agency —> agent ka lang
partnership —> agent and principal
ATP WEEK 10: PARTNERSHIPS
CASE 1: LIM V PHIL FISHING GEAR – Carlo Guevara
DOCTRINE: 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."
Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets.
Being partner, they are all liable for debts incurred by or on behalf of the
partnership.
The liability for a contract entered into on behalf of an unincorporated
association or ostensible corporation may lie in a person who may not
have directly transacted on its behalf, but reaped benefits from that
contract.
FACTS:
1. Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already
Yao's partner.
2. Eventually, Lim, Chua, and Yao verbally agreed to acquire two
fishing boats, the FB Lourdes and the FB Nelson.
3. They borrowed P3.25 million from Jesus Lim, brother of Petitioner
Lim Tong Lim, to finance the venture.
4. A Deed of Sale over these two (2) boats in favor of Petitioner Lim
Tong Lim was executed to serve as security for the loan.
5. They agreed that the refurbishing, re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by
Chua and Yao.
6. Due to "unavailability of funds," Jesus Lim again extended a loan to
the partnership and because of which, Yao and Chua entrusted the
ownership papers of two other boats to petitioner Lim.
7. On behalf of "Ocean Quest Fishing Corporation," Chua and Yao
entered into a Contract for the purchase of fishing nets of various
sizes from the private respondent Philippine Fishing Gear Industries,
Inc. claiming that they were engaged in a business venture (fishing
business) with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement.
1
8. Four hundred pieces of floats worth P68,000 were also sold to the
Corporation.
9. Subsequently, a civil case was filed by Chua and Yao against
petitioner Lim for
a. declaration of nullity of commercial documents;
b. reformation of contracts;
c. declaration of ownership of fishing boats;
d. injunction; and
e. damages.
10. Said case was amicably settled through a Compromise Agreement.
11. Afterwards, the purchase price for the nets was not paid hence;
private respondents filed a collection suit against Chua, Yao and
Petitioner Lim with a prayer for a writ of preliminary attachment.
12. 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
SEC.
13. The Trial Court ruled that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay respondent.
14. It held that a partnership among Lim, Chua and Yao existed.
15. It was noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be presumed
from the equal distribution of the profit and loss.
16. Lim appealed to the CA who affirmed the said ruling. Hence, a
petition for review was filed with the SC.
17. Petitioner alleges that he should not be held liable for the equipment
purchased from respondent since he asserts that a partnership did
not exist between them.
ISSUE: WON Lim, Chua and Yao could be deemed to have entered into
a partnership which will deem the petitioner Lim liable for the purchase of
the fishing nets and floats.
RULING: YES. The facts clearly showed that there existed a partnership
among Chua, Yao and him, pursuant to Article 1767 NCC.
Art. 1767: By the contract of partnership, two or more persons
bind themselves to contribute money, property, or industry to a
ATP WEEK 10: PARTNERSHIPS 2

common fund, with the intention of dividing the profits among The association formed in this case is deemed a de facto partnership
themselves. with all the consequent obligations for the purpose of enforcing the rights
of third persons. The liability of general partners (in a general partnership
• Chua, Yao and Lim had decided to engage in a fishing business, as so opposed to a limited partnership) is laid down in Article 1816 which
which they started by buying boats financed by a loan secured from posits that all partners shall be liable pro rata beyond the partnership
Jesus Lim who was petitioner's brother. assets for all the contracts which may have been entered into in its
• In their Compromise Agreement, they subsequently revealed their name, under its signature, and by a person authorized to act for the
intention to pay the loan with the proceeds of the sale of the boats, partnership. It is consistent with the rules on the nature of civil liability in
and to divide equally among them the excess or loss. delicts and quasi-delicts.
• 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.
• Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats.
• The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business.
• It would have been inconceivable for Lim to involve himself so much
in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded.
• They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.

DISPOSITIVE:
Private respondent Philippine Fishing Gear Industries, Inc WON.

CONCURRING OPINION: Vitug, J.

Chua, Yao and petitioner Lim have incurred the liabilities of general
partners. When a person by his act or deed represents himself as a
partner in an existing partnership or with one or more persons not actual
partners, he is deemed an agent of such persons consenting to such
representation and in the same manner, if he were a partner, with
respect to persons who rely upon the representation.
ATP WEEK 10: PARTNERSHIPS 3

CASE 2: PHILEX MINING CORPORATION VS. COMMISSIONER OF paid in cash from the Sto. Nino PROJECT,
INTERNAL REVENUE – Metha Orolfo the amount not so paid in cash shall be added
to the MANAGERS’ account.
DOCTRINE: Article 1769 (4) of the Civil Code provides that the “receipt (c) The cash and property shall not thereafter be
by a person of a share in the profits of a business is prima facie evidence withdrawn from the Sto. Nino PROJECT until
that he is a partner in the business.” termination of this Agency.
(d) The MANAGERS’ account shall not accrue
interest. Since it is the desire of the
FACTS: PRINCIPAL to extend to the
1. The petitioner Philex Mining Corporation entered into an agreement MANAGERS the benefit of
(“Power of Attorney”) with Baguio Gold Mining Company (aka Sto. subsequent appreciation of property,
Nino mine) for the former to manage and operate the latter’s mining u p o n a p r o j e c t e d termination of this
claim located in Benguet Province. Agency, the ratio which the MANAGERS’
account has to the owner’s account will b e
The “Power of Attorney” provides: determined, and the corresponding
4. Within three (3) years from date thereof, the proportion of the entire assets of the
PRINCIPAL (Baguio Gold) shall make available to the STO. NINO MINE, excluding the
MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS claims, shall be transferred to the
(P11,000,000.00), in such amounts as f r o m t i m e t o t i m e MANAGERS, except that such
may be required by the MANAGERS within the said t r a n s f e r r e d a s s e t s shall not include mine
3 - y e a r p e r i o d , f o r u s e i n t h e MANAGEMENT of the STO. development, roads, buildings, and similar
NINO MINE. The said ELEVEN MILLION PESOS property which will be valueless, or o f s l i g h t
(P11,000,000.00) shall be deemed, for internal audit purposes, value, to the MANAGERS. The
as the owner’s account in the Sto. Nino PROJECT. Any part MANAGERS can, on the other hand,
of a n y i n c o m e o f t h e P R I N C I P A L f r o m t h e S T O . N I N O r e q u i r e a t t h e i r o p t i o n that property
M I N E , w h i c h i s l e f t w i t h t h e S t o . N i n o P R O J E C T , shall originally transferred by them to the Sto. Nino
be added to such owner’s account. PROJECT be re-transferred to them.
Untilsuch assets are transferred to the
5. Whenever the MANAGERS shall deem it necessary MANAGERS, this Agency shall remain
and convenient in connection with the MANAGEMENT of the subsisting. Nino PROJECT before income
STO. NINO MINE, they may transfer their own funds or property tax. It is understood that the MANAGERS
to the Sto. Nino PROJECT, in accordance with the following shall pay income tax on their compensation,
arrangements: while the PRINCIPAL shall pay income tax on
(a) Nino PROJECT as a special fund to be known the net profit of the Sto. Nino PROJECT after
as the MANAGERS’ account. deduction therefrom of the MANAGERS’
(b) The total of the MANAGERS’ account shall not compensation.
exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, 2. Philex Mining made advances of cash and property in accordance
however, that if the compensation of the with paragraph 5 of the agreement.
MANAGERS as herein provided cannot be
ATP WEEK 10: PARTNERSHIPS
3. However, the mine suffered continuing losses over the years which
resulted to Philex Mining’s withdrawal as manager of the mine and in
the eventual cessation of mine operations.
4. The parties executed a “Compromise with Dation in Payment”
wherein Baguio Gold admitted an indebtedness to petitioner in the
amount of P179,394,000.00 and agreed to pay the same in three
segments by first assigning Baguio Gold’s tangible assets to Philex
Mining, transferring to the latter Baguio Gold’s equitable title in its
Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.
5. The parties executed an “Amendment to Compromise with Dation in
Payment” where the parties determined that Baguio Gold’s
indebtedness to petitioner actually amounted to P259,137,245.00,
which sum included liabilities of Baguio Gold to other creditors that
petitioner had assumed as guarantor.
6. These liabilities pertained to long-term loans amounting to
US$11,000,000.00 contracted by Baguio Gold from the Bank of
America NT & SA and Citibank N.A.
7. This time, Baguio Goldundertook to pay petitioner in two segments
by first assigning its tangible assets for P127,838,051.00 and then
transferring its equitable title in its Philodrill assets for
P16,302,426.00.
8. The parties then ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount of
P114,996,768.00.
9. Philex Mining wrote off in its 1982 books of account the remaining
outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in
1981 and P2,860,768.00 to the 1982 operations.
10. In its 1982 annual income tax return, Philex Mining deducted from its
gross income the amount of P112,136,000.00 as “loss on
settlement of receivables from Baguio Gold against reserves
and allowances.”
11. However, the BIR disallowed the amount as deduction for bad debt
and assessed petitioner a deficiency income tax of P62,811,161.39.
12. Philex Mining protested before the BIR arguing that the deduction
must be allowed since all requisites for a bad debt deduction were
satisfied, to wit:
(a) there was a valid and existing debt;
(b) the debt was ascertained to be worthless; and
4
(c) it was charged off within the taxable year when it was determined to
be worthless.
13. BIR denied petitioner’s protest.
14. BIR held that the alleged debt was not ascertained to be worthless
since Baguio Gold remained existing and had not filed a petition for
bankruptcy; and that the deduction did not consist of a valid and
subsisting debt considering that, under the management contract,
petitioner was to be paid 50% of the project’s net profit.
PHILEX: Creditor-debtor relationship- no partnership with Baguio Gold
because I did not bind itself to contribute money or property to the project
under par 5 it is optional for the petitioner to transfer funds or property to
the project.
Court: Employee-employer relationship- no partnership because
petitioner will only be paid “wages” as the manager of the project and
had to put substantial sums into the venture inorder to ensure its viability
and profitability.
ISSUE: WON there is partnership?
RULING: YES. An examination of the “Power of Attorney” reveals that a
partnership or joint venture was indeed intended by the parties.
The strongest indication that petitioner was a partner in the Sto.
Nino Mine is the fact that it would receive 50% of the net profits as
“compensation” under paragraph 12 of the agreement. The entirety
of the parties’ contractual stipulations simply leads to no other conclusion
than that petitioner’s “compensation” is actually its share in the income of
the joint venture. Article 1769 (4) of the Civil Code explicitly provides that
the “receipt by a person of a share in the profits of a business is prima
facie evidence that he is a partner in the business.”
Discussion on Contract of Agency (in case sir will ask us again)
In an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third party
that depends upon it, or the mutual interest of both principal and agent.
In this case, the non-revocation or non-withdrawal under paragraph 5(c)
applies to the advances made by petitioner who is supposedly the agent
ATP WEEK 10: PARTNERSHIPS 5

and not the principal under the contract. Thus, it cannot be inferred
from the stipulation that the parties’ relation under the agreement is
one of agency coupled with an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication

that the relationship of the parties was one of agency and not a
partnership. Although the said provision states that “this
Agency shall be irrevocable while any obligation of the PRINCIPAL in
favor of the MANAGERS is outstanding, inclusive of the MANAGERS’
account,” it does not necessarily follow that the parties entered into an
agency contract coupled with an interest that cannot be withdrawn by
Baguio Gold.

The main object of the “Power of Attorney” was not to confer a power in
favor of petitioner to contract with third persons on behalf of Baguio Gold
but to create a business relationship between petitioner and Baguio
Gold, in which the former was to manage and operate the latter’s mine
through the parties’ mutual contribution of material resources and
industry. The essence of an agency, even one that is coupled with
interest, is the agent’s ability to represent his principal and bring about
business relations between the latter and third persons.

DISPOSITIVE: CIR won! Philex should pay the deficiency tax of

62,811,161.31 with 20% delinquency interest from February 10, 1995
until payment.
ATP WEEK 10: PARTNERSHIPS
CASE 3: AFISCO INSURANCE CORPORATION v. CA and
COMMISSIONER OF INTERNAL REVENUE – Joshua Salteras
DOCTRINE: Article 1767 of the Civil Code recognizes the creation of a
contract of partnership when “two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.”
Unregistered Partnerships and associations are considered as
corporations for tax purposes – Under the old internal revenue code, “A
tax is hereby imposed upon the taxable net income received during each
taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or
organized, xxx.” Ineludibly, the Philippine legislature included in the
concept of corporations those entities that resembled them such as
unregistered partnerships and associations.
Insurance pool in the case at bar is deemed a partnership or association
taxable as a corporation – In the case at bar, petitioners-insurance
companies formed a Pool Agreement, or an association that would
handle all the insurance businesses covered under their quota-share
reinsurance treaty and surplus reinsurance treaty with Munich is
considered a partnership or association which may be taxed as a
ccorporation.
FACTS:
• The petitioners are 41 non-life insurance corporations, organized and
existing under the laws of the Philippines.
• On August 1, 1965 entered into a Quota Share Reinsurance Treaty
and a Surplus Reinsurance Treaty with the Munchener
Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-
resident foreign insurance corporation.
• The reinsurance treaties required petitioners to form a pool. (insure
their insurance)
• Accordingly, a pool composed of the petitioners was formed on the
same day
• On April 14, 1976, the pool of machinery insurers submitted a
financial statement and filed an “Information Return of Organization
Exempt from Income Tax” for the year ending in 1975, on the basis
6
of which it was assessed by the Commissioner of Internal Revenue
deficiency corporate taxes and withholding taxes on dividends paid
to Munich and to the petitioners, respectively.
• These assessments were protested by the petitioners through its
auditors Sycip, Gorres, Velayo and Co.
• The Commissioner of Internal Revenue denied the protest and
ordered the petitioners, assessed as “Pool of Machinery Insurers,” to
pay deficiency income tax, interest, and withholding tax.
• The CA ruled in the main that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latter’s collection of
premiums on behalf of its members, the ceding companies, was
taxable income.
• It added that prescription did not bar the Bureau of Internal Revenue
(BIR) from collecting the taxes due, because “the taxpayer cannot be
located at the address given in the information return filed.”
ISSUE/S: WON the “insurance pool” so formed be deemed a partnership
which is taxable as a corporation.
HELD: YES. The “insurance pool” so formed be deemed a partnership
which is taxable as a corporation.
RATIO:
Article 1767 of the Civil Code recognizes the creation of a contract of
partnership when “two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.”Its requisites are: “(1) mutual
contribution to a common stock, and (2) a joint interest in the profits.” In
other words, a partnership is formed when persons contract “to devote to
a common purpose either money, property, or labor with the intention of
dividing the profits between themselves.” Meanwhile, an association
implies associates who enter into a “joint enterprise x x x for the
transaction of business.”
In the case before us, the ceding companies entered into a Pool
Agreement or an association that would handle all the insurance
businesses covered under their quota-share reinsurance treaty and
surplus reinsurance treaty with Munich. The following unmistakably
indicates a partnership or an association covered by Section 24 of the
NIRC:
ATP WEEK 10: PARTNERSHIPS 7

(1) The pool has a common fund, consisting of money and other
valuables that are deposited in the name and credit of the pool. This
common fund pays for the administration and operation expenses of
the pool.

(2) The pool functions through an executive board, which resembles the
board of directors of a corporation, composed of one representative
for each of the ceding companies.

(3) True, the pool itself is not a reinsurer and does not issue any
insurance policy; however, its work is indispensable, beneficial and
economically useful to the business of the ceding companies and
Munich, because without it they would not have received their
premiums. The ceding companies share “in the business ceded to the
pool” and in the “expenses” according to a “Rules of Distribution”
annexed to the Pool Agreement. Profit motive or business is, therefore,
the primordial reason for the pool’s formation. As aptly found by the
CTA:

“xxx The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact, that of the pool being used in the
transaction of business for profit. It is apparent, and petitioners admit,
that their association or coaction was indispensable [to] the transaction of
the business. x x x If together they have conducted business, profit must
have been the object as, indeed, profit was earned. Though the profit
was apportioned among the members, this is only a matter of
consequence, as it implies that profit actually resulted.”

DISPOSITIVE: Afisco lost.

ATP WEEK 10: PARTNERSHIPS
CASE 4: TORRES (ANTONIA, ASSISTED BY HUSBAND
ANGELO) v CA AND MANUEL TORRES – Karla Gutierrez
DOCTRINE: The contract manifested the intention of the parties
to form a partnership.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations.
Ostensible Partnership.
FACTS:
1. In 1969, sisters Antonia Torres and Emeteria Baring entered
into a joint venture agreement with Manuel Torres.
2. Under the agreement, the sisters agreed to execute a deed of
sale in favor Manuel over a parcel of land.
3. The sisters received no cash payment from Manuel but the
promise of profits (60% for the sisters and 40% for Manuel) –
said parcel of land is to be developed as a subdivision.
4. So it appears as though this was some sort of joint venture
5. Manuel then had the title of the land transferred in his name
and he subsequently mortgaged the property.
6. He used the proceeds from the mortgage to start building
roads, curbs and gutters.
7. Manuel also contracted an engineering firm for the building of
housing units.
8. But due to adverse claims in the land, prospective buyers were
scared off and the subdivision project eventually failed.
9. According to petitioners, the project failed because of
“respondent’s lack of funds or means and skills.”
10. They add that respondent used the loan not for the
development of the subdivision, but in furtherance of his own
company, Universal Umbrella Company.
8
11. The sisters then filed a civil case against Manuel for damages
equivalent to 60% of the value of the property, which
according to the sisters, is what’s due them as per the
contract.
12. The lower court ruled in favor of Manuel
13. In affirming the trial court, the Court of Appeals held that
petitioners and respondent had formed a partnership for the
development of the subdivision.
14. The CA added that they must bear the loss suffered by the
partnership in the same proportion as their share in the profits
stipulated in the contract.
15. Disagreeing with the trial court’s pronouncement that losses as
well as profits in a joint venture should be distributed equally
the CA invoked Article 1797 of the Civil Code which provides:
“Article 1797 - The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each
in the losses shall be in the same proportion.”
16. The CA elucidated further:
“In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses.
17. The sisters then appealed before the Supreme Court where
they argued that there is no partnership between them and
Manuel because the joint venture agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: YES. The joint venture agreement the sisters entered into
with Manuel is a partnership agreement whereby they agreed to
contribute property (their land), which was to be developed as a
subdivision. While on the other hand, though Manuel did not
contribute capital, he is an industrial partner for his
contribution for general expenses and other costs.
ATP WEEK 10: PARTNERSHIPS 9

Furthermore, the income from the said project would be divided

according to the stipulated percentage (60-40). Clearly, the
contract manifested the intention of the parties to form a
partnership. Further still, the sisters cannot invoke their right to the
60% value of the property and at the same time deny the same
contract which entitles them to it.

At any rate, the failure of the partnership cannot be blamed on the

sisters, nor can it be blamed to Manuel (the sisters on their appeal
did not show evidence as to Manuel’s fault in the failure of the
partnership). The sisters must then bear their loss (which is 60%).
Manuel does not bear the loss of the other 40% because as an
industrial partner he is exempt from losses.

DISPOSITIVE: Manuel Won

ATP WEEK 10: PARTNERSHIPS 10

CASE 5: MAURICIO AGAD. V SEVERINO MABATO – Rob Estomo

DOCTRINE:
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.
None of the partners contributed either a fishpond or a real right to any
fishpond. Their contributions were limited to the sum of P1,000 each. The
operation of the fishpond mentioned in the notarized document was the
purpose of the partnership. Neither said fishpond nor a real right thereto
was contributed to the partnership or became part of the capital thereof,
even if a fishpond or a real right thereto could become part of its assets.

Art 1773 is only applicable if an immovable property has already been DISPOSITIVE: Remanded to the lower court for further proceeding. Agad
contributed. won.

FACTS:
(1) Mauricio Agad and Severino Mabato are partners in a fishpond Note.·In the absence of a valid cause, a partner cannot withdraw from a
business, evidenced by a notarized document, where Agad has partnership agreement (before its expiration) for his own personal profit
given P1000 for the fishpond’s capital. at the expense of the partnership (Lichauco v. Soriano, 26 Phil. 593).
(2) Agad filed a complaint against Mabato in the CFI of Davao alleging
that Mabato has failed to render an accounting of their business and
that he has not received his share which was supposedly 50% of the
profit.
(3) Mabato answered by denying the existence of a partnership as Agad
had not yet given his P1000 share in the capital.
(4) Subsequently, Mabato moved to have the case dismissed on the
ground that Agad had no cause of action because it involves
principally the determination of rights over public lands.
(5) The trial court granted the motion to dismiss and held that the
notarized document evidencing their partnership is null and void
pursuant to Art. 1773 of our Civil Code, because an inventory of the
fishpond referred in said instrument had not been attached thereto.
(6) Hence, this present petition.

ISSUE: W/N Art 1773 of the NCC is applicable in the case at bar?

HELD: NO, none of the partners contributed either a fishpond or a real

right to any fishpond.

RATIO: Art. 1773. A contract of partnership is void, whenever immovable

property is contributed thereto, if inventory of said property is not made,
signed by the parties; and attached to the public instrument. The real
issue in this case is whether or not immovable property or real rights
have been contributed to the partnership under consideration.
ATP WEEK 10: PARTNERSHIPS
CASE 6: AURELIO LITONJUA JR. v EDUARDO LITONJUA SR. –
Rebecca Flores
DOCTRINE:
A partnership may be constituted in any form but when immovable
property or real rights are contributed thereto, public instrument shall be
necessary. (Art. 1771)
A contract of partnership is void when an immovable property is
contributed and there is no inventory, signed by the parties and the said
inventory is not attached to the public instrument (A1773)
FACTS
1. Petitioner Aurelio Jr. an respondent Eduardo Litonjua, Sr. are
brothers.
2. The legal dispute between them started when Aurelio filed a suit
against his brother Eduardo, Roberto Yang and several
corporations for specific performance and accounting.
3. In his complaint Aurelio alleged that, since June 1973, he and
Eduardo are into a joint venture/partnership, for the continuation
of their family business and common family funds.
4. The joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and
other relatives.
5. It was agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio’s] retaining his share in the remaining
family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued
operation of these businesses, [Aurelio] will be given P1 Million
or 10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater.
6. Yang is described in the complaint as petitioner’s and Eduardo’s
partner in their Odeon Theater investment.
7. In 1992 the relation of the brothers became sour so Aurelio
requested for an accounting and liquidation of his share but
these demands were not heeded.
8. Worst, Aurelo has reasonable cause to believe that Eduardo and
Yang are transferring various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud
of Aurelio
11
9. Aurelio presented in court Annex A-1 which Eduardo allegedly
wrote for Aurelio saying that Aurelio will get 1M or 10% of
whatever is left of the corporation, whichever is greater (you
know the usual drama of sibs, refer to full text p. 580)
I am trying my best to mold you the way I work so you can follow
the pattern . . . . You will be the only one left with the company,
among us brothers and I will ask you to stay as I want you to run
this office every time I am away. I want you to run it the way I am
trying to run it because I will be all alone and I will depend
entirely to you (sic). My sons will not be ready to help me yet
until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is
greater. We two will gamble the whole thing of what I have and
what you are entitled to. . . . . It will be you and me alone on this.
If ever I pass away, I want you to take care of all of this. You
keep my share for my two sons are ready take over but give
them the chance to run the company which I have built.
10. Eduardo filed an ANSWER denying that they entered into a
contract of partnership.
11. According to Eduardo, there is no cause of action may be
derived from the actionable document Annex A-1 is void
under A1767 and A1773.
12. CA dismissed Aurelio’s complaint on the ground that the alleged
partnership evidenced by actionable documents (Annex A & A-1)
upon which Aurelio predicates his rights allegedly violated by
Eduardo and Yang are “void or legally inexistent”
13. Basically Aurelio’s demand is for delivery or payment to him, as
Eduardo’s and Yang’s partner, of his partnership share after an
accounting of partnership property.
ISSUE: Whether or not Aurelio and Eduardo are partners in the theatre,
shipping and realty business?
RULING: NO. Article 1771 and 1773 were not complied with
ATP WEEK 10: PARTNERSHIPS
1. Article 1773 was not complied with.
Aurelio’s contribution consisted of immovable and real rights coming from
his share in the family business that is consisting of movie theaters,
shipping and land development under paragraph 3.02 of the complaint.
This being the case, Article 1771 should be complied with.
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.
Annex A-1 on its face, contains typewritten entries, personal in tone, but
is unsigned and undated.
As an unsigned document, Annex A-1 does not meet the public
instrumentation requirements exacted under Article 1771 of the Civil
Code.
2. Likewise it did not comply with A1773
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.
A1773 applies as long real property or real rights are initially brought into
the partnership.
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, otherwise there is
legally no partnership to speak of.
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
An inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership
12
whenever immovable property is contributed to it.
In the case at bar,
Since the complaint shows that Aurelio contributed immovable properties
to the alleged partnership, the Memorandum (Annex A-1), which purports
to establish the partnership is NOT a public instrument and there was NO
inventory of the immovable property attached which signed by the
parties.
Thus, the Memorandum is null and void. It failed to establish existence of
a valid contract of partnership. (It is also not a valid contract)
Failure to comply with the essential formalities of a valid contract makes
the alleged partnership inexistent.
OBLICON ISSUE: Whether Annex-A1(actionable document) created
demandable rights in Aurelio’s favor?
Aurelio’s contention: It was an innominate contract. It may not be a
contract of loan, or a mortgage or whatever, but surely the contract does
create rights and obligations of the parties and which rights and
obligations may be enforceable and demandable.
RULING: NO. It is at once apparent that what respondent Eduardo
imposed upon himself, 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. Thus, it is covered by Statute of Frauds and ergo
unenforceable for non-compliance.
DISPOSITIVE: EDUARDO WON. Aurelio’s complaint for specific
performance based on actionable document of partnership is void.
ATP WEEK 10: PARTNERSHIPS
CASE 7: HEIRS OF TAN ENG KEE v COURT OF APPEALS – Carlo
Guevara
DOCTRINE: In order to constitute a partnership, it must be established
that
(1) two or more persons bound themselves to contribute money,
property, or industry to a common fund, and
(2) they intend to divide the profits among themselves.
Co-ownership or co-possession does not of itself establish a partnership
The essence of a partnership is that the partners share in the profits and
losses
FACTS:
• Following the death of Tan Eng Kee, his heirs (petitioners) filed suit
against the decedent's brother Tan Eng Lay.
• The complaint was for accounting, liquidation and winding up of the
alleged partnership between the brothers.
• They impleaded private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay as President.
• They alleged that Tan Eng Kee and Tan Eng Lay, pooling their
resources and industry together, entered into a partnership engaged
in the business of selling lumber and hardware and construction
supplies.
• They named their enterprise "Benguet Lumber" which they jointly
managed until Tan Eng Kee's death.
• Petitioners herein averred that the business prospered due to the
hard work and thrift of the alleged partners.
• However, they claimed that Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation
called "Benguet Lumber Company."
• The incorporation was purportedly a ruse to deprive Tan Eng Kee
and his heirs of their rightful participation in the profits of the
business.
• Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division
of the net assets of Benguet Lumber.
13
• The Trial Court declared Benguet Lumber is a joint venture which is
akin to a particular partnership. Tan Eng Kee and Tan Eng Lay are
joint adventurers and/or partners in a business venture and/or
particular partnership called Benguet Lumber and as such should
share in the profits and/or losses of the business venture or particular
partnership. The same assets were turned over to Benguet Lumber
Co. Inc. and as such the heirs have a legal right to share in the
profits. Private respondent appealed to the
• CA who reversed the said decision.
• Hence, a petition for review was filed with the SC.
• Petitioner heirs allege that a partnership existed since the brothers
were commanding the employees;
• that both were supervising the employees; that both were the ones
who determined the price at which the stocks were to be sold; and
that both placed orders to the suppliers of the Benguet Lumber
Company.
• They also point out that the families of the brothers Tan Eng Kee and
Tan Eng Lay lived at the Benguet Lumber Company compound, a
privilege not extended to its ordinary employees.
• Respondent Tan Eng Lay contends that his brother is not a partner
but merely an employee of the said corporation evidenced by
payrolls.
• Said payrolls were later discarded as evidence in a dismissed
criminal case against the respondents. Petitioners could not provide
any contract of partnership or articles of partnership.
ISSUE: WON a partnership existed based on the circumstantial
evidence.
RULING:
NO. The evidence presented by petitioners falls short of the quantum of
proof required to establish a partnership.
It is unnatural, that despite the 40 years the partnership was allegedly in
existence, Tan Eng Kee never asked for an accounting.
The essence of a partnership is that the partners share in the profits and
losses.
ATP WEEK 10: PARTNERSHIPS 14

Each has the right to demand an accounting as long as the partnership
exists. A demand for periodic accounting is evidence of a partnership.
During his lifetime, Tan Eng Kee appeared never to have made any such
demand for accounting from his brother, Tang Eng Lay.
In determining whether a partnership exists, these rules shall apply:
Art. 1769, par 4: The receipt by a person of a share of the profits
of a business is a prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits
were received in payment:
He would have moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision.
It may even be that among his duties is to place orders with suppliers.
Again, the circumstances proffered by petitioners do not provide a logical
nexus to the conclusion desired; these are not inconsistent with the
powers and duties of a manager, even in a business organized and run
as informally as Benguet Lumber Company.
DISPOSITIVE: Respondents Tan Eng Lay and Benguet Lumber
Company WON.

(b) As wages of an employee or rent to a landlord;

Based on the legal provision, Tan Eng Kee was only an employee, not a
partner.

Even if the payrolls as evidence were discarded, petitioners did not

present and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the profits of the
enterprise.

Petitioners failed to show how much their father, Tan Eng Kee, received,
if any, as his share in the profits of Benguet Lumber Company for any
particular period.

Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended
to divide the profits of the business between themselves, which is one of
the essential features of a partnership.

Circumstances when taken together are not persuasive indicia of a

partnership. T

hey only tend to show that Tan Eng Kee was involved in the operations
of Benguet Lumber.

As a member of the family, he occupied a niche above the rank-and-file

employees. He would have enjoyed liberties otherwise unavailable were
he not kin, such as his residence in the Benguet Lumber Company
compound.
ATP WEEK 10: PARTNERSHIPS
CASE 8: OBILLOS, JR. VS. COMMISSIONER OF INTERNAL
REVENUE – Metha Orolfo
DOCTRINE: Article 1769 (3) sharing of gross returns does not itself
establish a partnership, WON 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.
FACTS:
(1) It is about income tax of four brothers and sisters who sold parcels of
land which they acquired from their father.
(2) Jose Obillos Sr. completed payment to Ortigas & Co. Ltd. On two
parcel of land in Greenhills, San Juan, Rizal.
(3) The next day he transferred his rights to his children (herein
petitioners) to build their residences.
(4) Then on, petitioners were co-owners and sold the two lots (because
they found out that it will cost so much to construct a house) to
Walled City Securities Corp. and Olga Cruz Canda for P313K.
(5) They had a profit of 33k for each of them. They treated the profit as a
capital gain and paid income tax on one-half thereof or on 16k.
(6) CIR required the 4 petitioners tp [ay corporate income tax on the
profit of 134k in addition to individual income tax on their shares.
(7) CIR assessed 37k as corporate income tax and 18k as 50% fraud
surcharge and 15k as 42% accumulated interest.
(8) 33k as distributive divided and 56k as deficiency of income tax
TOTALING 127K on their profit of 134K.
CIR: 4 petitioners formed an unregistered partnership or joint venture
within the meaning of secs 24(a) and 84(b) of tax code. (2 judges
sustained Judge Roaquin dissented)
PETITIONERS: They were co-owners pure and simple. To consider
them as partners would obliterate tge distinction between a co-ownership
and partnership. They were not engaged in any joint venture by reason
of that isolated transaction.
ISSUE: WON sharing of gross returns establish partnership?
15
RULING: NO. Under Article 1767 of CC simply because they contributed
178k to buy the two lots, resold the same and divided the profit is NOT A
PARTNERSHIP.
To regard the petitioners as having formed a taxable unregistered
partnership WOULD RESULT TOOPPRESSIVE TAXATION.
The division of profits was merely incidental to the dissolution of the co-
ownership which was in the nature of things which had to be terminated
sooner or later.
Article 1769 (3) sharing of gross returns does not itself establish a
partnership, WON 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.
Mere sharing of gross returns does not establish a partnership, since in a
partnership, the partners share net profits after satisfying all the
partnership's liabilities (See Article 1839, Civil Code.)
Note:
The receipt, however, of a share in the net profits establishes a prima
facie evidence to partnership which, however, may be rebutted by proof
that what has been received were not profits. Thus, the receipt of share
in the profits as (a) payment of a debt by installment or otherwise, as (b)
wages of an employee or rent to a landlord, as (c) annuity to a widow or
representative of the deceased partner, as (d) interest on a loan, or as
(e) a consideration for the sale of goodwill, cannot be considered as
indicative of establishment of a partnership.
By the weight of authority, an agreement to share both profits and the
losses tends strongly to establish the existence of a partnership, and
conversely, lack of such agreement tends strongly to negative the
existence of a partnership. (40 Am. Jur., Sec. 39.)
DISPOSITIVE: Bro and sis Obillos won!
ATP WEEK 10: PARTNERSHIPS
CASE 9: PASCUAL v. COMMISSIONER – Joshua Salteras
DOCTRINE: Article 1767 of the Civil Code recognizes the creation of a
contract of partnership when “two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.”
FACTS:
• On June 22, 1965, petitioners bought two (2) parcels of land
from Santiago Bernardino, et al. and on May 28, 1966, they
bought another three (3) parcels of land from Juan Roque.
• The first two parcels of land were sold by petitioners in 1968 to
Marenir Development Corporation, while the three parcels of
land were sold by petitioners to Erlinda Reyes and Maria
Samson on March 19,1970.
• Petitioners realized a net profit in the sale made in 1968 in the
amount of P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970.
• The corresponding capital gains taxes were paid by petitioners in
1973 and 1974 by availing of the tax amnesties granted in the
said years.
• However, in a letter dated March 31, 1979 of then Acting BIR
Commissioner Efren I. Plana, petitioners were assessed and
required to pay a total amount of P107,101.70 as alleged
deficiency corporate income taxes for the years 1968 and 1970.
• Respondent Commissioner informed petitioners that in the years
1968 and 1970, petitioners as co-owners in the real estate
transactions formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income was
subject to the taxes prescribed under Section 24, both of the
National Internal Revenue Code.
16
ISSUE/S: WON the Petitioners formed an unregistered partnership or
joint venture, which makes them taxable as a corporation.
HELD:
NO. The Petitioners did NOT form an unregistered partnership or joint
venture, which makes them taxable as a corporation.
RATIO: In the present case, there is no evidence that petitioners entered
into an agreement to contribute money, property or industry to a common
fund, and that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just assumed these
conditions to be present on the basis of the fact that petitioners
purchased certain parcels of land and became co-owners thereof.
The sharing of returns does not in itself establish a partnership whether
or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a
partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign
the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that
they thereby formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and sold the same a few
years thereafter did not thereby make them partners. They shared in the
gross profits as co- owners and paid their capital gains taxes on their net
profits and availed of the tax amnesty thereby. Under the circumstances,
they cannot be considered to have formed an unregistered partnership
which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
The sharing of returns does not in itself establish a partnership;
Reasons.·„In order to constitute a partnership inter sese there must be:
(a) An intent to form the same; (b) generally participating in both profits
ATP WEEK 10: PARTNERSHIPS 17

and losses; (c) and such a community of interest, as far as third persons
are concerned as enables each party to make contract, manage the
business, and dispose of the whole property.Ê·(Municipal Paving Co. vs.
Herring, 150 P. 1067, 50 111 470.) The common ownership of property
does not itself create a partnership between the owners, though they
may use it for purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management and use of
such property and the application of the proceeds therefrom.·(Spurlock
vs. Wilson, 142 S. W. 363, 160 No. App. 14.)‰ the sharing of returns
does not in itself establish a partnership whether or not the persons
sharing therein have a joint or common right of interest in the property.
There must be clear intent to form a partnership, the existence of a
juridical personality different from the individual partners, and the
freedom of each party to transfer or assign the whole property.

DISPOSITIVE: Pascual won.

ATP WEEK 10: PARTNERSHIPS
CASE 10: SARDANE VS. CA AND ROMEO ACOJEDO – Karla
Gutierrez
DOCTRINE: While receipt of a share in then profits of the business is a
prima facie evidence that the person receiving the same is a partner, no
such inference shall be drawn if such profits were received in payment of
his wages as an employee.
FACTS: there is a case that precedes this.
1. Petitioner brought an action in the City Court of Dipolog for
collection of a sum of P5,217.25 based on promissory notes
executed by the herein private respondent Nobio Sardane in
favor of the herein petitioner.
2. Petitioner bases his right to collect on Exhibits B, C, D, E, F, and
G executed on different dates and signed by private respondent
Nobio Sardane.
3. Exhibit B is a printed promissory note involving Pl,117.25 and
dated May 13, 1972.
4. Exhibit C is likewise a printed promissory note and denotes on its
face that the sum loaned was Pl,400.00.
5. Exhibit D is also a printed promissory note dated May 31, 1977
involving an amount of P100.00.
6. Exhibit E is what is commonly known to the layman as 'vale'
7. It has been established in the trial court that on many occasions,
the petitioner demanded the payment of the total amount of
P5,217.25.
8. The failure of the private respondent to pay the said amount
prompted the petitioner to seek the services of lawyer who made
a letter (Exhibit 1) formally demanding the return of the sum
loaned.
9. Because of the failure of the private respondent to heed the
demands extra judicially made by the petitioner, the latter was
constrained to bring an action for collection of sum of money.
10. During the scheduled day for trial, private respondent failed to
appear and to file an answer.
11. On motion by the petitioner, the City Court of Dipolog issued an
order dated May 18, 1976 declaring the private respondent in
default and allowed the petitioner to present his evidence
ex-parte.
18
12. Based on petitioner's evidence, the City Court of Dipolog
rendered judgment by default in favor of the petitioner
13. TC decided for plaintiff.
14. Therein defendant (now petitioner) Sardane appealed to the
Court of First Instance of Zamboanga del Norte which reversed
the decision of the lower court sating that “the appellant can
avail of the parol evidence rule to prove his side of the case, that
is, the said amount taken by him from appellee is or was not his
personal debt to appellee, but expenses of the partnership
between him and appellee."
15. Consequently, said trial court concluded that the promissory
notes involved were merely receipts for the contributions to
said partnership and, therefore, upheld the claim that there was
ambiguity in the promissory notes, hence parol evidence was
allowable to vary or contradict the terms of the represented loan
contract.
16. Plaintiif Acojedo (now respondent) appealed to the CA
ISSUE: WON a partnership existed between Sardane and petitioner
Acojedo?
HELD: NO.
It was a mere contract of employment. As manager of the basnig
Sardaco, naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner Sardane.
The fact that he had received 50% of the net profits does not
conclusively establish that he was a partner of the private respondent
herein.
Article 1769(4) of the Civil Code is explicit that while the receipt by a
person of a share of the profits of a business is prima facie evidence that
he is a partner in the business, such inferences shall be drawn if such
profits were received in payment as wages of an employee.
Furthermore, herein petitioner had no voice in the management of the
affairs of the basnig.
The vales denote that the private respondent is obliged to return the sum
loaned to him by the petitioner. On their face, nothing appears to be
ATP WEEK 10: PARTNERSHIPS
vague or ambiguous, for the terms of the promissory notes clearly show
that it was incumbent upon the private respondent to pay the amount
involved in the promissory notes if and when the petitioner demands the
same.
The fact that he had received 50% of the net profits does not
conclusively establish that he was a partner of the private respondent
herein. Article 1769(4) of the Civil Code is explicit that while the receipt
by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, no such inference shall be drawn if
such profits were received in payment as wages of an employee.
It was a mere contract of employment. The fact that the compensation
received by him was to be determined with reference to the profits made
by the defendant in their business did not in any sense make him a
partner.
DISPOSITIVE: Respondent Acojedo won
19
Sardane - has its own business
Acojedo — has another business to which
Sardane is just an employee.
he advertence of the Court of First Instance to
the fact that the casco bears the name of
herein petitioner disregards the finding of the
respondent Court that it was just a concession
since it was he who obtained the engine used
in the Sardaco from the Department of Local
Government and Community Development.
Further, the use by the parties of the pronoun
"our" in referring to "our basnig, "our catch",
"our deposit", or "our boseros" was merely
indicative of the camaraderie, and not
evidentiary of a partnership, between them.
The foregoing factual findings, which belie the
further claim that the aforesaid promissory
notes do not express the true intent and
agreement of the parties, are binding on Us
since there is no showing that they fall within
the exceptions to the rule limiting the scope of
appellate review herein to questions of law.
ATP WEEK 10: PARTNERSHIPS
CASE 11: Marjorie Tocao and William Belo v CA, Nenita Anay – Rob
Estomo
DOCTRINE: The essence of partnership is that the partners share in the
profits and losses.
FACTS:
(1) Marjorie Tocao and William Belo filed this motion for reconsideration
of the Court’s decision, maintaining that there was no partnership
between Belo and Nenita Anay, and that the latter was only an
employee of Tocao.
(2) The business relationship created between Tocao and Anay was an
informal partnership, which was not even recorded with the SEC.
(3) It is to be noted that Belo is a good friend and confidant of Tocao,
and occasionally participate in the affairs of the business, although
never in a formal capacity.
ISSUE: W/N Belo may be held liable for the purported partnership?
HELD: NO, he is a mere guarantor.
RATIO:
(1) The Court arrived at the conclusion that Belo indeed acted merely
acted as guarantor of Geminesse Enterprise, which was categorically
affirmed by the Anay’s own witness, Elizabeth Bantilan.
This was categorically affirmed by respondentÊs own witness,
Elizabeth Bantilan, during her cross-examination. Furthermore,
Bantilan testified that it was Peter Lo who was the companyÊs
financier. Thus:
Q You mentioned a while ago the name William Belo. Now, what is
the role of William Belo with Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao and he was the
guarantor of the company.
Q What do you mean by guarantor?
20
A He guarantees the stocks that she owes somebody who is Peter
Lo and he acts as guarantor for us. We can borrow money from him.
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the Geminesse Enterprise?
A He is the one fixing our orders that open the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely the guarantor of
Geminesse Enterprise, am I correct?
A Yes, sir.
The foregoing was neither refuted nor contradicted by respondents
evidence.
It should be recalled that the business relationship created between
petitioner Tocao and respondent Anay was an informal partnership,
which was not even recorded with the Securities and Exchange
Commission.
As such, it was understandable that Belo, who was after all petitioner
Tocao’s good friend and confidante, would occasionally participate in
the affairs of the business, although never in a formal or official
capacity.
(2) Furthermore, no evidence was presented to show that Belo
participated in the profits of the business enterprise.
(3) Anay herself professed lack of knowledge that Belo received any
share in the net income of the partnership.
(4) Tocao declared Belo was not entitled to any share in the profits of
Geminesse Enterprise.
ATP WEEK 10: PARTNERSHIPS 21

(5) With no participation in the profits, Belo cannot be deemed a partner

since the essence of a partnership is that the partners share in the
profits and losses.
(6) In as much as Belo was not a partner in Geminese Enterprise,
(7) Anay had no cause of action against Belo and her complaint against
him should accordingly be dismissed.

DISPOSITIVE: Only the complaint against Belo was dismissed. The

Regional Trial Court of Makati is hereby ordered to DISMISS the
complaint, docketed as Civil Case No. 88-509, as against petitioner
William T. Belo only. The sum of P208,250.00 shall be deducted from
whatever amount petitioner Marjorie Tocao shall be held liable to pay
respondent after the formal accounting of the partnership affairs.

Notes:
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.
(Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., 317 SCRA
729 [1999])
ATP WEEK 10: PARTNERSHIPS 22

CASE 12: ANG PUE & CO v SEC. OF COMMERCE AND INDUSTRY –
Rebecca Flores
DOCTRINE
Organization of a corporation is not an absolute right but a privilege
To organize a corporation or a partnership that could claim a juridical
personality of its own and transact business as such, is not a matter of
absolute right but a privilege which may be enjoyed only under such
terms as the State may deem necessary to impose.
FACTS
1. Ang Pue and Tan Siong, both Chinese citizens, organized the
partnership Ang Pue & Company for a term of five years from
May 1, 1953, extendible by their mutual consent.
2. The purpose of the partnership was "to maintain the business of
general merchandising of lumber, hardware and other
construction materials for commerce, either native or foreign."
ISSUE: Whether or not the partners could amend their articles of co-
partnership to extend its existence for another 5 years?
RULING: NO it is in violation with RA 1180.
State had the right to enact Republic Act No. 1180 and to provide therein
that only Filipinos and concerns wholly owned by Filipinos may engage in
the retail business
The provision of RA 1180 giving them the right to continue engaging in
their retail business until the expiration of their term or life CLEARLY
applies to partnership already existing at the time of the enactment of the
law.
In the case at bar, Republic Act 1180 was already in force. Thus, the
right being claimed by petitioners to extend their partnership to another
five years would be in violation of the clear intent and purpose of the law
aforesaid.
DISPOSITIVE: Sec of Commerce and Industry WON. Ang Pue cannot
extend corporate term.

3. The articles of partnership were registered in the Office of the Partnership

Securities & Exchange Commission on June 16, 1953.
A
4. The following year, Republic Act No. 1180 was enacted to
regulate the retail business. It provided, that a partnership not B
wholly formed by Filipinos could continue to engage in the retail
business until the expiration of its term.
C
5. On April 15, 1958· before the 5 year term of Ang Pue &
Company expires AND after the enactment of RA 1180, the
partners amended the original articles of partnership to extend
the term of life of the partnership for another 5 years.

6. But, when the amended articles were presented for registration

in the Office of the SEC on April 16, 1958, the registration was
refused on the ground that the extension was in violation of
RA1180