1. PHILEX v. MINING CORP.

FACTS:
Petitioner Philex Mining Corp. entered into an agreement with
Baguio Gold, where the former agreed to manage the mining
operations of the latter.
The agreement was evidenced by a Power of Attorney.
It was indicated in the said document, that Baguio Gold
would contribute P11M under its owner's account plus any of
its income that is left in the project, in addition to its actual
mining claim.
Meanwhile, petitioner's contribution would consist of its
expertise in the management and operation of mines, and of
the manager's account which is comprised of P11M in funds.
The compensation of the MANAGER shall be fifty per cent
(50%) of the net profit of the project before income tax.
The mining suffered serious loses which ended business of both
parties evidenced by their execution of a compromise agreement.
The CIR assessed Philex Mining for tax deficiencies. It stressed that
Philex entered into a partnership with Baguio Gold.
Petitioner denied the allegations of the CIR and maintained that its
advances of money and property to Baguio Gold were in a nature of
a loan as evidenced by the compromise agreement.
ISSUE: WON the parties entered into a contract of agency coupled
with an interest which is not revocable at will
HELD: No.
An examination of the Power of Attorney reveals that a partnership
or joint venture was indeed intended by the parties.
In an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third
party that depends upon it, or the mutual interest of both principal
and agent. In this case, the nonerevocation or nonewithdrawal under
paragraph 5(c) applies to the advances made by petitioner who is

supposedly the agent and not the principal under the contract. Thus,
it cannot be inferred from the stipulation that the parties relation
under the agreement is one of agency coupled with an interest and
not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication
that the relationship of the parties was one of agency and not a
partnership. Although the said provision states that this Agency shall
be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS account,
it does not necessarily follow that the parties entered into an agency
contract coupled with an interest that cannot be withdrawn by Baguio
Gold.
The main object of the Power of Attorney was not to confer a power
in favor of petitioner to contract with third persons on behalf of
Baguio Gold but to create a business relationship between petitioner
and Baguio Gold, in which the former was to manage and operate
the latters mine through the parties mutual contribution of material
resources and industry. The essence of an agency, even one that is
coupled with interest, is the agents ability to represent his principal
and bring about business relations between the latter and third
persons.
The strongest indication that petitioner was a partner in the Sto. Nino
Mine is the fact that it would receive 50% of the net profits as
compensation under paragraph 12 of the agreement. The entirety
of the parties contractual stipulations simply leads to no other
conclusion than that petitioners compensation is actually its share
in the income of the joint venture. Article 1769 (4) of the Civil Code
explicitly provides that the receipt by a person of a share in the
profits of a business is prima facie evidence that he is a partner in
the business.
While a corporation, like the petitioner, cannot generally enter into a
contract of partnership unless authorized by law or its charter, it has
been held that it may enter into a joint venture which is akin to a
particular partnership:
o under Philippine law, a joint venture is a form of partnership and
should be governed by the law of partnerships

2. HEIRS OF JOSE LIM, represented by Elenito Lim v. JULIET

VILLA LIM

and to surrender the administration thereof. Respondent refused;

thus, the filing of this case.

DOCTRINE: A demand for periodic accounting is evidence of a

partnership.

Respondent traversed petitioners' allegations and claimed that

Elfledo was himself a partner of Norberto and Jimmy. Respondent
also claimed that per testimony of Cresencia, Jose gave Elfledo
capital in an informal partnership with Jimmy and Norberto. When
Elfledo and respondent got married, the partnership only had one
truck; but through the efforts of Elfledo, the business flourished.

NATURE: Petition for Review on Certiorari under Rule 45 of the

Rules of Civil Procedure, assailing the Court of Appeals (CA)
Decision dated June 29, 2005, which reversed and set aside the
decision of the Regional Trial Court (RTC) of Lucena City, dated April
12, 2004.
FACTS:
Petitioners are the heirs of the late Jose Lim. represented by Elenito
Lim. They filed a Complaint for Partition, Accounting and Damages
against respondent Juliet Villa Lim (respondent), widow of the late
Elfledo Lim, who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood
Sawmill. Jose, together with his friends Jimmy Yu and Norberto Uy
formed a partnership to engage in the trucking business. Jose
managed the operations of this trucking business until his death.
Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares
in the partnership profits and income that formed part of the estate of
Jose were held in trust by Elfledo, with petitioners' authority for
Elfledo to use, purchase or acquire properties using said funds.
Petitioners alleged that Elfledo was never a partner or an investor in
the business and merely supervised the purchase of additional
trucks using the income from the trucking business of the partners.
By the time the partnership ceased, it had nine trucks, which were all
registered in Elfledo's

When Norberto was ambushed and killed, the trucking business

started to falter. When Elfledo died due to a heart attack, respondent
talked to Jimmy and to the heirs of Norberto, as she could no longer
run the business. Jimmy suggested that three out of the nine trucks
be given to him as his share, while the other three trucks be given to
the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same to respondent,
who paid for them in installments.
Respondent also alleged that when Jose died, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon
his demise. Respondent also stressed that Jose left no properties
that Elfledo could have held in trust. Respondent maintained that all
the properties involved in this case were purchased and acquired
through her and her husbands joint efforts and hard work, and
without any participation or contribution from petitioners or from
Jose. Respondent submitted that these are conjugal partnership
properties; and thus, she had the right to refuse to render an
accounting for the income or profits of their own business.
TC: favoured petitioners
CA: reversed the decision of TC
ISSUES: WON Elfledo Lim was a partner in the business

Elfledo died, leaving respondent as his sole surviving heir.

Petitioners claimed that respondent took over the administration of
the properties, which belonged to the estate of Jose, without their
consent and approval. Claiming that they are coeowners of the
properties, petitioners required respondent to submit an accounting
of all income, profits and rentals received from the estate of Elfledo,

HELD:
Yes.
RATIO/RULING:

3. TORRES v CA
DOCTRINE: 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 agreement.
FACTS:
Sisters Antonia Torres and Emeteria Baring, 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. 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.
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.
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 lowecost 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.
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.
CA ruling: petitioners and respondents 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. CA cited Article 1979 which said
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.
CA also said: 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.
Petitioners claim CA erred in concluding that the transaction between
the parties was a joint venture/partnership.
ISSUES: WON a partnership relationship existed between the
parties
HELD: Yes.
Existence of Partnership:

Petitioners deny having formed a partnership with respondent. They

contend that the Joint Venture Agreement and the earlier Deed of
Sale 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.
The pertinent portions of the Joint Venture Agreement read as
follows:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at LapueLapu City, Island of Mactan,
under Lot No. 1368 covering TCT No. Te0184 with a total area of 17,009
square meters, to be subedivided 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 subedivision 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 FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine 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.
xxx FIFTH: That the sales of the subedivided lots will be divided into
SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY
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. xxx

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 partnership.
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land 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 lowecost housing units on the property.
Respondents actions clearly belie petitioners contention that he
made no contribution to the partnership. Under Article 1767 of the
CC, a partner may contribute not only money or property, but also
industry.
Petitioners Bound by Terms of Contract
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. Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay them 60
percent of the value of the property. They cannot in one breath deny
the contract and in another recognize it, depending on what
momentarily suits their purpose. Parties cannot adopt inconsistent
positions in regard to a contract and courts will not tolerate, much
less approve, such practice.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void
under Article 1422 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.
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.
Petition denied. CA affirmed.

4. AFISCO Insurance Corporation vs CA

Facts:
The petitioners are 41 local non-life insurance corporations. Upon
their issuance of Erection, Machinery Breakdown, Boiler Explosion
and Contractors All Risk insurance policies, the petitioners entered
into a Quota Share Reinsurance Treaty and a Surplus Reinsurance
Treaty with the foreign insurance corporation, Munchener
Ruckversicherungs-Gesselschaft (Munich). The reinsurance treaties
required petitioners to form a pool which was created on the same
day. Subsequently, the pool of insurers submitted a financial
statement and filed an Information Return of Organization Exempt
from Income Tax for the year ending in 1975, on the basis of which,
it was assessed by the Commissioner of Internal Revenue a
deficiency in corporate taxes in the amount of P1,843,273.60, and
withholding taxes in the amount of P1,768,799.39 and P89,438.68
on dividends paid to Munich and to the petitioners, respectively.
The petitioners filed a protest which the Commissioner of Internal
Revenue denied. The Court of Tax Appeals affirmed this decision.
Concurrently, the CA ruled that the pool of insurers was considered
as a partnership taxable as a corporation, and that the latters
collection of premiums on behalf of its members was taxable income.
Issue: Whether or not the pool is a partnership whose dividends are
subject to tax.
Held: YES. The SC sustained the ruling of the Court of Appeals that
the pool is taxable as a corporation.
Section 24 of the NIRC, provides:
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic
corporations. -- A tax is hereby imposed upon the taxable net income
received during each taxable year from all sources by every
corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized, but not including
duly registered general co-partnership (compaias colectivas),
general professional partnerships, private educational institutions,
and building and loan associations xxx.

In Evangelista v. Collector of Internal Revenue the Court held that

Section 24 covered in its definition these unregistered partnerships
and even associations or joint accounts, which had no legal
personalities apart from their individual members. The Court said that
the term partnership includes a syndicate, group, pool, joint venture
or other unincorporated organization, through or by means of which
any business, financial operation, or venture is carried on.
Article 1767 of the Civil Code recognizes the creation of a contract of
partnership when two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of
dividing the profits among themselves. Its requisites are: (1) mutual
contribution to a common stock, and (2) a joint interest in the profits.
Meanwhile, an association implies associates who enter into a joint
enterprise for the transaction of a business.
In the case before us, the companies entered into a Pool Agreement
or an association that would handle all the insurance businesses
covered under their quota-share reinsurance treaty and surplus
reinsurance treaty with Munich. The following unmistakably indicates
a partnership or an association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other
valuables that are deposited in the name and credit of the pool. This
common fund pays for the administration and operation expenses of
the pool.
(2) The pool functions through an executive board, which resembles
the board of directors of a corporation, composed of one
representative for each of the ceding companies.
(3) True, the pool itself is not a reinsurer and does not issue any
insurance policy; however, its work is indispensable, beneficial and
economically useful to the business of the insurance companies and
Munich, because without it they would not have received their
premiums. The insurance companies share in the business ceded to
the pool and in the expenses according to a Rules of Distribution
annexed to the Pool Agreement. Profit motive or business is,
therefore, the primordial reason for the pools formation. As aptly

found by the CTA: The fact that the pool does not retain any profit or
income does not obliterate an antecedent fact that of the pool being
used in the transaction of business for profit. It is apparent, and
petitioners admit, that their association or coaction was
indispensable to the transaction of the business. If together they
have conducted business, profit must have been the object as,
indeed, profit was earned. Though the profit was apportioned among

the members, this is only a matter of consequence, as it implies that

profit actually resulted.
Thus, the petition is DENIED and the Resolutions of the Court of
Appeals are hereby AFFIRMED.