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1. Acebedo Optical Co. vs. Court of Appeals,
G.R. No. 100152, March 31, 2000
Title of the Case: Acebedo Optical Co. vs. Court of
Appeals
Nature: Petition for review under Rule 45 of the Rules of
Court seeking to nullify the dismissal by the Court of Appeals
of the original petition for certiorari
Keywords: Optical shop, Business Permit
Petitioner: Acebedo Optical Company, Inc.
Respondent: The Honorable Court of Appeals
Facts: Petitioner applied with the Office of the City Mayor of
Iligan for a business permit. After consideration of petitioner's
application and the opposition interposed thereto by local
optometrists, respondent City Mayor issued Business Permit
No. 5342 subject to the following conditions: (1) Since it is a
corporation, Acebedo cannot put up an optical clinic but only
a commercial store; (2) It cannot examine and/or prescribe
reading and similar optical glasses for patients, because these
are functions of optical clinics; (3) It cannot sell reading and
similar eyeglasses without a prescription having first been
made by an independent optometrist or independent optical
clinic. Acebedo can only sell directly to the public, without
need of a prescription, Ray-Ban and similar eyeglasses; (4) It
cannot advertise optical lenses and eyeglasses, but can
advertise Ray-Ban and similar glasses and frames; (5) It is
allowed to grind lenses but only upon the prescription of an
independent optometrist.
On December 5, 1988, private respondent Samahan ng
Optometrist Sa Pilipinas (SOPI lodged a complaint against the
petitioner alleging that Acebedo had violated the conditions
set forth in its business permit and requesting the cancellation
and/or revocation of such permit. On July 19, 1989, the City
Mayor sent petitioner a Notice of Resolution and Cancellation
of Business Permit effective as of said date and giving
petitioner three (3) months to wind up its affairs.
Issue: Whether the City Mayor has the authority to impose
special conditions, as a valid exercise of police power, in the
grant of business permits
Ratio: Police power as an inherent attribute of sovereignty is
the power to prescribe regulations to promote the health,
morals, peace, education, good order or safety and general
welfare of the people. It is essentially regulatory in nature and
the power to issue licenses or grant business permits, if
exercised for a regulatory and not revenue-raising purpose, is
within the ambit of this power. The authority of city mayors to
issue or grant licenses and business permits is beyond cavil.
However, the power to grant or issue licenses or business
permits must always be exercised in accordance with law,
with utmost observance of the rights of all concerned to due
process and equal protection of the law.
In the case under consideration, the business permit granted
by respondent City Mayor to petitioner was burdened with
several conditions. Petitioner agrees with the holding by the
Court of Appeals that respondent City Mayor acted beyond his
authority in imposing such special conditions in its permit as
the same have no basis in the law or ordinance. Public
respondents and private respondent SOPI are one in saying
that the imposition of said special conditions is well within the
authority of the City Mayor as a valid exercise of police power.
The issuance of business licenses and permits by a
municipality or city is essentially regulatory in nature. The
authority, which devolved upon local government units to
issue or grant such licenses or permits, is essentially in the
exercise of the police power of the State within the
contemplation of the general welfare clause of the Local
Government Code.
What is sought by petitioner from respondent City Mayor is a
permit to engage in the business of running an optical shop.
It does not purport to seek a license to engage in the practice
of optometry. The objective of the imposition of subject
conditions on petitioner's business permit could be attained by
requiring the optometrists in petitioner's employ to produce a
valid certificate of registration as optometrist, from the Board
of Examiners in Optometry. A business permit is issued
primarily to regulate the conduct of business and the City
Mayor cannot, through the issuance of such permit, regulate
the practice of a profession. Such a function is within the
exclusive domain of the administrative agency specifically
empowered by law to supervise the profession, in this case
the Professional Regulations Commission and the Board of
Examiners in Optometry.
Ruling: WHEREFORE, the petition is GRANTED; the Decision
of the Court of Appeals in CA-GR SP No. 22995 REVERSED:
and the respondent City Mayor is hereby ordered to reissue
petitioner's business permit in accordance with law and with
this disposition. No pronouncement as to costs.
Doctrine: The scope of police power has been held to be so
comprehensive as to encompass almost all matters affecting
the health, safety, peace, order, morals, comfort and
convenience of the community. Police power is essentially
regulatory in nature and the power to issue licenses or grant
business permits, if exercised for a regulatory and not
revenue-raising purpose, is within the ambit of this power.
Requisites
1 - LAWFUL SUBJECT: The interests of the public generally,
as distinguished from those of a particular class, require the
exercise of the police power
2 - LAWFUL MEANS: The means employed are reasonably
necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals

FACTS:Petitioner Acebedo Optical Company, Inc. applied for a
business permit to operate in Iligan City. After hearing the sides of
local optometrists, Mayor Camilo Cabili of Iligan granted the permit
but he attached various special conditions which basically made
Acebedo dependent upon prescriptions or limitations to be issued by
local optometrists. Petitioner basically is not allowed to practice
optometry within the city (but may sell glasses only). Acebedo
however acquiesced to the said conditions and operated under the
permit.
Private respondent Samahan ng Optometrist Sa Pilipinas (SOPI),
Iligan Chapter, lodged a complaint against the petitioner before the
Office of the City Mayor, alleging that Acebedo had violated the
conditions set forth in its business permit and requesting the
cancellation and/or revocation of such permit. Acting on such
complaint, then City Mayor conduct an investigation through the
City Legal Officer on the matter. Respondent City Legal Officer
submitted a report to the City Mayor finding the herein petitioner
guilty of violating all the conditions of its business permit and
recommending the disqualification of petitioner from operating its
business in Iligan City.
ISSUE:Whether or not the respondent city mayor acted beyond his
authority in imposing the special conditions in the permit
HELD:Yes, the power to issue licenses and permits necessarily
includes the corollary power to revoke, withdraw or cancel the same.
And the power to revoke or cancel, likewise includes the power to
restrict through the imposition of certain conditions. In the case of
Austin-Hardware, Inc. vs. Court of Appeals,[7] it was held that the
power to license carries with it the authority to provide reasonable
terms and conditions under which the licensed business shall be
conducted. As the Solicitor General puts it:
"If the City Mayor is empowered to grant or refuse to grant a
license, which is a broader power, it stands to reason that he can also
exercise a lesser power that is reasonably incidental to his express
power, i. e. to restrict a license through the imposition of certain
conditions, especially so that there is no positive prohibition to the
exercise of such prerogative by the City Mayor, nor is there any
particular official or body vested with such authority"However,
Distinction must be made between the grant of a license or permit to
do business and the issuance of a license to engage in the practice of
a particular profession. The first is usually granted by the local
authorities and the second is issued by the Board or Commission
tasked to regulate the particular profession. A business permit
authorizes the person, natural or otherwise, to engage in business or
some form of commercial activity. A professional license, on the
other hand, is the grant of authority to a natural person to engage in
the practice or exercise of his or her profession.In the case at bar,
what is sought by petitioner from respondent City Mayor is a permit
to engage in the business of running an optical shop. It does not
purport to seek a license to engage in the practice of optometry as a
corporate body or entity, although it does have in its employ,
persons who are duly licensed to practice optometry by the Board of
Examiners in Optometry.
A business permit is issued primarily to regulate the conduct of
business and the City Mayor cannot, through the issuance of such
permit, regulate the practice of a profession, like that of optometry.
Such a function is within the exclusive domain of the administrative
agency specifically empowered by law to supervise the profession,
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in this case the Professional Regulations Commission and the Board
of Examiners in Optometry.
The regulatory power to issue licenses or permits extends only up to
the regulation of a business and not in the regulation of a profession.
Therefore, the acts of the mayor are ultra vires and cannot be given
effect.
Police Power; Municipal Corporations; Local Government Code;
General Welfare Clause; The delegation of police power to local
government units is embodied in the general welfare clause of the
Local Government Code.—Police power as an inherent attribute of
sovereignty is the power to prescribe regulations to promote the
health, morals, peace, education, good order or safety and general
welfare of
the people. The State, through the legislature, has delegated the
exercise of police power to local government units, as agencies of
the State, in order to effectively accomplish and carry out the
declared objects of their creation. This delegation of police power is
embodied in the general welfare clause of the Local Government
Code.
Same; Same; Same; Same; Police power is essentially regulatory in
nature and the power to issue licenses or grant business permits, if
exercised for a regulatory and not revenue-raising purpose, is
within the ambit of this power.—The scope of police power has been
held to be so comprehensive as to encompass almost all matters
affecting the health, safety, peace, order, morals, comfort and
convenience of the community. Police power is essentially
regulatory in nature and the power to issue licenses or grant business
permits, if exercised for a regulatory and not revenue-raising
purpose, is within the ambit of this power.
Same; Same; Same; Same; Permits and Licenses; The power to
issue licenses and permits necessarily includes the corollary power
to revoke, withdraw or cancel the same, and the power to revoke or
cancel, likewise includes the power to restrict through the
imposition of certain conditions.—As aptly discussed by the
Solicitor General in his Comment, the power to issue licenses and
permits necessarily includes the corollary power to revoke, withdraw
or cancel the same. And the power to revoke or cancel, likewise
includes the power to restrict through the imposition of certain
conditions. In the case of Austin-Hardware, Inc. vs. Court of
Appeals, it was held that the power to license carries with it the
authority to provide reasonable terms and conditions under which
the licensed business shall be conducted.
Same; Same; Same; Same; Same; “License or Permit to Do
Business” and “License to Engage in the Practice of a Profession,”
Distinguished.—Distinction must be made between the grant of a
license or permit to do business and the issuance of a license to
engage in the practice of a particular profession. The first is usually
granted by the local authorities and the second is issued by the
Board or Commission tasked to regulate the particular profession. A
business permit authorizes the person, natural or otherwise, to
engage in business or some form of commercial activity. A
professional license, on the other hand, is the grant of authority to a
natu-

ral person to engage in the practice or exercise of his or her
profession.
Same; Same; Same; Same; Same; Same; A business permit is issued
primarily to regulate the conduct of business and the City Mayor
cannot, through the issuance of such permit, regulate the practice of
a profession, like that of optometry.—In the present case, the
objective of the imposition of subject conditions on petitioner’s
business permit could be attained by requiring the optometrists in
petitioner’s employ to produce a valid certificate of registration as
optometrist, from the Board of Examiners in Optometry. A business
permit is issued primarily to regulate the conduct of business and the
City Mayor cannot, through the issuance of such permit, regulate the
practice of a profession, like that of optometry. Such a function is
within the exclusive domain of the administrative agency
specifically empowered by law to supervise the profession, in this
case the Professional Regulations Commission and the Board of
Examiners in Optometry.
Optometry; Courts; Jurisdiction; Congress left the resolution of the
issue on the matter of prohibition of indirect practice of optometry
by corporations for judicial determination, and it is therefore proper
for the Supreme Court to resolve the issue.—From the foregoing, it
is thus evident that Congress has not adopted a unanimous position
on the matter of prohibition of indirect practice of optometry by
corporations, specifically on the hiring and employment of licensed
optometrists by optical corporations. It is clear that Congress left the
resolution of such issue for judicial determination, and it is therefore
proper for this Court to resolve the issue.
Same; Equal Protection; There is no valid basis for treating
corporations engaged in the business of running optical shops
differently from corporations running private hospitals.—In
analogy, it is noteworthy that private hospitals are maintained by
corporations incorporated for the purpose of furnishing medical and
surgical treatment. In the course of providing such treatments, these
corporations employ physicians, surgeons and medical practitioners,
in the same way that in the course of manufacturing and selling
eyeglasses, ye frames and optical lenses, optical shops hire licensed
optometrists to examine, prescribe and dispense ophthalmic lenses.
No one has ever charged that these corporations are engaged in the
practice of medicine. There is indeed no valid basis for treating
corporations engaged in the business of running optical shops
differently.
Appeals; Pleadings and Practice; A party who has not appealed
from the decision may not obtain any affirmative relief from the
appellate court other than what he had obtained from the lower
court, if any, whose decision is brought up on appeal.—It also bears
stressing, as petitioner has pointed out, that the public and private
respondents did not appeal from the ruling of the Court of Appeals.
Consequently, the holding by the Court of Appeals that the act of
respondent City Mayor in imposing the questioned special
conditions on petitioner’s business permit is ultra vires cannot be put
into issue here by the respondents. It is well-settled that: “A party
who has not appealed from the decision may not obtain any
affirmative relief from the appellate court other than what he had
obtain from the lower court, if any, whose decision is brought up on
appeal xxx an appellee who is not an appellant may assign errors in
his brief where his purpose is to maintain the judgment on other
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grounds, but he cannot seek modification or reversal of the judgment
or affirmative relief unless he has also appealed.”
Municipal Corporations; Permits and Licenses; Ultra Vires Acts;
Estoppel; The fact that a party acquiesced in the special conditions
imposed by the City Mayor in subject business permit does not
preclude it from challenging the said imposition, which is ultra vires
or beyond the ambit of authority of the City Mayor—ultra vires acts
or acts which are clearly beyond the scope of one’s authority are
null and void and cannot be given any effect.—It had occasion to
rule that a license or permit is not in the nature of a contract but a
special privilege, “xxx a license or a permit is not a contract between
the sovereignty and the licensee or permitee, and is not a property in
the constitutional sense, as to which the constitutional proscription
against impairment of the obligation of contracts may extend. A
license is rather in the nature of a special privilege, of a permission
or authority to do what is within its terms. It is not in any way
vested, permanent or absolute.” It is therefore decisively clear that
estoppel cannot apply in this case. The fact that petitioner
acquiesced in the special conditions imposed by the City Mayor in
subject business permit does not preclude it from challenging the
said imposition, which is ultra vires or beyond the ambit of authority
of respondent City Mayor. Ultra vires acts or acts which are clearly
beyond the scope of one’s authority are-null and void and cannot be
given any deffect. The doctrine of estoppel cannot operate to give
effect to an act which is otherwise null and void or ultra vires.
Same; Same; Police Power; The issuance of business licenses and
permits by a municipality or city is essentially regulatory in
nature.—The Court of Appeals erred in adjudging subject business
permit as having been issued by respondent City Mayor in the
performance of proprietary functions of Iligan City. As hereinabove
elaborated upon, the issuance of business licenses and permits by a
municipality or city is essentially regulatory in nature. The authority,
which devolved upon local government units to issue or grant such
licenses or permits, is essentially in the exercise of the police power
of the State within the contemplation of the general welfare clause of
the Local Government Code.
KAPUNAN, J., Separate Concurring Opinion:
Optometry; Corporations; The rule is that corporate practice of any
profession, including optometry, must never be sanctioned, a policy
based on the notion that the ethics of any profession is based upon
individual responsibility, personal accountability and independence,
which are all lost where one verily acts as a mere agent, or alter
ego, of unlicensed persons or corporations.—The rule is that the
corporate practice of any profession, including optometry, must
never be sanctioned. The public policy behind such rulings is
universal, and is based on the notion that the ethics of any profession
is based upon individual responsibility, personal accountability and
independence, which are all lost where one verily acts as a mere
agent, or alter ego, of unlicensed persons or corporations.
Same; Same; In the absence of a statute specifically prohibiting a
corporation from hiring duly licensed optometrists, the employment
by such corporation of said professionals is not tantamount to
practice of optometry by the corporation itself.—The second
question provides no easy answer and actually depends on the facts

and circumstance surrounding a particular case. What is well-settled,
however, is that in the absence of a statute specifically prohibiting a
corporation from hiring duly licensed optometrists, the employment
by such corporation of said professionals is not tantamount to
practice of optometry by the corporation itself.
Same; Words and Phrases; “Ophthalmologist,” “Optometrist,” and
“Optician,” Explained.—The words “ophthalmologist,”
“optometrist” and “optician,” though closely related, should be
distinguished. An ophthalmologist is a duly licensed physician who
specializes in the care of eyes. Optometrists merely examine the
eyes for refractive error, recognize (but does not treat) diseases of
the eye, and fill prescriptions for eyeglasses. Optometrists also adapt
frames and lenses to overcome errors of refraction and restores, as
nearly as possible with these mechanical appliances, normal human
vision. The optician is engaged in the business of furnishing lenses
to customers on the prescriptions of licensed optometrists or
qualified physicians, putting the lenses into frames selected by the
customer, and fitting the frames to the face.
Same; Same; Optometry is distinguished from other professions by
the nature of relationships created between the optometrist and the
client—it has been held that the traditional relationship between
physician and patient does not exist in the practice of optometry,
since such practice involves no relationship of trust and confidence
as exists between a physician and a patient, or as between an
attorney and client.—Optometry is distinguished from other
professions by the nature of relationships created between the
optometrist and the client. It has been held that the traditional
relationship between physician and patient does not exist in the
practice of optometry, since such practice involves no relationship of
trust and confidence as exists between a physician and a patient, or
as between an attorney and client. The argument is that, considering
the nature and scope of the optometrist’s functions, no such trust
relationship exists and, consequently, there is no public policy to be
subserved by prohibiting optometrists to practice their profession as
employees of corporations.
Same; Police Power; The scope of regulations of trades and
occupation is determined by the principle that an exercise of the
police power must confer public benefit commensurate with the
burden imposed upon private rights and property, and the means
adapted must be suitable to the end in view, impartial in operation,
and not unduly oppressive upon individuals.—A justification for a
licensing requirement and other forms of restrictions generally
requires a showing that the measures at least tend to promote public
health, morals, safety or welfare. Whenever a business is affected
with public interest it may be subject to regulation to protect the
public
against danger and injustice. However, the scope of regulations of
trades and occupation is determined by the principle that an exercise
of the police power must confer public benefit commensurate with
the burden imposed upon private rights and property, and the means
adapted must be suitable to the end in view, impartial in operation,
and not unduly oppressive upon individuals. The burden imposed
must not interfere with rights of private property and freedom of
contract beyond the necessity of the situation. The test, thus, is the
classic reasonableness and propriety of the measures or means in
the promotion of the ends sought to be accomplished.
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Same; Same; Types of Commercial Restrictions in the Practice of
Optometry.—There are generally four types of commercial
restrictions in the practice of optometry. These are: 1) Employment
Restrictions which usually provide that it is unprofessional conduct
or an illegal practice for an optometrist to accept employment from
unlicensed person or non-professional Corporations; 2) Restrictions
on Location prohibit optometrist to work in an office not devoted
exclusively to the practice of optometry or in which materials are
displayed pertaining to a commercial undertaking not related to the
practice of optometry; 3) Branch Office Restrictions usually set a
maximum number of branch Offices an optometrist may operate or
require the optometrist to be on personal attendance a certain
proportion of time the office is open to the public; 4) Trade Name
Restrictions declare illegal or unethical for an optometrist to practice
under a name other than his or her name or under a false or assumed
name. This last type of restriction has a distinct discriminatory
impact on non-professional corporations.
Same; Optometrists, like any other professionals are, nonetheless,
bound by the same standards of professional conduct, care, skill and
diligence, whether they practice as independent optometrists or as
employees of unlicensed persons or corporations.—The primary
purpose of the Optometry Law is to ensure that the service would be
rendered by competent and licensed persons and thereby protect the
public from inexpertness. Despite the public respondent’s assertions
that the conditions in the business permit were made for the purpose
of “safeguarding the general public and especially the poor who are
easily gulled by misleading advertisements,” hence, falling within
the ambit of police powers granted to local officials under the Local
Government Code, this Court sees no cogent reason why such
purpose cannot be attained even if the persons rendering the service
are employed by a corporation. Optometrists, like any other
professionals are, nonetheless, bound by the same standards of
professional conduct, care, skill and diligence, whether they practice
as independent optometrists or as employees of unlicensed persons
or corporations.
VITUG, J., Dissenting Opinion:
Optometry; The exercise of the profession of optometry is no
different from the practice of other regulated professions which can
only be undertaken by individuals duly licensed therefor.—The
questioned conditionalities imposed on the business permit of
Acebedo are activities that cannot be performed by a corporation
without such engagement being translated into an unauthorized
practice of optometry. The exercise of this profession is no different
from the practice of other regulated professions which can only be
undertaken by individuals duly licensed therefor.
Municipal Corporations; Licenses and Permits; A license or permit
is not a contract between the sovereign and the grantee—for a
permit to be impressed with a contractual character, it must be
clearly demonstrated that the very administrative agency, which is
the source of the permit, can place that burden on itself as such.—A
license or permit is not a contract between the sovereign and the
grantee; rather, it is a special privilege, a permission or authority to
do what would be within its terms; it is neither vested nor permanent
that can at no time be withdrawn or taken back by the grantor. The
Solicitor General has posited correctly in disagreeing with the
appellate court which has mistaken the conditions imposed by

respondent City Mayor as being binding on both the city
government and petitioner upon the thesis that the permit issued by
him partakes the nature of a private agreement or contract. For a
permit to be impressed with a contractual character, it must be
clearly demonstrated that the very administrative agency, which is
the source of the permit, can place that burden on itself as
such.
2.JOSE GATCHALIAN ET AL. v.
COLLECTOR OF INTERNAL REVENUE,
Facts:plaintiffs are all residents of the municipality of Pulilan,
Bulacan, and that defendant is the Collector of Internal Revenue of
the Philippines;... plaintiffs, in order to enable them to purchase one
sweepstakes ticket valued at two pesos (P2), subscribed and paid
therefor the amounts as follows:... immediately thereafter... plaintiffs
purchased... from... ne of the duly authorized agents of the National
Charity Sweepstakes Office one ticket bearing No. 178637... and
that the said ticket was registered in the name of Jose Gatchalian and
Company... as a result
, the above-mentioned ticket bearing No. 178637 won one of the
third prizes in the amount of P50,000... and... which check was
cashed... by Jose Gatchalian & Company
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... the said return was signed by
Gatchalian... efendant made an assessment against... requesting the
payment of the sum of P1,499.94 to the deputy provincial treasurer
of Pulilan, Bulacan... plaintiffs, through their attorney, sent to
defendant a reply... requesting exemption from the 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... defendant... denied plaintiffs' request... for
exemption from the payment of tax... in view of the failure of the
plaintiffs to pay the amount of tax demanded by the defendant,
notwithstanding subsequent demand... issued a warrant of distraint
and levy against the property of the plaintiffs... plaintiffs,... through
Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi,... paid
under protest the sum of P601.51... as part of the tax... and requested
defendant that plaintiffs be allowed to pay under protest the
balance... plaintiffs demanded upon defendant the refund of the total
sum of
P1,863.44... paid under protest by them but that defendant refused
and still refuses to refund the said amount... notwithstanding the
plaintiffs' demands.
Issues:Whether the plaintiffs formed a partnership, or merely a
community of property without a personality of its own
Ruling: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 stipulated facts the
plaintiffs organized a partnership of a civil nature because each of
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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 Philippine Charity Sweepstakes, in his capacity
as co-partner, as such collected the prize, the office issued the check
for P50,000 in favor of Jose Gatchalian and company, and the said
partner,... in the same capacity, collected the said check. All these
circumstances repel the idea that the plaintiffs organized and formed
a community of property only.
Having organized and constituted a partnership of a civil nature, the
said entity is the one bound to pay the income tax which the
defendant collecte
There is no merit in... plaintiffs' contention that the tax should be
prorated among them and paid individually, resulting in their
exemption from the tax.
FACTS:
On December 15, 1934, the plaintiffs, all 15 of them, each
contributed in order to buy a sweepstakes ticket worth Php
2.00. That immediately thereafter but prior to December 16,
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.
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
Thereafter, 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 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. Tthe
plaintiffs requested exemption from the payment of the income
tax but it was rejected. The plaintiffs paid in protest the tax
assessment given to them.
ISSUE:Whether the plaintiffs formed a partnership, thus not
exempted from paying income tax
HELD:Yes, the plaintiffs formed a partnership The Supreme
Court held that according to the stipulated facts the plaintiffs
organized a partnership of a civil nature because each of them
put up money to buy a sweepstakes ticket for the sole purpose
of dividing equally the prize which they may win, as they did in
fact in the amount of P50,000.The partnership was not only
formed, but upon the organization thereof and the winning of

the prize, Jose Gatchalian personally appeared in the office of
the Philippine Charity Sweepstakes, in his capacity as co-
partner, as such collected 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.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.
PARTNERSHIP OF A CIVIL NATURE; COMMUNITY OF
PROPERTY; SWEEPSTAKES; INCOME TAX.—According to the
stipulated 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, J. G. personally appeared in the
office of the Philippine Charity Sweepstakes, in his capacity as co-
partner, as such collected the prize, the office issued the check for
?50,000 in favor of J. G. and company, and the said partner, in the
same capacity, collected the check. All these circumstances repel the
idea that the plaintiffs organized and formed a community of property
only.
2. ID.; ID.; ID.; ID.—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 plaintiffs' contention that the tax should be prorated among
them and paid individually, resulting in their exemption from the tax.
3. LORENZO OÑA V CIR
Facts:Julia Buñales died leaving as heirs her surviving spouse,
Lorenzo Oña and her five children. A civil case was instituted for
the settlement of her state, in which Oña was appointed
administrator and later on the guardian of the three heirs who were
still minors when the project for partition was approved. This shows
that the heirs have undivided ½ interest in 10 parcels of land, 6
houses and money from the War Damage Commission.
Although the project of partition was approved by the Court, no
attempt was made to divide the properties and they remained under
the management of Oña who used said properties in business by
leasing or selling them and investing the income derived therefrom
and the proceeds from the sales thereof in real properties and
securities. As a result, petitioners’ properties and investments
gradually increased. Petitioners returned for income tax purposes
their shares in the net income but they did not actually receive their
shares because this left with Oña who invested them.
Based on these facts, CIR decided that petitioners formed an
unregistered partnership and therefore, subject to the corporate
income tax, particularly for years 1955 and 1956. Petitioners asked
for reconsideration, which was denied hence this petition for review
from CTA’s decision.
6
Issue: W/N there was a co-ownership or an unregistered
partnership
W/N the petitioners are liable for the deficiency corporate income
tax
Held:Unregistered partnership. The Tax Court found that instead
of actually distributing the estate of the deceased among themselves
pursuant to the project of partition, the heirs allowed their properties
to remain under the management of Oña and let him use their shares
as part of the common fund for their ventures, even as they paid
corresponding income taxes on their respective shares.
Yes. For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the moment
the said common properties and/or the incomes derived therefrom
are used as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding. The reason is simple.
From the moment of such partition, the heirs are entitled already to
their respective definite shares of the estate and the incomes thereof,
for each of them to manage and dispose of as exclusively his own
without the intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection therewith. If
after such partition, he allows his share to be held in common with
his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were executed, for the
purpose, for tax purposes, at least, an unregistered partnership is
formed.
For purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships —
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… (8 Merten’s Law of Federal Income Taxation, p. 562 Note 63;
emphasis ours.)
with the exception only of duly registered general copartnerships
— within the purview of the term “corporation.” It is, therefore,
clear to our mind that petitioners herein constitute a partnership,
insofar as said Code is concerned, and are subject to the income tax
for corporations. Judgment affirmed.
FACTS: Julia Buñales died on March 23, 1944, leaving as heirs
her surviving spouse, Lorenzo T. Oña and her five children
Because three of the heirs, namely Luz, Virginia and
Lorenzo, Jr., all surnamed Oña, were still minors when the
project of partition was approved, Lorenzo T. Oña, their father
and administrator of the estate, filed a petition in Civil Case No.
9637 of the Court of First Instance of Manila for appointment
as guardian of said minors. On November 14, 1949, the Court
appointed him guardian of the persons and property of the
aforenamed minors.

The project of partition shows that the heirs have
undivided one-half (1/2) interest in ten parcels of land with a
total assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined amount to
be collected from the War Damage Commission.
Although the project of partition was approved by
the Court on May 16, 1949, no attempt was made to
divide the properties therein listed. Instead, the properties
remained under the management of Lorenzo T. Oña who used
said properties in business by leasing or selling them and
investing the income derived therefrom and the proceeds from
the sales thereof in real properties and securities. As a result,
petitioners' properties and investments gradually increased
from P105,450.00 in 1949 to P480,005.20 in 1956.
From said investments and properties petitioners
derived such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends, rentals
and interests The said incomes are recorded in the books of
account kept by Lorenzo T. Oña, where the corresponding
shares of the petitioners in the net income for the year are also
known
On the basis of the foregoing facts, respondent
(Commissioner of Internal Revenue) decided that petitioners
formed an unregistered partnership and therefore, subject to
the corporate income tax.
ISSUE Whether the petitioners formed an unregistered
partnership
HELD:Yes, the petitioners formed an unregistered partnership.
The Supreme Court held that that instead of actually
distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the
properties remained under the management of Lorenzo T. Oña
who used said properties in business by leasing or selling them
and investing the income derived therefrom and the proceeds
from the sales thereof in real properties and securities. It is
thus incontrovertible that petitioners did not, contrary to their
contention, merely limit themselves to holding the properties
inherited by them. Indeed, it is 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 Lorenzo T. Oña, in the purchase and
sale of corporate securities. It is likewise admitted that all the
profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in
the inheritance.
As already indicated, for tax purposes, the co-ownership of
inherited properties is automatically converted into an
unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a
7
common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding.
Taxation; Partnership; When co-ownership converted to co-
partnership.—For tax purposes, the co-ownership of inherited
properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their respective shares
in the inheritance as determined in a project partition either duly
executed in an extra-judicial settlement or approved by the court in
the corresponding testate or intestate proceeding. The reason is
simple. From the moment of such partition, the heirs are entitled
already to their respective definite shares of the estate and the
incomes thereof, for each of them to manage and dispose of as
exclusively his own without the intervention of the other heirs, and,
accordingly, he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to
be held in common with his co-heirs under a single management to
be used with the intent of making profit thereby in proportion to his
share, there can be no doubt that, even if no document or instrument
were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed.
Same; Same; Corporation; Partnerships considered corporation for
tax purposes.—For purposes of the tax on corporations, the National
Internal Revenue Code, includes partnerships—with the exception
only of duly registered general co-partnerships—within the purview
of the term “corporation.”
Same; Same; When income derived from inherited properties
deemed part of partnership income.—The income derived from
inherited properties may be considered as individual income of the
respective heirs only so long as the inheritance or estate is not
distributed or, at least, partitioned, but the moment their respective
known shares are used as part of the common assets of the heirs to
be used in making profits, it is but proper that the income of such
shares should be considered as part of the taxable income of an
unregistered partnership.
Same; Same; Effect on unregistered partnership profits of
individual income tax paid.—The partnership profits distributable to
the partners should be reduced by the amounts of income tax
assessed against the partnership. Consequently, each of the petioners
in his individual capacity overpaid his income tax for the years in
question. But as the individual income tax liabilities of petitioners
are not in issue in the instant proceeding, it is not proper for the
Court to pass upon the same.
Same; Same; Where right to refund of overpaid individual income
tax has prescribed.—A taxpayer who did not pay the tax due on the
income from an unregistered partnership, of which he is a partner,
due to an erroneous belief that no partnership, but only a co-
ownership, existed between him and his co-heirs, and who due to the
payment of the individual income tax corresponding to his share in
the unregistered partnership profits, on the balance, overpaid his

income tax has the right to be reimbursed what he has erroneously
paid. However, the law is very clear that the claim and action for
such reimbursement are subject to the bar of prescription.
4. Obillos v. CIR
Facts: In 1973, Jose Obillos completed payment on two lots located
in Greenhills, San Juan. The next day, he transferred his rights to his
four children for them to build their own residences. The Torrens
title would show that they were co-owners of the two lots. However,
the petitioners resold them to Walled City Securities Corporation and
Olga Cruz Canda for P313k or P33k for each of them. They treated
the profit as capital gains and paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate income tax
of their shares, as this entire assessment is based on the alleged
partnership under Article 1767 of the Civil Code; simply because they
contributed each to buy the lots, resold them and divided the profits
among them.
But as testified by Obillos, they have no intention to form the
partnership and that it was merely incidental since they sold the said
lots due to high demand of construction. Naturally, when they sell
them as co-partners, it will result to the share of profits. Further,
their intention was to divide the lots for residential purposes.
Issue: Was there a partnership, hence, they are subject to corporate
income taxes?
Court Ruling: Not necessarily. As Article 1769 (3) of the Civil Code
provides: the sharing of gross returns does not in itself establish a
partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns
are derived. There must be an unmistakeable intention to form a
partnership or joint venture.
In this case, the Commissioner should have investigated if the
father paid donor's tax to establish the fact that there was really no
partnership.
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
father.
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 co-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
8
and paid an income tax on one-half thereof or on 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 P71,074.56.
Not only that. He considered the share of the profits of each
petitioner in the sum of P33,584 as a "distributive dividend" taxable
in full (not a mere capital gain of which ½ 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 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
Tobeñas says:
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. [*]
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 partnership.
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Oña vs. Commissioner
of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where
after an extrajudicial settlement the coheirs 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.SO ORDERED.
"Co-ownership 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
question pro-indiviso from their deceased parents; they did not
contribute or invest additional capital to increase or expand the
inherited 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 partnership. Co-
heirs 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 any 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. CIR, CTA Case No. 738,
September 11, 1961, cited in Arañas, 1977 Tax Code Annotated,
Vol. 1, 1979 Ed., pp. 77-78).
9
Facts:On March 2, 1973 Jose Obillos, Sr. bought two lots with
areas of 1,124 and 963 square meters of 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 Torrens titles issued to them showed
that they were co-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 Canada for the total sum of P313,050. 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, 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. 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 The petitioners
contested the assessments. Two Judges of the Tax Court
sustained the same. Hence, the instant appeal.
Issue: Whether or not the petitioners had indeed formed a
partnership or joint venture and thus
liable for corporate tax.
Held: The Supreme Court held that the petitioners should not be
considered to have formed a partnership just because they allegedly
contributed P178,708.12 to buy the two lots,
resold the same and divided the profit among themselves. To regard
so 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 coownership and a partnership. The petitioners
were not engaged in any joint venture by reason of that isolated
transaction.
*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.*
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
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. They did not contribute or invest

additional ' capital to increase or expand the properties, nor was
there an unmistakable intention to form partnership or joint venture.
WHEREFORE, the judgment of the Tax Court is reversed and set
aside. The assessments
are cancelled. No costs.
All co-ownerships are not deemed unregistered partnership.—Co-
Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership,
or a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all Co-ownerships of
inherited properties to the tax on corporations, inasmuch as if a
property does not produce an income at all, it is not subject to any
kind of income tax, whether the income tax on individuals or the
income tax on corporation. As compared to other cases:
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.
This case is 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.
Taxation; The dictum that the power to tax involves the power to
destroy should be obviated.—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.
Same; Partnership; Co-ownership; Where the father sold his rights
over two parcels of land to his four children so they can build their
residence, but the latter after one (1) year sold them and paid the
capital gains, they should not be treated to have formed an
unregistered partnership and taxed corporate income tax on the sale
and dividend income tax on their shares of the profit's from the
sale.—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 lots because of the high cost of construction, then
they had no choice but to resell the same to dissolve the
coownership. 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.
Same; Same; Same; Mere sharing of gross income from an isolated
transaction does not establish a partnership.—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 j oint 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.
10
5. Lim vs. Philippine Fishing Gear Industries
Inc.
FACTS: Lim Tong Lim requested Peter Yao and Antonio Chuato
engage in commercial fishing with him. The three agreed to purchase
two fishing boats but since they do not have the money they borrowed
from one Jesus Lim the brother of Lim Tong Lim. Subsequently, they
again borrowed money for the purchase of fishing nets and other
fishing equipments. Yao and Chua represented themselves as acting
in behalf of “Ocean Quest Fishing Corporation” (OQFC) and they
contracted with Philippine Fishing Gear Industries (PFGI) for the
purchase of fishing nets amounting to more than P500k. However,
they were unable to pay PFGI and hence were sued in their own names
as Ocean Quest Fishing Corporation is a non-existent corporation.
Chua admitted his liability while Lim Tong Lim refused such liability
alleging that Chua and Yao acted without his knowledge and consent
in representing themselves as a corporation.
ISSUE: Whether Lim Tong Lim is liable as a partner
HELD: Yes. It is apparent from the factual milieu that the three
decided to engage in a fishing business. Moreover, their Compromise
Agreement had revealed their intention to pay the loan with the
proceeds of the sale and to divide equally among them the excess or
loss. The boats and equipment used for their business entails their
common fund. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed
formed a partnership. The principle of corporation by estoppel cannot
apply in the case as Lim Tong Lim also benefited from the use of the
nets in the boat, which was an asset of the partnership. Under the law
on estoppel, those acting in behalf of a corporation and those benefited
by it, knowing it to be without valid existence are held liable as
general partners. Hence, the question as to whether such was legally
formed for unknown reasons is immaterial to the case.
FACTS:It was established that Lim Tong Lim requested Peter Yao
to engage in commercial fishing with him and one Antonio Chua. The
three agreed to purchase two fishing boats, fishing nets and other
fishing equipment, but since they do not have the money they
borrowed from one Jesus Lim (brother of Lim Tong Lim). Now, Yao
and Chua represented themselves as acting in behalf of “Ocean Quest
Fishing Corporation” (OQFC) they contracted with Philippine
Fishing Gear Industries (PFGI) for the purchase of fishing nets
amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their
own names because apparently OQFC is a non-existent corporation.
Chua admitted liability and asked for some time to pay. Yao waived
his rights. Lim Tong Lim however argued that he’s not liable because
he was not aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is
clear that Chua, Yao and Lim had decided to engage in a fishing

business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term
“common fund” under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit
or industry. That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership. Lim Tong Lim
cannot argue that the principle of corporation by estoppels can only
be imputed to Yao and Chua. Unquestionably, Lim Tong Lim
benefited from the use of the nets found in his boats, the boat which
has earlier been proven to be an asset of the partnership. Lim, Chua
and Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
FACTS OF THE CASE
This case is petition for review on Certiorari. On behalf of
"Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract dated 7 February 1990, for the purchase of
fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (PFGI). They claimed that they were engaged in a
business venture with Lim Tong Lim, who however was not a
signatory to the agreement. The total price of the nets amounted to
P532,045. 400 pieces of floats worth P68, 000 were also sold to the
Corporation.
The buyers, however, failed to pay for the fishing nets and the floats;
hence, PFGI filed a collection suit against Chua, Yao and Lim Tong
Lim with a prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general partners, on the
allegation that "Ocean Quest Fishing Corporation" was a nonexistent
corporation as shown by a Certification from the Securities and
Exchange Commission.
Instead of answering the Complaint, Chua filed a
Manifestation admitting his liability and requesting a reasonable time
within which to pay. He also turned over to PFGI some of the nets
which were in his possession. Peter Yao filed an Answer, after which
he was deemed to have waived his right to cross-examine witnesses
and to present evidence on his behalf, because of his failure to appear
in subsequent hearings. Lim Tong Lim, on the other hand, filed an
Answer with Counterclaim and Cross claim and moved for the lifting
of the Writ of Attachment. The trial court maintained the Writ, and
upon motion of PFGI, ordered the sale of the fishing nets at a public
auction. PFGI won the bidding and deposited with the said court the
sales proceeds of P900, 000.
On 18 November 1992, the trial court rendered its Decision, ruling in
favor of PFGI and that Chua, Yao and Lim, as general partners, were
jointly liable to pay PFGI. Lim appealed to the Court of Appeals (CA)
which, affirmed the RTC. Hence, Lim filed the Petition for Review on
Certiorari arguing that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him.
ISSUE
11
Whether Lim should be held jointly liable with Chua and Yao under
the Doctrine of Corporation by estoppel.
RULING
Yes. The Supreme Court held that although technically, it is true that
petitioner did not directly act on behalf of the corporation. Still, a
person who has reaped the benefits of a contract entered into by
persons with whom he previously had an existing relationship is
deemed to be part of said association and is covered by the scope of
the doctrine of corporation by estoppel.
FACTSAntonio Chua and Peter Yao entered into a contract in behalf
of Ocean Quest Fishing Corporation for the purchase of fishing nets
from respondent Philippine Fishing Gear Industries, Inc. Chua and
Yao claimed that they were engaged in business venture with
petitioner Lim Tong Lim, who, however, was not a signatory to the
contract. The buyers failed to pay the fishing nets. Respondent filed
a collection against Chua, Yao and petitioner Lim in their capacities
as general partners because it turned out that Ocean Quest Fishing
Corporation is a non-existent corporation. The trial court issued a
Writ of Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets. The trial court rendered its decision
ruling that respondent was entitled to the Writ of Attachment and
that Chua, Yao and Lim, as general partners, were jointly liable to
pay respondent. Lim appealed to the Court of Appeals, but the
appellate court affirmed the decision of the trial court that
petitioner Lim is a partner and may thus be held liable as such.
Hence, the present petition. Petitioner claimed that since his name
did not appear on any of the contracts and since he never directly
transacted with the respondent corporation, ergo, he cannot be
held liable.
ISSUEWON petitioner can be held liable as a general partner.
HELD The Supreme Court denied the petition. The Court ruled that
having reaped the benefits of the contract entered into by Chua
and Yao, with whom he had an existing relationship, petitioner Lim
is deemed a part of said association and is covered by the doctrine
of corporation by estoppel. The Court also ruled that under the
principle of estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid existence, are
held liable as general partners.
Partnerships; A partnership may be deemed to exist among parties
who agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown that
they have not contributed any capital of their own to a “common
fund,” as their contribution to such fund could be an intangible like
credit or industry.—From the factual findings of both lower courts,
it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim who was petitioner’s
brother. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale
of the boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed
with borrowed money, fell under the term “common fund” under

Article 1767. The contribution to such fund need not be cash or
fixed assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation of
the boats would be divided equally among them also shows that they
had indeed formed a partnership.
Same; Appeals; Petitions for Review; Pleadings and Practice;
Under Rule 45, a petition for review should involve only questions of
law, and a petitioner, in assailing the factual findings of the two
lower courts, effectively goes beyond the bounds of a petition for
review.—We stress that under Rule 45, a petition for review like the
present case should involve only questions of law. Thus, the
foregoing factual findings of the RTC and the CA are binding on
this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. In assailing the
factual findings of the two lower courts, petitioner effectively goes
beyond the bounds of a petition for review under Rule 45.
Same; Same; Same; A proper adjudication of claimants’ rights
mandates that courts must review and thoroughly appraise all
relevant facts.—A proper adjudication of claimants’ rights mandates
that courts must review and thoroughly appraise all relevant facts.
Both lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that the lower
courts have decided on the basis of one piece of document alone,
petitioner fails to appreciate that the CA and the RTC delved into the
history of the document and explored all the possible consequential
combinations in harmony with law, logic and fairness. Verily, the
two lower courts’ factual findings mentioned above nullified
petitioner’s argument that the existence of a partnership was based
only on the Compromise Agreement.
Same; Loans; It is not uncommon to register the properties acquired
from a loan in the name of the person the lender trusts.—Verily, as
found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in
order to finance the acquisition and the upgrading of the vessels
which would be used in their fishing business. The sale of the boats,
as well as the division among the three of the balance remaining
after the payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own property
but an asset of the partnership. It is not uncommon to register the
properties acquired from a loan in the name of the person the lender
trusts, who in this case is the petitioner himself. After all, he is the
brother of the creditor, Jesus Lim.
Same; Corporation Law; Estoppel; Corporation by Estoppel
Doctrine; Agency; Those who act or purport to act as the
representatives or agents of an ostensible corporate entity who is
proven to be legally inexistent do so without authority and at their
own risk.—Even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be estopped from denying its
corporate existence. “The reason behind this doctrine is obvious—an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes
of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority
and at their own risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all the
12
right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid
existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent.”
Same; Same; Same; Same; The doctrine of corporation by estoppel
may apply to the alleged corporation and to a third party; An
unincorporated association, which represents itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relies in good faith on such
representation.—The doctrine of corporation by estoppel may apply
to the alleged corporation and to a third party. In the first instance,
an unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits.
Same; Same; Same; Same; A third party who, knowing an
association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged
corporation.—A third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence
in a suit brought against the alleged corporation. In such case, all
those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.
Same; Same; Same; Same; Under the law on estoppel, those acting
on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.—It is
difficult to disagree with the RTC and the CA that Lim, Chua and
Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Same; Same; Same; Same; A person who has reaped the benefits of
a contract entered into by persons with whom he previously had an
existing relationship is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel.—
Technically, it is true that petitioner did not directly act on behalf of
the corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel. We
reiterate the ruling of the Court in Alonso v. Villamor: “A litigation
is not a game of technicalities in which one, more deeply schooled
and skilled in the subtle art of movement and position, entraps and
destroys the other. It is, rather, a contest in which each contending
party fully and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all imperfections of
form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapier’s

thrust. Technicality, when it deserts its proper office as an aid to
justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in
technicalities.”
13
6. WOLFGANG AURBACH vs. SANITARY WARES
MANUFACTURING CORPORATION (Saniwares)(1989)
FACTS:Saniwares, a domestic corporation, was incorporated for
the primary purpose of manufacturing and marketing sanitary wares.
One of the incorporators, Mr. Young went abroad to look for foreign
partners. ASI, a foreign corporation domiciled in the US entered into
an agreement with Saniwares and some Filipino investors whereby
ASI and the Filipino investors agreed to participate in the ownership
of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad China
and sanitarywares. The parties agreed that the business operations in
the Philippines shall be carried on by an incorporated enterprise
which name shall be Sanitary Wares Manufacturing Corporation.
The agreement has the provision that the management of the
corporation shall be vested in the Board of Directors (BOD) which
shall consists of 9 individuals. And as long as ASIwill own 30% of
the outstanding capital stock, 3 of the 9 directors shall be designated
by ASI and the other directors by the other stockholders. Veto power
was also given to ASI which is designed to protect it as a minority
group. The joint enterprise prospered. However, disagreements came
up due to objection of ASI of the desired expansion of the Filipino
group. When the time came to elect the BOD, instead of 9 nominees,
11 were nominated contrary to the usual practice. The meeting was
subsequently adjourned.ASI, other stockholders and Salazar, one of
the nominees as director continued the meeting at the elevator lobby
of ASI Building and consequently, 5 directors were elected as
certified by the acting secretary.
ISSUE: Whether or not the directors as nominated by the ASI group
are valid members of the BOD of Saniwares
HELD:No. A corporation cannot enter into a partnership contract
but may engage in a joint venture with other. Since the relationship
is a joint venture, the agreement of the parties governs.
14

Insert a photocopy of syllabus fro library
15
7. Litonjua, Jr. vs. Litonjua, Sr.
Actions; Civil Law; Partnership; Words and Phrases; A contract of
partnership is defined by the Civil Code as one where two or more
persons bound themselves to contribute money, property, or industry
to a common fund with the intention of dividing the profits among
themselves.—A partnership exists when two or more persons agree
to place their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a proportionate
sharing of the profits and losses between them. A contract of
partnership is defined by the Civil Code as one where two or more
persons bound themselves to contribute money, property, or industry
to a common fund with the intention of dividing the profits among
themselves. A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since
their elements are similar, i.e., community of interests in the
business and sharing of profits and losses. Being a form of
partnership, a joint venture is generally governed by the law on
partnership.
Same; Same; Same; Petitioner’s complaint does not state a valid
cause of action because not all the essential elements of a cause of
action are present.—Given the foregoing perspective, what the
appellate court wrote
in its assailed Decision about the probative value and legal effect of
Annex “A-1” commends itself for concurrence: “Considering that
the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the
“Memorandum” (Annex “A” of the complaint) which purports to
establish the said “partnership/joint venture” is NOT a public
instrument and there was NO inventory of the immovable property
duly signed by the parties. As such, the said “Memorandum” . . . is
null and void for purposes of establishing the existence of a valid
contract of partnership. Indeed, because of the failure to comply
with the essential formalities of a valid contract, the purported
“partnership/joint venture” is legally inexistent and it produces no
effect whatsoever. Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal right. Accordingly,
the allegations in the complaint, including the actionable document
attached thereto, clearly demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioner’s] complaint
does NOT state a valid cause of action because NOT all the
essential elements of a cause of action are present.”
Same; Same; Same; Statute of Frauds; By force of the statute of
frauds, an agreement that by its terms is not to be performed within
a year from the making thereof shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing
and subscribed by the party charged.—It is at once apparent that
what respondent Eduardo imposed upon himself under the above
passage, if he indeed wrote Annex “A-1,” is a promise which is not
to be performed within one year from “contract” execution on June
22, 1973. Accordingly, the agreement embodied in Annex “A-1” is
covered by the Statute of Frauds and ergo unenforceable for non-
compliance therewith. By force of the statute of frauds, an
agreement that by its terms is not to be performed within a year from
the making thereof shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing and
subscribed by the party charged. Corollarily, no action can be

proved unless the requirement exacted by the statute of frauds is
complied with.
Same; Same; Same; Same; A complaint for delivery and accounting
of partnership property based on such void or legally non-existent
actionable document is dismissible for failure to state a cause of
action.—Per the Court’s own count, petitioner used in his complaint
the mixed words “joint venture/partnership” nineteen (19) times and
the term “partner” four (4) times. He made reference to the “law of
joint venture/partnership [being applicable] to the business
relationship . . . between [him], Eduardo and
Bobby [Yang]” and to his “rights in all specific properties of their
joint venture/partnership.” Given this consideration, petitioner’s
right of action against respondents Eduardo and Yang doubtless
pivots on the existence of the partnership between the three of them,
as purportedly evidenced by the undated and unsigned Annex “A-
1.” A void Annex “A-1,” as an actionable document of partnership,
would strip petitioner of a cause of action under the premises. A
complaint for delivery and accounting of partnership property based
on such void or legally non-existent actionable document is
dismissible for failure to state of action. So, in gist, said the Court of
Appeals. The Court agrees.
Facts:Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein
respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The
legal dispute between them started when, on
2002, in theRTCAurelio filed a suit against his brother
Eduardo and... respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting.
In his complaint
Aurelio... alleged that, since
1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded
thru investment in Cineplex, Inc., LCM Theatrical Enterprises,
Odeon Realty Corporation (operator of Odeon I and II theatres),
Avenue
Realty, Inc., owner of lands and buildings, among other
corporations. Yang is described in the complaint as petitioner's and
Eduardo's partner in their Odeon Theater investment.
The same complaint also contained the following material
averments:
It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio's] retaining his share in the remaining
family businesses... and contributing his industry to the continued
operation of... these businesses, [Aurelio] will be given P1 Million
or 10% equity in all these businesses and those to be subsequently
acquired by them whichever is greater. . . .
16
In addition... the joint venture/partnership... had also acquired
[various other assets], but Eduardo caused to be registered in the
names of other parties....
Sometime in 1992, the relations between [Aurelio] and Eduardo
became sour so that [Aurelio] requested for an accounting and
liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
What is worse, [Aurelio] has reasonable cause to believe that
Eduardo and/or the corporate defendants as well as Bobby [Yang],
are transferring... various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud of
[Aurelio]. In consequence, [Aurelio] is therefore causing at this time
the annotation on the titles of these real properties' a notice of lis
pendens
Eduardo and the corporate respondents, as defendants a quo, filed a
joint ANSWER... denying under oath the material allegations of the
complaint, more particularly that portion... depicting petitioner... and
Eduardo as having entered into a contract of partnership.
For his part, Yang... moved to dismiss on the ground... that... as to
him, petitioner has no cause of action and the complaint does not
state any.
Petitioner's demand... in the petitory portion of his complaint... is for
delivery or payment to him, as Eduardo's and Yang's partner, of his
partnership/joint venture share, after an accounting has been duly
conducted of what he deems to be... partnership/joint venture
property.
Issues:whether or not petitioner and respondent Eduardo are
partners in the theatre, shipping and realty business
Ruling:The petition lacks merit.
Petitioner's demand... in the petitory portion of his complaint... is for
delivery or payment to him, as Eduardo's and Yang's partner, of his
partnership/joint venture share, after an accounting has been duly
conducted of what he deems to be... partnership/joint venture
property.
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with
the understanding that there shall be a proportionate sharing of the
profits and losses between them.
A contract of... partnership is defined by the Civil Code as one
where two or more persons bound themselves to contribute money,
property, or industry to a common fund with the intention of
dividing the profits among themselves.
A joint venture, on the other hand, is... hardly distinguishable from,
and may be likened to, a partnership since their elements are similar,
i.e., community of interests in the business and sharing of profits and
losses. Being a form of partnership, a joint venture is generally
governed by the law on... partnership.

Clearly,... a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is
indicated. Foremost of these are the following provisions of the Civil
Code:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph
shall not affect the liability of the partnership and the members
thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in
tone, but is unsigned and undated. As an unsigned document, there
can be no quibbling that Annex "A-1" does not meet the public
instrumentation requirements exacted under Article 1771... of the
Civil Code. Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or property,
Annex "A-1" cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC),
as... called for under the Article 1772 of the Code. And inasmuch as
the inventory requirement under the succeeding Article 1773 goes
into the matter of validity when immovable property is contributed
to the partnership, the next logical point of inquiry turns on the
nature of... petitioner's contribution, if any, to the supposed
partnership.
A partnership may be constituted in any form, save when immovable
property or real rights are... contributed thereto or when the
partnership has a capital of at least P3,000.00, in which case a public
instrument shall be necessary.
And if only to stress what has repeatedly been articulated, an
inventory to be signed by the parties and attached to... the public
instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to it.
Considering that the allegations in the complaint showed that
[petitioner] contributed immovable properties to the alleged
partnership, the "Memorandum"... which purports to establish the
said "partnership/joint venture" is NOT a public... instrument and
there was NO inventory of the immovable property duly signed by
the parties. As such, the said "Memorandum" ... is null and void for
purposes of establishing the existence of a valid contract of
partnership. Indeed, because of the failure to comply with the...
essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no
effect whatsoever. Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal right. Accordingly,
the... allegations in the complaint, including the actionable document
17
attached thereto, clearly demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioner's] complaint does
NOT state a valid cause of action because NOT all the essential
elements of a cause of action are present.
In Litonjua, Jr. vs. Litonjua, Sr., et al., G.R. No. 166299-300,
December 13, 2005, it was once again said that the contract –
validating inventory requirement under Article 1773 of the Civil
Code applies as long as real property or real rights are initially
brought into the partnership. In short, it is really of no moment
which of the partners contributed immovables. In context, the more
important consideration is that real property was contributed, in
which case an inventory of the contributed property duly signed by
the parties should be attached to the public instrument, else there is
legally no partnership to speak of.
Aurelio Litonjua Jr vs Eduardo Litonjua Sr. et al
Business Organization – Partnership, Agency, Trust – Partnership,
how formed Aurelio and Eduardo are brothers. In 1973, Aurelio
alleged that Eduardo entered into a contract
of partnership with him. Aurelio showed as evidence a letter sent to
him by Eduardo that the latter is allowing Aurelio to manage their
family business (if Eduardo’s away) and in exchange
thereof he will be giving Aurelio P1 million or 10% equity,
whichever is higher. A memorandum was subsequently made for the
said partnership agreement. The memorandum this time stated
that in exchange of Aurelio, who just got married, retaining his share
in the family business(movie theatres, shipping and land
development) and some other immovable properties, he will
be given P1 Million or 10% equity in all these businesses and those
to be subsequentlyacquired by them whichever is greater.
In 1992 however, the relationship between the brothers went sour.
And so Aurelio demanded anaccounting and the liquidation of his
share in the partnership. Eduardo did not heed and soAurelio sued
Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: No. The partnership is void and legally nonexistent. The
documentary evidence presented by Aurelio, i.e. the letter from
Eduardo and the Memorandum, did not prove partnership.
The 1973 letter from Eduardo on its face, contains typewritten
entries, personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that said letterdoes
not meet the public instrumentation requirements exacted under
Article 1771 (how partnership is constituted) of the Civil Code.
Moreover, being unsigned and doubtless referring to a partnership
involving more than P3,000.00 in money or property, said letter
cannot be
presented for notarization, let alone registered with the Securities
and Exchange Commission(SEC), as called for under the Article
1772 (capitalization of a partnership) of the Code. And
inasmuch as the inventory requirement under the succeeding Article
1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of
inquiry turns on the nature of Aurelio’s contribution, if any, to the
supposed partnership. The Memorandum is also not a proof of the
partnership for the same is not a public instrument
 18

and again, no inventory was made of the immovable property and no

inventory was attached tothe Memorandum. Article 1773 of the
Civil Code requires that if immovable property iscontributed to the
partnership an inventory shall be had and attached to the contract