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Lim Tong Lim vs Philippine Fishing Gear Industries, among them the excess or loss.

ss or loss. These boats, the purchase


Inc. and the repair of which were financed with borrowed
Business Organization – Partnership, Agency, Trust – money, fell under the term “common fund” under Article
Corporation by Estoppel 1767. The contribution to such fund need not be cash or
It was established that Lim Tong Lim requested Peter Yao fixed assets; it could be an intangible like credit or
to engage in commercial fishing with him and one industry. That the parties agreed that any loss or profit
Antonio Chua. The three agreed to purchase two fishing from the sale and operation of the boats would be divided
boats but since they do not have the money they borrowed equally among them also shows that they had indeed
from one Jesus Lim (brother of Lim Tong Lim). They again formed a partnership.
borrowed money and they agreed to purchase fishing nets Lim Tong Lim cannot argue that the principle of
and other fishing equipments. Now, Yao and Chua corporation by estoppels can only be imputed to Yao and
represented themselves as acting in behalf of “Ocean Chua. Unquestionably, Lim Tong Lim benefited from the
Quest Fishing Corporation” (OQFC) they contracted with use of the nets found in his boats, the boat which has
Philippine Fishing Gear Industries (PFGI) for the purchase earlier been proven to be an asset of the partnership. Lim,
of fishing nets amounting to more than P500k. Chua and Yao decided to form a corporation. Although it
They were however unable to pay PFGI and so they were was never legally formed for unknown reasons, this fact
sued in their own names because apparently OQFC is a alone does not preclude the liabilities of the three as
non-existent corporation. Chua admitted liability and contracting parties in representation of it. Clearly, under
asked for some time to pay. Yao waived his rights. Lim the law on estoppel, those acting on behalf of a corporation
Tong Lim however argued that he’s not liable because he and those benefited by it, knowing it to be without valid
was not aware that Chua and Yao represented themselves existence, are held liable as general partners.
as a corporation; that the two acted without his knowledge
and consent. Island Sales v. United 65 SCRA 554
ISSUE: Whether or not Lim Tong Lim is liable. DOCTRINE: Condonation by creditor of share in
HELD: Yes. From the factual findings of both lower partnership debt of one partner does not increase pro rata
courts, it is clear that Chua, Yao and Lim had decided to liability of other partners.
engage in a fishing business, which they started by buying
boats worth P3.35 million, financed by a loan secured from FACTS:
Jesus Lim. In their Compromise Agreement, they The defendant company ( UNITED PIONEERS
subsequently revealed their intention to pay the loan with GENERAL CONSTRUCTION COMPANY ET .AL ), a
the proceeds of the sale of the boats, and to divide equally general partnership duly registered under the laws of the
Philippines, purchased from theplaintiff ( ISLAND The defendants Benjamin C. Daco and Noel C. Sim moved
SALES, INC) a motor vehicle on installment basis and for to reconsider the decision claiming that since there are five
this purpose executed apromissory note for P9,440.00, (5) general partners, the joint and subsidiary liability of
payable in twelve (12) equal monthly installments of each partner should notexceed one-fifth (1/5) of the
P786.63, the first installment payable on or before May 22, obligations of the defendant company. But the trial court
1961 and the subsequent installments on the 22nd day of denied the said motion notwithstanding the conformity of
every month thereafter, until fully paid, with the condition the plaintiff to limit the liability of the defendants Daco
that failure to pay any of said installments asthey fall due and Sim to only one-fifth (1/5 ) of the obligations of the
would render the whole unpaid balance immediately due defendant company.Hence, this appeal.
and demandable.
ISSUE: Whether the condonation of a partner’s
Having failed to receive the installment due on July 22, share in the debts of the company increases the remaining
1961, the plaintiff sued the defendant company for the partners’ liability?
unpaid balance amounting to P7,119.07. Benjamin C.
Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. RULING:
Lumauig, and Augusto Palisoc were included as co- No. In the instant case, there were five (5) general partners
defendants in their capacity as general partners of the when the promissory note in question was executed for
defendant company. and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin
Daniel A. Guizona failed to file an answer and was C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the
consequently declared in default. Subsequently, on obligations of the defendant company. The fact that the
motion of the plaintiff, the complaint was dismissed complaint against the defendant Romulo B. Lumauig was
insofar as the defendant Romulo B. Lumauig is concerned. dismissed, upon motion of the plaintiff, does not unmake
the said Lumauig as a general partner in the defendant
When the case was called for hearing, the defendants and company. In so moving to dismiss the complaint, the
their counsels failed to appear notwithstanding the notices plaintiff merely condoned Lumauig's individual liability
sent to them. Consequently, the trial court authorized the to the plaintiff.
plaintiff to present its evidence ex-parte , after which the
trial court rendered the decision appealed from.
RATIO: Article 1816 of the Civil Code provides: the payee of the second check from Muñasque to “Galan
and Associates” (the duly registered name of Galan and
“All partners including industrial ones, shall be liable pro Muñasque partnership). Despite the misappropriation,
rata with all their property and after all the partnership Muñasque alone was able to finish the project. The two
assets have been exhausted, for the contracts which may remaining checks were properly issued to Muñasque.
be entered into in the name and for the account of the
partnership, under its signature and by a person Muñasque filed a complaint for payment of sum of money
authorized to act for the partnership. However, any plus damages against Galan, Tropical and Pons for the
partner may enter into a separate obligation to perform” amount covered by the first and second checks. Cebu
Southern Hardware Co and Blue Diamond Glass Palace
were allowed as intervenors having legal interest claiming
Elmo Muñasque vs CA against Muñasue and Galan for materials used.

Facts: TC:
Elmo Muñasque, in behalf of “Galan and Muñasque” - Muñasque and Pons jointly and severally liable to
partnership as Contractor, entered into a written contract intervenors
with Tropical Commercial Co., through its branch - Tropical and Pons absolved
manager Ramon Pons, for remodelling of Tropical’s CA affirmed with modification:
building in Cebu. The consideration for the entire services - Muñasque and Pons jointly liable to intervenors
is P25,000 to be paid: 30% upon signing of contract, and
balance on 3 equal instalments of P6,000 every 15working Issue:
days. 1. W/N Muñasque and Galan are partners?
2. W/N payment made by Tropical to Galan was
First payment of check worth P7,000 was payable to “good payment”?
Muñasque, who indorsed it to Galan for purposes of 3. W/N Galan should shoulder exclusively the
depositing the amount and paying the materials already amounts payable to the intervenors (granting he
used. But since Galan allegedly misappropriated misappropriated the amount from the two checks)?
P6,183.37 of the check for personal use, Muñasque refused
to indorse the second check worth P6,000. Galan then Held:
informed Tropical of the “misunderstanding” between yes-yes-no!
him and Muñasque and this prompted Tropical to change
1. YES. Tropical had every right to presume the
existence of the partnership: Art. 1824. “All partners are liable solidarily with the
a. Contract states that agreement was entered into partnership for everything chargeable to the
by “Galan and Muñasque” partnership under Articles 1822 and 1823”
b. The first check issue in the name of Muñasque
was indorsed to Galan Art. 1822. “Where, by any wrongful act or omission
The relationship was made to appear as a of any partner acting in the ordinary course of the
partnership. business x x x or with the authority of his co-
partners, loss or injury is caused to any person x x
2. YES. Muñasque and Galan were partners when the x”
debts to the intervenors were incurred, hence, they
are also liable to third persons who extended credit Art. 1823. “The partnership is bound to make good
to their partnership. the loss:

There is a general presumption that each individual (1) Where one partner acting within the
partner is an authorized agent for the firm and that scope of his apparent authority receives
he has authority to bind the firm in carrying on the money or property of a third person and
partnership transactions. The presumption is misapplies it, and
sufficient to permit third persons to hold the firm (2) Where the partnership in the course of its
liable on transactions entered into by one of the business receives money or property of a
members of the firm acting apparently in its behalf third person x x x is misapplied by any
and within the scope of his authority partner while it is in the custody of the
partnership.”
3. NO. Article 1816 BUT construed together with
Article 1824. GR: In transactions entered into by the partnership,
the liability of the partners is merely joint
Art. 1816. “All partners, including industrial ones, Exception: In transactions involving third persons
shall be liable pro rata x x x for the contracts which falling under Articles 1822 and 1823, such third
may be entered into the name and for the account person may hold any partner solidarily liable for
of the partnership, under its signature and by a the whole obligation with the partnership.
person authorized x x x”
Reason for exception: the law protects him, who in Issue: WON the parties can now validly divide the said
good faith relied upon the authority if a partner, fishpond as agreed upon by them? NO.
whether real or apparent. Ruling:

However, as between Muñasque and Galan, justice - Spouses Deluaos’ statement that the beneficial right
also dictates reimbursement in favour of Muñasque over the fishpond in question is the "specific
as Galan was proven to be in bad faith in his partnership property" contemplated by art. 1811 of
dealings with his partner. the Civil Code is incorrect. A reading of the said
provision will show that what is meant is tangible
property, such as a car, truck or a piece of land, but
Deluao VS Casteel (Property Rights of Partners) not an intangible thing such as the beneficial right
to a fishpond. If what they have in mind is the
- Casteel was the original occupant and applicant of fishpond itself, they are grossly in error. A fishpond
a fishpond area since before the last World War. He of the public domain can never be considered a
wanted to preclude subsequent applicants from specific partnership property because only its use
entering and spreading themselves within the area and enjoyment — never its title or ownership — is
by expanding his occupation thereof by the granted to specific private persons.
construction of dikes and the cultivation of - Since we held as illegal the second part of the
marketable fishes. contract of partnership between the parties to
- Thus, he borrowed P27, 000 from the Deluaos to divide the fishpond between them after the award,
finance needed improvements for the fishpond, a fortiori, no rights or obligations could have arisen
and was compelled by force of this circumstance to therefrom. Inescapably, no trust could have
enter into the contract of partnership, with an resulted because trust is founded on equity and can
agreement to divide the fishpond after the award. never result from an act violative of the law. Art.
Eventually, Casteel administered the said property 1452 of the Civil Code does not support the
and single-handedly opposed rival applicants who appellees' stand because it contemplates an
occupied portions of the fishpond area. He agreement between two or more persons to
relentlessly pursued his claim to the said area up to purchase property — capable of private ownership
the Office of the DANR Secretary, until it was — the legal title of which is to be taken in the name
finally awarded to him. of one of them for the benefit of all. In the case at
bar, the parties did not agree to purchase the
fishpond, and even if they did, such is prohibited Facts:
by law, a fishpond of the public domain not being - On March 2, 1973 Jose Obillos, Sr. bought two lots
susceptible of private ownership. with areas of 1,124 and 963 square meters of located
- It must be observed that, despite the decisions of at Greenhills, San Juan, Rizal. The next day he
the DANR Secretary in DANR cases 353 and 353-B transferred his rights to his four children, the
awarding the area to Casteel, and despite the petitioners, to enable them to build their residences.
latter's proposal that they divide the fishpond The Torrens titles issued to them showed that they
between them, the Deluaos unequivocally were co-owners of the two lots.
expressed in their aforequoted letter their decision - In 1974, or after having held the two lots for more
not to share the fishpond with Casteel. This than a year, the petitioners resold them to the
produced the dissolution of the entire contract of Walled City Securities Corporation and Olga Cruz
partnership (to jointly administer and to divide the Canada for the total sum of P313,050. They derived
fishpond after the award) between the parties, not from the sale a total profit of P134, 341.88 or P33,584
to mention its automatic dissolution for being for each of them. They treated the profit as a capital
contrary to law. gain and paid an income tax on one-half thereof or
- Pettioner’s final proposition that only by giving of P16,792.
effect to the confirmed intention of the parties may - In April, 1980, the Commissioner of Internal
the cause of equity and justice be served, we must Revenue required the four petitioners to
state that since the contract of service is contrary to pay corporate income tax on the total profit of
law and, therefore, null and void, it is not and can P134,336 in addition to individual income tax on
never be considered as the law between the parties. their shares thereof. The petitioners are being held
liable for deficiency income taxes and penalties
G.R. No. L-68118 October 29, 1985 totalling P127,781.76 on their profit of P134,336, in
- JOSE P. OBILLOS, JR., SARAH P. OBILLOS, addition to the tax on capital gains already paid by
ROMEO P. OBILLOS and REMEDIOS P. them.
OBILLOS, brothers and sisters, petitioners - The Commissioner acted on the theory that the four
vs. petitioners had formed an unregistered partnership
COMMISSIONER OF INTERNAL REVENUE or joint venture The petitioners contested the
and COURT OF TAX APPEALS, respondents. assessments. Two Judges of the Tax Court
- AQUINO, J.: sustained the same. Hence, the instant appeal.
-
- Issue: choice but to resell the same to dissolve the co-
- Whether or not the petitioners had indeed formed ownership. The division of the profit was merely
a partnership or joint venture and thus liable for incidental to the dissolution of the co-ownership
corporate tax. which was in the nature of things a temporary state.
- Held: It had to be terminated sooner or later.
- The Supreme Court held that the petitioners should - They did not contribute or invest additional '
not be considered to have formed a partnership just capital to increase or expand the properties, nor
because they allegedly contributed P178,708.12 to was there an unmistakable intention to form
buy the two lots, resold the same and divided the partnership or joint venture.
profit among themselves. To regard so would result - WHEREFORE, the judgment of the Tax Court is
in oppressive taxation and confirm the dictum that reversed and set aside. The assessments are
the power to tax involves the power to destroy. cancelled. No costs.
That eventuality should be obviated. -
- As testified by Jose Obillos, Jr., they had no such -
intention. They were co-owners pure and simple. All co-ownerships are not deemed unregistered
To consider them as partners would obliterate the partnership.—Co-Ownership who own properties
distinction between a co-ownership and a which produce income should not automatically be
partnership. The petitioners were not engaged in considered partners of an unregistered partnership,
any joint venture by reason of that isolated or a corporation, within the purview of the income
transaction. tax law. To hold otherwise, would be to subject the
- *Article 1769(3) of the Civil Code provides that income of all
"the sharing of gross returns does not of itself - Co-ownerships of inherited properties to the tax on
establish a partnership, whether or not the persons corporations, inasmuch as if a property does not produce
sharing them have a joint or common right or an income at all, it is not subject to any kind of income
interest in any property from which the returns are tax, whether the income tax on individuals or the income
derived". There must be an unmistakable intention tax on corporation.
to form a partnership or joint venture.* - As compared to other cases:
- Their original purpose was to divide the lots for - Commissioner of Internal Revenue, L-19342, May
residential purposes. If later on they found it not 25, 1972, 45 SCRA 74, where after an extrajudicial
feasible to build their residences on the lots because settlement the co-heirs used the inheritance or the
of the high cost of construction, then they had no incomes derived therefrom as a common fund to
produce profits for themselves, it was held that - Issue: Did the transaction bind the partnership or
they were taxable as an unregistered partnership. Ceron only?
- This case is different from Reyes vs. Commissioner - Held: While the transaction was entered into by
of Internal Revenue, 24 SCRA 198, where father and Ceron, it bound the partnership. Robert Hill had
son purchased a lot and building, entrusted the the same power to buy and sell; that in said
administration of the building to an administrator partnership Hillas well as Ceron made the
and divided equally the net income, and from transaction as partners in equal parts; that on the
Evangelista vs. Collector of Internal Revenue, 102 date of the transaction, February 14, 1934, the
Phil. 140, where the three Evangelista sisters partnership between Hill and Ceron was in
bought four pieces of real property which they existence. After this date, or on February 19th, Hill
leased to various tenants and derived rentals &Ceron sold shares of the Big Wedge; and when
therefrom. Clearly, the petitioners in these two the transaction was entered into with Litton, it was
cases had formed an unregistered partnership. neither published in the newspapers nor stated in
the commercial registry that the partnership Hill &
Litton vs. Hill Ceron had been dissolved. The SC dissented from
Facts: the view of the CA that for one of the partner’s
- Litton sold and delivered to Ceron, one of the tobind the partnership the consent of the other is
managing partners of Hill & Ceron, a certain necessary. Third persons, like the plaintiff, are not
number of mining claims. By virtue of said bound in entering into a contract with any of the
transaction, Ceron delivered to plaintiff a two partners, to ascertain whether or not this
document (receipt) acknowledging that he partner with whom the transaction is made has
received from Litton certain share certificates of the consent of the other partner. The public need
Big Wedge Mining Company totalingP1870.Ceron not make inquires as to the agreements had
paid to Litton P1, 150 leaving a balance of P720. between the partners. Its knowledge is enough
Litton was unable to collect the unpaid balance that it is contracting with the partnership which is
from Hill & Ceron or from its surety. Litton filed a represented by one of the managing partners. The
complaint against the defendants for the recovery second paragraph of the articles of partnership of
of the balance. The court ordered Ceron to Hill & Ceron reads inpart: Second: That the
personally pay the amount claimed and absolved purpose or object for which this co-partnership is
the partnership, Hill and the surety.CA affirmed organized is to engage in the business of
the decision of the court. brokerage in general, such as stock and bond
brokers, real brokers, investment security brokers, transaction is violating the articles of partnership
shipping brokers, and other activities pertaining to but, on the contrary, is4By Joy Co
the business of brokers in general. The kind of
business in which the partnership Hill & Ceron is - Acting in accordance therewith. And this finds
to engage being thus determined, none of the two support in the legal presumption that the ordinary
partners, under article 130 of the Code of course of business has been followed. If we are to
Commerce, may legally engage in the business of interpret the articles of partnership in question by
brokerage in general as stock brokers, security holding that it is the obligation of the third person
brokers and other activities pertaining to the to inquire whether the managing co-partner of the
business of the partnership. Ceron, therefore, one with whom he contracts has given his consent
could not have entered into the contract of sale of to said contract, which is practically casting upon
shares with Litton as a private individual, but as a him the obligation to get such consent, this
managing partner of Hill & Ceron The stipulation interpretation would, in similar cases, operate to
in the articles of partnership that any of the two hinder effectively the transactions, a thing not
managing partners may contract and sign in the desirable and contrary to the nature of business
name of the partnership with the consent of the which requires promptness and dispatch one the
other, undoubtedly creates an obligation between basis of good faith and honesty which are always
the two partners, which consists in asking the presumed.
other's consent before contracting for the
partnership. This obligation of course is not
imposed upon a third person who contracts with MARTINEZ v. ONG PONG COArellano, CJ (1910)
the partnership. Neither is it necessary for the
third person to ascertain if the managing partner MARTINEZ delivered to Ong Pong Co and Ong Lay
with whom he contracts has previously obtained (ONGS) the sum of P1,500. The ONGS, in a private
the consent of the other. A third person may and document, acknowledged that they had received the
has a right to presume that the partner with whom money with the agreement that the will invest it in a store,
he contracts has, in the ordinary and natural and the profits or losses therefrom was to be divided with
course of business, the consent of his co-partner; MARTINEZ in equal shares.
for otherwise he would not enter into the contract.
The third person would naturally not presume
that the partner with whom he enters into the
Later, MARTINEZ filed a complaint in order to compel the representing half of the loss which both ONGS
ONGS to render him an accounting of the partnership, or should jointly bear due to their omission, to earn legal
else to refund him the P1,500 that he had given them. interest of 6% from time of filing this complaint, and costs.

Ong Pong Co alone appeared to answer the complaint. He RATIO: In his defense, Ong Pong Co raised the issue
admitted the fact of the agreement, but he alleged that Ong of the closure/failure of the store by virtue of ejectment
Lay(deceased) was the one who had managed the proceedings instituted against them. THIS, however, has
business, and that nothing had resulted therefrom except no real significance in the determination of the merits of
the loss of the capital of P1,500, to which loss MARTINEZ this case.
agreed to bear.
To be sure, the whole action is based upon the fact that the
CFI rendered decision ordering Ong Pong Co to return to ONGS received capital from MARTINEZ for the purpose
MARTINEZ one-half of the capital of P1,500 (P750) plus of organizing a store. The ONGS, according to the
P90 asone-half of the profits, calculated at the rate of 12% agreement, were to handle the said money and invest it in
per annum for the six months that the store was supposed a store which was the object of the association.
to have been open(total of P840) with legal interest of 6%
until the full payment, with costs. Hence, this appeal by The ONGS had no special agreement vesting in one sole
Ong Pong Co. person the management of the business. Thus, both ONGS
were the actual administrators thereof; and as such
ISSUE: WON MARTINEZ is entitled to the capital he administrators, they were the agents of the company and
contributed to the partnership. incurred the liabilities peculiar to every agent, among
which is that of rendering account to the principal of their
HELD: YES. The ONGS failed to fulfill their obligation as transactions, and paying him everything they may have
partners who, acting as MARTINEZ’s agents in receiving money, received by virtue of the mandatum.
did not render proper accounting therefor. Such renders
them jointly liable for the losses, solidarity not having Since neither of them has rendered such account nor
been established. CFI decision is AFFRIMED in this regard proven the losses, they are therefore obliged to refund the
but REVERSED in as much as it found that the capital money that they received for the purpose of establishing
invested earned profits. Thus, the CFI ruling awarding the said store.
MARTINEZ another P840 is DELETED. Ong PongCo is
only liable to pay MARTINEZ half of the capital, or P750,
There is no evidence presented that the entire capital or undivided ½ interest in 10 parcels of land, 6 houses and
any part thereof was lost. Without proof, the allegation money from the War Damage Commission.
that the effects of the store were ejected is, as earlier
mentioned, of no moment. Even if we assume this to be Although the project of partition was approved by
true, it could still not be inferred that the ejectment was the Court, no attempt was made to divide the properties
due to the fact that no rents were paid, and that the rent and the properties remained under the management of
was not paid on account of the loss of the capital belonging Lorenzo Oña who used said properties in business by
to the partnership. leasing or selling them and investing the income derived
therefrom and proceeds from the sales thereof in real
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, properties and securities.
namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ
B. OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, CIR decided that petitioners formed an
JR., unregistered partnership and therefore, subject to the
vs. THE COMMISSIONER OF INTERNAL REVENUE corporate income tax, pursuant to Section 24, in relation to
G.R. No. L-19342, May 25, 1972 Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners corporate income taxes for 1955 and
FACTS: 1956. Petitioners protested against the assessment and
asked for reconsideration of the ruling of respondent that
Julia Buñales died leaving as heirs her surviving they have formed an unregistered partnership. Finding no
spouse, Lorenzo T. Oña and her five children. A civil case merit in petitioners' request, CIR denied it.
was instituted in the CFI of Manila for the settlement of
her estate. Oña, the surviving spouse, was appointed ISSUE:
administrator of the estate of said deceased. He submitted
the project of partition, which was approved by the Court. WON petitioners formed an unregistered
Because three of the heirs, namely, Luz, Virginia and partnership.
Lorenzo, Jr, all surnamed Oña, were still minors when the
project of partition was approved, Lorenzo Oña, their RULING:
father and administrator of the estate filed a petition with
the CFI of Manila for the appointment as guardian of said Yes, petitioners formed an unregistered
minors. The Court appointed him guardian of the persons partnership.
and property of the aforenamed minors. The heirs have
Supreme Court held that that instead of actually testate or intestate proceeding., the petitioners formed an
distributing the estate of the deceased among themselves unregistered partnership.
pursuant to the project of partition approved in 1949, “the
properties remained under the management of Lorenzo T. Among the reasons for holding the appellants
Oña who used said properties in business by leasing or therein to be unregistered co-partners for tax purposes,
selling them and investing the income derived therefrom that their common fund "was not something they found
and the proceeds from the sales thereof in real properties already in existence" and that "it was not a property
and securities. inherited by them pro indiviso," but it is certainly far
fetched to argue therefrom, as petitioners are doing here,
It is thus incontrovertible that petitioners did not, that ergo, in all instances where an inheritance is not
contrary to their contention, merely limit themselves to actually divided, there can be no unregistered co-
holding the properties inherited by them. Indeed, it is partnership.
admitted that during the material years herein involved,
some of the said properties were sold at considerable
profit, and that with said profit, petitioners engaged, thru 000 Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Lorenzo T. Oña, in the purchase and sale of corporate Co Oyo vs. Hon. Ramolete and Tan Put
securities. It is likewise admitted that all the profits from TOPIC: Property Rights of a Partner
these ventures were divided among petitioners
proportionately in accordance with their respective shares PONENTE: Barredo, J.:
in the inheritance. DOCTRINE: A partner’s right to accounting for properties of the
partnership that are within the custody or control of the other
As already indicated, for tax purposes, the co- partners shall apply only when there is proof that such properties,
ownership of inherited properties is automatically registered in the individual names of the other partners, have been
acquired from the use of partnership funds.
converted into an unregistered partnership the moment
the said common properties and/or the incomes derived FACTS
therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their  Respondent Tan Put filed a complaint against spouses Lim
Tanhu and Dy Ochay, spouses Alfonso Leonardo Ng Sua and
respective shares in the inheritance as determined in a
Co Oyo and their son Eng Chong Leonardo for the share of
project partition either duly executed in an extrajudicial Tee Hoon Lim Po Chuan in the partnership.
settlement or approved by the court in the corresponding  Tan Put alleged the following:
i. that she is the widow of Tee Hoon Lim Po Hoon died in 1966 and as a result of which
Chuan, who was a partner in the commercial the partnership was dissolved and what
partnership, Glory Commercial Company corresponded to him were all given to his
with Antonio Lim Tanhu and Alfonso Ng legitimate wife and children.
Sua. ii. Tan Put is aware that she is the common law
ii. that the defendant-petitioners, through fraud wife of Tee Hoon.
and machination, took actual and active  Defendants also filed a counterclaim against Tan Put for
management of the partnershi and although causing delay in the operations of the business.
Tee Hoon Lim Po Chuan was the manager of  (Note: This case involves a lot of appeals; motion to quash
Glory Commercial Company, defendant- and 2 petitions for certiorari but I will stick to the partnership
petitioners managed to use the funds of the issue only.)
partnership to purchase lands in the cities of  Tan Put asked the lower court to dismiss the complaint as to
Cebu, Lapulapu, Mandaue, and the the spouses Leonardo Ng Sua but retained with respects to
municipalities of Talisay and Minglanilla. Tanhu and Ochay.
iii. that after the death of her husband, the The lower court allowed the dismissal in part and allowed a
defendants, without liquidation of the motion to hold the petitioners in default, and motion to present
partnership, organized a corporation with the evidence ex-parte. (The judge here was very biased).
paid-up capital from the partnership. She ISSUE: Whether or not Tan Put, the common law wife of Tee Hoon,
contends that one-third of the interest belongs has a right on behalf of Tee Hoon to claim his share in the partnership.
to her late husband.
iv. When her husband died, he asked the HELD: NO.
defendants to liquidate the partnership but the
defendants never did. Later on, she was made RATIO:
to sign a quitclaim of all her rights and
interest in the partnership in consideration of 1. Tan Put cannot be considered as a legal party in interest
P65,000.00. Said quitclaim was in the Hands because she was unable to prove that her marriage was valid
of Lim Tanhu and a copy was never given to and subsisting. There was no marriage contract shown nor
her. evidence to support that such a marriage existed.
v. That she gave some of her money to her 2. An agreement with Tee Hoon was shown and signed by Tan
husband for the start-up capital of the Put that she received P40,000 for her subsistence when they
partnership terminated their relationship of common-law marriage and
 Defendant-petitioners replied to her complaint alleging: promised not to interfere with each other’s affairs.
i. Ang Siok Tin is the legitimate wife, still 3. Stated differently, since the existence of the quitclaim has
living, and with whom Tee Hoon had four been duly established without any circumstance to detract
legitimate children, a twin born in 1942, and from its legal import, the court should have held that plaintiff
two others, all residing in Hong Kong. Tee was bound by her admission therein that she was the common-
law wife only of Po Chuan and what is more, that she had
already renounced for valuable consideration whatever claim extending the effects of its order of dismissal of the action dated
she might have relative to the partnership Glory Commercial October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay,
Co. Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is
4. In the light of all these circumstances, We find no alternative hereby permanently enjoined from taking any further action in said
but to hold that plaintiff Tan Put's allegation that she is the civil case gave and except as herein indicated. Costs against private
widow of Tee Hoon Lim Po Chuan has not been satisfactorily respondent.
established and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was
that of a common-law wife and furthermore, that all her claims
against the company and its surviving partners as well as those
against the estate of the deceased have already been settled
and paid.
5. If Po Chuan was in control of the affairs and the running of
the partnership, how could the defendants have defrauded him
of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control
of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to
what is taken by a partner without the consent of the other
partner or partners.
6. Accordingly, defendants have no obligation to account to
anyone for such acquisitions in the absence of clear proof that
they had violated the trust of Po Chuan during the existence
of the partnership.

Dispositive Portion: IN VIEW OF ALL THE FOREGOING, the


petition is granted. All proceedings held in respondent court in its Civil
Case No. 12328 subsequent to the order of dismissal of October 21,
1974 are hereby annulled and set aside, particularly the ex-
parte proceedings against petitioners and the decision on December
20, 1974. Respondent court is hereby ordered to enter an order