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G.R. No.


April 29, 1939

Tapia ...................................................................................................
Legaspi ................................................................................................
...... .15
Silva .....................................................................................................
Mercado ...............................................................................................
Gatchalian ...........................................................................................
Santiago ..............................................................................................
.. .13
Legaspi ...............................................................................................
Cabral ...............................................................................................
Javier ....................................................................................................
Santiago ..............................................................................................
..... .17
Guzman ................................................................................... .13
Santos .................................................................................................
Total .....................................................................................................
3. That immediately thereafter but prior to December 15, 1934,
plaintiffs purchased, in the ordinary course of business, from one of
the duly authorized agents of the National Charity Sweepstakes
Office one ticket bearing No. 178637 for the sum of two pesos (P2)
and that the said ticket was registered in the name of Jose
Gatchalian and Company;

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee.
The plaintiff brought this action to recover from the defendant
Collector of Internal Revenue the sum of P1,863.44, with legal
interest thereon, which they paid under protest by way of income
tax. They appealed from the decision rendered in the case on
October 23, 1936 by the Court of First Instance of the City of Manila,
which dismissed the action with the costs against them.
The case was submitted for decision upon the following stipulation of
Come now the parties to the above-mentioned case, through their
respective undersigned attorneys, and hereby agree to respectfully
submit to this Honorable Court the case upon the following
statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan,
Bulacan, and that defendant is the Collector of Internal Revenue of
the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable
them to purchase one sweepstakes ticket valued at two pesos (P2),
subscribed and paid therefor the amounts as follows:
Gatchalian ...........................................................................................
......... P0.18
Cristobal ..............................................................................................
Silva ....................................................................................................

4. That as a result of the drawing of the sweepstakes on December

15, 1934, the above-mentioned ticket bearing No. 178637 won one
of the third prizes in the amount of P50,000 and that the
corresponding check covering the above-mentioned prize of P50,000
was drawn by the National Charity Sweepstakes Office in favor of
Jose Gatchalian & Company against the Philippine National Bank,
which check was cashed during the latter part of December, 1934 by
Jose Gatchalian & Company;

9. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subsequent demand
made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed,
defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked
Exhibit I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the
property of the plaintiffs, the said plaintiffs on June 15, 1935, through
Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and penalties to the
municipal treasurer of Pulilan, Bulacan, as evidenced by official
receipt No. 7454879 which is attached and marked Exhibit J and
made a part hereof, and requested defendant that plaintiffs be
allowed to pay under protest the balance of the tax and penalties by
monthly installments;

5. That on December 29, 1934, Jose Gatchalian was required by

income tax examiner Alfredo David to file the corresponding income
tax return covering the prize won by Jose Gatchalian & Company and
that on December 29, 1934, the said return was signed by Jose
Gatchalian, a copy of which return is enclosed as Exhibit A and made
a part hereof;
6. That on January 8, 1935, the defendant made an assessment
against Jose Gatchalian & Company requesting the payment of the
sum of P1,499.94 to the deputy provincial treasurer of Pulilan,
Bulacan, giving to said Jose Gatchalian & Company until January 20,
1935 within which to pay the said amount of P1,499.94, a copy of
which letter marked Exhibit B is enclosed and made a part hereof;

11. That plaintiff's request to pay the balance of the tax and
penalties was granted by defendant subject to the condition that
plaintiffs file the usual bond secured by two solvent persons to
guarantee prompt payment of each installments as it becomes due;

7. That on January 20, 1935, the plaintiffs, through their attorney,

sent to defendant a reply, a copy of which marked Exhibit C is
attached and made a part hereof, requesting exemption from
payment of the income tax to which reply there were enclosed
fifteen (15) separate individual income tax returns filed separately
by each one of the plaintiffs, copies of which returns are attached
and marked Exhibit D-1 to D-15, respectively, in order of their names
listed in the caption of this case and made parts hereof; a statement
of sale signed by Jose Gatchalian showing the amount put up by
each of the plaintiffs to cover up the attached and marked as Exhibit
E and made a part hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and marked Exhibit
F and made part thereof;

12. That on July 16, 1935, plaintiff filed a bond, a copy of which
marked Exhibit K is enclosed and made a part hereof, to guarantee
the payment of the balance of the alleged tax liability by monthly
installments at the rate of P118.70 a month, the first payment under
protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested
against the payment of the sum of P602.51, a copy of which protest
is attached and marked Exhibit L, but that defendant in his letter
dated August 1, 1935 overruled the protest and denied the request
for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly
installments in accordance with the terms and conditions of bond
filed by them, the defendant in his letter dated July 23, 1935, copy of
which is attached and marked Exhibit M, ordered the municipal
treasurer of Pulilan, Bulacan to execute within five days the warrant
of distraint and levy issued against the plaintiffs on May 13, 1935;

8. That the defendant in his letter dated January 28, 1935, a copy of
which marked Exhibit G is enclosed, denied plaintiffs' request of
January 20, 1935, for exemption from the payment of tax and
reiterated his demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935 within which
to pay the said tax;

15. That in order to avoid annoyance and embarrassment arising

from the levy of their property, the plaintiffs on August 28, 1936,

through Jose Gatchalian, Guillermo Tapia, Maria Santiago and

Emiliano Santiago, paid under protest to the municipal treasurer of
Pulilan, Bulacan the sum of P1,260.93 representing the unpaid
balance of the income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is attached and
marked Exhibit N and made a part hereof; and that on September 3,
1936, the plaintiffs formally protested to the defendant against the
payment of said amount and requested the refund thereof, copy of
which is attached and marked Exhibit O and made part hereof; but
that on September 4, 1936, the defendant overruled the protest and
denied the refund thereof; copy of which is attached and marked
Exhibit P and made a part hereof; and


Jesus Legaspi .............................................

Guillermo Tapia ...........................................
Saturnina Silva ............................................
Gregoria Cristobal .......................................
Jose Gatchalian ............................................



Total cost of said
ticket; and that, therefore, the persons named above are entitled to
the parts of whatever prize that might be won by said ticket.
Pulilan, Bulacan, P.I.

16. That plaintiffs demanded upon defendant the refund of the total
sum of one thousand eight hundred and sixty three pesos and fortyfour centavos (P1,863.44) paid under protest by them but that
defendant refused and still refuses to refund the said amount
notwithstanding the plaintiffs' demands.

And a summary of Exhibits D-1 to D-15 is inserted in the bill of

exceptions as follows:

17. The parties hereto reserve the right to present other and
additional evidence if necessary.

Name Exhibit
No. Purchase
1. Jose Gatchalian .......................................... D-1 P0.18 P4,425 P
480 3,945
2. Gregoria Cristobal ...................................... D-2 .18 4,575 2,000
3. Saturnina Silva .............................................
D-3 .08 1,875
360 1,515
4. Guillermo Tapia .......................................... D-4 .13 3,325 360
5. Jesus Legaspi by Maria Cristobal ......... D-5 .15 3,825 720 3,105
6. Jose Silva .................................................... D-6 .08 1,875 360
7. Tomasa Mercado ....................................... D-7 .07 1,875 360
8. Julio Gatchalian by Beatriz Guzman .......
D-8 .13 3,150 240
9. Emiliana Santiago ...................................... D-9 .13 3,325 360
10. Maria C. Legaspi ...................................... D-10
.16 4,100

Exhibit E referred to in the stipulation is of the following tenor:

To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age,
hereby certify, that on the 11th day of August, 1934, I sold parts of
my shares on ticket No. 178637 to the persons and for the amount
indicated below and the part of may share remaining is also shown
to wit:
Purchaser Amount Address
1. Mariano Santos ........................................... P0.14 Pulilan,
2. Buenaventura Guzman ............................... .13 - Do 3. Maria Santiago .............................................17 - Do 4. Gonzalo Javier ..............................................
.14 - Do 5. Francisco Cabral ..........................................
.13 - Do 6. Maria C. Legaspi ..........................................
.16 - Do 7. Emiliana Santiago .........................................
.13 - Do 8. Julio Gatchalian ............................................
.13 - Do 9. Jose Silva ......................................................
.07 - Do 10. Tomasa Mercado ....................................... .08 - Do 3

960 3,140
11. Francisco Cabral ...................................... D-11
360 2,965
12. Gonzalo Javier .......................................... D-12
360 2,965
13. Maria Santiago ..........................................D-13
360 3,990
14. Buenaventura Guzman ........................... D-14
360 2,965
15. Mariano Santos ........................................ D-15
360 2,965

permitting the taxation of the income derived from dividends or net

profits on which the normal tax has been paid.

.13 3,325
.14 3,325

The gain derived or loss sustained from the sale or other disposition
by a corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance
with subsections (c) and (d) of section two of Act Numbered Two
thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.

.17 4,350
.13 3,325
.14 3,325

The foregoing tax rate shall apply to the net income received by
every taxable corporation, joint-stock company, partnership, joint
account (cuenta en participacion), association, or insurance
company in the calendar year nineteen hundred and twenty and in
each year thereafter.

The legal questions raised in plaintiffs-appellants' five assigned
errors may properly be reduced to the two following: (1) Whether the
plaintiffs formed a partnership, or merely a community of property
without a personality of its own; in the first case it is admitted that
the partnership thus formed is liable for the payment of income tax,
whereas if there was merely a community of property, they are
exempt from such payment; and (2) whether they should pay the tax
collectively or whether the latter should be prorated among them
and paid individually.

There is no doubt that if the plaintiffs merely formed a community of

property the latter is exempt from the payment of income tax under
the law. But according to the stipulation facts the plaintiffs organized
a partnership of a civil nature because each of them put up money to
buy a sweepstakes ticket for the sole purpose of dividing equally the
prize which they may win, as they did in fact in the amount of
P50,000 (article 1665, Civil Code). The partnership was not only
formed, but upon the organization thereof and the winning of the
prize, Jose Gatchalian personally appeared in the office of the
Philippines Charity Sweepstakes, in his capacity as co-partner, as
such collection the prize, the office issued the check for P50,000 in
favor of Jose Gatchalian and company, and the said partner, in the
same capacity, collected the said check. All these circumstances
repel the idea that the plaintiffs organized and formed a community
of property only.

The Collector of Internal Revenue collected the tax under section 10

of Act No. 2833, as last amended by section 2 of Act No. 3761,
reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding
calendar year from all sources by every corporation, joint-stock
company, partnership, joint account (cuenta en participacion),
association or insurance company, organized in the Philippine
Islands, no matter how created or organized, but not including duly
registered general copartnership (compaias colectivas), a tax of
three per centum upon such income; and a like tax shall be levied,
assessed, collected, and paid annually upon the total net income
received in the preceding calendar year from all sources within the
Philippine Islands by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or
insurance company organized, authorized, or existing under the laws
of any foreign country, including interest on bonds, notes, or other
interest-bearing obligations of residents, corporate or otherwise:
Provided, however, That nothing in this section shall be construed as

Having organized and constituted a partnership of a civil nature, the

said entity is the one bound to pay the income tax which the
defendant collected under the aforesaid section 10 (a) of Act No.
2833, as amended by section 2 of Act No. 3761. There is no merit in
plaintiff's contention that the tax should be prorated among them
and paid individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the
costs of this instance to the plaintiffs appellants. So ordered.
Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ.,


ordering him to restore possession thereof to plaintiff and to pay the

latter a monthly rent of P132.62 from January, 1940, until he vacates
the land, and also to pay the costs.
Appealing directly to this court because of the value of the property
involved, defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that
the case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved
in the litigation.
V. The trial court erred in holding that the land in dispute is covered
by transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true
and lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay
the plaintiff the amount of P132.62 monthly from January, 1940, until
he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the
land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention that
the present action is not brought by the real party in interest, that is,
by J. M. Tuason and Co., Inc. What the Rules of Court require is that
an action be brought in the name of, but not necessarily by, the real
party in interest. (Section 2, Rule 2.) In fact the practice is for an
attorney-at-law to bring the action, that is to file the complaint, in
the name of the plaintiff. That practice appears to have been
followed in this case, since the complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its undersigned counsel." It
is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one corporation being
represented by another person, natural or juridical, in a suit in court.
The contention that Gregorio Araneta, Inc. can not act as managing
partner for plaintiff on the theory that it is illegal for two corporations
to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043,
citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record
to indicate that the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing partner" is not in line with

G.R. No. L-4935

May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER,
GREGORIA ARANETA, INC., plaintiff-appellee,
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
This is an action originally brought in the Court of First Instance of
Rizal, Quezon City Branch, to recover possesion of registered land
situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the
extent and description of the land sought to be recovered. The
original complaint described the land as a portion of a lot registered
in plaintiff's name under Transfer Certificate of Title No. 37686 of the
land record of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended by reducing
the area of 6 hectares, more or less, after the defendant had
indicated the plaintiff's surveyors the portion of land claimed and
occupied by him. The second amendment became necessary and
was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title,
which was plaintiff's Transfer Certificate of Title No. 37677. And still
later, in the course of trial, after defendant's surveyor and witness,
Quirino Feria, had testified that the area occupied and claimed by
defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to make its
allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself
thru "open, continuous, exclusive and public and notorious
possession (of land in dispute) under claim of ownership, adverse to
the entire world by defendant and his predecessor in interest" from
"time in-memorial". The answer further alleges that registration of
the land in dispute was obtained by plaintiff or its predecessors in
interest thru "fraud or error and without knowledge (of) or interest
either personal or thru publication to defendant and/or predecessors
in interest." The answer therefore prays that the complaint be
dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and

the corporate business of either of them.

Errors II, III, and IV, referring to the admission of the third amended
complaint, may be answered by mere reference to section 4 of Rule
17, Rules of Court, which sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not
raised by the pleadings are tried by express or implied consent of
the parties, they shall be treated in all respects, as if they had been
raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise
these issues may be made upon motion of any party at my time,
even of the trial of these issues. If evidence is objected to at the trial
on the ground that it is not within the issues made by the pleadings,
the court may allow the pleadings to be amended and shall be so
freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court
that the admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The court may
grant a continuance to enable the objecting party to meet such
Under this provision amendment is not even necessary for the
purpose of rendering judgment on issues proved though not alleged.
Thus, commenting on the provision, Chief Justice Moran says in this
Rules of Court:
Under this section, American courts have, under the New Federal
Rules of Civil Procedure, ruled that where the facts shown entitled
plaintiff to relief other than that asked for, no amendment to the
complaint is necessary, especially where defendant has himself
raised the point on which recovery is based, and that the appellate
court treat the pleadings as amended to conform to the evidence,
although the pleadings were not actually amended. (I Moran, Rules
of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are
without merit..
Let us now pass on the errors V and VI. Admitting, though his
attorney, at the early stage of the trial, that the land in dispute "is
that described or represented in Exhibit A and in Exhibit B enclosed
in red pencil with the name Quirino Bolaos," defendant later
changed his lawyer and also his theory and tried to prove that the
land in dispute was not covered by plaintiff's certificate of title. The
evidence, however, is against defendant, for it clearly establishes
that plaintiff is the registered owner of lot No. 4-B-3-C, situate in
barrio Tatalon, Quezon City, with an area of 5,297,429.3 square
meters, more or less, covered by transfer certificate of title No.
37686 of the land records of Rizal province, and of lot No. 4-B-4,

situated in the same barrio, having an area of 74,789 square meters,

more or less, covered by transfer certificate of title No. 37677 of the
land records of the same province, both lots having been originally
registered on July 8, 1914 under original certificate of title No. 735.
The identity of the lots was established by the testimony of Antonio
Manahan and Magno Faustino, witnesses for plaintiff, and the
identity of the portion thereof claimed by defendant was established
by the testimony of his own witness, Quirico Feria. The combined
testimony of these three witnesses clearly shows that the portion
claimed by defendant is made up of a part of lot 4-B-3-C and major
on portion of lot 4-B-4, and is well within the area covered by the two
transfer certificates of title already mentioned. This fact also appears
admitted in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of
title and was registered in 1914, the decree of registration can no
longer be impugned on the ground of fraud, error or lack of notice to
defendant, as more than one year has already elapsed from the
issuance and entry of the decree. Neither court the decree be
collaterally attacked by any person claiming title to, or interest in,
the land prior to the registration proceedings. (Sorogon vs.
Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in
derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.)
Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a Torrens
title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9,
p. 43.) And it is likewise settled that the right to secure possession
under a decree of registration does not prescribed. (Francisco vs.
Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court
on this point is that rendered in the case of Jose Alcantara et al., vs.
Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and
As to error VII, it is claimed that `there was no evidence to sustain
the finding that defendant should be sentenced to pay plaintiff
P132.62 monthly from January, 1940, until he vacates the premises.'
But it appears from the record that that reasonable compensation for
the use and occupation of the premises, as stipulated at the hearing
was P10 a month for each hectare and that the area occupied by
defendant was 13.2619 hectares. The total rent to be paid for the
area occupied should therefore be P132.62 a month. It is appears
from the testimony of J. A. Araneta and witness Emigdio Tanjuatco
that as early as 1939 an action of ejectment had already been filed
against defendant. And it cannot be supposed that defendant has
been paying rents, for he has been asserting all along that the

premises in question 'have always been since time immemorial in

open, continuous, exclusive and public and notorious possession and
under claim of ownership adverse to the entire world by defendant
and his predecessors in interest.' This assignment of error is thus
clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and
needs for further consideration.
During the pendency of this case in this Court appellant, thru other
counsel, has filed a motion to dismiss alleging that there is pending
before the Court of First Instance of Rizal another action between the
same parties and for the same cause and seeking to sustain that
allegation with a copy of the complaint filed in said action. But an
examination of that complaint reveals that appellant's allegation is
not correct, for the pretended identity of parties and cause of action
in the two suits does not appear. That other case is one for recovery
of ownership, while the present one is for recovery of possession.
And while appellant claims that he is also involved in that order
action because it is a class suit, the complaint does not show that
such is really the case. On the contrary, it appears that the action
seeks relief for each individual plaintiff and not relief for and on
behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs
against the plaintiff.

owners of the two lots.

In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation and
Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for
each of them. They treated the profit as a capital gain and paid an
income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue required
the four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares thereof
He assessed P37,018 as corporate income tax, P18,509 as 50% fraud
surcharge and P15,547.56 as 42% accumulated interest, or a total of
Not only that. He considered the share of the profits of each
petitioner in the sum of P33,584 as a " taxable in full (not a mere
capital gain of which is taxable) and required them to pay
deficiency income taxes aggregating P56,707.20 including the 50%
fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income
taxes and penalties totalling P127,781.76 on their profit of P134,336,
in addition to the tax on capital gains already paid by them.
The 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 (Collector of
Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax
Court sustained the same. Judge Roaquin dissented. Hence, the
instant appeal.
We hold that 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.
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the
dictum that the power to tax involves the power to destroy. That
eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were
co-owners pure and simple. To consider them as partners would
obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of
that isolated transaction.
Their original purpose was to divide the lots for residential purposes.
If later on they found it not feasible to build their residences on the

G.R. No. L-68118 October 29, 1985

REMEDIOS P. OBILLOS, brothers and sisters, petitioners
Demosthenes B. Gadioma for petitioners.
This case is about the income tax liability of four brothers and sisters
who sold two parcels of land which they had acquired from their
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas &
Co., Ltd. on two lots with areas of 1,124 and 963 square meters
located at Greenhills, San Juan, Rizal. The next day he transferred his
rights to his four children, the petitioners, to enable them to build
their residences. The company sold the two lots to petitioners for
P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably,
the Torrens titles issued to them would show that they were co7

lots because of the high cost of construction, then they had no

choice but to resell the same to dissolve the co-ownership. The
division of the profit was merely incidental to the dissolution of the
co-ownership which was in the nature of things a temporary state. It
had to be terminated sooner or later. Castan Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o
copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por
razon del origen, en que la sociedad presupone necesariamente la
convencion, mentras que la comunidad puede existir y existe
ordinariamente sin ela; y por razon del fin objecto, en que el objeto
de la sociedad es obtener lucro, mientras que el de la indivision es
solo mantener en su integridad la cosa comun y favorecer su
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en
la que se dice que si en nuestro Derecho positive se ofrecen a veces
dificultades al tratar de fijar la linea divisoria entre comunidad de
bienes y contrato de sociedad, la moderna orientacion de la doctrina
cientifica seala como nota fundamental de diferenciacion aparte del
origen de fuente de que surgen, no siempre uniforme, la finalidad
perseguida por los interesados: lucro comun partible en la sociedad,
y mera conservacion y aprovechamiento en la comunidad. (Derecho
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
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.*

properties; they merely continued dedicating the property to the use

to which it had been put by their forebears; they individually
reported in their tax returns their corresponding shares in the income
and expenses of the 'hacienda', and they continued for many years
the status of co-ownership in order, as conceded by respondent, 'to
preserve its (the 'hacienda') value and to continue the existing
contractual relations with the Central Azucarera de Bais for milling
purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.CoOwnership 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. (De Leon vs. CI R, CTA
Case No. 738, September 11, 1961, cited in Araas, 1977 Tax Code
Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA
74, where after an extrajudicial settlement the co-heirs used the
inheritance or the incomes derived therefrom as a common fund to
produce profits for themselves, it was held that they were taxable as
an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal
Revenue, 24 SCRA 198, where father and son purchased a lot and
building, entrusted the administration of the building to an
administrator and divided equally the net income, and from
Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where
the three Evangelista sisters bought four pieces of real property
which they leased to various tenants and derived rentals therefrom.
Clearly, the petitioners in these two cases had formed an
unregistered partnership.
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 (See Art. 1448, Civil Code). We are
not prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set
aside. The assessments are cancelled. No costs.

Such intent was present in Gatchalian vs. Collector of Internal

Revenue, 67 Phil. 666, where 15 persons contributed small amounts
to purchase a two-peso sweepstakes ticket with the agreement that
they would divide the prize The ticket won the third prize of P50,000.
The 15 persons were held liable for income tax as an unregistered
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent
Co-owership distinguished from partnership.We find that the case
at bar is fundamentally similar to the De Leon case. Thus, like the De
Leon heirs, the Longa heirs inherited the 'hacienda' in questionproindiviso from their deceased parents; they did not contribute or
invest additional ' capital to increase or expand the inherited

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



Courts may not extricate parties from the necessary consequences
of their acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto
release the contracting partners from their respective obligations to
each other arising from acts executed in accordance with their
The Case
The Petition for Review on Certiorari before us assails the March 5,
1998 Decision[1] Second Division of the Court of Appeals[2] (CA) in
CA-GR CV No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the ruling of the
Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208,
which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding
for the defendant and against the plaintiffs, orders the dismissal of
the plaintiffs complaint. The counterclaims of the defendant are
likewise ordered dismissed. No pronouncement as to costs.[3]
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a
subdivision.Pursuant to the contract, they executed a Deed of Sale
covering the said parcel of land in favor of respondent, who then had
it registered in his name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the development of the
subdivision.[4] All three of them also agreed to share the proceeds
from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of respondents
lack of funds or means and skills. They add that respondent used the
loan not for the development of the subdivision, but in furtherance of
his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to
implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the
Lapu Lapu City Councils approval of the subdivision project which he
advertised in a local newspaper. He also caused the construction of

roads, curbs and gutters. Likewise, he entered into a contract with an

engineering firm for the building of sixty low-cost housing units and
actually even set up a model house on one of the subdivision lots. He
did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims, thereby
forcing him to give up on the project.[5]
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter,
they filed the present civil case which, upon respondent's motion,
was later dismissed by the trial court in an Order dated September 6,
1982. On appeal, however, the appellate court remanded the case
for further proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners
and respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits
stipulated in the contract. Disagreeing with the trial courts
pronouncement that losses as well as profits in a joint venture should
be distributed equally,[7] the CA invoked Article 1797 of the Civil
Code which provides:
Article 1797 - The losses and profits shall be distributed in
conformity with the agreement. If only the share of each partner in
the profits has been agreed upon, the share of each in the losses
shall be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits
and losses shall be in proportion to what he may have contributed,
but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just
and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in
proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
x x x [The] Court of Appeals erred in concluding that the transaction
x x x between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769,

and other related provisions of the Civil Code of the Philippines.[8]

The Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of
Sale, both of which were the bases of the appellate courts finding of
a partnership, were void.
In the same breath, however, they assert that under those very
same contracts, respondent is liable for his failure to implement the
project. Because the agreement entitled them to receive 60 percent
of the proceeds from the sale of the subdivision lots, they pray that
respondent pay them damages equivalent to 60 percent of the value
of the property.[9]
The pertinent portions of the Joint Venture Agreement read as
This AGREEMENT, is made and entered into at Cebu City, Philippines,
this 5th day of March, 1969, by and between MR. MANUEL R.
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at Lapu-Lapu City, Island of Mactan,
under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon
the execution of this contract for the property entrusted by the
SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants
and promises herein contained the respective parties hereto do
hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x
dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND
Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS.
(P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST
PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, for their personal obligations and this
particular amount will serve as an advance payment from the FIRST
PARTY for the property mentioned to be sub-divided and to be

deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND
PARTY, the interest and the principal amount involving the amount of
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until
the sub-division project is terminated and ready for sale to any
interested parties, and the amount of TWENTY THOUSAND
(P20,000.00) pesos, Philippine currency, will be deducted
FOURTH: That all general expense[s] and all cost[s] involved in the
sub-division project should be paid by the FIRST PARTY, exclusively
and all the expenses will not be deducted from the sales after the
development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into
PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally
according to the x x x percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property
involved will start the work and all improvements upon the adjacent
lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to
get back the property mentioned provided the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all
necessary improvements spent by the FIRST PARTY, and the FIRST
PARTY will be given a grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties
who executed same freely and voluntarily for the uses and purposes
therein stated.[10]
A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 1767 of the
Civil Code, which provides:
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 profits among themselves.
Under the above-quoted 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

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.
Respondents 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.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not
only to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
It is undisputed that petitioners are educated and are thus presumed
to have understood the terms of the contract they voluntarily signed.
If it was not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot now disavow
the relationship formed from such agreement due to their supposed
misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under
Article 1773 of the Civil Code, which provides:
ART. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to
the public instrument an inventory of the real property contributed,
the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771,[12]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.[13] 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.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void
under Article 1422[14] of the Civil Code, because it is the direct
result of an earlier illegal contract, which was for the sale of the land
without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states
that the consideration for the sale was the expectation of profits
from the subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the parcel of land
sold to respondent. Consideration, more properly denominated as
cause, can take different forms, such as the prestation or promise of
a thing or service by another.[15]
In this case, the cause of the contract of sale consisted not in the
stated peso value of the land, but in the expectation of profits from
the subdivision project, for which the land was intended to be used.
As explained by the trial court, the land was in effect given to the
partnership as [petitioners] participation therein. x x x There was
therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would]
get sixty percent of the net profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to
pay damages equivalent to 60 percent of the value of the property,

which was their share in the profits under the Joint Venture
We are not persuaded. True, the Court of Appeals held that
petitioners acts were not the cause of the failure of the project.[16]
But it also ruled that neither was respondent responsible therefor.
[17] In imputing the blame solely to him, petitioners failed to give
any reason why we should disregard the factual findings of the
appellate court relieving him of fault. Verily, factual issues cannot be
resolved in a petition for review under Rule 45, as in this case.
Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine.[18] Accordingly,
we find no reversible error in the CA's ruling that petitioners are not
entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.

to use Anays name in securing distributorship of cookware from that

company. The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall weekly
production; (3) thirty percent (30%) of the sales she would make;
and (4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of Belos
assurances that he was sincere, dependable and honest when it
came to financial commitments.
Anay having secured the distributorship of cookware products from
the West Bend Company and organized the administrative staff and
the sales force, the cookware business took off successfully. They
operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocaos name, with office at 712
Rufino Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger Muencheberg of
West Bend Company invited Anay to the distributor/dealer meeting
in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A.,
from July 25-26, 1987. Anay accepted the invitation with the consent
of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the
U.S. Embassy in Manila on July 13, 1987. A portion of the letter
Ms. Nenita D. Anay (sic), who has been patronizing and supporting
West Bend Co. for twenty (20) years now, acquired the
distributorship of Royal Queen cookware for Geminesse Enterprise, is
the Vice President Sales Marketing and a business partner of our
company, will attend in response to the invitation. (Italics supplied.)
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the
unsatisfactory sales record in the Makati and Cubao offices. On
August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao[4] for her
excellent job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo[5] entitling her to a thirty-seven percent
(37%) commission for her personal sales "up Dec 31/87. Belo
explained to her that said commission was apart from her ten
percent (10%) share in the profits. On October 9, 1987, Anay learned
that Marjorie Tocao had signed a letter[6] addressed to the Cubao
sales office to the effect that she was no longer the vice-president of
Geminesse Enterprise. The following day, October 10, she received a
note from Lina T. Cruz, marketing manager, that Marjorie Tocao had


APPEALS and NENITA A. ANAY, respondents.
This is a petition for review of the Decision of the Court of Appeals in
CA-G.R. CV No. 41616,[1] affirming the Decision of the Regional Trial
Court of Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T.
Belo, then the vice-president for operations of Ultra Clean Water
Purifier, through her former employer in Bangkok. Belo introduced
Anay to petitioner Marjorie Tocao, who conveyed her desire to enter
into a joint venture with her for the importation and local distribution
of kitchen cookwares. Belo volunteered to finance the joint venture
and assigned to Anay the job of marketing the product considering
her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A.
Under the joint venture, Belo acted as capitalist, Tocao as president
and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the
administrative staff and sales force while Tocao hired and fired
employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The parties
agreed that Belos name should not appear in any documents relating
to their transactions with West Bend Company. Instead, they agreed

barred her from holding office and conducting demonstrations in

both Makati and Cubao offices.[7] Anay attempted to contact Belo.
She wrote him twice to demand her overriding commission for the
period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. When her letters
were not answered, Anay consulted her lawyer, who, in turn, wrote
Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the
same commission although the company netted a gross sales of
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a
complaint for sum of money with damages[8] against Marjorie D.
Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay
her, jointly and severally, the following: (1) P32,00.00 as unpaid
overriding commission from January 8, 1988 to February 5, 1988; (2)
P100,000.00 as moral damages, and (3) P100,000.00 as exemplary
damages. The plaintiff also prayed for an audit of the finances of
Geminesse Enterprise from the inception of its business operation
until she was illegally dismissed to determine her ten percent (10%)
share in the net profits. She further prayed that she be paid the five
percent (5%) overriding commission on the remaining 150 West
Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged
agreement with Anay that was neither reduced in writing, nor
ratified, was either unenforceable or void or inexistent. As far as Belo
was concerned, his only role was to introduce Anay to Marjorie Tocao.
There could not have been a partnership because, as Anay herself
admitted, Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as marketing
demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal,
such complaint should have been lodged with the Department of
Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the
complaint on account of ill-will and resentment because Marjorie
Tocao did not allow her to lord it over in the Geminesse Enterprise.
Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who
suffered actual damages including unreturned and unaccounted
stocks of Geminesse Enterprise, and serious anxiety, besmirched
reputation in the business world, and various damages not less than

P500,000.00. They also alleged that, to vindicate their names, they

had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or
not the plaintiff was an employee or partner of Marjorie Tocao and
Belo, and (b) whether or not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a
share in the profit of the business. He, however, admitted that the
two had agreed that Anay would receive a three to four percent (34%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely
served as a guarantor of Marjorie Tocao, who was new in the
business. He attended and/or presided over business meetings of the
venture in his capacity as a guarantor but he never participated in
decision-making. He claimed that he wrote the memo granting the
plaintiff thirty-seven percent (37%) commission upon her dismissal
from the business venture at the request of Tocao, because Anay had
no other income.
For her part, Marjorie Tocao denied having entered into an oral
partnership agreement with Anay. However, she admitted that Anay
was an expert in the cookware business and hence, they agreed to
grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on
product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%)
commission on the net profits. Marjorie claimed that she got the
capital for the business out of the sale of the sewing machines used
in her garments business and from Peter Lo, a Singaporean friendfinancier who loaned her the funds with interest. Because she
treated Anay as her co-equal, Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks
valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive
part of which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to
the partnership affairs for the years 1987 and 1988 pursuant to Art.
1809 of the Civil Code in order to determine the ten percent (10%)
share of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets
available for disposition when plaintiff was wrongfully excluded from
the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the
total production which for the period covering January 8, 1988 to

February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and
P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and
P20,000.00 as costs of suit.
The trial court held that there was indeed an oral partnership
agreement between the plaintiff and the defendants, based on the
following: (a) there was an intention to create a partnership; (b) a
common fund was established through contributions consisting of
money and industry, and (c) there was a joint interest in the profits.
The testimony of Elizabeth Bantilan, Anays cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986
until it was absorbed by Royal International, Inc., buttressed the fact
that a partnership existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he awarded the
distributorship to Anay and Marjorie Tocao because he was
convinced that with Marjories financial contribution and Anays
experience, the combination of the two would be invaluable to the
partnership, also supported that conclusion. Belos claim that he was
merely a guarantor has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his
acts of attending and/or presiding over meetings of Geminesse
Enterprise plus his issuance of a memo giving Anay 37% commission
on personal sales belied this. On the contrary, it demonstrated his
involvement as a partner in the business.
The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice
is often resorted to in business circles as an impetus to bigger sales
volume. 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 Marjorie Tocaos name is not determinative of
whether or not the business was managed and operated by a sole
proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse
The trial court finally held that a partner who is excluded wrongfully
from a partnership is an innocent partner. Hence, the guilty partner
must give him his due upon the dissolution of the partnership as well
as damages or share in the profits realized from the appropriation of
the partnership business and goodwill. An innocent partner thus
possesses pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets

at the time he was wrongfully expelled.

Petitioners appeal to the Court of Appeals[11] was dismissed, but the
amount of damages awarded by the trial court were reduced to
P50,000.00 for moral damages and P50,000.00 as exemplary
damages. Their Motion for Reconsideration was denied by the Court
of Appeals for lack of merit.[12] Petitioners Belo and Marjorie Tocao
are now before this Court on a petition for review on certiorari,
asserting that there was no business partnership between them and
herein private respondent Nenita A. Anay who is, therefore, not
entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them and
private respondent Anay because Geminesse Enterprise came into
being exactly a year before the alleged partnership was formed, and
that it was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without
any memorandum whatsoever regarding the alleged partnership.
The issue of whether or not a partnership exists is a factual matter
which are within the exclusive domain of both the trial and appellate
courts. This Court cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.[14] In this case, both the trial
court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court
finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill
these requisites: (1) two or more persons bind themselves to
contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among
themselves.[15] It may be constituted in any form; a public
instrument is necessary only where immovable property or real
rights are contributed thereto.[16] This implies that since a contract
of partnership is consensual, an oral contract of partnership is as
good as a written one. Where no immovable property or real rights
are involved, what matters is that the parties have complied with the
requisites of a partnership. The fact that there appears to be no
record in the Securities and Exchange Commission of a public
instrument embodying the partnership agreement pursuant to
Article 1772 of the Civil Code[17] did not cause the nullification of
the partnership. The pertinent provision of the Civil Code on the
matter states:
Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to

comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to
engage in the business of distributorship of cookware. Private
respondent contributed such expertise to the partnership and hence,
under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the
partnership was able to open the business of distributorship of that
companys cookware products; it was through the same efforts that
the business was propelled to financial success. Petitioner Tocao
herself admitted private respondents indispensable role in putting up
the business when, upon being asked if private respondent held the
positions of marketing manager and vice-president for sales, she
testified thus:
A: No, sir at the start she was the marketing manager because there
were no one to sell yet, its only me there then her and then two (2)
people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given
the designation of marketing managers of which definitely Nita as
superior to them would be the Vice President.[18]
By the set-up of the business, third persons were made to believe
that a partnership had indeed been forged between petitioners and
private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will
finance the operations. Marge does not have cookware experience.
Nita Anay has started to gather former managers, Lina Torda and
Dory Vista. She has also gathered former demonstrators, Betty
Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather
other key people and build up the organization. All they need is the
finance and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the
partnership rings hollow in the face of the established fact that he
presided over meetings regarding matters affecting the operation of
the business. Moreover, his having authorized in writing on October
7, 1987, on a stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirty-seven (37%) of
the proceeds of her personal sales, could not be interpreted
otherwise than that he had a proprietary interest in the business. His
claim that he was merely a guarantor is belied by that personal act
of proprietorship in the business. Moreover, if he was indeed a
guarantor of future debts of petitioner Tocao under Article 2053 of
the Civil Code,[20]he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that

guaranty must be express, Article 1403, the Statute of Frauds,

requires that a special promise to answer for the debt, default or
miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in
the partnership. She claimed that she herself financed the business.
Her and petitioner Belos roles as both capitalists to the partnership
with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the
partnership was not their only business venture together. They also
established a firm that they called Wiji, the combination of petitioner
Belos first name, William, and her nickname, Jiji.[23] The special
relationship between them dovetails with petitioner Belos claim that
he was acting in behalf of petitioner Tocao. Significantly, in the early
stage of the business operation, petitioners requested West Bend
Company to allow them to utilize their banking and trading facilities
in Singapore in the matter of importation and payment of the
cookware products.[24] The inevitable conclusion, therefore, was
that petitioners merged their respective capital and infused the
amount into the partnership of distributing cookware with private
respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not
result in an employer-employee relationship between petitioners and
private respondent. While it is true that the receipt of a percentage
of net profits constitutes only prima facie evidence that the recipient
is a partner in the business,[25] the evidence in the case at bar
controverts an employer-employee relationship between the parties.
In the first place, private respondent had a voice in the management
of the affairs of the cookware distributorship,[26] including selection
of people who would constitute the administrative staff and the sales
force. Secondly, petitioner Tocaos admissions militate against an
employer-employee relationship. She admitted that, like her who
owned Geminesse Enterprise,[27] private respondent received only
commissions and transportation and representation allowances[28]
and not a fixed salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already
marked as Exhs. X and Y. Please go over this. Exh. Y is denominated
`Cubao overrides 8-21-87 with ending August 21, 1987, will you
please go over this and tell the Honorable Court whether you ever
came across this document and know of your own knowledge the
amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am
telling you earlier a certain percentage for promotions, advertising,
Q: I see. Now, this promotion, advertising, incentive, there is a figure

here and words which I quote: Overrides Marjorie Ann Tocao

P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as
one representing commission, representation, advertising and
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D.
Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this
Honorable Court that there being the same P21,410.50 is merely by
A: No, sir, I made it a point that we were equal because the way I
look at her kasi, you know in a sense because of her expertise in the
business she is vital to my business. So, as part of the incentive I
offer her the same thing.
Q: So, in short you are saying that this you have shared together, I
mean having gotten from the company P21,140.50 is your way of
indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the
other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann
Tocao P15,314.25 the amount there you will acknowledge you have
received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that
is also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that
these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents 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.[31] As an industrial partner, private respondent

had the right to demand for a formal accounting of the business and
to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the
name of Geminesse Enterprise, a sole proprietorship, is of no
moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise.[33] While
it is true that in her undated application for renewal of registration of
that firm name, petitioner Tocao indicated that it would be engaged
in retail of kitchenwares, cookwares, utensils, skillet,[34] she also
admitted that the enterprise was only 60% to 70% for the cookware
business, while 20% to 30% of its business activity was devoted to
the sale of water sterilizer or purifier.[35] Indubitably then, the
business name Geminesse Enterprise was used only for practical
reasons - it was utilized as the common name for petitioner Tocaos
various business activities, which included the distributorship of
Petitioners underscore the fact that the Court of Appeals did not
return the unaccounted and unremitted stocks of Geminesse
Enterprise amounting to P208,250.00.[36] Obviously a ploy to offset
the damages awarded to private respondent, that claim, more than
anything else, proves the existence of a partnership between them.
In Idos v. Court of Appeals, this Court said:
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, the petitioner
and private complainant remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she
still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private
respondent from the partnership to reap for herself and/or for
petitioner Belo financial gains resulting from private respondents
efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert
herself to the extent that she would even shout at private
respondent in front of other people.[38] Her instruction to Lina Torda
Cruz, marketing manager, not to allow private respondent to hold
office in both the Makati and Cubao sales offices concretely spoke of
her perception that private respondent was no longer necessary in
the business operation,[39] and resulted in a falling out between the
two.However, a mere falling out or misunderstanding between
partners does not convert the partnership into a sham organization.

[40] The partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent 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. Thus:
x x x. 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 partners capability to give it, and
the absence of cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good
faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for
An unjustified dissolution by a partner can subject him to action for
damages because by the mutual agency that arises in a partnership,
the doctrine of delectus personae allows the partners to have the
power, although not necessarily the right to dissolve the partnership.
In this case, petitioner Tocaos unilateral exclusion of private
respondent from the partnership is shown by her memo to the Cubao
office plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse Enterprise.
[43] By that memo, petitioner Tocao effected her own withdrawal
from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by
the partnership. This is manifest in petitioners claim for stocks that
had been entrusted to private respondent in the pursuit of the
partnership business.
The determination of the amount of damages commensurate with
the factual findings upon which it is based is primarily the task of the
trial court.[45] The Court of Appeals may modify that amount only
when its factual findings are diametrically opposed to that of the
lower court,[46] or the award is palpably or scandalously and
unreasonably excessive.[47] However, exemplary damages that are
awarded by way of example or correction for the public good,[48]
should be reduced to P50,000.00, the amount correctly awarded by
the Court of Appeals.Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to
P50,000.00. Similarly, attorneys fees that should be granted on

account of the award of exemplary damages and petitioners evident

bad faith in refusing to satisfy private respondents plainly valid, just
and demandable claims,[49] appear to have been excessively
granted by the trial court and should therefore be reduced to
WHEREFORE, the instant petition for review on certiorari is DENIED.
The partnership among petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of
the Civil Code. This case is remanded to the Regional Trial Court for
proper proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of Appeals are
AFFIRMED with MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a
formal account of the partnership affairs for the years 1987 and
1988, pursuant to Article 1809 of the Civil Code, in order to
determine private respondents ten percent (10%) share in the net
profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private
respondent five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition since
the time private respondent was wrongfully excluded from the
partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private
respondent overriding commission on the total production which, for
the period covering January 8, 1988 to February 5, 1988, amounted
to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private
respondent moral damages in the amount of P50,000.00, exemplary
damages in the amount of P50,000.00 and attorneys fees in the
amount of P25,000.00.

G.R. No. L-66653 June 19, 1986

Sycip, Salazar, Feliciano & Hernandez Law Office for private

Petition for certiorari to review and set aside the Decision dated June
27, 1983 of respondent Court of Tax Appeals in its C.T.A. Case No.
3204, entitled "Burroughs Limited vs. Commissioner of Internal
Revenue" which ordered petitioner Commissioner of Internal
Revenue to grant in favor of private respondent Burroughs Limited,
tax credit in the sum of P172,058.90, representing erroneously
overpaid branch profit remittance tax.
Burroughs Limited is a foreign corporation authorized to engage in
trade or business in the Philippines through a branch office located
at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro
Sometime in March 1979, said branch office applied with the Central
Bank for authority to remit to its parent company abroad, branch
profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid
the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii)
and remitted to its head office the amount of P6,499,999.30
computed as follows:
Amount applied for remittance................................ P7,647,058.00
Deduct: 15% branch profit
remittance tax ..............................................1,147,058.70
Net amount actually remitted.................................. P6,499,999.30
Claiming that the 15% profit remittance tax should have been
computed on the basis of the amount actually remitted
(P6,499,999.30) and not on the amount before profit remittance tax
(P7,647,058.00), private respondent filed on December 24, 1980, a
written claim for the refund or tax credit of the amount of
P172,058.90 representing alleged overpaid branch profit remittance
tax, computed as follows:
Profits actually remitted .........................................P6,499,999.30
Remittance tax rate .......................................................15%
Branch profit remittance taxdue thereon ......................................................P 974,999.89
Branch profit remittance
tax paid .............................................................Pl,147,058.70
Less: Branch profit remittance
tax as above computed................................................. 974,999.89
Total amount refundable........................................... P172,058.81
On February 24, 1981, private respondent filed with respondent
court, a petition for review, docketed as C.T.A. Case No. 3204 for the
recovery of the above-mentioned amount of P172,058.81.
On June 27, 1983, respondent court rendered its Decision, the
dispositive portion of which reads
ACCORDINGLY, respondent Commission of Internal Revenue is

hereby ordered to grant a tax credit in favor of petitioner Burroughs

Limited the amount of P 172,058.90. Without pronouncement as to
Unable to obtain a reconsideration from the aforesaid decision,
petitioner filed the instant petition before this Court with the prayers
as herein earlier stated upon the sole issue of whether the tax base
upon which the 15% branch profit remittance tax shall be imposed
under the provisions of section 24(b) of the Tax Code, as amended, is
the amount applied for remittance on the profit actually remitted
after deducting the 15% profit remittance tax. Stated differently is
private respondent Burroughs Limited legally entitled to a refund of
the aforementioned amount of P172,058.90.
We rule in the affirmative. The pertinent provision of the National
Revenue Code is Sec. 24 (b) (2) (ii) which states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted abroad
by a branch to its head office shall be subject to a tax of fifteen per
cent (15 %) ...
In a Bureau of Internal Revenue ruling dated January 21, 1980 by
then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the
aforequoted provision had been interpreted to mean that "the tax
base upon which the 15% branch profit remittance tax ... shall be
imposed...(is) the profit actually remitted abroad and not on the total
branch profits out of which the remittance is to be made. " The said
ruling is hereinbelow quoted as follows:
In reply to your letter of November 3, 1978, relative to your query as
to the tax base upon which the 15% branch profits remittance tax
provided for under Section 24 (b) (2) of the 1977 Tax Code shall be
imposed, please be advised that the 15% branch profit tax shall be
imposed on the branch profits actually remitted abroad and not on
the total branch profits out of which the remittance is to be made.
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of private
respondent that it made an overpayment in the amount of
P172,058.90 which is the difference between the remittance tax
actually paid of Pl,147,058.70 and the remittance tax that should
have been paid of P974,999,89, computed as follows
Profits actually remitted......................................... P6,499,999.30
Remittance tax rate.............................................................. 15%
Remittance tax due................................................... P974,999.89
is well-taken. As correctly held by respondent Court in its assailed

Respondent concedes at least that in his ruling dated January 21,

1980 he held that under Section 24 (b) (2) of the Tax Code the 15%
branch profit remittance tax shall be imposed on the profit actually
remitted abroad and not on the total branch profit out of which the
remittance is to be made. Based on such ruling petitioner should
have paid only the amount of P974,999.89 in remittance tax
computed by taking the 15% of the profits of P6,499,999.89 in
remittance tax actually remitted to its head office in the United
States, instead of Pl,147,058.70, on its net profits of P7,647,058.00.
Undoubtedly, petitioner has overpaid its branch profit remittance tax
in the amount of P172,058.90.
Petitioner contends that respondent is no longer entitled to a refund
because Memorandum Circular No. 8-82 dated March 17, 1982 had
revoked and/or repealed the BIR ruling of January 21, 1980. The said
memorandum circular states
Considering that the 15% branch profit remittance tax is imposed
and collected at source, necessarily the tax base should be the
amount actually applied for by the branch with the Central Bank of
the Philippines as profit to be remitted abroad.
Petitioner's aforesaid contention is without merit. What is applicable
in the case at bar is still the Revenue Ruling of January 21, 1980
because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum Circular
No. 8-82 dated March 17, 1982 cannot be given retroactive effect in
the light of Section 327 of the National Internal Revenue Code which
providesSec. 327. Non-retroactivity of rulings. Any revocation, modification,
or reversal of any of the rules and regulations promulgated in
accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shag not be given
retroactive application if the revocation, modification, or reversal will
be prejudicial to the taxpayer except in the following cases (a) where
the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal
Revenue; (b) where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the facts on which
the ruling is based, or (c) where the taxpayer acted in bad faith.
(ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)
The prejudice that would result to private respondent Burroughs
Limited by a retroactive application of Memorandum Circular No. 882 is beyond question for it would be deprived of the substantial
amount of P172,058.90. And, insofar as the enumerated exceptions
are concerned, admittedly, Burroughs Limited does not fall under
any of them.

WHEREFORE, the assailed decision of respondent Court of Tax

Appeals is hereby AFFIRMED. No pronouncement as to costs.

G.R. No. L-25532

February 28, 1969
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and
T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.,"
was formed on 30 September 1947 by herein respondent William J.
Suter as the general partner, and Julia Spirig and Gustav Carlson, as
the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1
October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among
other activities, in the importation, marketing, distribution and
operation of automatic phonographs, radios, television sets and
amusement machines, their parts and accessories. It had an office
and held itself out as a limited partnership, handling and carrying
merchandise, using invoices, bills and letterheads bearing its tradename, maintaining its own books of accounts and bank accounts,
and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig
got married and, thereafter, on 18 December 1948, limited partner
Carlson sold his share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and Exchange
Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a
Commissioner of Internal Revenue, until in 1959 when the latter, in
an assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig resulting
in a determination of a deficiency income tax against respondent
Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his

request was denied. Unable to secure a reconsideration, he appealed

to the Court of Tax Appeals, which court, after trial, rendered a
decision, on 11 November 1965, reversing that of the Commissioner
of Internal Revenue.
The present case is a petition for review, filed by the Commissioner
of Internal Revenue, of the tax court's aforesaid decision. It raises
these issues:
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage
of the partners, respondent William J. Suter and Julia Spirig Suter and
the subsequent sale to them by the remaining partner, Gustav
Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is
that the marriage of Suter and Spirig and their subsequent
acquisition of the interests of remaining partner Carlson in the
partnership dissolved the limited partnership, and if they did not, the
fiction of juridical personality of the partnership should be
disregarded for income tax purposes because the spouses have
exclusive ownership and control of the business; consequently the
income tax return of respondent Suter for the years in question
should have included his and his wife's individual incomes and that
of the limited partnership, in accordance with Section 45 (d) of the
National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether
citizens, residents or non-residents, only one consolidated return for
the taxable year shall be filed by either spouse to cover the income
of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the
Court of Tax Appeals held, that his marriage with limited partner
Spirig and their acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the
Code of Commerce or in the New Civil Code, and that since its
juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general
partnership, it is taxable on its income similarly with corporations,
Suter was not bound to include in his individual return the income of
the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin"
Co., Ltd., has been dissolved by operation of law because of the

marriage of the only general partner, William J. Suter to the originally

limited partner, Julia Spirig one year after the partnership was
organized is rested by the appellant upon the opinion of now Senator
Tolentino in Commentaries and Jurisprudence on Commercial Laws of
the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general
copartnership, because under the Civil Code, which applies in the
absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri 196) It follows that
the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership,
but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the
subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of
the partners, as contributed by them to the common fund, or else
"all that the partners may acquire by their industry or work during
the existence of the partnership". William J. Suter "Morcoin" Co., Ltd.
was not such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William Suter and
P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of
the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose
Casan, in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546,
footnote 1, says with regard to the prohibition contained in the
aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de
sociedad universal, pero o podran constituir sociedad particular?
Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya
que ningun precepto de nuestro Codigo los prohibe, y hay que estar
a la norma general segun la que toda persona es capaz para
contratar mientras no sea declarado incapaz por la ley. La
jurisprudencia de la Direccion de los Registros fue favorable a esta
misma tesis en su resolution de 3 de febrero de 1936, mas parece
cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to
dissolve it, such marriage not being one of the causes provided for
that purpose either by the Spanish Civil Code or the Code of

The appellant's view, that by the marriage of both partners the
company became a single proprietorship, is equally erroneous. The
capital contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage;
and after they were joined in wedlock, such contributions remained
their respective separate property under the Spanish Civil Code
(Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter
"Morcoin" Co., Ltd. did not become common property of both after
their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and
separate from that of its partners (unlike American and English law
that does not recognize such separate juridical personality), the
bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory
mandates and basic principles of our law. The limited partnership's
separate individuality makes it impossible to equate its income with
that of the component members. True, section 24 of the Internal
Code merges registered general
(compaias colectivas) with the personality of the individual partners
for income tax purposes. But this rule is exceptional in its disregard
of a cardinal tenet of our partnership laws, and can not be extended
by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964,
and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations
involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction
of their corporate personality was pierced; in the present case, to do
so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely
served as business conduits or alter egos of the stockholders, a
factor that justified a disregard of their corporate personalities for
tax purposes. This is not true in the present case. Here, the limited
partnership is not a mere business conduit of the partner-spouses; it
was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had
been filing its own income tax returns as such independent entity.

The change in its membership, brought about by the marriage of the

partners and their subsequent acquisition of all interest therein, is no
ground for withdrawing the partnership from the coverage of Section
24 of the tax code, requiring it to pay income tax. As far as the
records show, the partners did not enter into matrimony and
thereafter buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is
As the limited partnership under consideration is taxable on its
income, to require that income to be included in the individual tax
return of respondent Suter is to overstretch the letter and intent of
the law. In fact, it would even conflict with what it specifically
provides in its Section 24: for the appellant Commissioner's stand
results in equal treatment, tax wise, of a general copartnership
(compaia colectiva) and a limited partnership, when the code
plainly differentiates the two. Thus, the code taxes the latter on its
income, but not the former, because it is in the case of compaias
colectivas that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit derived
from the duly registered general partnership (Section 26, N.I.R.C.;
Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 8889).lawphi1.nt
But it is argued that the income of the limited partnership is actually
or constructively the income of the spouses and forms part of the
conjugal partnership of gains. This is not wholly correct. As pointed
out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register
of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna
become conjugal only when no longer needed to defray the
expenses for the administration and preservation of the paraphernal
capital of the wife. Then again, the appellant's argument erroneously
confines itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the
partnership since the law taxes the income of even joint accounts
that have no personality of their own. 1Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is
a taxable unit, which it is not. What is taxable is the "income of both
spouses" (Section 45 [d] in their individual capacities. Though the
amount of income (income of the conjugal partnership vis-a-vis the
joint income of husband and wife) may be the same for a given
taxable year, their consequences would be different, as their
contributions in the business partnership are not the same.
The difference in tax rates between the income of the limited
partnership being consolidated with, and when split from the income

of the spouses, is not a justification for requiring consolidation; the

revenue code, as it presently stands, does not authorize it, and even
bars it by requiring the limited partnership to pay tax on its own
FOR THE FOREGOING REASONS, the decision under review is hereby
affirmed. No costs.

2. In regulating other professions, such as accountancy and

engineering, the legislature has authorized the adoption of firm
names without any restriction as to the use, in such firm name, of
the name of a deceased partner; 2 the legislative authorization given
to those engaged in the practice of accountancy a profession
requiring the same degree of trust and confidence in respect of
clients as that implicit in the relationship of attorney and client to
acquire and use a trade name, strongly indicates that there is no
fundamental policy that is offended by the continued use by a firm of
professionals of a firm name which includes the name of a deceased
partner, at least where such firm name has acquired the
characteristics of a "trade name." 3
3. The Canons of Professional Ethics are not transgressed by the
continued use of the name of a deceased partner in the firm name of
a law partnership because Canon 33 of the Canons of Professional
Ethics adopted by the American Bar Association declares that: t.
... The continued use of the name of a deceased or former partner
when permissible by local custom, is not unethical but care should
be taken that no imposition or deception is practiced through this
use. ... 4

July 30, 1979

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

4. There is no possibility of imposition or deception because the

deaths of their respective deceased partners were well-publicized in
all newspapers of general circulation for several days; the
stationeries now being used by them carry new letterheads
indicating the years when their respective deceased partners were
connected with the firm; petitioners will notify all leading national
and international law directories of the fact of their respective
deceased partners' deaths. 5
5. No local custom prohibits the continued use of a deceased
partner's name in a professional firm's name; 6 there is no custom or
usage in the Philippines, or at least in the Greater Manila Area, which
recognizes that the name of a law firm necessarily Identifies the
individual members of the firm. 7
6. The continued use of a deceased partner's name in the firm name
of law partnerships has been consistently allowed by U.S. Courts and
is an accepted practice in the legal profession of most countries in
the world. 8









consideration by this Court in 1953 when a law firm in Cebu (the

Deen case) continued its practice of including in its firm name that of
a deceased partner, C.D. Johnston. The matter was resolved with this
Court advising the firm to desist from including in their firm
designation the name of C. D. Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in
G. R. No. L-11964, entitled Register of Deeds of Manila vs. China
Banking Corporation. The law firm of Perkins & Ponce Enrile moved
to intervene asamicus curiae. Before acting thereon, the Court, in a
Resolution of April 15, 1957, stated that it "would like to be informed
why the name of Perkins is still being used although Atty. E. A.
Perkins is already dead." In a Manifestation dated May 21, 1957, the
law firm of Perkins and Ponce Enrile, raising substantially the same
arguments as those now being raised by petitioners, prayed that the
continued use of the firm name "Perkins & Ponce Enrile" be held
On June 16, 1958, this Court resolved: t.hqw
After carefully considering the reasons given by Attorneys Alfonso
Ponce Enrile and Associates for their continued use of the name of
the deceased E. G. Perkins, the Court found no reason to depart from
the policy it adopted in June 1953 when it required Attorneys Alfred
P. Deen and Eddy A. Deen of Cebu City to desist from including in
their firm designation, the name of C. D. Johnston, deceased. The
Court believes that, in view of the personal and confidential nature of
the relations between attorney and client, and the high standards
demanded in the canons of professional ethics, no practice should be
allowed which even in a remote degree could give rise to the
possibility of deception. Said attorneys are accordingly advised to
drop the name "PERKINS" from their firm name.
Petitioners herein now seek a re-examination of the policy thus far
enunciated by the Court.
The Court finds no sufficient reason to depart from the rulings thus
laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo"
and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are
partnerships, the use in their partnership names of the names of
deceased partners will run counter to Article 1815 of the Civil Code
which provides: t.hqw
Art. 1815. Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their
names in the firm name, shall be subject to the liability, of a partner.
It is clearly tacit in the above provision that names in a firm name of
a partnership must either be those of living partners and. in the case

of non-partners, should be living persons who can be subjected to

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

the succeeding partners or parties have the right to carry on the

business under the old name, in the absence of a stipulation
forbidding it, (s)ince the name of a commercial partnership is a
partnership asset inseparable from the good will of the firm. ... (60
Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand, t.hqw
... a professional partnership the reputation of which depends or; the
individual skill of the members, such as partnerships of attorneys or
physicians, has no good win to be distributed as a firm asset on its
dissolution, however intrinsically valuable such skill and reputation
may be, especially where there is no provision in the partnership
agreement relating to good will as an asset. ... (ibid, s 203, p. 115)
(Emphasis supplied)
C. A partnership for the practice of law cannot be likened to
partnerships formed by other professionals or for business. For one
thing, the law on accountancy specifically allows the use of a trade
name in connection with the practice of accountancy. 10 t.
A partnership for the practice of law is not a legal entity. It is a mere
relationship or association for a particular purpose. ... It is not a
partnership formed for the purpose of carrying on trade or business
or of holding property." 11 Thus, it has been stated that "the use of a
nom de plume, assumed or trade name in law practice is improper.

advertising and encroachment on their practice, or dealing directly

with their clients. 13
"The right to practice law is not a natural or constitutional right but is
in the nature of a privilege or franchise. 14 It is limited to persons of
good moral character with special qualifications duly ascertained and
certified. 15 The right does not only presuppose in its possessor
integrity, legal standing and attainment, but also the exercise of a
special privilege, highly personal and partaking of the nature of a
public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of
the American Bar Association" in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued
use of the name of a deceased or former partner in the firm name of
a law partnership when such a practice is permissible by local
custom but the Canon warns that care should be taken that no
imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits
or allows the continued use of a deceased or former partner's name
in the firm names of law partnerships. Firm names, under our
custom, Identify the more active and/or more senior members or
partners of the law firm. A glimpse at the history of the firms of
petitioners and of other law firms in this country would show how
their firm names have evolved and changed from time to time as the
composition of the partnership changed. t.hqw
The continued use of a firm name after the death of one or more of
the partners designated by it is proper only where sustained by local
custom and not where by custom this purports to Identify the active
members. ...
There would seem to be a question, under the working of the Canon,
as to the propriety of adding the name of a new partner and at the
same time retaining that of a deceased partner who was never a
partner with the new one. (H.S. Drinker, op. cit., supra, at pp.
207208) (Emphasis supplied).
The possibility of deception upon the public, real or consequential,
where the name of a deceased partner continues to be used cannot
be ruled out. A person in search of legal counsel might be guided by
the familiar ring of a distinguished name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently allowed the
continued use of a deceased partner's name in the firm name of law
partnerships. But that is so because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33
N.Y.S. 2d 733) which petitioners Salazar, et al. quoted in their

The usual reason given for different standards of conduct being

applicable to the practice of law from those pertaining to business is
that the law is a profession.
Dean Pound, in his recently published contribution to the Survey of
the Legal Profession, (The Lawyer from Antiquity to Modern Times, p.
5) defines a profession as "a group of men pursuing a learned art as
a common calling in the spirit of public service, no less a public
service because it may incidentally be a means of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession from
business are:
1. A duty of public service, of which the emolument is a byproduct,
and in which one may attain the highest eminence without making
much money.
2. A relation as an "officer of court" to the administration of justice
involving thorough sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business methods of

memorandum, the New York Supreme Court sustained the use of the
firm name Alexander & Green even if none of the present ten
partners of the firm bears either name because the practice was
sanctioned by custom and did not offend any statutory provision or
legislative policy and was adopted by agreement of the parties. The
Court stated therein: t.hqw
The practice sought to be proscribed has the sanction of custom and
offends no statutory provision or legislative policy. Canon 33 of the
Canons of Professional Ethics of both the American Bar Association
and the New York State Bar Association provides in part as follows:
"The continued use of the name of a deceased or former partner,
when permissible by local custom is not unethical, but care should
be taken that no imposition or deception is practiced through this
use." There is no question as to local custom. Many firms in the city
use the names of deceased members with the approval of other
attorneys, bar associations and the courts. The Appellate Division of
the First Department has considered the matter and reached The
conclusion that such practice should not be prohibited. (Emphasis
xxx xxx xxx
Neither the Partnership Law nor the Penal Law prohibits the practice
in question. The use of the firm name herein is also sustainable by
reason of agreement between the partners. 18

practice to the contrary, even if proven, can prevail. This is not to

speak of our civil law which clearly ordains that a partnership is
dissolved by the death of any partner. 23 Custom which are contrary
to law, public order or public policy shall not be countenanced. 24
The practice of law is intimately and peculiarly related to the
administration of justice and should not be considered like an
ordinary "money-making trade." t.hqw
... It is of the essence of a profession that it is practiced in a spirit of
public service. A trade ... aims primarily at personal gain; a
profession at the exercise of powers beneficial to mankind. If, as in
the era of wide free opportunity, we think of free competitive self
assertion as the highest good, lawyer and grocer and farmer may
seem to be freely competing with their fellows in their calling in
order each to acquire as much of the world's good as he may within
the allowed him by law. But the member of a profession does not
regard himself as in competition with his professional brethren. He is
not bartering his services as is the artisan nor exchanging the
products of his skill and learning as the farmer sells wheat or corn.
There should be no such thing as a lawyers' or physicians' strike. The
best service of the professional man is often rendered for no
equivalent or for a trifling equivalent and it is his pride to do what he
does in a way worthy of his profession even if done with no
expectation of reward, This spirit of public service in which the
profession of law is and ought to be exercised is a prerequisite of
sound administration of justice according to law. The other two
elements of a profession, namely, organization and pursuit of a
learned art have their justification in that they secure and maintain
that spirit. 25

Not so in this jurisdiction where there is no local custom that

sanctions the practice. Custom has been defined as a rule of conduct
formed by repetition of acts, uniformly observed (practiced) as a
social rule, legally binding and obligatory. 19 Courts take no judicial
notice of custom. A custom must be proved as a fact, according to
the rules of evidence. 20 A local custom as a source of right cannot
be considered by a court of justice unless such custom is properly
established by competent evidence like any other fact. 21 We find
such proof of the existence of a local custom, and of the elements
requisite to constitute the same, wanting herein. Merely because
something is done as a matter of practice does not mean that Courts
can rely on the same for purposes of adjudication as a juridical
custom. Juridical custom must be differentiated from social custom.
The former can supplement statutory law or be applied in the
absence of such statute. Not so with the latter.
Moreover, judicial decisions applying or interpreting the laws form
part of the legal system. 22 When the Supreme Court in the Deen
and Perkins cases issued its Resolutions directing lawyers to desist
from including the names of deceased partners in their firm
designation, it laid down a legal rule against which no custom or

In fine, petitioners' desire to preserve the Identity of their firms in the

eyes of the public must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners
advised to drop the names "SYCIP" and "OZAETA" from their
respective firm names. Those names may, however, be included in
the listing of individuals who have been partners in their firms
indicating the years during which they served as such.

G.R. No. 109248 July 3, 1995


BACORRO, petitioners,
and JOAQUIN L. MISA,respondents.

attorneys. All my efforts to ameliorate the below subsistence level of

the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to
the employees, even attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their self-respect. The result
of such policies is the formation of the union, including the assistant
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for
dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in
the partnership assets plus the profits, rent or interest attributable to
the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and to
pay petitioners damages for the use thereof despite the dissolution
of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
and equitable under the premises but in no case less than ten (10%)
per cent of the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership
interest." 1

The instant petition seeks a review of the decision rendered by the
Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638
and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent
Commission and quoted at length by the appellate court in its
decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and
reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several
subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on
19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and
Mariano M. Lozada associated themselves together, as senior
partners with respondents-appellees Gregorio F. Ortega, Tomas O. del
Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondentsappellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees
another letter stating:
"Further to my letter to you today, I would like to have a meeting
with all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondentsappellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant

On appeal, the SEC en banc reversed the decision of the Hearing

Officer and held that the withdrawal of Attorney Joaquin L. Misa had
dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can
be forced to continue in the partnership against his will. In its
decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March
1989 is hereby REVERSED insofar as it concludes that the
partnership of Bito, Misa & Lozada has not been dissolved. The case
is hereby REMANDED to the Hearing Officer for determination of the
respective rights and obligations of the parties. 2

unnecessary as no sufficient proof had been shown to indicate that

the partnership assets were in any such danger of being lost,
removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court,
petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership
regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that
private respondent's demand for the dissolution of the partnership
so that he can get a physical partition of partnership was not made
in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That
the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega
and Castillo," is indeed such a partnership need not be unduly
belabored. We quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948)
does not provide for a specified period or undertaking. The
"DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually
satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a
specific undertaking and hence not a partnership at will, citing
paragraph 2 of the Amended Articles of Partnership (19 August
"2. Purpose. The purpose for which the partnership is formed, is to
act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and to appear
for and represent their principals and client in all courts of justice
and government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide
for articles on partnership at will as none would so exist. Apparently

The parties sought a reconsideration of the above decision. Attorney

Misa, in addition, asked for an appointment of a receiver to take over
the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an
order denying reconsideration, as well as rejecting the petition for
receivership, and reiterating the remand of the case to the Hearing
The parties filed with the appellate court separate appeals (docketed
CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney
Jesus Bito and Attorney Mariano Lozada both died on, respectively,
05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm
prompted Attorney Misa to renew his application for receivership (in
CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners
opposed the prayer.
The Court of Appeals, finding no reversible error on the part of
respondent Commission, AFFIRMED in toto the SEC decision and
order appealed from. In fine, the appellate court held, per its
decision of 26 February 1993, (a) that Atty. Misa's withdrawal from
the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such
withdrawal was not in bad faith; (c) that the liquidation should be to
the extent of Attorney Misa's interest or participation in the
partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the
partnership assets; and (e) that the appointment of a receiver was

what the law contemplates, is a specific undertaking or "project"

which has a definite or definable period of completion. 3

Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value
at the time of such death or retirement shall be determined by two
(2) independent appraisers, one to be appointed (by the partnership
and the other by the) retiring partner or the heirs of a deceased
partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by
them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office
condominium shall be determined upon the basis of the valuation
above mentioned which shall be paid monthly within the first ten
(10) days of every month in installments of not less than P20,000.00
for the Senior Partners, P10,000.00 in the case of two (2) existing
Junior Partners and P5,000.00 in the case of the new Junior Partner.

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. 5
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
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. 9

The term "retirement" must have been used in the articles, as we so

hold, in a generic sense to mean the dissociation by a partner,
inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it.
On the third and final issue, we accord due respect to the appellate
court and respondent Commission on their common factual finding,
i.e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let
any of the partners remain in the partnership under such an
atmosphere of animosity; certainly, not against their will. 12Indeed,
for as long as the reason for withdrawal of a partner is not contrary
to the dictates of justice and fairness, nor for the purpose of unduly
visiting harm and damage upon the partnership, bad faith cannot be
said to characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral
WHEREFORE, the decision appealed from is AFFIRMED. No
pronouncement on costs.

The liquidation of the assets of the partnership following its

dissolution is governed by various provisions of the Civil Code; 10
however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of
paragraph 8 of the "Amendment to Articles of Partnership" reading
. . . In the event of the death or retirement of any partner, his
interest in the partnership shall be liquidated and paid in accordance
with the existing agreements and his partnership participation shall
revert to the Senior Partners for allocation as the Senior Partners
may determine; provided, however, that with respect to the two (2)
floors of office condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap Building, 140

G.R. No. L-49982 April 27, 1988


Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.

the Court of First Instance of Rizal against petitioner praying among

others that the latter be ordered:
1. to execute a public document embodying all the provisions of the
partnership agreement entered into between plaintiffs and
defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering
the period from May 6, 1966 up to December 21, 1968 and from
January 1, 1969 up to the time the order is issued and that the same
be subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net
profits of the business in an amount of no less than P l50,000.00 with
interest at the rate of 1% per month from date of demand until full
payment thereof for the entire duration of the business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees
and costs of the suit (pp. 13-14 Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who
was then the temporary presiding judge of Branch IV of the trial
court, rendered judgment dismissing the complaint and counterclaim
and ordering private respondents to pay petitioner P 3,000.00
attorney's fee and costs. Private respondent filed a motion for
reconsideration of the decision. On December 10, 1975, Hon. Ricardo
Tensuan who was the newly appointed presiding judge of the same
branch, set aside the aforesaid derision and rendered another
decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is
hereby reconsidered and a new judgment is hereby rendered in favor
of the plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public instrument
embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided for in Article 1771,
Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the
business operation from April 1969 up to the time this order is
issued, the same to be subject to examination and audit by the
(3) Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of P
150,000.00, with interest thereon at the rate of One (1%) Per Cent
per month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P
5,000.00 by way of attorney's fees of plaintiffs' counsel; as well as
the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals

By this petition for certiorari the Court is asked to determine if a
partnership exists between members of the same family arising from
their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are
co-owners of certain lots at the corner of Annapolis and Aurora Blvd.,
QuezonCity which were then being leased to the Shell Company of
the Philippines Limited (SHELL). They agreed to open and operate a
gas station thereat to be known as Estanislao Shell Service Station
with an initial investment of P 15,000.00 to be taken from the
advance rentals due to them from SHELL for the occupancy of the
said lots owned in common by them. A joint affidavit was executed
by them on April 11, 1966 which was prepared byAtty. Democrito
Angeles 1 They agreed to help their brother, petitioner herein, by
allowing him to operate and manage the gasoline service station of
the family. They negotiated with SHELL. For practical purposes and in
order not to run counter to the company's policy of appointing only
one dealer, it was agreed that petitioner would apply for the
dealership. Respondent Remedios helped in managing the bussiness
with petitioner from May 3, 1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash
Pledge Agreement with SHELL wherein it was reiterated that the P
15,000.00 advance rental shall be deposited with SHELL to cover
advances of fuel to petitioner as dealer with a proviso that said
agreement "cancels and supersedes the Joint Affidavit dated 11 April
1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements
regarding the operation of the business to private respondents, but
therafter petitioner failed to render subsequent accounting. Hence
through Atty. Angeles, a demand was made on petitioner to render
an accounting of the profits.
The financial report of December 31, 1968 shows that the business
was able to make a profit of P 87,293.79 and that by the year ending
1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in

enumerating seven (7) errors allegedly committed by the trial court.

In due course, a decision was rendered by the Court of Appeals on
November 28,1978 affirming in toto the decision of the lower court
with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was
denied on January 30, 1979. Not satisfied therewith, the petitioner
now comes to this court by way of this petition for certiorari alleging
that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-avis the Additional Cash Pledge Agreement (Exhs. "B-2","6", and "L");
2. In declaring that a partnership was established by and among the
petitioner and the private respondents as regards the ownership and
or operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April
11, 1966 (Exhibit A) and the Additional Cash Pledge Agreement of
May 20, 1966 (Exhibit 6) which are herein reproduced(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in
Transfer Certificates of Title Nos. 45071 and 71244 of the Register of
Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF
THE PHILIPPINES LIMITED a corporation duly licensed to do business
in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE
PHILIPPINE LIMITED advanced rentals in the total amount of FIFTEEN
THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we can
use the said amount to augment our capital investment in the
operation of that gasoline station constructed ,by the said company
on our two lots aforesaid by virtue of an outstanding Lease
Agreement we have entered into with the said company;
its benevolence and desire to help us in aumenting our capital
investment in the operation of the said gasoline station, has agreed
to give us the said amount of P 15,000.00, which amount will partake
the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of
the said amount of FIFTEEN THOUSAND PESOS (P l6,000.00) from he
ADVANCED RENTALS to us be applied as monthly rentals for the sai
two lots under our Lease Agreement starting on the 25th of May,
1966 until such time that the said of P 15,000.00 be applicable,
which time to our estimate and one-half months from May 25, 1966
or until the 10th of October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL

COMPANY OF THE PHILIPPINES LIMITED execute an instrument for us

to sign embodying our conformity that the said amount that it will
generously grant us as requested be applied as ADVANCED RENTALS;
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6,
is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963
(identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V
& III, Series of 1963 in the Notarial Registers of Notaries Public
Rosauro Marquez, and R.D. Liwanag, respectively) executed in favour
of SHELL by the herein CO-OWNERS and another Lease Agreement
dated 19th March 1964 . . . also executed in favour of SHELL by COOWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining
portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon
City, the CO OWNERS RECEIVE a total monthly rental of PESOS
3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell
Station constructed on the leased land, and as Dealer under the
Cash Pledge Agreement dated llth May 1966, he deposited to SHELL
in cash the amount of PESOS TEN THOUSAND (P 10,000), Philippine
Currency, to secure his purchase on credit of Shell petroleum
products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the
limit up to P 25,000, has secured the conformity of his CO-OWNERS
to waive and assign to SHELL the total monthly rentals due to all of
them to accumulate the equivalent amount of P 15,000,
commencing 24th May 1966, this P 15,000 shall be treated as
additional cash deposit to SHELL under the same terms and
conditions of the aforementioned Cash Pledge Agreement dated llth
May 1966.
NOW, THEREFORE, for and in consideration of the foregoing
premises,and the mutual covenants among the CO-OWNERS herein
and SHELL, said parties have agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly
rentals due to all CO-OWNERS, collectively, under the above
describe two Lease Agreements, one dated 13th November 1963
and the other dated 19th March 1964 to enable DEALER to increase
his existing cash deposit to SHELL, from P 10,000 to P 25,000, for
such purpose, the SHELL CO-OWNERS and DEALER hereby
irrevocably assign to SHELL the monthly rental of P 3,382.29 payable
to them respectively as they fall due, monthly, commencing 24th
May 1966, until such time that the monthly rentals accumulated,

shall be equal to P l5,000.

2. The above stated monthly rentals accumulated shall be treated as
additional cash deposit by DEALER to SHELL, thereby in increasing
his credit limit from P 10,000 to P 25,000. This agreement, therefore,
cancels and supersedes the Joint affidavit dated 11 April 1966
executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to
allow DEALER to purchase from SHELL petroleum products, on credit,
up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms
and conditions of the above-mentioned Cash Pledge Agreement
dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is
clearly stipulated by the parties that the P 15,000.00 advance rental
due to them from SHELL shall augment their "capital investment" in
the operation of the gasoline station, which advance rentals shall be
credited as rentals from May 25, 1966 up to four and one-half
months or until 10 October 1966, more or less covering said P
In the subsequent document entitled "Additional Cash Pledge
Agreement" above reproduced (Exhibit 6), the private respondents
and petitioners assigned to SHELL the monthly rentals due them
commencing the 24th of May 1966 until such time that the monthly
rentals accumulated equal P 15,000.00 which private respondents
agree to be a cash deposit of petitioner in favor of SHELL to increase
his credit limit as dealer. As above-stated it provided therein that
"This agreement, therefore, cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling
and superseding that previous Joint Affidavit, whatever partnership
agreement there was in said previous agreement had thereby been
abrogated. We find no merit in this argument. Said cancelling
provision was necessary for the Joint Affidavit speaks of P 15,000.00
advance rentals starting May 25, 1966 while the latter agreement
also refers to advance rentals of the same amount starting May 24,
1966. There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the subsequent document
that it "cancels and supersedes" the previous one. True it is that in
the latter document, it is silent as to the statement in the Joint
Affidavit that the P 15,000.00 represents the "capital investment" of
the parties in the gasoline station business and it speaks of
petitioner as the sole dealer, but this is as it should be for in the
latter document SHELL was a signatory and it would be against its
policy if in the agreement it should be stated that the business is a

partnership with private respondents and not a sole proprietorship of

Moreover other evidence in the record shows that there was in fact
such partnership agreement between the parties. This is attested by
the testimonies of private respondent Remedies Estanislao and Atty.
Angeles. Petitioner submitted to private respondents periodic
accounting of the business. 4 Petitioner gave a written authority to
private respondent Remedies Estanislao, his sister, to examine and
audit the books of their "common business' aming negosyo). 5
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. 6 The sole
dealership by the petitioner and the issuance of all government
permits and licenses in the name of petitioner was in compliance
with the afore-stated policy of SHELL and the understanding of the
parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive
in this proceeding, and its conclusion based on the said facts are in
accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with
costs against petitioner. This decision is immediately executory and
no motion for extension of time to file a motion for reconsideration
shag beentertained.

G.R. No. L-18703

August 28, 1922
Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants.
Antonio Sanz for appellee.
The record of this proceeding having been transmitted to this court
by virtue of an appeal taken herein, a motion was presented by the
appellants praying this court that this case be considered purely a

moot question now, for the reason that subsequent to the decision
appealed from, the partnership Campos Rueda & Co., voluntarily
filed an application for a judicial decree adjudging itself insolvent,
which is just what the herein petitioners and appellants tried to
obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even
under the facts stated by the appellants in their motion aforesaid.
The question raised in this case is not purely moot one; the fact that
a man was insolvent on a certain day does not justify an inference
that he was some time prior thereto.
Proof that a man was insolvent on a certain day does not justify an
inference that he was on a day some time prior thereto. Many
contingencies, such as unwise investments, losing contracts,
misfortune, or accident, might happen to reduce a person from a
state of solvency within a short space of time. (Kimball vs. Dresser,
98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is
one thing to adjudge Campos Rueda & Co. insolvent in December,
1921, as prayed for in this case, and another to declare it insolvent
in July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited
partnership was, and is, indebted to the appellants in various sums
amounting to not less than P1,000, payable in the Philippines, which
were not paid more than thirty days prior to the date of the filing by
the petitioners of the application for involuntary insolvency now
before us. These facts were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not
proven, nor alleged, that the members of the aforesaid firm were
insolvent at the time the application was filed; and that was said
partners are personally and solidarily liable for the consequence of
the transactions of the partnership, it cannot be adjudged insolvent
so long as the partners are not alleged and proven to be insolvent.
From this judgment the petitioners appeal to this court, on the
ground that this finding of the lower court is erroneous.
The fundamental question that presents itself for decision is whether
or not a limited partnership, such as the appellee, which has failed to
pay its obligation with three creditors for more than thirty days, may
be held to have committed an act of insolvency, and thereby be
adjudged insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited
partnership as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts (art. 116, Code
of Commerce). This being so and the juridical personality of a limited
partnership being different from that of its members, it must, on

general principle, answer for, and suffer, the consequence of its acts
as such an entity capable of being the subject of rights and
obligations. If, as in the instant case, the limited partnership of
Campos Rueda & Co. Failed to pay its obligations with three creditors
for a period of more than thirty days, which failure constitutes, under
our Insolvency Law, one of the acts of bankruptcy upon which an
adjudication of involuntary insolvency can be predicated, this
partnership must suffer the consequences of such a failure, and
must be adjudged insolvent. We are not unmindful of the fact that
some courts of the United States have held that a partnership may
not be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have maintained
a contrary view. But it must be borne in mind that under the
American common law, partnerships have no juridical personality
independent from that of its members; and if now they have such
personality for the purpose of the insolvency law, it is only by virtue
of general law enacted by the Congress of the United States on July
1, 1898, section 5, paragraph (h), of which reads thus:
In the event of one or more but not all of the members of a
partnership being adjudged bankrupt, the partnership property shall
not be administered in bankruptcy, unless by consent of the partner
or partners not adjudged bankrupt; but such partner or partners not
adjudged bankrupt shall settle the partnership business as
expeditiously as its nature will permit, and account for the interest of
the partner or partners adjudged bankrupt.
The general consideration that these partnership had no juridical
personality and the limitations prescribed in subsection (h) above set
forth gave rise to the conflict noted in American decisions, as stated
in the case of In reSamuels (215 Fed., 845), which mentions the two
apparently conflicting doctrines, citing one from In reBertenshaw
(157 Fed., 363), and the other from Francis vs. McNeal (186 Fed.,
But there being in our insolvency law no such provision as that
contained in section 5 of said Act of Congress of July 1, 1898, nor any
rule similar thereto, and the juridical personality of limited
partnership being recognized by our statutes from their formation in
all their acts and contracts the decision of American courts on this
point can have no application in this jurisdiction, nor we see any
reason why these partnerships cannot be adjudged bankrupt
irrespective of the solvency or insolvency of their members, provided
the partnership has, as such, committed some of the acts of
insolvency provided in our law. Under this view it is unnecessary to
discuss the other points raised by the parties, although in the
particular case under consideration it can be added that the liability

of the limited partners for the obligations and losses of the

partnership is limited to the amounts paid or promised to be paid
into the common fund except when a limited partner should have
included his name or consented to its inclusion in the firm name
(arts. 147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda
& Co. failed for more than thirty days to pay its obligations to the
petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and
the International Banking Corporation, the case comes under
paragraph 11 of section 20 of Act No. 1956, and consequently the
petitioners have the right to a judicial decree declaring the
involuntary insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is
adjudged that the limited partnership Campos Rueda & Co. is and
was on December 28, 1921, insolvent and liable for having failed for
more than thirty days to meet its obligations with the three
petitioners herein, and it is ordered that this proceeding be
remanded to the Court of First Instance of Manila with instruction to
said court to issue the proper decrees under section 24 of Act No.
1956, and proceed therewith until its final disposition.
It is so ordered without special finding as to costs.

and presumably registered as required by law. On the 19th day of

August, 1911, an action was begun by Chan Hang Chiu against the
plaintiff in this case to recover a sum of money. The summons and
complaint were placed in the hands of the sheriff, who certified that
on the 19th day of August, 1911, he served the same on Vargas &
Co. by delivering to and leaving with one Jose Macapinlac personally
true copies thereof, he being the managing agent of said Vargas &
Co. at the time of such service. On July 2. 1912, the justice's court
rendered judgment against Vargas & Co. for the sum of 372.28.
Thereafter execution was duly issued and the property of Vargas &
Co. levied on for the payment thereof. Thereupon Vargas & Co. paid
the amount of the judgment and costs under protest, with notice
that it would sue to recover the amount paid. The execution was
returned satisfied and there the matter rested until the present
action was brought.
The contention of plaintiff is, and that contention is supported by the
decision of the court below, that Vargas & Co. being a partnership, it
is necessary, in bringing an action against it, to serve the summons
on all of the partners, delivering to each one of them personally a
copy thereof; and that the summons in this case having been served
on the managing agent of the company only, the service was of no
effect as against the company and the members thereof and the
judgment entered by virtue of such a service was void.
Plaintiff also contends, and this contention is likewise supported by
the court below, that, even admitting that service on the managing
agent of the plaintiff is sufficient service, as a matter of fact no
service was really made on the managing agent of the company but,
rather, on an employee or salesman of the company, who had no
powers of management or supervision and who was not competent
to receive service on behalf of the company within the provisions of
section 396 of the Code of Civil Procedure.
We are of the opinion that neither of these contentions can be
sustained. As to the first, we may say that it has been the universal
practice in the Philippine Islands since American occupation, and was
the practice prior to that time, to treat companies of the class to
which the plaintiff belongs as legal or juridicial entities and to permit
them to sue and be sued in the name of the company, the summons
being served solely on the managing agent or other official of the
company specified by the section of the Code of Civil Procedure
referred to. This very action is an illustration of the practice in vogue
in the Philippine Islands. The plaintiff brings this action in the
company name and not in the name of the members of the firm.
Actions against companies of the class to which plaintiff belongs are
brought, according to the uninterrupted practice, against such

G.R. No. L-8576

February 11, 1915
VARGAS and COMPANY, plaintiff-appellee,
CHAN HANG CHIU, ET AL., defendants-appellants.
Rohde and Wright for appellants.
Escaler and Salas for appellee.
This is an action brought to set aside a judgment of the justice's
court of Manila on the ground that the plaintiff here, the defendant in
the action in which the judgment was secured, was not served with
summons and that, therefore, the justice's court acquired no
jurisdiction to render the judgment was that the same is null and
void. Judgment was entered in favor of plaintiff declaring the
judgment in controversy void and setting it aside. This appeal is from
that judgment.
It appears from the record that the plaintiff is a merchantile
association duly organized under the laws of the Philippine Islands

companies in their company names and not against the individual

partners constituting the firm. In the States, in which the individual
members of the firm must be separately served with process, the
rule also prevails that they must be parties to the action, either
plaintiffs or defendant, and that the action cannot be brought in the
name of or against the company itself. This follows naturally for the
reason that, if it is necessary to serve the partners individually, they
are entitled to be heard individually in the action and they must,
therefore, be made parties thereto so that they can be heard. It
would be idle to serve process on individual members of a
partnership if the litigation were to be conducted in the name of the
partnership itself and by the duly constituted officials of the
partnership exclusively.
From what has been said it is apparent that the plaintiff in this action
is acting contrary to its own contention by bringing the action in the
name of the company be served with process, then the action should
be brought in the individual names of the partners and not in the
name of the company itself.
Article 35 of the Civil Code provides:
The following are judicial persons:
1. The corporation, associations, and institutions of public interest
recognized by law.
2. The associations of private interest, be they civil, commercial, or
industrial, to which the law grants proper personality, independent of
that of each member thereof.
Article 38 provides: "Judicial persons may acquire and possess
property of all kinds, as well as contract obligations and institute civil
or criminal actions in accordance with the laws and rules of their
Article 116 of the Code of Commerce provides in part: "After a
commercial association has been established, it shall have legal
representation in all its acts and contracts."
These provisions have been the foundation of the practice followed
without interruption for many years that association of the class to
which plaintiff belongs have an independent and separate legal
entity sufficient to permit them to sue and be sued in the company
name and to be served with process through the chief officer or
managing agent thereof or any other official of the company
specified by law.
As to the second contention, we may say that the presumption is
that a judgment rendered by a justice's court is a valid and
enforceable judgment where the record discloses that all of the steps
necessary to confer jurisdiction on the court have been taken. In the
case before us it affirmatively appears that the service of process

was made on the person the sheriff certified was the managing
agent of the defendant company. The sheriff's certificate serves as
prima facie evidence of the existence of the facts stated therein. The
record, therefore, discloses, so far as the fact of service is concerned,
that it was duly made on the managing agent of the company as
required by section 396, paragraph 1, of the Code of Civil Procedure.
In attacking the judgement on the ground that service was not made
on the managing agent of the company, it is incumbent on the
plaintiff to overcome the presumption arising from the sheriff's
certificate before the attack will succeed. Endeavoring to overcome
the presumption referred to, plaintiff offered as a witness one Tomas
O. Segovia, an employee of the plaintiff company. He testified that
he was a bookkeeper and that as such he was well acquainted with
the business of the company and that the person Macapinlac
referred to in the sheriff's certificate as managing agent of the
plaintiff company was an agent for the sale of plows, of which the
plaintiff company was a manufacturer; and that he had no other
relations with the company than that stated. During the course of
the examination this question was put to and answer elicited from
this witness:
How do you know that they were not summoned, or that they did not
know of this case brought before the justice of the peace of the city
of Manila?
I being the bookkeeper and the general attorney-in-fact to Vargas &
Co., in Iloilo, ought to know whether they have been notified or
summoned, but I only knew about it when the sheriff appeared in our
office to make the levy.
This is the only witness who testified in the case. It does not appear
when he became the bookkeeper of the company, or that he was in
such a position that he could know or did know personally the acts of
the company and its relations to Macapinlac. He does not testify of
his own knowledge to the essential facts necessary to controvert the
statements contained it the sheriff's certificate of service. His
testimony is rather negative than positive, it being at all times
possible, in spite of his evidence, indeed, in strict accord therewith,
that Vargas & Co., of which the witness was neither official nor
manager, could have appointed a managing agent for the company
or could have removed him without the personal knowledge of the
witness. The witness had no personal knowledge of the relation
between the company and Macapinlac. He never saw the contract
existing between them. He did not hear the agreement between
them nor did he know of his own knowledge what the relations
between the company and Macapinlac were. His testimony besides
being negative in character has in it many of the elements of

hearsay and is not at all satisfactory. It would have been very easy to
present one of the members of the company, or all of them, who
engaged Macapinlac, who know the relations between him and the
company, to testify as to what those relations were and to deny, if
that were the fact, that Macapinlac was such an agent or official of
the company as is within the purview of section 396 above referred
to. The facts stated in the certificate of the sheriff will not be
considered as overcome and rebutted except on clear evidence
showing the contrary. The evidence of the bookkeeper, who is the
only witness for the company, is not satisfactory in any sense and is
quite insufficient to overcome the presumption established by the
sheriff's certificate.
In view of these considerations it is not necessary to consider the
question presented by the payment by the plaintiff company of the
The judgment appealed from is reversed and the complaint
dismissed on the merits, without costs in this instance. So ordered.

the partnership Ngo Tian Tek and Ngo Hay, petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals
whose findings of fact are conclusive, "as far back as the year 1925,
the Modern Box Factory was established at 603 Magdalena Street,
Manila. It was at first owned by Ngo Hay, who three years later was
joined by Ngo Tian Tek as a junior partner. The modern Box Factory
dealt in pare and similar merchandise and purchased goods from the
plaintiff and its assignors in the names of the Modern Box Factory,
Ngo Hay and Co., Go Hay Box Factory, or Go Hay. Then about the
year 1930, the Lee Guan Box Factory was established a few meters
from the Modern Box Factory, under the management of Vicente Tan.
When that concern, through Vicente Tan, sought credit with the
plaintiff and its assignors, Ngo Hay, in conversations and interviews
with their officers and employees, represented that he was the
principal owner of such factory, that the Lee Guan Box Factory and
the Modern Box Factory belonged to the same owner, and that the
Lee Guan Box Factory was a subsidiary of the Modern Box Factory.
There is evidence that many goods purchased in the name of the Lee
Guan Box Factory were delivered to the Modern Box Factory by the
employees of the plaintiff and its assignors upon the express
direction of Vicente Tan. There is also evidence that the collectors of
the sellers were requested by Vicente Tan to collect and did collect
from the Modern Box Factory the bills against the Lee Guan Box
Factory. In the fact the record shows many checks signed by Ngo Hay
or Ngo Tian Tek in payment of accounts of the Lee Guan Box Factory.
Furthermore, and this seems to be conclusive-Ngo Hay, testifying
for the defense, admitted that 'he' was the owner of the Lee Guan
Box Factory in and before the year 1934, but that in January, 1935,
'he' sold it, by the contract of sale Exhibit 7, to Vicente Tan, who had
been his manager of the business. Tan declared also that before
January, 1935, the Lee Guan Box Factory pertained to Ngo Hay and
Ngo Tian Tek. The contract Exhibit 7 was found by the referee, to be
untrue and simulated, for various convincing reasons that need no
repetition here. And the quoted statements serve effectively to
confirm the evidence for the plaintiff that it was Ngo Hay's
representations of ownership of, and responsibility for, Lee Guan Box
Factory that induced them to open credit for that concern. It must be
stated that in this connection to answer appellant's fitting
observation that the plaintiff and the assignors have considered
Ngo Hay, the Modern Box Factory and Ngo Hay and Co. as one and
the same, through the acts of the partners themselves, and that the
proof as to Ngo Hay's statements regarding the ownership of Lee
Guan Box Factory must be taken in that view. Ngo Hay was wont to
say 'he' owned the Modern Box Factory, meaning that he was the

G.R. No. L-48113

April 7, 1947
NGO TIAN TEK and NGO HAY, petitioner,
Tansinsin and Yatco for petitioner.
Marcial Esposo for respondent.
The plaintiff, Philippine Education Co., Inc., instituted in the Court of
First Instance of Manila an action against the defendants, Vicente Tan
alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for
the recovery of some P16,070.14, unpaid cost of merchandise
purchased by Lee Guan Box Factory from the plaintiff and five other
corporate entities which, though not parties to the action, had
previously assigned their credits to the plaintiff, together with
attorney's fees, interest and costs. /by agreement of the parties, the
case was heard before a referee, Attorney Francisco Dalupan, who in
due time submitted his report holding the defendants jointly and
severally liable to the plaintiff for the sum of P16,070.14 plus
attorney's fees and interest at the rates specified in the report. On
March 6, 1939, the Court of First Instance of Manila rendered
judgment was affirmed by the Court of Appeals in its decision of
January 31, 1941, now the subject of our review at the instance of

principal owner, his other partner being Ngo Tian Tek. Now, it needs
no demonstration for appellant does not deny it that the
obligations of the Lee Guan Box Factory must rest upon its known
owner. And that owner in Ngo Tian Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals
erred in holding that Lee Guan Box Factory was a subsidiary of the
Modern Box Factory and in disregarding the fact that the contracts
evidencing the debts in question were signed by Vicente Tan alias
Chan Sy, without any indication that tended to involve the Modern
Box Factory or the petitioner. In the first place, we are concluded by
the finding of the Court of Appeals regarding the ownership by the
petitioner of Lee Guan Box Factory. Secondly, the circumstances that
Vicente Tan alias Chan Sy acted in his own name cannot save the
petitioner, in view of said ownership, and because contracts entered
into by a factor of a commercial establishment known to belong to a
well known enterprise or association, shall be understood as made
for the account of the owner of such enterprise or association, even
when the factor has not so stated at the time of executing the same,
provided that such contracts involve objects comprised in the line
and business of the establishment. (Article 286, Code of Commerce.)
The fact that Vicente Tan did not have any recorded power of
attorney executed by the petitioner will not operate to prejudice
third persons, like the respondent Philippine Education Co., Inc., and
its assignors. (3 Echavarri, 133.)
Another defense set up by the petitioner is that prior to the
transactions which gave rise to this suit, Vicente Tan had purchased
Lee Guan Box Factory from Ngo Hay under the contract, Exhibit 7;
and the petitioner assails, under the second assignment of error, the
conclusion of the Court of Appeals that said contract is simulated.
This contention is purely factual and must also be overruled.
The petitioner questions the right of the respondent Philippine
Education Co., Inc., to sue for the credits assigned by the five entities
with which Lee Guan Box Factory originally contracted, it being
argued that the assignment, intended only for purposes of collection,
did not make said respondent the real party in interest. The
petitioner has cited 5 Corpus Juris, section 144, page 958, which
points out that "under statutes authorizing only a bona fideassignee
of choses in action to sue thereon in his own name, an assignee for
collection merely is not entitled to sue in his own name."
The finding of the Court of Appeals that there is nothing "simulated
in the assignment," precludes us from ruling that respondent
company is not a bona fide assignee. Even assuming, however, that
said assignment was only for collection, we are not prepared to say
that, under section 114 of the Code of Civil Procedure, in force at the

time this action was instituted, ours is not one of those jurisdictions
following the rule that "when a choose, capable of legal assignment,
is assigned absolutely to one, but the assignment is made for
purpose of collection, the legal title thereto vests in the assignee,
and it is no concern of the debtor that the equitable title is in
another, and payment to the assignee discharges the debtor." (5 C.
J., section 144, p. 958.) No substantial right of the petitioner could
indeed be prejudiced by such assignment, because section 114 of
the Code of Civil Procedure reserves to it "'any set-off or other
defense existing at the time of or before notice of the assignment.'"
Petitioner's allegation that "fraud in the inception of the debt is
personal to the contracting parties and does not follow assignment,"
and that the contracts assigned to the respondent company "are
immoral and against public policy and therefore void," constitute
defenses on the merits, but do not affect the efficacy of the
assignment. It is obvious that, apart from the fact that the petitioner
can not invoke fraud of its authorship to evade liability, the appealed
decision is founded on an obligation arising, not from fraud, but from
the very contracts under which merchandise had been purchased by
Lee Guan Box Factory.
The fourth and fifth assignments of error relate to the refusal of the
Court of Appeals to hold that the writ of attachment is issued at the
commencement of this action by the Court of First Instance is illegal,
and to award in favor of the petitioner damages for such wrongful
attachment. For us to sustain petitioner's contention will amount to
an unauthorized reversal of the following conclusion of fact of the
Court of Appeals: "The stereotyped manner in which defendants
obtained goods on credit from the six companies, Vicente Tan's
sudden disappearance, the execution of the fake sale Exhibit 7 to
throw the whole responsibility upon the absent or otherwise
insolvent Tan, defendant's mercurial and unbelievable theories as to
the ownership of the Modern Box Factory and Lee Guan Box Factory
obviously adopted in a vain effort to meet or explain away the
evidentiary force of plaintiff's documentary evidence are much too
significant to permit a declaration that the attachment was not
Regarding the suggestion in petitioner's memorandum that this case
should be dismissed because of the death of Ngo Hay, it is sufficient
to state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a
partnership possessing a personality distinct from any of the
The appealed decision is affirmed, with costs against the petitioner.
So ordered.

was refused upon the ground that the extension was in violation of
the aforesaid Act.
From the decision of the lower court dismissing the action, with
costs, the plaintiffs interposed this appeal.
The question before us is too clear to require an extended
discussion. To organize a corporation or a partnership that could
claim a juridical personality of its own and transact business as such,
is not a matter of absolute right but a privilege which may be
enjoyed only under such terms as the State may deem necessary to
impose. That the State, through Congress, and in the manner
provided by law, had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by
Filipinos may engage in the retail business can not be seriously
disputed. That this provision was clearly intended to apply to
partnership already existing at the time of the enactment of the law
is clearly showing by its provision giving them the right to continue
engaging in their retail business until the expiration of their term or
To argue that because the original articles of partnership provided
that the partners could extend the term of the partnership, the
provisions of Republic Act 1180 cannot be adversely affect
appellants herein, is to erroneously assume that the aforesaid
provision constitute a property right of which the partners can not be
deprived without due process or without their consent. The
agreement contain therein must be deemed subject to the law
existing at the time when the partners came to agree regarding the
extension. In the present case, as already stated, when the partners
amended the articles of partnership, the provisions of Republic Act
1180 were already in force, and there can be not the slightest doubt
that the right claimed by appellants to extend the original term of
their partnership to another five years would be in violation of the
clear intent and purpose of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.

G.R. No. L-17295

July 30, 1962
ANG PUE & COMPANY, ET AL., plaintiffs-appellants,
Felicisimo E. Escaran for plaintiffs-appellants.
Office of the Solicitor General for defendant-appellee.
Action for declaratory relief filed in the Court of First Instance of Iloilo
by Ang Pue & Company, Ang Pue and Tan Siong against the
Secretary of Commerce and Industry to secure judgment "declaring
that plaintiffs could extend for five years the term of the partnership
pursuant to the provisions of plaintiffs' Amendment to the Article of
The answer filed by the defendant alleged, in substance, that the
extension for another five years of the term of the plaintiffs'
partnership would be in violation of the provisions of Republic Act No.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese
citizens, organized the partnership Ang Pue & Company for a term of
five years from May 1, 1953, extendible by their mutual consent. The
purpose of the partnership was "to maintain the business of general
merchandising, buying and selling at wholesale and retail,
particularly of lumber, hardware and other construction materials for
commerce, either native or foreign." The corresponding articles of
partnership (Exhibit B) were registered in the Office of the Securities
& Exchange Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the
retail business. It provided, among other things, that, after its
enactment, a partnership not wholly formed by Filipinos could
continue to engage in the retail business until the expiration of its
On April 15, 1958 prior to the expiration of the five-year term of
the partnership Ang Pue & Company, but after the enactment of the
Republic Act 1180, the partners already mentioned amended the
original articles of part ownership (Exhibit B) so as to extend the
term of life of the partnership to another five years. When the
amended articles were presented for registration in the Office of the
Securities & Exchange Commission on April 16, 1958, registration


GRN 78133 October 18, 1988
Gancayco, J.:
Petitioners bought two parcels of land and another 3 parcels the
following year. The 2 parcels were sold in 1968 while the other 3

were sold in 1970. Realizing profits from the sale, petitioners filed
capital gains tax. However, they were assessed with deficiency tax
for corporate income taxes.
Whether or not petitioners formed an unregistered partnership
thereby assessed with corporate income tax.
By the contract of partnership, two or more persons bind themselves
to contribute money, industry or property to a common fund with the
intention of dividing profits among themselves. There is no evidence
though, that petitioners entered into an agreement to contribute MPI
to a common fund and that they intend to divide profits among
themselves. The petitioners purchased parcels of land and became
co-owners thereof. Their transactions of selling the lots were isolated
cases. The character of habituality peculiar to the business
transactions for the purpose of gain was not present.
The sharing of returns foes 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
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.

Section 1363 (f) of the Revised Administrative Code which

specifically provides that all merchandise imported contrary to law is
subject to forfeiture.
Although the circular duly issued is not strictly a statute or a law,
it has, however, the force and effect of law.
of the Central Bank punishes the importation of any merchandise,
whether prohibited or otherwise, if the same is effected without the
release certificate issued by said bank or any of its authorized
agents. No distinction is made in said circular between merchandise
of "prohibited importation" and those "imported contrary to law"
used in Section 1363 (f) of the Revised Administrative Code.
A shipment consisting of 5 packages of toffee and 23 packages of
chocolate consigned to Francisco Pascual arrived at the Port of
Manila on August 9, 1954 on board the "SS KINA" under Bill of Lading
No. M-9 dated August 7, 1954 and a commercial invoice dated
August 6, 1954 in the amount of $550.00, which shipment was not
covered by a release certificate issued by the Central Bank or any of
its duly authorized agents. In view of the absence of a release
certificate the Collector of Customs seized the shipment pursuant to
the provisions of Section 1363 (f) of the Revised Administrative
Code, in relation to Central Bank Circulars Nos. 44 and 45. The
shipment was later released under a surety bond in the amount of

[G.R. No. L-12219. April 25, 1962.]

CUSTOMS, Respondent.






Clemente M. Soriano for Petitioner.

Solicitor General for Respondent.

After the seizure proceedings were heard, the Collector of Customs

on January 21, 1955 rendered decision forfeiting the shipment and
ordering its importer to pay within 30 days the amount of P1,790.00
subject to the condition that if said amount is not paid the surety
bond would be forfeited. On February 1, 1955, the importer appealed
the decision to the Commissioner of Customs who on February 12,
1955 affirmed it in toto.

CODE. Circular No. 44 of the Central Bank does not provide for the
penalty of forfeiture in case of violation thereof, but the same is
subject to enforcement by the Bureau of Customs and as such is
deemed part of the customs law under Section 1419 of the Revised
Administrative Code. It may, therefore, be said that a shipment
imported in violation of said circular is subject to forfeiture under

In due time, the importer elevated the case to the Court of Tax
Appeals contending that the seizure of his shipment was illegal not

only because the same does not involve a dollar allocation but also
because the Central Bank has no authority under the law to issue
Circular Nos. 44 and 45 which prohibit its importation. After hearing
was held, the Court of Tax Appeals brushed aside the contention of
the importer and affirmed the decision of the Commissioner of
Customs. Thereupon, it ordered the surety bond executed by the
Reliance Surety and Insurance Company, Inc. in the amount of
P1,790.00 forfeited, with costs against the importer. The latter
interposed the present appeal.

provides for the seizure of merchandise which may be imported in

violation thereof even if it be maintained that the same has been
validly issued and so the seizure of said merchandise by the
Collector of Customs has been made without authority of law.
However, while it is true that said circular does not provide for the
penalty of forfeiture in case of a violation thereof, it is nonetheless
true that the same is subject to enforcement by the Bureau of
Customs and as such is deemed part of the customs law under
Section 1419 of the Revised Administrative Code. It may, therefore,
be said that the shipment in question which was imported in
violation of Circular No. 44 is subject to forfeiture under Section 1363
(f) of the Revised Administrative Code which specifically provides
that all merchandise imported contrary to law is subject to forfeiture.
Moreover, although a circular duly issued is not strictly a statute or a
law it has however the force and effect of law according to the
settled jurisprudence in this jurisdiction. A case we have recently
decided is Po Eng Trading v. Commissioner of Customs, L-10508,
November 29, 1960, wherein we

One of the issues raised in connection with the shipment in question

is that the Central Bank has no authority under its charter to issue
Circular No. 44 which prohibits the release by the customs
authorities of any importation not covered by a certificate issued by
said bank or any of its duly authorized agents. The portion of the
circular which is particularly objected to is Section 14 which
provides: "No item of import shall be released by the Bureau of
Customs without the presentation of a release certificate issued by
the Central Bank or any authorized agent bank, in a form prescribed
by the Monetary Board."cralaw virtua1aw library

"Central Bank Circular No. 44, implementing Republic Act 265, has
the affect of a Customs law as defined in the last paragraph of
Section 1419, Revised Administrative Code. In accordance with
Section 1250 of the Revised Administrative Code, the Collector of
Customs has jurisdiction, indeed, has the duty to exercise jurisdiction
to prevent importation or otherwise secure compliance with all legal
requirements in the case of merchandise of prohibited importation or
subject to importation only upon conditions prescribed by law. In the
exercise of this jurisdiction, he may subject to forfeiture cargoes and
other objects of prohibited importation, in accordance with Section
1363(f), Revised Administrative Code."cralaw virtua1aw library

Since the submission of this case to the Court of Tax Appeals for
determination which calls for an interpretation of the validity of
Circular Nos. 44 and 45 of the Central Bank, several cases involving
a similar question have been decided by this Court which now
constitute a precedent decisive in the present case. Thus, we held
therein that the Central Bank has authority to issue said circulars
even if the same have the effect of regulating no-dollar importation
"for the reason that the broad powers of the Central Bank, under its
charter, to maintain our monetary stability and to preserve the
international value of our currency, under Section 2 of Republic Act
No. 265, in relation to Section 14 of said Act - authorizing the bank to
issue such rules and regulations as it may consider necessary for the
effective discharge of the responsibilities and the exercise of the
powers assigned to the Monetary Board and to the Central Bank
connote the authority to regulate no-dollar importations owing to the
influence and effect that the same may and do have upon the
stability of our peso and its international value" (The Commissioner
of Customs, Et. Al. v. Eastern Sea Trading, G. R. No. L-14279, October
31, 1961; Emphasis supplied). 1 There can therefore be no question
that the Central Bank has authority under its charter to issue Circular
No. 44 even if its scope covers no-dollar importation as apparently is
the shipment under consideration.
But it is contended that there is nothing in Circular No. 44 which

There is no point to make a distinction between merchandise of

"prohibited importation" and those "imported contrary to law" used
in Section 1363 (f) of the Revised Administrative Code considering
that no such distinction is made in Central Bank Circular No. 44. This
circular punishes the importation of any merchandise whether
prohibited or otherwise if the same is effected without the release
certificate issued by said bank or any of its authorized agents. The
distinction that petitioner makes is therefore of no legal
It is finally contended that the penalty of forfeiture imposed by the
customs authorities under Section 1363 (f) of the Revised
Administrative Code is unauthorized even if the same is violative of

Central Bank Circular No. 44, for the reason that the only penal
clause contained in its charter for such violation is a fine or
imprisonment and not forfeiture. Petitioner invokes Section 34 of
Republic Act No. 265 which provides that any person or entity who
violates said Act, "shall be punished by a fine of not more than
P20,000.00 or by imprisonment of not more than five years", which
being a special law should prevail over the provisions of the Revised
Administrative Code. The trial court has correctly answered this
question in its resolution dated March 26, 1957 on the motion for
reconsideration filed by petitioner, which we hereunder quote with

G.R. No. 31057

September 7, 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees,
VICENTE POLISTICO, ET AL., defendants-appellants.
Marcelino Lontok and Manuel dela Rosa for appellants.
Sumulong & Lavides for appellees.
This is an action to bring about liquidation of the funds and property
of the association called "Turnuhan Polistico & Co." The plaintiffs
were members or shareholders, and the defendants were designated
as president-treasurer, directors and secretary of said association.
It is well to remember that this case is now brought before the
consideration of this court for the second time. The first one was
when the same plaintiffs appeared from the order of the court below
sustaining the defendant's demurrer, and requiring the former to
amend their complaint within a period, so as to include all the
members of "Turnuhan Polistico & Co.," either as plaintiffs or as a
defendants. This court held then that in an action against the officers
of a voluntary association to wind up its affairs and enforce an
accounting for money and property in their possessions, it is not
necessary that all members of the association be made parties to
the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amend, respectively,
their complaint and their answer, and by agreement of the parties,
the court appointed Amadeo R. Quintos, of the Insular Auditor's
Office, commissioner to examine all the books, documents, and
accounts of "Turnuhan Polistico & Co.," and to receive whatever
evidence the parties might desire to present.
The commissioner rendered his report, which is attached to the
record, with the following resume:

"Petitioner has lost sight of the fact that his act of importing
contrary to law entails two penalties one penalty for violation of
Central Bank Circular No. 44 as prescribed by Section 34 of Republic
Act No. 265 directed principally against the person of the offender
and which may be had in a criminal prosecution involving an action
in personam, and the other penalty of forfeiture imposed by Section
1363(f) of the Revised Administrative Code directed primarily against
the goods rather than the offender and which may be had in action
in rem (see Origet v. U.S. 125, U.S. 240, 246-247; 31 L. Ed. 743, 746747). The two penalties being distinct and different, the forfeiture
may be enforced against the goods by proceedings in rem
independently of the criminal prosecution against the offender
(Origet v. U.S., supra). The imposition of one does not preclude the
imposition of the other, for it is a well-established rule that forfeiture
proceedings stand independent of and are wholly unaffected by any
criminal proceeding in personam (23 Am. Jur. 613). For while
punishment for the crime and forfeiture of the goods might be
coincident, they are not necessarily so (U.S. v. 25 pkgs. of Panama
Hats, 231 U.S. 358, 362, 58 L. Ed. 267, 269). Thus, while it is true
that the Bureau of Customs is not authorized to impose the penalty
prescribed by section 34 of Republic Act No. 265 for violation of
Central Bank Circular No. 44, there is nothing to preclude the Bureau
of Customs from imposing the penalty of forfeiture of the goods or
merchandise the importation of which has been effected or
attempted contrary to law in accordance with section 1363(f) of the
Revised Administrative Code."cralaw virtua1aw library


WHEREFORE, the decision appealed from is affirmed, with costs

against petitioner.

Member's shares............................


Credits paid................................


Interest received...........................





upon the same basis, when approved by the Court, as findings made
by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil.,
474), the court held: "Under section 140 of the Code of Civil
Premiums to members.......................
Procedure it is made the duty of the court to render judgment in
accordance with the report of the referee unless the court shall
Loans on real-estate.......................
unless for cause shown set aside the report or recommit it to the
referee. This provision places upon the litigant parties of the duty of
Loans on promissory notes..............
discovering and exhibiting to the court any error that may be
contained therein." The appellants stated the grounds for their
objection. The trial examined the evidence and the commissioner's
report, and accepted the findings of fact made in the report. We find
no convincing arguments on the appellant's brief to justify a reversal
of the trial court's conclusion admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful
Cash on hand........................................
partnership (U.S. vs. Baguio, 39 Phil., 962), but the appellants allege
that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be
The defendants objected to the commissioner's report, but the trial
included, as a party defendant. The appellants refer to article 1666
court, having examined the reasons for the objection, found the
of the Civil Code, which provides:
same sufficiently explained in the report and the evidence, and
A partnership must have a lawful object, and must be established for
accepting it, rendered judgment, holding that the association
the common benefit of the partners.
"Turnuhan Polistico & Co." is unlawful, and sentencing the
When the dissolution of an unlawful partnership is decreed, the
defendants jointly and severally to return the amount of P24,607.80,
profits shall be given to charitable institutions of the domicile of the
as well as the documents showing the uncollected credits of the
partnership, or, in default of such, to those of the province.
association, to the plaintiffs in this case, and to the rest of the
Appellant's contention on this point is untenable. According to said
members of the said association represented by said plaintiffs, with
article, no charitable institution is a necessary party in the present
costs against the defendants.
case of determination of the rights of the parties. The action which
The defendants assigned several errors as grounds for their appeal,
may arise from said article, in the case of unlawful partnership, is
but we believe they can all be reduced to two points, to wit: (1) That
that for the recovery of the amounts paid by the member from those
not all persons having an interest in this association are included as
in charge of the administration of said partnership, and it is not
plaintiffs or defendants; (2) that the objection to the commissioner's
necessary for the said parties to base their action to the existence of
report should have been admitted by the court below.
the partnership, but on the fact that of having contributed some
As to the first point, the decision on the case of Borlasa vs. Polistico,
money to the partnership capital. And hence, the charitable
supra, must be followed.
institution of the domicile of the partnership, and in the default
With regard to the second point, despite the praiseworthy efforts of
thereof, those of the province are not necessary parties in this case.
the attorney of the defendants, we are of opinion that, the trial court
The article cited above permits no action for the purpose of
having examined all the evidence touching the grounds for the
obtaining the earnings made by the unlawful partnership, during its
objection and having found that they had been explained away in
existence as result of the business in which it was engaged, because
the commissioner's report, the conclusion reached by the court
for the purpose, as Manresa remarks, the partner will have to base
below, accepting and adopting the findings of fact contained in said
his action upon the partnership contract, which is to annul and
report, and especially those referring to the disposition of the
without legal existence by reason of its unlawful object; and it is self
association's money, should not be disturbed.
evident that what does not exist cannot be a cause of action. Hence,
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was
paragraph 2 of the same article provides that when the dissolution of
held that the findings of facts made by a referee appointed under
the unlawful partnership is decreed, the profits cannot inure to the
the provisions of section 135 of the Code of Civil Procedure stand


benefit of the partners, but must be given to some charitable

We deem in pertinent to quote Manresa's commentaries on article
1666 at length, as a clear explanation of the scope and spirit of the
provision of the Civil Code which we are concerned. Commenting on
said article Manresa, among other things says:
When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in
transactions consistent with the purposes of the partnership may the
former demand the return of the reimbursement thereof from the
manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid
existence, if it is considered juridically non-existent, the contract
entered into can have no legal effect; and in that case, how can it
give rise to an action in favor of the partners to judicially demand
from the manager or the administrator of the partnership capital,
each one's contribution?
The authors discuss this point at great length, but Ricci decides the
matter quite clearly, dispelling all doubts thereon. He 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 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 objection forbidden by law.
And as said contrast does not exist in the eyes of the law, the
purpose from which the contribution was made has not come into
existence, and the administrator of the partnership holding said
contribution retains what belongs to others, without any
consideration; for which reason he is not bound to return it and he
who has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of
the partnership, because they do not constitute or represent the
partner's contribution but are the result of the industry, business or
speculation which is the object of the partnership, and therefor, in
order to demand the proportional part of the said profits, the partner
would have to base his action on the contract which is null and void,
since this partition or distribution of the profits is one of the juridical
effects thereof. Wherefore considering this contract asnon-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

this 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 by our law, introduced to supply
an obvious deficiency of the former law, which did not describe the
purpose to which those profits denied the partners were to be
applied, nor state what to be done with them.
The profits are so applied, and not the contributions, because this
would be an excessive and unjust sanction for, as we have seen,
there is no reason, in such a case, for depriving the partner of the
portion of the capital that he contributed, the circumstances of the
two cases being entirely different.
Our Code does not state whether, upon the dissolution of the
unlawful partnership, the amounts contributed are to be returned by
the partners, because it only deals with the disposition of the profits;
but the fact that said contributions are not included in the disposal
prescribed profits, shows that in consequences of said exclusion, the
general law must be followed, and hence the partners should
reimburse the amount of their respective contributions. Any other
solution is immoral, and the law will not consent to the latter
remaining in the possession of the manager or administrator who
has refused to return them, by denying to the partners the action to
demand them. (Manresa, Commentaries on the Spanish Civil Code,
vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should
be, as it is hereby, affirmed with costs against the appellants;
provided, however, the defendants shall pay the legal interest on the
sum of P24,607.80 from the date of the decision of the court, and
provided, further, that the defendants shall deposit this sum of
money and other documents evidencing uncollected credits in the
office of the clerk of the trial court, in order that said court may
distribute them among the members of said association, upon being
duly identified in the manner that it may deem proper. So ordered.