an association under the name of Turnuhan Polistico & Co. Vicente Polistico, the principal defendant herein, was elected president and treasurer of the association, and his house in Lilio, Laguna, was made its principal place of business. The life of the association was fixed at fifteen years, and under the by-laws each member obligated himself to pay to Vicente Polistico, as president-treasurer, before 3 o'clock in the afternoon of every Sunday the sum of 50 centavos, except that on every fifth Sunday the amount was P1, if the president elected to call this amount, as he always did. From April, 1911, until April, 1917, the sums of money mentioned above were paid weekly by all of the members of the society with few irregularities. The inducement to these weekly contributions was found in provisions of the by-laws to the effect that a lottery should be conducted weekly among the

members of the association and that the successful member should be paid the amount collected each week, from which, however, the president-treasurer of the society was to receive the sum of P200, to be held by him as funds of the society.By virtue of these weekly lotteries Vicente Polistico, as president-treasurer of the association, received sums of money amounting to P74,000, more or less, in the period stated, which he still retains in his power or has applied to the purchase of real property largely in his own name and partly in the names of others. Hence this complaint.

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

Facts:Upon reaching the SC (Borlasas vs. Polistico), the case was remanded back to the trial court (Arbes vs. Polistico). The trial court ruled that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the VICENTE POLISTICO ET AL 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 ADRIANO ARBES ET AL. in this case, and to the rest of the members of said association represented by said ADRIANO ARBES ET AL.

Polistico et al allege that because the partnership is considered unlawful, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included as a party defendant, since Article 1666 of the Civil Code, which provides:

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

Issue:Whether the members of the unlawful partnership have the right to be reimbursed of the amount of their contributions made to the unlawful partnership.YES

Held: According to Manresa: "Ricci holds that 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 claim or action. And, he adds in explanation, that the partner makes his contribution, which passes to the managing partner for the purpose of carrying on the business or industry which is the object of the partnership; or, in other words, to breathe the breath of life into a partnership contract with an object forbidden by the law. And as said contract does not exist in the eyes of the law, the purpose for 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 bound to return it, and he who has paid in his share is entitled to recover it.

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"[The] Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned to 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 for said profits, shows that in consequence of said exclusion, the general rules of law must be followed, and hence, the partners must be reimbursed the amount of their respective contributions. Any other solution would be 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." (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264.)

Issue:Whether the members of the unlawful partnership have the right to be reimbursed of the amount of the EARNINGS/PROFITS made by the unlawful partnership.NO

Held: According to Manresa: " this is not the case with regard to profitsearned 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, therefore, in order to demand the proportional part of 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. Wherefore, considering this contract as non-existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it.

"Hence, the distinction made in the second paragraph of this article of our Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall, upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

"This is a new rule, unprecedented in our law, introduced to supply an obvious deficiency of the former law, which did not prescribe the purpose to which those profits denied to the partners were to be applied, nor state what was to be done with them.

"The profits are so applied, and not the individual contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different.

Note!!! Just in case pangutan-on: Issue:Whether there is a need to include charitable institutions as parties to the case.NO

Held:

According to said article, no charitable institution is a necessary party in the present case for the determination of the rights of the parties. The action which may arise from said article, in the case of an unlawful partnership, is that for the recovery of the amounts paid in by the members from those in charge of the administration of said partnership, and it is not necessary for the said partners to base their action on the existence of the partnership, but on the fact of having contributed some money to the partnership capital.The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as a result of the business in which it was engaged, because, for that purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is null and without legal existence by reason of its unlawful object; and it is self-evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of an unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution.

THIS IS THE MOTHER CASE.

G.R. No. L-21906 December 24, 1968INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees, vs. NICANOR CASTEEL and JUAN DEPRA, defendants, NICANOR CASTEEL, defendant-appellant.

Facts:Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built.

Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the improvements which he had introduced on the land, and ordered that the land be leased through public auction. Failing to secure a favorable resolution of his motion for reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and Natural Resources

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the second part, executed a contract — denominated a "contract of service"

That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part who renders only his services for the construction and improvements of a fishpond at Barrio Malalag, Municipality of Padada, Province of Davao, Philippines;

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That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish that will be produced from said fishpond;

That the Party of the First Part will be the administrator of the same she having financed the construction and improvement of said fishpond

Eventually, Casteel acquired some portions of the fishpond from its prior occupants.

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises

Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for specific performance and damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his contract)

THIS IS THE CASE ON MR.

EN BANC[G.R. No.L-21906. August 29, 1969.]INOCENCIA DELUAO and FELIPE DELUAO, plaintiffs-Deluaos’, vs. NICANOR CASTEEL and JUAN DEPRA, defendants, NICANOR CASTEEL, defendant-Casteel et al.

Now upon MR, among others, it was alleged that ultimately what transpired between the parties was a contract of partnership and that the Deluaos’ submit that Casteel is liable to the Deluaos for one-half of the fishpond or the actual value thereof for Casteel's alleged termination of the contract of partnership.

Deluaos’ further argue entitlement over the beneficial right over the fishpond in question since it is the "specific partnership property" contemplated by Art. 1811 of the Civil Code

Issue:[related to lesson] Assuming there was a partnership existent between the parties, whether the fishpond may be considered as "specific partnership property" contemplated by Art. 1811.

Held: No.

A reading of the said provision will show that what is meant is tangible property, such as a car, truck or a piece of land, but not an intangible thing such as the beneficial right to a fishpond. If what the Deluaos’ have in mind is the fishpond itself, they are grossly in error. A fishpond of the public domain can never be considered a specific partnership property because only its use and enjoyment — never its title or ownership — is granted to specific private persons.

[in case tanungin] Issue:Whether there was a contract of partnership between the parties.IT WAS A TRUST

Held: The fact that Casteel and Deluao agreed to acquire the fishpond in question in the name of Casteel alone resulted in a trust by operation of law (citing Art. 1452, Civil Code) in favor of the Deluaos’ as regards their on half interest.

A trust is the right, enforceable in equity, to the beneficial enjoyment of property the legal title to which is in another (Ulmer v. Fulton, 97 ALR 1170, 129 Ohio St 323, 195 NE 557).

It was held that the second part of the contract of partnership between the parties to divide the fishpond between them after the award was illegal and therefore no rights or obligations could have arisen therefrom. Inescapably, no trust could have resulted because trust is founded on equity and can never result from an act violative of the law.

Art. 1452 of the Civil Code does not support the Deluaos' stand because it contemplates an agreement between two or more persons to purchase property — capable of private ownership — the legal title of which is to be taken in the name of one of them for the benefit of all. In the case at bar, the parties did not agree to purchase the fishpond, and even if they did, such is prohibited by law, a fishpond of the public domain not being susceptible of private ownership.

Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto Chua

Facts:On June 22, 1992, Lamberto Chua filed with the RTC a complaint against Lilibeth Sunga Chan and Cecilia Chan, daughter and wife of the deceased Jacinto Sunga for “Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment.Lamberto alleged that:

1. He verbally entered into a partnership with Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila;

2. For business convenience, they agreed to register the business name of their partnership, Shellite Gas Appliance Center, under the name of Jacinto as a sole proprietorship;

3. They contributed P 100,000 each with the intention that the profits would be equally divided between them;

4. The partnership had Jacinto as manager with a manager’s fee or remuneration of 10% of the gross profit; and

5. Upon Jacinto’s death, Lilibeth and Cecilia took over the operations, control, custody, disposition and management of Shellite without Lamberto’s consent;

Lilibeth and Cecilia filed their Answer with Compulsory Counterclaims, contending that they are not liable for partnership shares and unreceived profits and that it is the SEC, not the RTC, which has jurisdiction over the action.RTC ruled in favor of Lamberto, which decision was affirmed by the CA.

Issues:

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(1) Whether a partnership existed between petitioners and respondent.YES, a partnership existed.(2) Whether Lamberto’s action has already prescribed.NO(3) Effect of non-registration with the SEC.RETAIN JURIDICAL PERSONALITY

1. A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in which case a public instrument is necessary. Hence, based on the intention of the parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract of partnership may arise. The essential profits that must be proven so that a partnership was agreed upon are:

(1) Mutual contribution to a common stock; and (2) Joint interest in the profits.

In view of the absence of the written contract of partnership between Lamberto and Jacinto, Lamberto resorted to the introduction of documentary and testimonial evidence to prove said partnership. The RTC and the CA considered the evidence for Lamberto as sufficient to prove the formation of partnership, albeit an informal one. Notably, petitioners did not present any evidence in their favor during the trial. By the weight of judicial precedents, a factual matter, like the finding of the existence of a partnership between respondent and Jacinto, cannot be inquired into by this Court on review.

In re: Dead Man’s StatuteLilibeth and Cecilia also argued that the courts were proscribed from hearing the testimonies of respondent and his witness, Josephine (Jacinto’s assistant) pursuant to Sec. 23, Rule 130.The court, however, held that the said rule is not applicable in the instant case because (1) the witness, Josephine, is not a party to a case or a person in whose behalf the case was prosecuted and (2) well entrenched is the rule that when it is the executor or administrator of the estates that sets up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat the counterclaim.

2. CC provides that an action to enforce an oral contract prescribes in 6 years while the right to demand an accounting for a partner’s interest accrues at the date of dissolution, in the absence of any contrary agreement.In the instant case, respondent filed his action 3 years after Jacinto’s death. It also bears stressing that while Jacinto’s death dissolved the partnership, the dissolution did not immediately terminate the partnership. The CC expressly provides that upon dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business, culminating in its termination.

3. True, Art. 1722 of the CC requires that partnerships with a capital of P3,000 or more must register with the SEC. However, this registration requirement is not mandatory. Art. 1768 (CC) provides that the partnership retains its juridical personality even if it fails to register so long as the contract has all the essential requisites.

ANTONIA TORRES and EMETERIA BARING, petitioners, vs.COURT OF APPEALS and MANUEL TORRES,

respondents.

G.R. No. 134559 December 9, 1999

Facts:Sisters Antonia and Emeteria, herein petitioners, entered into a joint venture agreement (JVA) with Manuel Torres, herein respondent, for the development of a parcel of land into a subdivision. Pursuant thereto, the parties executed a deed of absolute sale over the petitioners' parcel of land in favor of Manuel. Manuel obtained a loan secured by a mortgage over the same parcel of land to Equitable bank. Pursuant to the JVA, the proceeds of the loan was to be used for the development of the subdivision. All three of them likewise agreed to share the proceeds from the sale of the subdivided lots.

However, the project did not materialize, and the land was subsequently foreclosed by the bank. Petitioners alleged that the failure of the project was due to the lack of funds or means and skills of respondent. The latter however, contends that he used the proceeds of the loan to implement the agreement and was able to effect the survey and subdivision of the lots; construction of roads, curbs and gutters; and the building of 60 low cost housing units; and the setting up of model houses.

CA held that the parties formed a partnership for the development of the subdivision.

Issues:(1) Whether the parties formed a partnership.YES(2) WON JVA is void under Article 1773.NO

Held:1. Art. 1767. By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing profits among themselves.

In their Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership.

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

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2. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.)

First, Article 1773 was intended primarily to protect third persons.

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

The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice.In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

SECUYA vs. VDA. DE SELMA

Facts:The present petition is rooted in an action for quieting of title filed by the Secuyas against Gerarda M. vda. de Selma. Secuyas asserted ownership over the disputed parcel of land, alleging the following facts:

The parcel of land subject of this case is a PORTION of Lot 5679 that has an area of 12,750 square meters, more or less.

During the lifetime of Maxima Caballero, vendee and patentee of Lot 5679, she entered into that AGREEMENT OF PARTITION with Paciencia Sabellona, whereby the Maxima bound herself and parted with one-third (1/3) portion of Lot 5679 in favor of the Pacienca. Among others it was stipulated in said agreement of partition that the said portion of one-third so ceded will be located adjoining the municipal road;Paciencia Sabellona took possession and occupation of that one-third portion of Lot 5679 adjudicated to her. Later, she sold the three thousand square meter portion thereof to Dalmacio Secuya for a consideration of P1,850.00, by means of a private

document which was lost. Such sale was admitted and confirmed by Ramon Sabellona, only heir of Paciencia Sabellona, per that instrument denominated CONFIRMATION OF SALE OF UNDIVIDED SHARES.

Ramon Sabellona was the sole voluntary heir of Paciencia Sabellona, per that Last Will and Testament of Paciencia Sabellona, executed and acknowledged before s notary public. Pursuant to such will, Ramon Sabellona inherited all the properties left by Paciencia Sabellona.

After the purchase by Dalmacio Secuya, the latter, together with his brothers and sisters took physical possession of the land and cultivated the same. In 1967, Edilberto Superales married Rufina Secuya, niece of Dalmacio Secuya. With the permission and tolerance of the Secuyas, Edilberto Superales constructed his house on the lot in question;Subsequently, Dalmacio Secuya died. Thus his heirs — brothers, sisters, nephews and nieces — are now the petitioners.

In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-meter portion of Lot 5679. Then on February 19, 1975, she bought the bigger bulk of Lot 5679, consisting of 9,302 square meters, evidenced by that deed of absolute sale. The land in question, a 3,000-square meter portion of Lot 5679, is embraced and included within the boundary of the later acquisition by respondent Selma.

Defendant-respondent Gerarda Selma lodged a complaint, she was asserting ownership over the land inherited by plaintiffs-petitioners from Dalmacio Secuya of which they had long been in possession . . . in concept of owner.

Issue: Whether or not there was a valid transfer or conveyance of one-third (1/3) portion of Lot 5679 by Maxima Caballero in favor of Paciencia Sabellona, by virtue of [the] Agreement of Partition.NO

Held:In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in the name of Private Respondent Selma, is a cloud on their title as owners and possessors of the subject property, which is a 3,000 —square-meter portion of Lot No. 5679-C-120 covered by the TCT. But the underlying question is, do petitioners have the requisite title that would enable them to avail themselves of the remedy of quieting of title?

Petitioners anchor their claim of ownership on two documents: the Agreement of Partition executed by Maxima Caballero and Paciencia Sabellona and the Deed of Confirmation of Sale executed by Ramon Sabellona.

The Agreement: An Express Trust, Not a PartitionNotwithstanding its purported nomenclature, this Agreement is not one of partition, because there was no property to partition and the parties were not co-owners. Rather, it is in the nature of a trust agreement.

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for

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the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law.

The present Agreement of Partition involves an express trust. Under Article 1444 of the Civil Code, no particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. That Maxima Caballero bound herself to give one third of Lot No. 5629 to Paciencia Sabellona upon the approval of the former's application is clear from the terms of the Agreement. Likewise, it is evident that Paciencia acquiesced to the covenant and is thus bound to fulfill her obligation therein.

The Purported Sale to Dalmacio SecuyaEven granting that the express trust subsists, petitioners have not proven that they are the rightful successors-in-interest of Paciencia Sabellona.

The Absence of the Purported Deed of SaleSecuyas insist that Paciencia sold the disputed property to Dalmacio Secuya on October 20, 1953, and that the sale was embodied in a private document. However, such document, which would have been the best evidence of the transaction, was never presented in court, allegedly because it had been lost. While a sale of a piece of land appearing in a private deed is binding between the parties, it cannot be considered binding on third persons, if it is not embodied in a public instrument and recorded in the Registry of Property.

Moreover, while petitioners could not present the purported deed evidencing the transaction between Paciencia Sabellona and Dalmacio Secuya, petitioners' immediate predecessor-in-interest, private respondent in contrast has the necessary documents to support her claim to the disputed property.

LITONJUA, JR. vs. LITONJUA, SR.G.R. NOS. 166299-300December 13, 2005

Facts:Aurelio K. Litonjua, Jr. & Eduardo K. Litonjua, Sr. are brothers. On December 4, 2002, Aurelio filed a suit against his brother Eduardo, Robert T. Yang and several corporations for specific performance and accounting. In his complaint, Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations.

This joint venture/partnership agreement was contained in a memorandum addressed by Eduardo to his siblings, parents and other relatives. It was then agreed upon between Aurelio and Eduardo that in consideration of Aurelio’s retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the continued operation of these businesses, Aurelio will be given P1 Million or 10% equity in all these

businesses and those to be subsequently acquired by them whichever is greater. . . .

Annex A-110) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]: You have now your own life to live after having been married. .I am trying my best to mold you the way I work so you can follow the pattern . You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing of what I have and what you are entitled to. . It will be you and me alone on this. If ever I pass away, I want you to take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the company which I have built. Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSAND PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack and Valley Golf because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%) equity.

In a span of 28 years, Aurelio and Eduardo had accumulated in their joint venture/partnership various assets including but not limited to the corporate defendants and their respective assets. In addition, the joint venture/partnership had also acquired various other assets, but Eduardo caused to be registered in the names of other parties. Sometime in 1992, the relations between Aurelio and Eduardo became sour so that Aurelio requested for an accounting and liquidation of his share in the joint venture/partnership but these demands for complete accounting and liquidation were not heeded. Eduardo and the corporate respondents denied under oath the material allegations of the complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered into a contract of partnership.

Issue:Whether or not there was a partnership created by the actionable document considering it was not a public instrument and immovable properties were contributed to the partnership? NO

Held:A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses between them. A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. A joint

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venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint venture is generally governed by the law on partnership.

Foremost of these are the following provisions of the Civil Code: Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons.Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. Annex A-1, on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that Annex A-1 does not meet the public instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex A-1 cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 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 petitioners contribution, if any, to the supposed partnership (immovables & real rights).

The contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real property or real rights are initially brought into the partnership. In context, the more important consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by the parties should be attached to the public instrument, else there is legally no partnership to speak of. Considering thus the value and nature of petitioners alleged contribution to the purported partnership, the Court cannot plausibly extend Annex A-1 the legal effects that petitioner so desires and pleads to be given.A partnership may be constituted in any form, save when immovable property or real rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in which case a public instrument shall be necessary. And if only to stress what has repeatedly been articulated, an inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to it. Even assuming in gratia argumenti that Annex A-1 partakes of a perfected innominate contract, petitioners complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner points to

Eduardo as the author of Annex A-1. The only portion of Annex A-1 which could perhaps be remotely regarded as vesting petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct, reads: xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater.  It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote Annex A-1, is a promise which is not to be performed within one year from contract execution on June 22, 1973. Accordingly, the agreement embodied in Annex A-1 is covered by the Statute of Frauds and ergo unenforceable for non-compliance therewith. By force of the statute of frauds, an agreement that by its terms is not to be performed within a year from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by the statute of frauds is complied with.

Petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses supposedly promised by Eduardo to give in the near future. This angle argues against the very idea of a partnership, the creation of which requires two or more contracting minds mutually agreeing to contribute money, property or industry to a common fund with the intention of dividing the profits between or among themselves.

We have not ignored the actionable document As a matter of fact, we emphasized in our decision that insofar as Yang is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person not mentioned in a document purporting to establish a partnership could be considered a partner.

MAGALONA vs. PESAYCOG.R. No. L-39607             February 6, 1934ENCARNACION MAGALONA, ET AL., plaintiffs-appellees, vs. JUAN PESAYCO, defendant-appellant.

Facts:Encarnacion Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas de bañgus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose, Antique Province, for the year 1931.

The defendant managed the business from January 1, 1931, and with the exception of the two sales above-mentioned, never gave any account of his catches or sales to his partners, the plaintiffs. Hence, a complaint was filed praying that a receiver be appointed by the court.

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During trial, it was proven that the defendant obtained and sold a total of 975,000 "semillas de bañgus" the market value of which was P3 per thousand. The defendant made no report of this nor did he pay the plaintiffs any part of the P2,925 realized by him on the sales thereof.

Defendant however denies that there was a partnership and depends principally upon the fact that the partnership agreement was not in writing.

Issue:Whether a partnership agreement should be in writing? NO.

Held:Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form whatever, unless real property or real rights are contributed to the same, in which case a public instrument shall be necessary."

Articles of partnership are not required to be in writing except in the cases mentioned in article 1667, Civil Code, which controls article 1280 of the same Code. (Fernandez vs. Dela Rosa, 1 Phil., 671.)

A verbal partnership agreement is valid between the parties even though more than 1,500 pesetas are involved and can be enforced without bringing action under article 1279, Civil Code, to compel execution of a written instrument.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

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

Facts:A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on September 30, 1947 by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00 (Suter), P18,000.00 (Spirig) and P2,000.00 (Carlson) to the partnership. On October 1, 1947, the limited partnership was registered with the Securities and Exchange Commission.

The firm engaged, among other activities, in the importation, marketing, distribution and operation of automatic phonographs, radios, television sets and amusement machines, their parts and accessories. It had an office and held itself out as a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation with the Central Bank.In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on December 18, 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the

latter, in an assessment, consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment.

Issue: Whether the marriage of Suter and Spirig dissolved the partnership and, thus the consolidation of the income of the firm and individual incomes of the spouses was proper.NO

Held:The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law because of the marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino that reads as follows:

"A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)"

However, the CIR failed to observe the fact that the William J. Suter "Morcoin" Co., Ltd. was NOT a universal partnership , but a PARTICULAR PARTNERSHIP. A universal partnership requires either that the object of the association be ALL the present property of the partners, as contributed by them to the common fund, or else ALL that the partners may acquire by the industry or work during the existence of the partnership.

The William J. Suter "Morcoin" Co., Ltd. was NOT a universal partnership, since the contributions of the partners were fixed sums of money and neither one of them is an industrial partner (NB: Industrial partner is one who contributes only his industry or personal service). If follows therefore, that William J. Suter "Morcoin" Co., Ltd. was not a partnership that the Spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

Even the subsequent marriage of the partners could NOT operate to dissolve the partnership, such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

Morevoer, the CIR's view, that by the marriage of both partners the company became a single proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned and contributed by them before their marriage; and after they were joined in wedlock, such contributions remained their respective separate property under the Spanish Civil Code (Article 1396).It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct and separate from that of its partners, the bypassing of the existence of the limited partnership as a taxpayer can only be

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done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited partnership's separate individuality makes it impossible to equate its income with that of the component members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships (compañias colectivas) with the personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to limited partnerships.

Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws.

Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the case of compañias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership.

Aurbach vs. Sanitary Wares Manufacturing Corporation

Facts: In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers over a number of corporate acts and the right to

designate certain officers, such as a member of the Executive Committee whose vote was required for important corporate transactions.

The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member board of directors, and the legal advice of Saniwares' legal counsel.

These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay and by Luciano E. Salazar. The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the SEC with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the Commission.

Issue(s): The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined:

(1) the nature of the business established by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors.

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

In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties

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agreed to establish a joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.

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. This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code).

It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others.

Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process of determining who the group's nominees would be under Section 3 (a) (1) of the "Agreement." Section 5 (a) relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of voting.

This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors. Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In the instant case, the foreign Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of six to three board seats should always be maintained as long as the joint venture agreement exists considering that in limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority status of the foreign investors.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John

Griffin, David WhittinghamEmesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8, 1983 annual stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.

HEIRS OF TAN ENG KEE, petitioners, vs.COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY,respondents.

Facts:Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent, joined by their children, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19, 1990. The complaint was for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies.

They named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business.

Issue:Whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber.NO!

Held:A contract of partnership is defined by law as one where:. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.

Thus, in order to constitute a partnership, it must be established that:(1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves.The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed, and (2) when the partnership has a capital of three thousand pesos or more.In both cases, a public instrument is required. An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership.

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Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on August 30, 1950. The net effect, however, is that we are asked to determine whether a partnership existed based purely on circumstantial evidence.

A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay.

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses. Each has the right to demand an accounting as long as the partnership exists.

A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

Article 1769 of the Civil Code provides:

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

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

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the essential features of a partnership.

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence of the parties' intent. Yet, in the case at bench, even the aforesaid circumstances when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a niche above the rank-and-file employees. There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail.

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs.HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.

Facts:The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO, its name, was changed to BITO, MISA & LOZADA on June 7, 1977. On 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership. On 31 March 1989, the hearing officer rendered a decision against their favor. On appeal, the SEC en banc reversed the decision of the Hearing Officer. The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision.

Issues:(1) Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will. NO(2) Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith. NO

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Held:1. A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. The partnership agreement does not provide for a specified period or undertaking. The "DURATION" clause simply states, "The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of completion.

2. 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 4 but that it can result in a liability for damages.

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs.  CONSTANCIO B. MAGLANA,Defendant-Appellee G.R. No. 30616 :  December 10, 1990.

Facts:On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange Commission.

Purpose of the partnership: "apply or secure timber and/or minor forests products licenses and concessions over public and/or private forest lands and to operate, develop and promote such forests rights and concessions.”

Under the said Articles of Co-Partnership, Maglana shall manage the business affairs of the partnership, including marketing and handling of cash and is authorized to sign all papers and instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging operations of the partnership. It is also provided in the said articles of co-partnership that all profits and losses of the partnership shall be divided share and share alike between the partners.

Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner.

On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of the second partnership which is to hold and secure renewal of timber license instead of to secure the license as in the first partnership and the term of the second partnership is fixed to thirty (30) years, everything else is the same.The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.07.

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be dissolved. Pahamotang was paid in full on August 31, 1957. No other rights and obligations accrued in the name of the second partnership.

After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or reconstitution of their written Articles of Partnership.

On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area.

The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS Estate, Inc. by way of chattel mortgage.

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On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in equipment, to the capital investments of the partnership as well as his obligation to perform his duties as logging superintendent.Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute.

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21, 1961 Maglana notified Rojas that he dissolved the partnership.On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518.

CFI: Partnership was dissolved. Rojas ordered to pay P69,000.00 the profits he received from the CMS Estate, Inc. operated by him and credits Maglana the amount of P85,000.00 the amount he should have received as logging superintendent, and which was not paid to him, and this should be considered as part of Maglana's contribution likewise to the partnership.

Issue: What is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from the second partnership?

Held:The lower court is of the view that the second partnership superseded the first, so that when the second partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and at will. It was considered as a partnership at will because there was no term, express or implied; no period was fixed, expressly or impliedly.

On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 has not been novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 and accordingly, the terms and stipulations of said registered Articles of Co-Partnership should govern the relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership, the legally constituted partnership EDE continues to govern the relations between them and it was legal error to consider a de facto partnership between said two partners or a partnership at will. Hence, the letter of appellee Maglana dated February 23, 1961, did not legally dissolve the registered partnership between them, being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership. Rather, appellant is entitled to the

rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-Partnership.

After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called an "Additional Agreement". Except for the fact that they took in one industrial partner; gave him an equal share in the profits and fixed the term of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as important is the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all intents and purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-Partnership which was never registered. Otherwise stated, even during the existence of the second partnership, all business transactions were carried out under the duly registered articles. As found by the trial court, it is an admitted fact that even up to now, there are still subsisting obligations and contracts of the latter. No rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which was fully paid by the duly registered partnership.

On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in cash or in equipment, to the capital investment of the partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised contributions and he will not work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was referring to and left no room for doubt that both considered themselves governed by the articles of the duly registered partnership.

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly registered.

As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the affirmative.

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Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners.

But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the purpose.

On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44. It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Article 1788, Civil Code). Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership.Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for P52,040.31.Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which should be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership, no plausible reason could be found to disturb the findings and conclusions of the trial court.

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned the partnership but also took funds in an amount more than his contribution.

In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.

Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners.

E. S. LYONS, plaintiff-appellant, vs.C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee.

Facts:Prior to his death on June 18, 1923, Henry W. Elser was engaged in buying, selling, and administering real estate. In several ventures, the plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in equal parts. In April, 1919, Lyons, a missionary, went on leave to the United States and was gone for nearly a year and a half. Elser made a written statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property. Concurrently with this act, Lyons execute in favor of Elser a general power of attorney empowering Elser to manage and dispose of said properties at will and to represent him fully and amply, to the mutual advantage of both. During the absence of Lyons two of the pieces of properties were sold, leaving in his hands a single piece of property located at Carriedo Street.

In the spring of 1920 the attention of Elser was drawn to a piece of land, referred to as the San Juan Estate. The amount required for the first payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced upon the option, it was necessary to raise the remainder by obtaining a loan for P50,000 which was obtained from a Chinese merchant named Uy Siuliong. With this money and what he already had in bank, Elser purchased the San Juan Estate. For the purpose of the further development of the property, a limited partnership had been organized by Elser and three associates, under the name of J. K. Pickering & Company.

Take note that when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted that Elser should procure the signature of the Fidelity & Surety Co. on the note to be given for said loan. But before signing the note with Elser and his associates, the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it. To meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to come into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at M. H. del Pilar Street, Manila, and 1,000

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shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the proposition; and later on, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company. The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered it to Elser.

The case for the plaintiff Lyons supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint.

Issue: Whether Lyons is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company.NO

Held:Elser, in buying the San Juan Estate, was not acting for any partnership composed of himself and Lyons.

In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money belonging to another. Of course, if an actual relation of partnership had existed in the money used, the case might be difference; and much emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed. But there was clearly no general relation of partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into a proposition which would make Lyons a participant in this deal contrary to his express determination.

The doctrines of equity operates only where money belong to one person is used by another for the acquisition of the property which should belong to both.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United States with reference to trust supply a basis for this action. The doctrines referred to operate, however, only where money belonging to one person is used by another for the acquisition of property which should belong to both; and it takes but little discernment to see that the situation here involved is not one for the application of that doctrine, for no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if any damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the Carriedo

property, Elser's estate would be liable for such damage. But it is evident that Lyons was not prejudice by that act.

The mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single cent.

In fact, it was found that when Lyons had arrived in Manila and in the course of a conversation with Elser, he told the latter to let the Carriedo mortgage remain on the property. The trial court was then well justified in accepting as a proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable under the circumstances, but in view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account.

Moreover, it is also plain that no money actually deriving from this mortgage was ever applied to the purchase of the San Juan Estate. What really happened was the Elser merely subjected the property to a contingent liability, and no actual liability ever resulted therefrom. The financing of the purchase of the San Juan Estate, apart from the modest financial participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely on his own account.

PIONEER INSURANCE v. CANote:Jacob Lim : purchaser of the plane // Maglana, Cervantes and BORMAHECO: invested funds to purchase the plane // Pioneer Insurance: insurer of the plane // Japan Domestic Airlines: vendor of the plane

Facts:Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. He bought two two DC-3A Type aircrafts and one set of necessary spare parts from Japan Domestic Airlines. Jacob S. Lim was able to get funds for payment out of Constancio Maglana, Francisco and Modesto Cervantes and BORMAHECO. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business.

Contrary to the agreement among the Lim and Maglana,et al., Lim in connivance with Pioneer Insurace, signed and executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL. Maglana, Cervantes and Bormaherco learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the form of third party claim.

Issue:What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest?

Relevance of the issue: If it the law on partnership that governs, then Maglana, Cervantes and BORMAHECO should

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share the loss. But if there is no partnership, Lim must reimburse them for what they have paid

Held: There was no de facto partnership formedThe rule is, while it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners, it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of partners inter se. Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized

However, 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.

Tai Tong Chuache& Co. vs. The Insurance Commission

(Note that Tai Tong Chua Che & Co. is different from Tai Tong Chua Che Inc.)

Facts:Tai Tong Chua Che & Co. (TTCCC for brevity) acquired from Rolando Gonzales a parcel of land and a building located at San Rafael Village, Davao City. They assumed the mortgage of the building in favor of S.S.S., which building was insured with S.S.S. Accredited Group of Insurers for P25,000.00.

Azucena Palomo obtained a loan from Tai Tong Chua Che Inc. in the amount of P100,000. To secure the payment of the loan, a mortgage was executed over the land and building in favor of TTCCC. Arsenio Chua, representative of TTCCC insured TTCCC’s interest with Travellers Multi-Indemnity Corporation for P100,000 (P70,000 for the building and P30,000 for the contents thereof).

Pedro Palomo secured with Zenith Insurance Corporation a Fire Insurance policy covering the building for P50,000. Later on, another Fire Insurance Policy was procured from Philippine British assurance Company, covering the same building for P50,000 and the contents thereof for P70,000.

On July 31, 1975, the building and the contents were totally razed by fire.

It is the contention of the TTCCC that respondent Insurance Commission decided an issue not raised in the pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is

the one entitled to the insurance proceeds and not Tai Tong Chuache & Company.

Issue:Who is entitled to the insurance proceeds. TTCCC

Held:The Insurance Commission absolved Travellers from liability on the basis of the certification issued by the then Court of First Instance of Davao, Branch II, that in a certain civil action against the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong Chuache. From said evidence the Insurance Commission inferred that the credit extended by TTCCC to the Palomos secured by the insured property must have been paid. Such is a glaring error which this Court cannot sanction. Respondent Commission's findings are based upon a mere inference.

The record of the case shows that the petitioner to support its claim for the insurance proceeds offered as evidence the contract of mortgage which has not been cancelled nor released. It has been held in a long line of cases that when the creditor is in possession of the document of credit, he need not prove non-payment for it is presumed. The validity of the insurance policy taken by TTCCC was not assailed by Travellers. Moreover, TTCCC's claim that the loan extended to the Palomos has not yet been paid was corroborated by Azucena Palomo who testified that they are still indebted to herein petitioner.

The Insurance Commission argues however, that if the civil case really stemmed from the loan granted to Azucena Palomo by TTCCC the same should have been brought by Tai Tong Chuache or by its representative in its own behalf. From the above premise respondent concluded that the obligation secured by the insured property must have been paid.

The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 respondent pointed out that the action must be brought in the name of the real party in interest. We agree. However, it should be borne in mind that petitioner being a partnership may sue and be sued in its name or by its duly authorized representative. The fact that Arsenio Lopez Chua is the representative of petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the managing partner of the partnership was corroborated by respondent insurance company. Thus Chua as the managing partner of the partnership may execute all acts of administration including the right to sue debtors of the partnership in case of their failure to pay their obligations when it became due and demandable. Or at the very least, Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is understood that he acted for and in behalf of the firm.Public respondent's allegation that the civil case filed by Arsenio Chua was in his capacity as personal creditor of spouses Palomo has no basis.

Tan vs. Del Rosario

Facts:These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic

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Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and, inG.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.

The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.

The questioned regulation reads:

Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but are not considered as direct cost, are not deductible from his gross income.

The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships.

Held:The Court should like to correct the apparent misconception that general professional partnerships are subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of their respective professions and partners in general professional partnerships. The fact of the matter is that a general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Section 23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:

Sec. 23. Tax liability of members of general professional partnerships. — (a) Persons exercising a common profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the net profits of the general professional partnership to which any taxable partner would be entitled whether distributed or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title.

(b) In determining his distributive share in the net income of the partnership, each partner —

(1) Shall take into account separately his distributive share of the partnership's income, gain, loss, deduction, or

credit to the extent provided by the pertinent provisions of this Code, and

(2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive share of the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules.

We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base (that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. Except for few variances, such as in the application of the "constructive receipt rule" in the derivation of income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the payment of income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable entities for income tax purposes. A general professional partnership is such an example. 4 Here, the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for administration and data]), are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits. In the determination of the tax

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liability, a partner does so as an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership.

INVOLUNTARY INSOLVENCY OF CAMPOS, RUEDA & CO vs. PACIFIC COMMERCIAL CO, ASIATIC PETROLEUM CO, and INTERNATIONAL BANKING CORP

Facts:Campos, Rueda & Co, a limited partnership, is indebted to the 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 lower court denied their petition (insolvency) 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 a limited partnership which has failed to pay its obligation with 3 creditors for more than 30 days, may be held to have committed an act of insolvency, and thereby be adjudged insolvent against its will. YES

Held:(While is true that American courts has held that a partnership may not be adjudged insolvent in an involuntary insolvency proceeding unless all of its members are insolvent, we have to take note that in American common law, partnerships have no juridical personality independent from that of its members; and if now they have such personality for the purpose of the insolvency law.)

Philippine statutes, UNLIKE in common law, consider a limited partnership as a juridical entity for all intents and purposes, which personality is recognized in all its acts and contracts. This being so and the juridical personality of a limited partnership being different from that of its members, it must, on general principle, answer for and suffer the consequence of its acts as such an entity capable of being the subject of rights and obligations.

Under the Insolvency Law of the Philippines, one of the acts of bankruptcy upon which an adjudication of involuntary

insolvency can be predicated is the failure to pay obligations (like what happened here).

Thus, it being proven that Campos, Rueda & Co failed to pay its obligations constitutes an act which is specifically provided for in the Insolvency Law for declaration of involuntary insolvency, they have a right to a judicial decree declaring the involuntary insolvency of said partnership.

Stonehill vs. Diokno

Upon application of the officers of the government, several judges issued, on different dates, a total of 42 search warrants against petitioners herein and/or the corporations of which they were officers, directed to any peace officer, to search the persons above-named and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of the following personal property to wit:

Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals, typewriters, and other documents and/or papers showing all business transactions including disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers).

as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the means of committing the offense," which is described in the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code."

Issue:Whether petitioners have cause of action to assail the legality of the contested warrants and seizure.NO

Held:The documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized in the residences of petitioners herein.

As regards the first group, petitioners have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may be.

Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the

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admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity.

(But if you remember in Crim, ultimately all the warrants were declared void for being too sweeping.)

Bache & Co. vs. Ruiz

Facts:A search warrant was issued to be served upon Bache & Co. by request of the Commission of Internal Revenue.

The search warrant was served at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal.

Issue:Whether a corporation is entitled to protection against unreasonable searches and seizures.YES

Held:"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation, the ground that it was not privileged from producing its books and papers. But the rights of a corporation against unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures,

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the

objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity . . ."

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different footing from the corporations in Stonehill.

Bataan Shipyard vs. PCGG

Facts:Sequestration and takeover orders were issued by the PCGG against BASECO for being part of Marcos’ ill-gotten wealth.

Issue:Whether the right of self-incrimination applies to juridical persons

Held:BASECO contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges .

Relevant jurisprudence is also cited by the Solicitor General.

* * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against self-incrimination, although this

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court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that —

xxx xxx xxx

The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order.

The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.

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