AGENCY: PARTNERSHIPS

November 5, 2019

Essential Characteristics of the Contract of Partnership

(1) PARTIES TO THE CASE WOODHOUSE’S ARGUMENT ISSUE: ​Can the contract of partnership be annulled on the ground that
Woodhouse ● Plaintiff: Charles F. Woodhouse (lawyer: Atty. Laurea) ● The partnership was already a ​fait Halili’s consent was vitiated? ​[NO, there was only incidental fraud which
v. Halili, 93 ● Defendant: Fortunato F. Halili accompli ​(a thing that has already does not warrant the annulment of the contract]
Phil. 526 ● Not a party to the case but an important character: happened or been decided before
(1953) Mission Dry Corporation of Los Angeles, California those affected hear about it, Can Halili be compelled to execute the agreement? ​[NO, it is an obligation
(manufacturers of the bases and ingredients of the leaving them with no option but to to do and the law recognizes the individuals freedom or liberty to do
drinks) accept it) from the time of the an act he has promised to do, or not to do it, as he pleases]
operation of the plant ​(SC held that
FACTS this has not merit as it was agreed RULING
Woodhouse informed Mission Dry that he had interested a that it was to be carried out at a
prominent financier, Halili, who was willing to invest $500M. He later date and that his claim is THERE WAS ONLY INCIDENTAL FRAUD
requested that, in order to close the deal, the right to bottle and inconsistent with their intention ● NOT THAT IMP. T ​ he trial court did not consider the draft on the
distribute be granted to him for a limited condition that it will be and incompatible with his own principle of integration of jural acts but it erred when it did so because
transferred to the corporation hence he was given a 30-day option conduct and suit) proving representations or inducements, or fraud, with which or by
(from October 14, 1947) on exclusive bottling and distribution which the other party’s consent was secured is expressly excluded
rights for the Philippines. HALILI’S ARGUMENT from the parol evidence rule. Fraud and false representation are an
● His consent was secured by a incident to the creation of a jural act, not to its integration and are not
Formal negotiations between Woodhouse and Halili began at representation of Woodhouse that governed by the rules on integration. Certainly, the acts or statements
Manila Hotel on November 27, 1947 with their lawyers. Before he was the owner of was about to of Woodhouse prior to the agreement are essential and relevant to the
this, Woodhouse’s lawyer already prepared a draft of the become the owner of an exclusive determination on the issue of fraud. Parol evidence rule expressly
agreement but it was changed since a partnership was desired, not bottling franchise which was a allows the evidence to be introduced when the validity of the
a corporation. Halili’s lawyer then prepared a draft after the false representation instrument is put in issue by the pleadings
meeting which appears to be the main basis of the agreement. ● Woodhouse did not secure the ● Woodhouse made the representation and it can be gleaned from his
franchise but was given to Halili own letters and testimony
The following terms arrived at after various conferences and himself ○ Letter to Mission Dry: ​“... Without this authority I am in poor
consultations with the assistance of their counsel: ● It was Woodhouse who failed to bargaining position. I would propose to you that you grant me the
● They will organize a partnership for the bottling and carry out his undertakings exclusive bottling and distributing rights for a limited period of
distribution of Mission soft drinks ● Woodhouse agreed to contribute time…”
● Woodhouse will act as the industrial partner or manager the exclusive franchise to the ○ His own version of the preliminary conversation with Halili is to
while Halili will be the capitalist partnership but he failed to do so the effect that when he called Halili, Halili answered, ​“Well come
● Halili will decide matters of general policy regarding the ● Presented counterclaim for back to me when you have the authority to operate. I am definitely
business while Woodhouse was to attend to the PHP200,000 as damages interested in the bottling business.”
operation and development of the bottling plant ● Woodhouse no longer had the ○ Atty. Laurea testified that Woodhouse presented himself as
● Woodhouse would have to secure the Mission soft option when he represented being the exclusive grantee of a franchise and in his first draft, it
drinks franchise for and in behalf of the partnership himself to Halili that he had it expressly states Woodhouse had it: ​Whereas the manager is the
● Woodhouse will receive 30% of the net profits hence Halili’s consent is vitiated by exclusive grantee of a franchise from Mission Dry…. that the
fraud which makes it void manager… shall forthwith transfer to the said corporation his
The contract was signed and they both went to US on December exclusive right…
wherein they entered into a franchise agreement with Mission Dry RULING OF COURT OF FIRST ○ It was improbable for Woodhouse to have disclosed the fact that
granting Halili the exclusive right, license, and authority to INSTANCE/TRIAL COURT he only had the 30-day option and that it had already expired at
produce, bottle, distribute, and sell Mission beverages in the ● Halili should render an account of the time of the signing of the agreement for he would have
Philippines. They returned to the Philippines. Woodhouse reported the profits and to pay 15% to destroyed all his bargaining power and authority, and in all
for duty on January but the operations did not begin until Woodhouse probability the deal itself
February. As advances, along with the use of a car, Woodhouse was ● Execution of the contract cannot ○ Halili would not have gone into the business unless the franchise
given PHP2,000 in January, PHP2,000 in February, and just be enforced and the defense of was raised in his name, or at least in the name of the partnership
PHP1,000 in March. fraud was not proved (fraud never hence it was inserted by his lawyer in the draft that Woodhouse
presumed) would secure it for the partnership
When the bottling plant was in operation, Woodhouse demanded ● It was improbable that Halili was ○ Halili believed, or was made to believe, that Woodhouse

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that the partnership papers be executed but Halili excused himself
saying there was no hurry but then he promised to do so after the
sales increased to PHP50,000. As there was nothing definite
forthcoming, after the condition was attained but Halili refused to
give further allowances, Woodhouse sought settlement by asking
his lawyers to take it up to Halili but none could be arrived at.
Hence, he filed an action asking for the execution of the contract of
partnership, an accounting of the profits, and his share of 30%
along with damages amounting to PHP200,000.
not shown the letter which
granted the option and that he
would not have went to the US had
he not known of Woodhouse’s
authority
● Did not consider the drafts as they
are presumed to be integrated in
the final contract
● If any party got the worse end of
the bargain, it would not invalidate
the contract
● Woodhouse only undertook in the
agreement to secure the Mission
Dry franchise for and on behalf of
the proposed partnership
was the grantee of an exclusive franchise, and that upon its
termination or dissolution, the same shall be reassigned
back to Woodhouse
○ Halili’s immediate reaction when he learned that Woodhouse
had no exclusive franchise was to reduce his participation in the
net profits to 15%
● Under Article 1270 of the Spanish Civil Code, there are 2 kinds of civil
fraud: (1) ​Causal fraud (ground for annulment of contract, ​dolo
causante​), and (2) ​Incidental deceit (only renders the party who
employs it liable for damages, ​dolo incidente​)
○ In order that fraud may vitiate consent, it must be causal not
merely the incidental inducement to the making of the contract
○ The principal consideration was the ability of Woodhouse to get
the exclusive franchise to bottle and distribute for Halili or for
the partnership
○ The original draft made was to the effect that Woodhouse
obligated himself to secure a franchise for Halili and the
corrected draft bears the change as to the grantee but not to the
obligation [“capitalist” (grantee) was changed to “partnership”]
○ While he lost his option, the principal obligation he assumed
was to secure it for the partnership. Halili was made to believe
that Woodhouse had the franchise but it was to be secured for or
transferred to the partnership. This is not the causal
consideration or the principal inducement that led Woodhouse
[i think dapat si Halili itu but case said plaintiff] t​ o enter into the
partnership agreement
● But this supposed ownership of franchise was the consideration or
price Woodhouse gave in exchange for the share of 30% to which Halili
agreed to
○ The following was indicated in the draft made by Woodhouse’s
lawyer: ​As a consideration for the transfer, the capitalist shall
transfer to the manager the shares
○ Woodhouse had never been a bottler or chemist, he had no
experience in the production or distribution of beverages so all
that he suggested was about the toilet facilities for the laborers
○ He got the consent of Halili to give him a big slice in the net
profits by pretending that he had the franchise which
constitutes ​dolo incidente
THE AGREEMENT CANNOT BE EXECUTED AND EACH OF THEM ARE
ENTITLED TO RECEIVE DAMAGES
● Halili cannot be compelled against his will to carry out the agreement
or execute the partnership papers as it is an obligation to do (not
obligation to give)
● The law recognizes the individuals freedom or liberty to do an act he
has promised to do, or not to do it, as he pleases
● Spanish commentators call it a very personal act which cannot courts
cannot compel compliance
● Woodhouse’s share was reduced from 30% to 15% to which he
assented to hence he is entitled to it while Halili uses the franchise
● Against this, the damage suffered by Halili by Woodhouse’s
misrepresentation must be set off
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(2) PARTIES TO THE CASE PROCEDURAL ISSU​E: ​Whether or not a partnership exists between members of the same
Estanislao, ● Eligio Estanislao, Jr [Eligio]: Petitioner ● CFI: Dismissed the complaint family arising from their joint ownership of certain properties. [YES]
Jr. v. Court of ● Remedios, Emilio, Leocadio: Respondents and counterclaim, ordered
Appeals, 160 FACTS​: private respondents to pay RULING
SCRA 830 ● Eligio and REL are siblings who are co-owners of certain Eligio 3K for attorney’s fees AS TO THE CANCELLING PROVISION: Said cancelling provision was
(1988) lots at the corner of Annapolis and Aurora Blvd. and costs necessary for the Joint Affidavit speaks of P15,000.00 advance rentals
● These lots were being leased to Shell ● CFI MR (new appointed starting May 25, 1966 while the Cash Pledge agreement also refers to
● They agreed to open and operate a gas station there to presiding judge): Granted the advance rentals of the same amount starting May 24, 1966. There is,
be known as Estanislao Shell Service Station prayers of the private therefore, a duplication of reference to the P15,000.00 hence the need to
● The station shall have an ​initial investment of respondents (see prayers provide in the subsequent document that it "cancels and supersedes" the
P15,000.00 to be taken from the advance rentals due to under facts) previous one. True it is that in the latter document (CPA), it is silent as to the
them from SHELL for the occupancy of the said lots ● CA: Affirmed in toto statement in the Joint Affidavit that the P15,000.00 represents the "capital
owned in common by them ● CA MR: Denied investment" of the parties in the gasoline station business and it speaks of
● A joint affidavit was executed by them, prepared by Atty. Eligio as the sole dealer, but this is as it should be for in the latter document
Democrito Angeles SHELL was a signatory and it would be against its policy if in the agreement
● Under the said affidavit, they agreed to help their PETITIONER’S ARGUMENT it should be stated that the business is a partnership with private
brother, Eligio, by allowing him to operate and manage ● relies heavily on the respondents and not a sole proprietorship of petitioner.
the gasoline service station of the family. provisions of the Joint THERE IS PARTNERSHIP: The following are proof:
● The siblings negotiated with SHELL, and in order not to Affidavit and the Additional 1. testimonies of private respondent Remedios Estanislao and Atty. Angeles.
run counter to the company's policy of appointing only Cash Pledge Agreement Petitioner submitted to private respondents periodic accounting of the
one dealer, it was agreed that Eligio would apply for the ● because of the said business.
dealership. stipulation cancelling and 2. Petitioner gave a written authority to Remedios Estanislao, his sister, to
● Remedios helped in co-managing the business with superseding that previous examine and audit the books of their "common business" (aming negosyo).
petitioner from May 3, 1966 up to February 16, 1967. Joint Affidavit, whatever 3. Remedios assisted in the running of the business.
● The parties entered into an Additional Cash Pledge partnership agreement there 4. they bound themselves to contribute money to a common fund with the
Agreement with SHELL wherein it was reiterated that was in said previous intention of dividing the profits among themselves.
the P15,000.00 advance rental shall be deposited with agreement had thereby been SOLE DEALERSHIP ONLY TO CONFORM WITH SHELL’S POLICY: The sole
SHELL to cover advances of fuel to Eligio as dealer ​with abrogated.| dealership by the petitioner and the issuance of all government permits and
a proviso that said agreement "cancels and supersedes licenses in the name of petitioner was in compliance with the afore-stated
the Joint Affidavit dated 11 April 1966 executed by the policy of SHELL and the understanding of the parties of having only one
co-owners​. dealer of the SHELL products.
● For sometime, Eligio submitted financial statements
about the operation of the business to his siblings, but
thereafter failed to render subsequent accounting
● Thus, through Atty. Angeles, a demand was made to
Eligio to render an accounting of the profits.
● The financial report of December 1968 shows that by
the year ending, a profit of 150K was realized.
● Thus, respondents filed a complaint in CFI praying:
1. Execute a public document embodying all the
provisions of the partnership agreement
entered into between plaintiffs and
defendants provided in Article 1771 of the
New Civil Code
2. to render a formal accounting of the business
operation
3. To pay them their lawful shares
4. To pay attorney’s fees

(3) Lim Tong PARTIES TO THE CASE PETITIONER’S ARGUMENT ISSUE: ​Whether or not a partnership exists among Lim Tong Lim, Chua, and
Lim v. Phil. Petitioner: LIM TONG LIM ● LIM TONG LIM contested his Yao (which would mean LIM is jointly liable with Chua and Yao) ​[YES]

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Fishing Gear Respondent: PHIL. FISHING GEAR INDUSTRIES
Industries,
317 SCRA FACTS
728 (1999) ● Antonio Chua and Peter Yao entered into a contract on 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. (The total price of the nets amounted to
P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation.)
● Hence, Phil. Fishing Gear Industries filed a collection suit
against Chua, Yao and Petitioner 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 SEC.
● The trial court issued a Writ of Preliminary Attachment,
which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes.
● The trial court maintained the Writ and ordered the sale of
the fishing nets at a public auction upon Phil. Fishing Gear’s
motion.
● RTC ruled in favor of Phil. Fishing Gear. LIM appeals to the CA.
● CA affirmed. Hence, the present petition.
Procedural
● TRIAL COURT: PHIL. FISHING GEAR WINS
○ Phil. Fishing Gear was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent.
○ A partnership among the three existed based on the
testimonies of witnesses, a Compromise Agreement
they executed in another Civil Case which Chua and
Yao brough against Lim for declaration of nullity of
commercial documents, reformation of contracts,
declaration of ownership of fishing boats, injunction,
and damages.
● CA: PHIL. FISHING GEAR WINS
○ LIM was a partner of Chua and Yao in a fishing business
and may thus be held liable as such for the fishing nets
and boats purchased by and for the use of the
partnership.
liability. He claimed that only those
who dealt in the name of the
ostensible corporation should be
held liable. He cannot be held
liable because his name did not
appear on any of the contracts and
he never directly transacted with
the PHIL. FISHING GEAR
INDUSTRIES.
RESPONDENT’S ARGUMENT
● That LIM is liable along with Chua
and Yao.
RULING
Relevant Ratio:
Doctrine of Corporation By Estoppel / Liability as General Partners
● Section 21 of the Corporation Code of the Philippines provides:
○ Sec. 21. Corporation by estoppel. — All persons who
assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for
all debts, liabilities and damages incurred or arising as
a result thereof: Provided however, That when any
such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed
by it as such, it shall not be allowed to use as a defense
its lack of corporate personality. "One who assumes an
obligation to an ostensible corporation as such, cannot
resist performance thereof on the ground that there
was in fact no corporation."
● Thus, 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 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.”
● 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.
● 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.
● Unquestionably, LIM benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be
an asset of the partnership. He in fact questions the attachment of
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 the nets, because the Writ has effectively stopped his use of the
fishing vessel.
● 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.
● 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.
● 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.

Other reasons discussed by the court re: the existence of a partnership:

● It is clear that there was, among LIM, Chua, and Yao a partnership
engaged in the fishing business. 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.
● Pursuant to Art. 1767 of the Civil Code: ​“By the contract of partnership,
two or more persons bind themselves to contribute money, property, or
industry to a common fund with the intention of dividing the profits
among themselves.”
● LIM”s argument that the sole basis for assuming the existence of a
partnership was the Compromise Agreement is baseless. The
Agreement was but an embodiment of the relationship extant among
the parties prior to its execution.
● LIM’s argument that he was merely a lessor of the boats to Chua and
Yao and not a partner in the fishing venture defies logic.
○ This argument allegedly finds support in the Contract of Lease
and registration papers showing that he was the owner of the
boats, including F/B Lourdes where the nets were found.
○ But this defies logic because “in effect, he would like this court to
believe that he consented to the sale of his own boats to pay a
debt of Chua and Yao, with the excess of the proceeds to be
divided among the three of them. No lessor would do what Lim
did.” ​His consent to the sale proved that there was a
pre-existing partnership among all three.

(4) PARTIES TO THE CASE: RESPONDENT’S ARGUMENT: ISSUE: Whether a partnership exists between the parties and as a result was
Fernandez v. JOSE FERNANDEZ, plaintiff-appellant, ● DE LA ROSA admits that the terminated of the act of the DE LA ROSA in receiving back the 1,125 pesos?
Dela Rosa, 1 FRANCISCO DE LA ROSA, defendant-appellee​. project of forming a (YES, there was a partnership;NO, it was not terminated)
Phil. 671 partnership was discussed
(1902) FACTS: between them and earlier, RULING
· The FERNANDEZ alleges that in January, 1900, he entered into one Marcos Angulo, who was ● The essential points upon which the minds of the parties must meet in
a verbal agreement with the DE LA ROSA to form a FERNANDEZ’s bakery a contract of partnership are, therefore, (1) mutual contribution to a
partnership for the purchase of cascoes and the carrying on of business’ partner, being also common stock, and (2) a joint interest in the profits. If the contract
the business of letting the same for hire in Manila a party to the negotiations, contains these two elements the partnership relation results, and the
· DE LA ROSA to buy them and each partner to furnish as he but he denies that any law itself fixes the incidents of this relation if the parties fail to do so.
could the needed amount; the profits to be divided agreement was ever (Civil Code, secs. 1689, 1695.)

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 proportionately;
· In January, FERNANDEZ gave P300 to purchase a casco
designated as No. 1515, which the DE LA ROSA purchased for
P500, taking the title in his own name;
· FERNANDEZ furnished further sums aggregating about P300
for repairs on this casco;
· Later in March, FERNANDEZ again furnished the defendant
P825 to purchase another casco designated as No. 2089,
which DE LA ROSA purchased for P1,000, taking the title to
this casco also in his own name;
· In April the parties undertook to draw up articles of
partnership, but DE LA ROSA having proposed a draft which
differed materially from the terms of the earlier verbal
agreement, and being unwillingly to include casco No. 2089 in
the partnership, they were unable to come to any
understanding and no written agreement was executed;
· FERNANDEZ then demanded accounting upon DE LA ROSA,
being the party having had the control and management of
the two cascoes, however, the latter refused denying the
existence of the partnership altogether
THE COURT ALSO MADE THE FF. FINDINGS:
● FERNANDEZ presented in evidence a receipt dated in
March for the money he gave to DE LA ROSA the cost of
a casco amounting to 825. If casco No. 1515 was bought,
in January, the casco referred to in the receipt which the
parties "are to purchase in company" must be casco No.
2089, which was bought March.
● DE LA ROSA sets up the claim that the 825 pesos which
he received from the plaintiff in March were furnished
toward the purchase of casco No. 1515, thereby virtually
admitting that casco was purchased in company with the
FERNANDEZ. Further, the Court discovered nothing in
the evidence to support the claim that the 300 pesos
received in January was a loan. (EXTRA FACT: the 300
was given by Antonio Angulo, one of FERNANDEZ’s
bakery partners.)
● We are unable to find upon the evidence before us that
there was any specific verbal agreement of partnership,
except such as may be implied from the fact as to the
purchase of the casco
● Although the evidence is somewhat unsatisfactory upon
this point, we think it more probable than otherwise
that no attempt was made to agree upon articles of
partnership till about the middle of the April following
the purchase of the cascoes.
● At some time subsequently to the failure of the attempt
to agree upon partnership articles and after the DE LA
ROSA had been operating the cascoes for some time, the
latter returned to the FERNANDEZ 1,125 pesos, in two
different sums, one of 300 and one of 825 pesos.
FERNANDEZ admits receipt of these sums with an
consummated.
● He denies that FERNANDEZ
furnished him money for the
purchase of casco No. 1515,
or for repairs on the same,
but claims that he borrowed
300 pesos on his individual
account in January from the
bakery firm, consisting of
FERNANDEZ, Marcos Angulo,
and Antonio Angulo. The 825
pesos, which he admits he
received, he claims was for
the purchase of casco No.
1515, and that he never
received anything toward the
purchase of casco No. 2089.
He also claims to have paid
for their repairs.
● We have found as a fact that money was furnished by the FERNANDEZ
and received by the DE LA ROSA with the understanding that it was to
be used for the purchase of the cascoes in question. This establishes
the first element of the contract, namely, mutual contribution to a
common stock. The second element, namely, the intention to share
profits, appears to be an unavoidable deduction from the fact of the
purchase of the cascoes in common, in the absence of any other
explanation of the object of the parties in making the purchase in that
form, and, it may be added, in view of the admitted fact that prior to the
purchase of the first casco the formation of a partnership had been a
subject of negotiation between them.
● There was no showing that the object of the parties was to make a
favorable bargain only and that they had no ulterior object except to
effect a division of the common property that would have made them
joint tenants only;we must assume that the object of the purchase was
active use and profit and not mere passive ownership in common.
● It is thus apparent that a complete and perfect contract of partnership
was entered into by the parties. This contract, it is true, might have
been subject to a suspensive condition, postponing its operation until
an agreement was reached; the fact that the defendant did actually go
on and purchase the boat, as it would seem, before any attempt had
been made to formulate partnership articles, strongly discountenances
the theory.
● The execution of a written agreement was not necessary in order
to give efficacy to the verbal contract of partnership as a civil
contract, the contributions of the partners not having been in the
form of immovables or rights in immovables. (Civil Code, art.
1667.) The special provision cited, requiring the execution of a
public writing in the single case mentioned and dispensing with
all formal requirements in other cases, renders inapplicable to
this species of contract the general provisions of article 1280 of
the Civil Code.
● As to the termination of the partnership, he acceptance of the money
by the plaintiff did not have the effect of terminating the legal existence
of the partnership by converting it into a societas leonina, as claimed
by counsel for the defendant.
○ the amount returned fell short,since it did not include the sum
which he had furnished for the repairs.
○ Moreover, it is quite possible, as claimed by the plaintiff, that a
profit may have been realized from the business during the
period in which the defendant have been administering it prior
to the return of the money, and if so he still retained that sum
in his hands.
● Further, nothing upon which a waiver of the plaintiff’s right as a
partner, either express or implied, can be predicated. The defendant
might have himself terminated the partnership relation at any time, if
he had chosen to do so, by recognizing the plaintiff's right in the
partnership property and in the profits. Having failed to do this he can
not be permitted to force a dissolution upon his co-partner.
● The result is that we hold and declare that a partnership was formed
between the parties in January, 1900, the existence of which the
defendant is bound to recognize; that cascoes No. 1515 and 2089
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 express reservation on his part of all his rights as a
partner.
Formal Requirements for Partnerships
(1) Litonjua, PARTIES TO THE CASE
Jr. v. Aurelio Litonjua Jr. = Petitioner
Litonjua, Sr., Eduardo Litonjua Sr, = Respondent
477 SCRA
576 (2005) FACTS:
● Petitioner Aurelio and herein respondent Eduardo are
brothers. The legal dispute between them started when
Aurelio filed a suit against his brother Eduardo and
herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting.
Aurelio alleged that, since June 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 contains the following averments:
● - This joint venture/[partnership] agreement was
contained in a memorandum addressed by Eduardo to his
siblings, parents and other relatives.
● - It was then 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.
● - 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].
● - 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.
RESPONDENT’S ARGUMENT
● Eduardo, alleged that the
complaint states no cause of
action, since no cause of
action may be derived from
the actionable document,
being void under the terms
of Article 1767 in relation to
Article 1773 of the Civil
Code. (Contract validating
inventory requirement)
constitute partnership property, and that the plaintiff is entitled to an
accounting of the defendant's administration of such property, and of
the profits derived therefrom. This declaration does not involve an
adjudication as to any disputed items of the partnership account.
ISSUE: ​WON CA erred in ruling that there was no partnership. ​(NO. CA IS
CORRECT IN RULING THAT THERE IS NO PARTNERSHIP.)
RULING:
● (Annex A-1= Memorandum which contains the alleged
partnership/joint venture) Annex "A-1",on its face, contains
typewritten entries, personal in tone, but is unsigned and
undated. As an unsigned document, it 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 SEC,as called for under the Article 1772 of the
Code.
● The CA, correctly stated that Aurelio's contribution consisted of
immovables and real rights. (Aurelio's industry and his share in
the family theatre and land development business). The
contract-validating inventory requirement under Article 1773 of
the Civil Code applies as long real property or real rights are
initially brought into the partnership.
● Aurelio, in an obvious bid to evade the application of Article 1773,
argues that the immovables in question were not contributed, but
were acquired after the formation of the supposed partnership.
Needless to stress, the Court cannot accord cogency to this
specious argument. Aurelio himself admitted contributing his
share in the supposed shipping, movie theatres and realty
development family businesses which already owned immovables
even before Annex "A-1" was allegedly executed.
● 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.
● 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.. As a consequence, [Aurelio's]
complaint does NOT state a valid cause of action because NOT
all the essential elements of a cause of action are present.
● The only portion of Annex "A-1" which could perhaps be remotely
7
 ● Eduardo and the corporate respondents, as regarded as vesting Aurelio with a right to demand from
defendants,filed a joint ANSWER With Compulsory respondent Eduardo the observance of a determinate conduct is
Counterclaim denying that Aurelio and Eduardo as having the statement which reads: ​Whatever is left in the corporation, I
entered into a contract of partnership. As affirmative will make sure that you get ONE MILLION PESOS (P1,000,000.00)
defenses, Eduardo, alleged that the complaint states no or ten percent (10%) equity, whichever is greater.
cause of action, since no cause of action may be derived ● It is at once apparent that what respondent Eduardo imposed
from the actionable document, being void under the upon himself under the above passage, if he indeed wrote Annex
terms of Article 1767 in relation to Article 1773 of the "A-1",is a promise which is not to be performed within one year
Civil Code. from "contract" execution on June 22, 1973. Accordingly, the
● TC- In favour of Aurelio. Denied the affirmative defences agreement embodied in Annex "A-1" is covered by the Statute of
of Eduardo Frauds and ergo unenforceable for non-compliance therewith.
● CA= In favour of Eduardo. the alleged partnership, as ● Lest it be overlooked, Aurelio is the intended beneficiary of the P1
evidenced by the actionable documents, is void or legally Million or 10% equity of the family businesses supposedly
inexistent. promised by Eduardo to give in the near future. Any suggestion
that the stated amount or the equity component of the promise
was intended to go to a common fund would be to read something
not written in Annex "A-1".Thus, even this angle alone argues
against the very idea of a partnership, the creation of which
requires two or more contracting minds mutually agreeing to
contribute money, property or industry to a common fund with
the intention of dividing the profits between or among
themselves.

(2) Heirs of PARTIES TO THE CASE PETITIONER’S ARGUMENT ISSUE: ​W/N a partnership existed. ​[NO]
Tan Eng Kee Petitioners - Heirs of Tan Eng Kee Because the entire stocks of the
v. Court of Respondents - Tan Eng Lay pre-war Benguet Lumber were RULING
Appeals, 341 confiscated, Lay and Kee pooled the
SCRA 740 FACTS proceeds of their individual The Heirs only showed that Kee was involved in the operations but in what
(2000) Tan Eng Kee (Kee) and Tan Eng Lay (Lay) are brothers. Kee died, businesses earned from buying and capacity is unclear. With no partnership, there can be no dissolution.
leaving his common law spouse (Abubo) and 6 children (the Heirs). selling military supplies.
Review. ​To constitute a partnership, it must be established that:
The Heirs alleged that Kee and Lay pooled their resources and Kee and Lay 1. Two or more persons bound themselves to contribute money,
industry and entered into a partnership engaged in the business of ● Conducted affairs jointly property, or industry to a common fund
selling lumber and hardware and construction supplies, called the ● Both gave orders to employees 2. They intend to divide the profits among themselves
“Benguet Lumber”. They also alleged that Lay and his children ● Both prepared orders from the
caused the conversion of Benguet Lumber into a corporation called suppliers The agreement need not be formally reduced into writing except:
Benguet Lumber Company to deprive Kee and the heirs their ● Both of their families lived together 1. When immovable property or real rights are contributed
rightful participation in the profits. ● All their children were employed in 2. When the partnership has a capital of Php3,000 or more
the business In both cases, there must be a public instrument and an inventory signed by
When Kee died, the Heirs filed against Lay for the accounting, the parties attached to the public instrument (inventory is indispensable).
liquidation and winding up of the alleged partnership formed after RESPONDENT’S ARGUMENT
WW2. ● Even supervisors give orders and Distinguished from a joint venture. A joint venture is a sort of informal
directions to subordinates partnership with no firm name and no legal personality. In a joint account,
RTC - There was a partnership ● Even a messenger can order the participating merchants can transact business under their own name
● Assets of Benguet Lumber are the same assets turned over to materials for suppliers for and on and can be individually liable. Joint venture is limited to a ​single transaction.​
Benguet Lumber Co. Inc. behalf of the business. A partner A partnership generally relates to a continuing business of various
● Rights and obligations of Kee descended to the Heirs does not necessarily have to transactions of a certain kind. A joint venture is a form of partnership and
● Ordering Lay and/or the Pres. and/or Gen Manager of Benguet perform this task. should be governed by the law on partnerships.
Lumber Company Inc. to render an accounting for the Heirs ● Kee is Lay’s brother. Naturally, they
have close personal relations. Evidence of existence of partnership. ​The best evidence would have been
CA - There was NO partnership Whatever privileges Kee received, the contract or articles of the partnership. But there is none. In the absence

8
 ● There was no which were not given to employees, of evidence, we cannot accept as an established fact that Kee allegedly
○ Firm account were out of Lay’s kindness and contributed his resources to a common fund for the purpose of establishing
○ Firm letterheads generosity a partnership. None of the Heirs’ witnesses could account for the beginnings
○ Certificate of partnership ● Referring to Kee and Lay’s quarrel of the Benguet Lumber Company. While Peralta alleged that Kee asked him
○ Agreement as to profits and lossess regarding the pricing of stocks - to accompany him (Kee) in getting 80 pcs of GI sheets, Lay denied
○ No time fixed for the duration of the partnership even highly confidential employees knowledge of this meeting or conversation.
○ Attempt to submit an accounting and owners of a company
○ Business book sometimes argue with respect to It is also odd that the partnership has allegedly been existing for 40 years,
○ Written account certain matters. but Kee never asked for an accounting. Though in some cases, the court
● The certification mentioned Lay as the only registered owner ruled that deferment of sharing in the profits is plausible when relations are
● Kee was only an employee based on his SSS coverage and payrolls perfect, in this case, the deferment had gone on too long to be plausible. A
● Not evidence of partnership person is presumed to take ordinary care of his concerns. A demand for
○ Kee living just across the lumber store but within the periodic accounting is evidence of a partnership. Kee appeared to have never
compound of the lumber establishment made such demand.
○ Both Lay and Kee sat on a table and were “commanding
people” Art 1769 Rules for determining whether a partnership exists (too long to
○ Brother were supervising laborers quote). In light of this provision, Kee was only an employee. The Heirs did
○ That Kee told Peralt that the proceeds of the 80 pcs of GI not show that Kee received amounts of money allegedly representing his
sheets were added to the business share. If any, they failed to show the amount Kee received. They also failed to
● Partnership presupposes (None of these were established) prove that Kee and Lay intended to divide the profits.
○ A contract
○ Capacity to contract Affirmed in toto.
○ Money, property or industry contribution
○ Community of funds Notes:
○ Intention to divide the profits - NCC was not yet in effect when the partnership was allegedly
formed
Hence this petition by the Heirs.

Note: The Heirs also filed criminal case for the use of allegedly
falsified documents in a judicial proceeding (payrolls indicating Kee
as a mere employee was fake). Another crim case for falsification of
commercial docs by a private individual. Both were dismissed.

(3) Rojas v. PARTIES TO THE CASE PETITIONER’S ARGUMENT: ISSUE:

Maglana, 192 ● Eufracio Rojas - petitioner/appellant ● Rojas insists that the first 1) ​Whether or not the second unregistered partnership among the Rojas,
SCRA 110 ● Constancio Maglana - respondent/appellee partnership that was registered Maglana and Pahamotang dissolved the first registered partnership of Rojas
(1990) has not been novated, and Maglana – NO
FACTS superseded and/or dissolved by
● Maglana and Rojas executed their Articles of Co- Partnership the unregistered articles of 2) Whether or not Maglana can unilaterally dissolve the partnership - YES
called Eastcoast Development Enterprises (EDE) with only the co-partnership among appellant
two of them as partners. The partnership EDE with an Rojas, appellee Maglana and
3) Whether or not Maglana is liable for damages - NO
indefinite term of existence was duly registered on January 21, Agustin Pahamotang and
1955 with the Securities and Exchange Commission. A duly accordingly, the terms and
RULING: ​1) It was not the intention of the partners to dissolve the first
registered Articles of Co-Partnership was filed together with an stipulations of said registered
partnership, upon the constitution of the second one, which they
application for a timber concession covering the area located at Articles of Co-Partnership
unmistakably called an "Additional Agreement". Except for the fact that they
Cateel and Baganga, Davao, which became the basis of established in 1955 should
took in one industrial partner; gave him an equal share in the profits and
subsequent renewals made for and in behalf of the duly govern the relations between
fixed the term of the second partnership to thirty (30) years, everything else
registered partnership EDE. It provided in the said articles of him and Maglana.
was the same. Thus, they adopted the same name, EASTCOAST
co-partnership that all profits and losses of the partnership ● Upon withdrawal of Agustin
DEVELOPMENT ENTERPRISES, they pursued the same purposes and the
shall be divided share and share alike between the partners. Pahamotang from the
capital contributions of Rojas and Maglana as stipulated in both partnerships
During the period from January 14, 1955 to April 30, 1956, unregistered partnership,the
call for the same amounts. Just as important is the fact that all subsequent
there was no operation of said partnership. Because of this, legally constituted partnership
renewals of Timber License No. 35-36 were secured in favor of the First

9
 Rojas and Maglana decided to avail of the services of
Pahamotang as industrial partner.
● On March 4, 1956, Maglana, Rojas and Agustin Pahamotang
executed their Articles of Co-Partnership under the firm name
EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from
the slight difference in the purpose of the second partnership
which is to hold and secure renewal of timber license instead
of to secure the license as in the first partnership and the term
of the second partnership is fixed to thirty (30) years,
everything else is the same.
● The partnership formed by Maglana, Pahamotang and Rojas
started operation on May 1, 1956, and was able to ship logs
and realize profits. An income was derived from the proceeds
of the logs in the sum of 643k. On October 25, 1956,
Pahamotang, Maglana and Rojas agreed among themselves that
Maglana and Rojas shall purchase the interest, share and
participation in the Partnership of Pahamotang assessed in the
amount of 31k. It was also agreed that after payment of the
sum of 31k to Pahamotang, Maglana and Rojas shall become
the owners of all equipment contributed by Pahamotang and
the EASTCOAST DEVELOPMENT ENTERPRISES, the name also
given to the second partnership, be dissolved. No other rights
and obligations accrued in the name of the second partnership.
● After the withdrawal of Pahamotang, the partnership was
continued by Maglana and Rojas without the benefit of any
written agreement or reconstitution of their written Articles of
Partnership.
● On January 28, 1957, Rojas entered into a management
contract with another logging enterprise, the CMS Estate, Inc.
He left and abandoned the partnership. After 6 days, Rojas
withdrew his equipment from the partnership for use in the
newly acquired area. The equipment withdrawn were his
supposed contributions to the first partnership and was
transferred to CMS Estate, Inc. by way of chattel mortgage.
● Maglana wrote Rojas reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital
investments of the partnership as well as his obligation to
perform his duties as logging superintendent. Rojas told
Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent.
Maglana then told Rojas that the latter's share will just be 20%
of the net profits. Such was the sharing from 1957 to 1959
without complaint or dispute. Meanwhile, Rojas took funds
from the partnership more than his contribution. Thus, in a
letter dated February 21, 1961,Maglana notified Rojas that he
dissolved the partnership.
● Rojas filed an action before the Court of First Instance of Davao
against Maglana for the recovery of properties, accounting,
receivership and damages. The lower court denied such
petition and ruled that the second partnership superseded the
first, so that when the second partnership was dissolved there
was no written contract of co-partnership; there was no
EDE continues to govern the
relations between them and it
was legal error to consider a de
facto partnership between said
two partners or a partnership at
will.
● Maglana could not legally
dissolve the registered
partnership between them, being
in contravention of the
partnership agreement agreed
upon and stipulated in their
Articles of Co-Partnership.
Rather, appellant Rojas is
entitled to the rights enumerated
in Article 1837 of the Civil Code
and to the sharing profits
between them of "share and
share alike" as stipulated in the
registered Articles of
Co-Partnership.
Partnership, the original licensee.
To all intents and purposes therefore, the First Articles of Partnership were
only amended, in the form of Supplementary Articles of Co-Partnership
which was never registered. Otherwise stated, even during the existence of
the second partnership, all business transactions were carried out under the
duly registered articles. As found by the trial court, it is an admitted fact that
even up to now, there are still subsisting obligations and contracts of the
latter. No rights and obligations accrued in the name of the second
partnership except in favor of Pahamotang which was fully paid by the duly
registered partnership
The second partnership was dissolved by common consent. Said dissolution
did not affect the first partnership which continued to exist. Maglana and
Rojas agreed to purchase the interest, share and participation in the second
partnership of Pahamotang and that thereafter, the two (Maglana and Rojas)
became the owners of equipment contributed by Pahamotang. Even more
convincing, is the fact that Maglana, wrote Rojas, reminding the latter of his
obligation to contribute either in cash or in equipment, to the capital
investment of the partnership as well as his obligation to perform his duties
as logging superintendent. This reminder cannot refer to any other but to
the provisions of the duly registered Articles of Co-Partnership.
As earlier stated, Rojas replied that he will not be able to comply with the
promised contributions and he will not work as logging superintendent. By
such statements, it is obvious that Rojas understood what Maglana was
referring to and left no room for doubt that both considered themselves
governed by the articles of the duly registered partnership. Under the
circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a
Partnership At Will, for as stressed, there is an existing partnership, duly
registered.
2) When Maglana notified Rojas that he dissolved the partnership, it is in
effect a notice of withdrawal. Under Article 1830, par. 2 of the Civil Code, one
partner can cause its dissolution by expressly withdrawing even before the
expiration of the period, with or without justifiable cause. Of course, if the
cause is not justified or no cause was given, the withdrawing partner is liable
for damages but in no case can he be compelled to remain in the firm. With
his withdrawal, the number of members is decreased, hence, the dissolution.
The conclusion is inevitable that Rojas and Maglana shall be guided in the
liquidation of the partnership by the provisions of its duly registered Articles
of Co-Partnership; that is, all profits and losses of the partnership shall be
divided "share and share alike" between the partners. An accounting must
first be made.
On the basis of the Commissioners' Report, the corresponding contribution
of the partners from 1956-1961 are as follows: Eufracio Rojas who should
have contributed P158k contributed only P18k while Maglana who should
have contributed P160k, contributed P267k. It is a settled rule that when a
10
 reconstitution as provided for in the Maglana, Rojas and
Pahamotang partnership contract. Hence, the partnership
which was carried on by Rojas and Maglana after the
dissolution of the second partnership was a de facto
partnership and at will. It was considered as a partnership at
will because there was no term, express or implied; no period
was fixed, expressly or impliedly.
(4) Torres v. PARTIES TO THE CASE
CA, 320 SCRA ● Petitioners: Sisters Antonia Torres and Emeteria Baring
428 (1999) (Antonia and Emetria/A&E)
● Respondent: Manuel Torres (Manuel)
FACTS
● The Antonia and Emeteria entered into a Joint Venture
Agreement (JVA) with Manuel for the development of a parcel
of land (Lapu-Lapu City, Mactan and 17,009 sqm) into a
subdivision which contains the following stipulations:
1. A&E never actually received the payment of
PHP25,513.50 (PHP1.50 for 1,700 sqm) from Manuel
even though they signed the absolute Deed of Sale
2. Manuel gave them PHP20,000 as advanced payment for
the property and to be deducted from the sales
3. All general expenses and costs involved will be paid by
Manuel exclusively and the expenses will not be deducted
from the sales after the development of the project
4. The sales of the subdivided lots will be divided into 60%
for A&E and 40% for Manuel (additional profits will be
divided the same way)
5. A&E should be given the option to get back the property
for PHP20,000
● Pursuant to this, they executed a Deed of Sale covering the
parcel of land in favor of Manuel who then registered it in his
name
● Manuel mortgaged the property to obtain a loan of PHP40,000
from Equitable Bank which was to be used for the development
of the subdivision but the project did not push through and the
land was foreclosed by the bank
● A&E filed a criminal case for estafa against Manuel and his wife
A&E’S ARGUMENT
● The project failed because of
Manuel’s lack of funds or means
and skills
● He used the loan not for the
development of the project but
for the furtherance of his own
company, Universal Umbrella
Company (hence the crim case)
● On the existence of partnership:
They deny its existence and
contend that the JVA and the
deed of sale were void due to lack
of consideration. However, they
assert that under those contracts,
Manuel is liable for his failure to
implement the project and they
want damages equivalent to their
share of 60%
● On the alleged nullity of the
Partnership Agreement: Their
JVA is void under Article 1773
since they did not make, sign, or
attach to the public instrument
an inventory of the real property
contributed
● They contend that the JVA is also
void under Article 1422 because
it is the direct result of an earlier
illegal contract which was the
sale of land without valid
partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to
contribute and for interests and damages from the time he should have
complied with his obligation. Being a contract of partnership, each partner
must share in the profits and losses of the venture. That is the essence of a
partnership. Rojas is not entitled to any profits. the duly registered
partnership of Eastcoast Development Enterprises continued to exist until
liquidated and that the sharing basis of the partners should be on share and
share alike as provided for in its Articles of Partnership
3) As to whether Maglana is liable for damages because of such withdrawal,
it will be recalled that after the withdrawal of Pahamotang, Rojas entered
into a management contract with another logging enterprise, the CMS Estate,
Inc., a company engaged in the same business as the partnership. He
withdrew his equipment, refused to contribute either in cash or in
equipment to the capital investment and to perform his duties as logging
superintendent, as stipulated in their partnership agreement. The records
also show that Rojas not only abandoned the partnership but also took funds
in an amount more than his contribution. In the given situation Maglana
cannot be said to be in bad faith nor can he be liable for damages.
ISSUE: ​Is there a partnership between Antonia and Emeteria, and Manuel
despite the lack of inventory required under Article 1773? ​[YES, the alleged
nullity of the partnership will not prevent the courts from considering
the JVA an ordinary contract from which their rights and obligations to
each other may be inferred and enforced]
RULING
● ON THE EXISTENCE OF PARTNERSHIP​: The Court held that a reading
of the terms of the agreement shows the existence of the partnership
pursuant to Article 1767 (definition of partnership). The contract
manifested the intention of the parties to form a partnership:
○ They agreed to contribute property in the form of land while
Manuel would give, in addition to his industry, the amount needed
for the expenses and other costs
○ The income was divided according to the stipulated percentage
○ They already implemented the contract by transferring the title to
Manuel which was mortgaged. Manuel also executed acts for his
contribution to the partnership for under Article 1767, a partner
may contribute not only money or property but also industry
● The parties are also bound by the terms of their contract and to its
necessary consequences pursuant to Article 1315. It is undisputed that
A&E are educated and are thus presumed to have understood the
terms of the contract they voluntarily signed. If it was not in
consonance to their expectations, they should have objected to it. The
Courts are not authorized to extricate parties from the necessary
consequences of their acts and the fact that the stipulation turn out to
be financially disadvantageous will not relieve them of their obligations
● ON THE ALLEGED NULLITY OF THE PARTNERSHIP AGREEMENT​:
The Court clarified that Article 1773 was intended primarily to protect
third persons. It is a complement of Article 1771 and Tolentino stated
that the execution of a public instrument would be useless if there is
11
 but they were acquitted. They then filed a civil case which was consideration not inventory of the property contributed because without its
dismissed by the trial court but the appellate court remanded it designation and description, they cannot be subject to inscription in
● RTC: Dismissed the case MANUEL’S ARGUMENT the Registry of Property, and their contribution cannot prejudice third
● CA: Affirmed RTC ● He used the loan to implement persons. This will result in fraud to those who contract with the
○ Held that they formed a partnership thus they must bear the agreement and was able to do partnership in the belief in the efficacy of the guaranty in which the
the loss suffered by the following for a total expense immovables may consist. But the case does not involve third persons
○ It disagreed with the RTC when it ruled that the losses will of PHP85,000: hence it is not void. They cannot also allege that it is void but make it as
be divided equally since the parties had a stipulation 1. He was able to affect a a basis for their claims against Manuel. The alleged nullity of the
regarding this and according to Article 1797, the losses and survey and subdivision of partnership will not prevent the courts from considering the JVA an
profits will be distributed in conformity with the the lots ordinary contract from which their rights and obligations to each other
agreement 2. He secured the Lapu-Lapu may be inferred and enforced
○ In the absence of stipulation, share in the profits and losses City Council’s approval of ● PARTNERSHIP AGREEMENT NOT RESULT OF AN EARLIER ILLEGAL
will in proportion to what they contributed but industrial the subdivision project CONTRACT​: The consideration of the sale was the expectation of the
partner is not liable for the losses but he may receive his which he advertised in a profits from the subdivision project. Consideration or cause can take
share in the profits as may be just and equitable under the local newspaper different forms such as the prestation or promise of a thing or service
circumstances and if he contributed capital, he will also 3. He caused the construction by another.
receive a share in proportion to the capital of roads, curbs, and gutters ● LIABILITY: They are not entitled to damages. CA held that it was not
4. He entered into a contract their acts which caused the failure of the project but it also ruled that
RELEVANT PROVISIONS: with an engineering firm for Manuel was not responsible.
Art. 1315. Contracts are perfected by mere consent, and from that the building of 60 low-cost
moment the parties are bound not only to the fulfillment of what has housing units and even set
been expressly stipulated but also to all the consequences which, up a model house
according to their nature, may be in keeping with good faith, usage ● The project failed because A&E
and law. and their relatives had separately
caused the annotations of
Art. 1422. A contract which is the direct result of a previous illegal adverse claims on the title to the
contract, is also void and inexistent. land which scared away
prospective buyers. Despite his
Art. 1771. A partnership may be constituted in any form, except where requests, they refused to cause
immovable property or real rights are contributed thereto, in which the clearing of the claims which
case a public instrument shall be necessary. forced him to give up on the
project
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.

(5) Angeles PARTIES TO THE CASE PETITIONER’S ARGUMENT PROCEDURAL:

v. Secretary RESPONDENT’S ARGUMENT 1. OP: Recommended filing of info for estafa. The reso was issued
of Justice, FACTS without Mercado’s counter-affidavit.
465 SCRA ● Angeles spouses filed a case for estafa against Mercado in OP Extra info in the sanglaang-perde (in When, Mercado filed his counter-affidavit and filed for MR, OP reversed its
106 (2005) ● Mercado is the brother-in-law of the Angeles spouses, being case asked) reso and dismissed the complaint.
married to Emerita’s sister Laura. Reason: The subject of the complaint hinges on a partnership gone sour. The
● Spouses Angeles claimed that Mercado convinced them to 1. Na ako at ang mag[-]asawa partnership was initially unsaddled [with] problems.
enter into a contract of antichresis (sanglaang-perde) nila G. AT GNG. FELINO 1. SJ: Appeal of Spouses Angeles dismissed
covering 8 parcels of land MERCADO ay nagkasundo Reason: The Angeles spouses failed to show sufficient proof that Mercado
● The parcels of land were planted with fruit-bearing lanzones. na ako ay bibigyan nila ng deliberately deceived them in the "sanglaang perde" transaction. xxx The
It was located in Laguna and owned by Juana Suazo LIMA (5) na [sic] kaing na formation of a partnership was clear from the fact that they contributed
● The contract was to last for 5 years with 210K as lanzones taon- taon sa loob money to a common fund and divided the profits among themselves.
consideration ng LIMA (5) na [sic] taon ng Records would show that Mercado was able to make deposits for the
● Because the spouses stay in Manila on weekdays and go to aming kasunduang ito. account of the Angeles spouses. Although the legal formalities for the
Laguna on weekends, they agreed to let Mercado administer 2. Na ako at ang mag[-]asawa formation of a partnership were not adhered to, the partnership relationship
the land and complete the paperworks nila G. AT GNG. FELINO of the [Angeles spouses] and [Mercado] is evident in this case. Consequently,

12
 ● After 3 years, Angeles spouses asked for an accounting from
Mercado
● Mercado explained:
1. The subject land earned P46,210 in 1993
2. He used the earnings to buy more lanzones trees.
3. The trees bore no fruit in 1994.
● Mercado gave no accounting for 1995.
● The Angeles spouses claim that only after this demand for an
accounting did they discover that Mercado had put the
contract of sanglaang-perde over the subject land under
Mercado and Laura’s name
● Mercado denied the allegations and claimed that there exists
an industrial partnership (sosyo industrial) between him and
Laura as industrial partners and Angeles spouses as
financiers
● He claimed it existed since 1991, before the contract of
antichresis over said land.
● As the years passed, Mercado used his and his spouse's
earnings as part of the capital in the business transactions
which he entered into in behalf of the Angeles spouses.
● It was their practice to enter into business transactions with
other people under the name of Mercado because the Angeles
spouses did not want to be identified as the financiers.
● As proof, Mercado attached the following in his
counter-affidavit:
1. Bank recipts of deposits in behalf of Emerita and contracts
under his name for spouses Angeles
2. Minutes of barangay conciliation, where Oscar Angeles said
that there was a written sosyo industrial agreement: capital
would come from the Angeles spouses while the profit
would be divided evenly between Mercado and the Angeles
spouses
(6) Heirs of PARTIES TO THE CASE
Jose Lim v.
Lim, 614 Petitioners: ​HEIRS OF JOSE LIM​ composed of:
SCRA 141 ● Cresencia Palad (Jose’s widow)
(2010) ● Their children: Elentio, Evelia, Imelda, Edelyna, and Edison LIM
Respondent: ​JULIET VILLA LIM (widow of ELFLEDO LIM who is the
son of the Cresencia Palad and the late Jose Lim)
FACTS
MERCADO ay nagkasundo
na silang mag[-]asawa nila
G. AT GNG. FELINO
MERCADO ang magpapaalis
ng dapo sa puno ng
lansones taon-taon [sic] sa
loob ng LIMA (5) [sic]
taonng [sic] aming
kasunduang ito
PETITIONER’S ARGUMENT
● According to the testimony of
Jimmy, the sole surviving
partner, Elfledo was not a
partner; and that he and
Norberto entered into a
partnership with Jose.
● Thus, the CA erred in not
giving that testimony greater
there is no estafa where money is delivered by a partner to his co-partner on
the latter's representation that the amount shall be applied to the business
of their partnership. In case of misapplication or conversion of the money
received, the co-partner's liability is civil in nature
ISSUE:
Whether a partnership existed between the Angeles spouses and Mercado
even without any documentary proof to sustain its existence [YES];
Assuming that there was a partnership, whether there was misappropriation
by Mercado of the proceeds of the lanzones after the Angeles spouses
demanded an accounting from him and failing to deliver the proceeds to
them [NO]
RULING
A. the Angeles spouses contributed money to the partnership and not
immovable property. Second, mere failure to register the contract of
partnership with the SEC does not invalidate a contract that has the essential
requisites of a partnership. The purpose of registration of the contract of
partnership is to give notice to third parties. Failure to register the contract
of partnership does not affect the liability of the partnership and of the
partners to third persons. Neither does such failure to register affect the
partnership's juridical personality. A partnership may exist even if the
partners do not use the words "partner" or "partnership.”
The spouses Angeles admitted that there was:
1. a contract showing a sosyo industrial or industrial partnership,
2. contribution of money and industry to a common fund, and
3. division of profits between the Angeles spouses and Mercado.
B. NO MISAPPROPRIATION: The document alone, which was in the name of
[Mercado and his spouse], failed to convince us that there was deceit or false
representation on the part of [Mercado] that induced the [Angeles spouses]
to part with their money. [Mercado] satisfactorily explained that the
[Angeles spouses] do not want to be revealed as the financiers. Even RTC
which decided the civil case for damages filed by spouses ruled that the
Angeles spouses were apprehensive to come out as financiers because they
might get kidnapped by the NPA or their deals be questioned by the BIR or
that their assets be sequestered since Oscar was working for the
government. That’s why they had the antichresis name under Mercado.
Furthermore, accounting of the proceeds is not a proper subject for the
present case.
ISSUE:
Whether or not Elfledo Lim was a partner in the trucking business with
Jimmy and Norberto ​[YES]
RULING
● 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 among them. A contract of partnership is defined by
the Civil Code as one where two or more persons bind themselves to
13
● Jose Lim was the liaison officer of Interwood Sawmill in
Cagsiay, Mauban, Quezon. He and his friends Jimmy Yu and
Norberto Uy formed a partnership to engage in the trucking
business. With a contribution of P50K each, they purchased a
truck to be used in the hauling and transport of lumber of the
sawmill. ​Jose managed the operations of this trucking
business until his​ ​death​ on August 15, 1981.
● Thereafter, Jose's heirs, including Elfledo, and partners agreed
to continue the business under the management of Elfledo.
Elfledo held in trust the shares in the partnership profits and
income that formed part of the estate of Jose, with the heirs'
authority for Elfledo to use, purchase or acquire properties
using said funds.
● The heirs allege that, at that time, Elfledo was a fresh
commerce graduate serving as his father's driver in the
trucking business. He was never a partner or an investor in the
business and merely supervised the purchase of additional
trucks using the income from the trucking business of the
partners.
● By the time the partnership ceased, it had ​nine trucks​, which
were ​all registered in Elfledo's name. Through Elfledo's
management of the partnership, he was able to purchase
numerous real properties by using the profits derived
therefrom, all of which ​were registered in his name and that
of his wife, Juliet Lim. ​In addition to the nine trucks, Elfledo
also acquired ​five other motor vehicles.
● On May 18, 1995, Elfledo died, leaving his wife, Juliet Lim, as
his sole surviving heir. Juliet Lim allegedly took over the
administration of the aforementioned properties, which
belonged to the estate of Jose, without their consent and
approval.
● Claiming that they are co-owners of the properties, the HEIRS
required JULIET LIM to submit an accounting of all income,
profits and rentals received from the estate of Elfledo, and to
surrender the administration thereof.
● JULIET LIM refused; thus, the HEIRS of JOSE LIM filed a
complaint for for Partition, Accounting and Damages against
respondent Juliet Villa Lim, widow of Elfledo LIM, the eldest
son of Cresencia and Jose.​|
Procedural
● RTC: HEIRS WON
○ RTC ordered the partition of the properties equally
between Heirs of Lim and Juliet Lim.; and that Juliet Lim
submit an accounting of all incomes, profits, and rentals
received by her from said properties.
● CA (reversed and dismissed RTC case): JULIET LIM WON
weight than that of Cresencia,
who was merely the spouse of
Jose and not a party to the
partnership.
| organized. Nonetheless, we are asked to determine who between Jose
RESPONDENT’S ARGUMENTS
● JULIET LIM counters that the
issue raised by the heirs is not
proper in a petition for review
on certiorari ​under Rule 45 of
the Rules of Civil Procedure, as
it would entail the review,
evaluation, calibration, and
re-weighing of the factual
findings of the CA.
● Moreover, respondent invokes
the rationale of the CA
decision that, in light of the
admissions of Cresencia and
Edison and the testimony of
respondent, the testimony of
Jimmy was effectively refuted;
accordingly, the CA's reversal
of the RTC's findings was fully
justified.
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
● Undoubtedly, ​the best evidence would have been the contract of
partnership or the articles of partnership. Unfortunately, there is
none in this case, because the alleged partnership was never formally
and Elfledo was the "partner" in the trucking business.
● The evidence presented by petitioners falls short of the quantum of
proof required to establish that: (1) Jose was the partner and not
Elfledo; and (2) all the properties acquired by Elfledo and respondent
form part of the estate of Jose, having been derived from the alleged
partnership.
● Petitioners heavily rely on Jimmy's testimony. But that testimony is just
one piece of evidence against respondent. It must be considered and
weighed along with petitioners' other evidence vis-a-vis respondent's
contrary evidence. In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence.
● Art. 1769. In determining whether a partnership exists, these rules
shall apply: ​xxx ​(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:
○ (a) As a debt by installments or otherwise;
○ (b) As wages of an employee or rent to a landlord;
○ (c) As an annuity to a widow or representative of a deceased
partner;
○ (d) As interest on a loan, though the amount of payment vary
with the profits of the business;
○ (e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.
● Applying the legal provision to the facts of this case, ​the following
circumstances tend to prove that Elfledo was himself the
partner of Jimmy and Norberto:
○ 1) Cresencia testified that Jose gave Elfledo P50,000.00, as
share in the partnership, on a date that coincided with the
payment of the initial capital in the partnership;
○ (2) Elfledo ran the affairs of the partnership, wielding
absolute control, power and authority, without any
intervention or opposition whatsoever from any of
petitioners herein;
○ (3) all of the properties, particularly the nine trucks of the
partnership, were registered in the name of Elfledo;
○ (4) Jimmy testified that Elfledo did not receive wages or
salaries from the partnership, indicating that what he actually
received were shares of the profits of the business; and
○ (5) none of the petitioners, as heirs of Jose, the alleged
partner, demanded periodic accounting from Elfledo during
his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee, a
demand for periodic accounting is evidence of a partnership.
● Furthermore, petitioners failed to adduce any evidence to show that
the real and personal properties acquired and registered in the
names of Elfledo and respondent formed part of the estate of Jose,
14
 having been derived from Jose's alleged partnership with Jimmy and
Norberto. They failed to refute Juliet Lim’s claim that she and Elfledo
engaged in other businesses. Edison even admitted that Elfledo also
sold Interwood lumber as a sideline. HEIRS could not offer any
credible evidence other than their bare assertions. Thus, we apply
the basic rule of evidence that between documentary and oral
evidence, the former carries more weight.
● Finally, we agree with the judicious findings of the CA, to wit: The
above testimonies prove that Elfledo was not just a hired help but
one of the partners in the trucking business, active and visible in the
running of its affairs from day one until this ceased operations upon
his demise. ​The extent of his control, administration and
management of the partnership and its business, the fact that
its properties were placed in his name, and that he was not paid
salary or other compensation by the partners, are indicative of
the fact that Elfledo was a partner and a controlling one at that.
It is apparent that the other partners only contributed in the initial
capital but had no say thereafter on how the business was ran.
Evidently it was through Elfredo's efforts and hard work that
the partnership was able to acquire more trucks and otherwise
prosper. ​Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
● It is notable too that Jose Lim died when the partnership was barely
a year old, and the partnership and its business not only continued
but also flourished. If it were true that it was Jose Lim and not
Elfledo who was the partner, then upon his death the partnership
should have been dissolved and its assets liquidated. On the
contrary, these were not done but instead its operation continued
under the helm of Elfledo and without any participation from the
heirs of Jose Lim.
● Whatever properties appellant and her husband had acquired, this
was through their own concerted efforts and hard work. Elfledo did
not limit himself to the business of their partnership but engaged in
other lines of businesses as well.

(7) Pioneer PARTIES TO THE CASE PETITIONER’S ARGUMENT ISSUE: ​Whether Lim should be held liable to reimburse the amounts given
Insurance v. ● Jacob S. Lim ​- (petitioner in GR 84157 – case IMPT to our Lim’s theory that as a result of the by the respondents to the petitioner as their contributions to the intended
Court of topic) engaged in the airline business as owner-operator of failure of respondents Bormaheco, corporation. ​(YES)
Appeals, 175 Southern Air Lines (SAL) a single proprietorship. Spouses Cervantes, Constancio
SCRA 668 ● Pioneer Insurance and Surety Corporation ​– (petitioner in Maglana and petitioner Lim to
(1989) GR 84197) insurer of Lim for the purchase of the aircrafts incorporate, a de facto partnership
● Border Machinery and Heavy Equipment Company, Inc. among them was created, and that as a RULING:
(Bormaheco), Francisco and Modesto Cervantes consequence of such relationship all ● It is ordinarily held that persons who attempt, but fail, to form a
(Cervanteses) and Constancio Maglana ​- respondents in must share in the losses and/or gains corporation and who carry on business under the corporate name
both petitions of the venture in proportion to their occupy the position of partners inter se, they become in legal effect
● Japan, Japan Domestic Airlines ​(JDA) – seller of the aircrafts contribution. partners inter se, and their rights as members of the company to the
purchased by Lim property acquired by the company will be recognized. However, such a
relation does not necessarily exist, for ordinarily persons cannot be
FACTS made to assume the relation of partners, as between themselves, when
● At Tokyo, Japan, JDA and Lim entered into and executed a sales their purpose is that no partnership shall exist and it should be implied
contract for two DC-3A Type aircrafts and one (1) set of only when necessary to do justice between the parties; thus, one who
necessary spare parts for the total agreed price of US takes no part except to subscribe for stock in a proposed corporation

15
 $109,000.00 to be paid in installments. These aircrafts arrived
in Manila (on separate days). Later, Pioneer as surety executed
and issued its Surety Bond No. 6639 in favor of JDA, in behalf of
its principal, Lim, for the balance price of the aircrafts and
spare parts.
● It appears then that respondents contributed some funds used
in the purchase of the above aircrafts and spare parts. The
funds were supposed to be their contributions to a new
corporation proposed by Lim to expand his airline business.
They executed two separate indemnity agreements in favor of
Pioneer, one signed by Maglana and the other jointly signed by
Lim for SAL, Bormaheco and the Cervanteses. The indemnity
agreements stipulated that the indemnitors principally agree
and bind themselves jointly and severally to indemnify and
hold and save harmless Pioneer from and against any/all
damages, and expenses of whatever kind and nature which
Pioneer may incur in consequence of having become surety
and to pay, reimburse to Pioneer, all sums which it should or
may pay on them of whatever kind and nature.
● Sometime after, Lim doing business under SAL executed a duly
registered in favor of Pioneer as deed of chattel mortgage as
security for the latter's suretyship in favor of the former. It was
stipulated therein that Lim transfer and convey to the surety
the two aircrafts. Lim then defaulted on his subsequent
installment payments prompting JDA to request payments
from the surety. Pioneer paid a total sum of P298,626.12.
● Pioneer filed for extrajudicial foreclosure. Cervanteses and
Maglana filed a third party claim alleging that they are
co-owners of the aricrafts. They then filed a cross-claims
against Lim for exposing them to litigation and for recovery of
the sums they advanced to Lim for the purchase of the
aircrafts.
● After trial on the merits, a decision was rendered holding Lim
liable to pay Pioneer but dismissed Pioneer's complaint against
all other defendants.
● The appellate court modified the trial court's decision on its
dismissal of Pioneer’s complaint against all the defendants. In
all other respects the trial court's decision was affirmed
● IMPT!! The appellate court also upheld the lower court’s
order that Lim should reimburse certain amounts given by
the respondents to the petitioner as their contributions to
the intended corporation.
which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended
corporation, so as to be liable as such in an action for settlement of the
alleged partnership and contribution. A partnership relation between
certain stockholders and other stockholders, who were also directors,
will not be implied in the absence of an agreement, so as to make the
former liable to contribute for payment of debts illegally contracted by
the latter
● In the instant case, it is to be noted that the petitioner was declared
non-suited for his failure to appear during the pretrial despite
notification. In his answer, the petitioner denied having received any
amount from respondents Bormaheco, the Cervanteses and Maglana.
The trial court and the appellate court, however, found through Exhibit
58, that the petitioner received the amount of P151,000.00
representing the participation of Bormaheco and Atty. Constancio B.
Maglana in the ownership of the subject airplanes and spare parts. The
record shows that defendant Maglana gave P75,000.00 to petitioner
Jacob Lim thru the Cervanteses.
● It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them.
This gives credence to the cross-claims of the respondents to the effect
that they were induced and lured by the petitioner to make
contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement.
● Contrary to the agreement among the defendants, defendant Lim in
connivance with the plaintiff, signed and executed the alleged chattel
mortgage and surety bond agreement in his personal capacity as the
alleged proprietor of the SAL.
● Applying therefore the principles of law earlier cited to the facts of the
case, necessarily, no de facto partnership was created among the
parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and
spare parts.
[GR 84197 - On the issue of whether Pioneer may seek
reimbursement/payment from the respondents, the court held that it could
only claim from Lim. It appeared that Pioneer reinsured its risk of liability
under the surety bond, collected the proceeds of such reinsurance, and paid
with the said amount the bulk of its alleged liability to JDA, it is plain that
from this act of reinsuring its surety bond, it no longer has any right to
collect to the extent of the said amount collected (295k). It is therefore the
reinsurer who has the right to collect from the respondents absent showing
that Pioneer was acting as the reinsurer’s attorney-in-fact. Further, the
execution of chattel mortgage extinguishes the indemnity agreement, as per
agreement. The court also found out that Pioneer, Lim, and JDA modified the
maturity dates of the obligation without the consent of the other guarantors.
The consequence of this was the extinguishment of the obligations and of the
surety bond secured by the indemnity agreement which was thereby also
extinguished. Therefore, Pioneer is not entitled to the exact reimbursement
from these defendants thru indemnity.}
16
(8) Lim Tong PARTIES TO THE CASE: PETITIONER’S ARGUMENT
Lim v. Lim Tong Lim= Petitioner ● In arguing that he should
Philippine Philippine Fishing Gear Industries = Respondent not be held liable for the
Fishing Gear Antonio Chua = Partner equipment purchased from
Industries, Peter Yao = Partner respondent, Lim Tong Lim
317 SCRA controverts the CA finding
728 (1999) FACTS that a partnership existed
● On behalf of "Ocean Quest Fishing Corporation," Antonio between him, Peter Yao and
Chua and Peter Yao entered into a Contract for the Antonio Chua. He asserts
purchase of fishing nets of various sizes from the that the CA based its finding
Philippine Fishing Gear Industries, Inc. (herein on the Compromise
respondent). They claimed that they were engaged in a Agreement alone.
business venture with Lim Tong Lim Lim Tong Lim, who ● Furthermore, he disclaims
however was not a signatory to the agreement. The total any direct participation in
price of the nets amounted to P532,045. Four hundred the purchase of the nets,
pieces of floats worth P68,000 were also sold to the alleging that the
Corporation. negotiations were
● The buyers, however, failed to pay for the fishing nets and conducted by Chua and Yao
the floats; hence, private respondent filed a collection suit only, and that he has not
against Chua, Yao and Lim Tong Lim with a prayer for a even met the
writ of preliminary attachment. The suit was brought representatives of the
against the three in their capacities as general partners, respondent company.
on the allegation that "Ocean Quest Fishing Corporation" ● Lim Tong Lim further
was a nonexistent corporation as shown by a Certification argues that he was a lessor,
from the Securities and Exchange Commission. The lower not a partner, of Chua and
court issued a Writ of Preliminary Attachment, which the Yao, for the "Contract of
sheriff enforced by attaching the fishing nets on board Lease" dated February 1,
F/B Lourdes which was then docked at the Fisheries Port, 1990, showed that he had
Navotas, Metro Manila. merely leased to the two the
● The trial court rendered its Decision, ruling that main asset of the purported
Philippine Fishing Gear Industries was entitled to the partnership — the fishing
Writ of Attachment and that Chua, Yao and Lim, as boat ​F/B Lourdes.​ The lease
general partners, were jointly liable to pay respondent. was for six months, with a
● The trial court ruled that a partnership among Lim, Chua monthly rental of P37,500
and Yao existed based (1) on the testimonies of the plus 25 percent of the gross
witnesses presented and (2) on a Compromise Agreement catch of the boat.
executed by the three. The trial court noted that the ● Lim Tong Lim argues that
Compromise Agreement was silent as to the nature of the appellate court's sole
their obligations, but that joint liability could be basis for assuming the
presumed from the equal distribution of the profit and existence of a partnership
loss. CA affirmed. was the Compromise
Agreement. He also claims
that the settlement was
entered into only to end the
dispute among them, but
not to adjudicate their
preexisting rights and
obligations.
● Lim Tong Lim argues that
under the doctrine of
corporation by estoppel,
liability can be imputed
ISSUE: ​WON by their acts, Lim, Chua and Yao could be deemed to have
entered into a partnership. ​(YES)
RULING:
● 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 Lim Tong Lim'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.
● 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.
● Given the preceding facts, it is clear that there was, among Lim
Tong Lim, Chua and Yao, a partnership engaged in the fishing
business. 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.
● The Compromise Agreement is not the sole basis of partnership.
The Agreement was but an embodiment of the relationship extant
among the parties prior to its execution. 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, Lim Tong Lim 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 Lim
Tong Lim's argument that the existence of a partnership was
based only on the Compromise Agreement.
● We are not convinced by Lim Tong Lim's argument that he was
merely the lessor of the boats to Chua and Yao, not a partner in
the fishing venture. His argument allegedly finds support in the
Contract of Lease and the registration papers showing that he was
the owner of the boats, including F/B Lourdes where the nets
were found.
● His allegation defies logic. In effect, he would like this Court to
17
only to Chua and Yao, and
not to him.|||
● Verily, as found by the lower courts, Lim Tong Lim entered into a
● Applying the doctrine of corporation by estoppel, even if the
● There is no dispute that Philippine Fishing Gear Industries, is
believe that he consented to the sale of his own boats to pay a
debt of Chua and Yao, with the excess of the proceeds to be
divided among the three of them. No lessor would do what Lim
Tong Lim did. Indeed, his consent to the sale proved that there
was a pre-existing partnership among all three.
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 Lim
Tong Lim himself. After all, he is the brother of the creditor, Jesus
Lim.
ostensible corporate entity is proven to be legally non-existent, 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. 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.
entitled to be paid for the nets it sold. The only question here is
whether Lim Tong Lim should be held jointly liable with Chua
and Yao. Unquestionably, Lim Tong Lim benefited from the use of
the nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership. 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.
18