CASE DIGESTS – PARTNERSHIP (INTRODUCTION AND GENERAL PROVISIONS)

1. [G.R. No. X92-1. July 30, 1979.]

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO,
HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P, FELICIANO, BENILDO G.
HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES, JR., ANDRES G.
GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E. FERNANDEZ,
ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and
ALICE V. PESIGAN, petitioners.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME
"OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN M. DE
LEON, ROMAN MABANTA, JR., JOSE MA. REYES, JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES,
and JOSE F. BUENAVENTURA, petitioners.

||| (In Re: Sycip, Salazar, Feliciano, Hernandez & Castillo, G.R. No. X92-1 (Resolution), [July 30,
1979])

FACTS:

Two separate petitions were filed before this Court; 1)by the surviving partners of Atty.
Alexander Sycip, and 2)by the surviving partners of Atty. Herminio Ozaeta, praying that they be
allowed to continue using, in the names of their firms, the names of partners who had passed
away.

Petitioners base their petitions on the following arguments: 1) A partnership is not prohibited
from continuing its business under a firm name which includes the name of a deceased partner
as under Art. 1840 of the Civil Code; 2) In regulating other professions, such as accountancy and
engineering, the legislature has authorized the adoption of firm names without any restriction as
to the use, in such firm name, of the name of a deceased partner; 3) The Canons of Professional
Ethics transgressed by the continued use of the name of a deceased partner in the firm name of
a law partnership. Canon 33: The continued use of the name of a deceased or former partner
when permissible by local custom, is not unethical but care should be taken that no imposition
or deception is practiced through this use; 4) No possibility of imposition or deception because
the deaths of their respective deceased partners were well-publicized in all newspapers of
general circulation for several days; 5) No local custom prohibits the continued use of a deceased
partner’s name in a professional firm name; 6) Continued use of a deceased partner’s name in
the firm name of law partnerships has been consistently allowed by US Courts.

ISSUE:

Whether or not the firms may continue to use the partnership name despite the death of a
partner.
RULING:

No. The public relations value of the use of an old firm name can tend to create undue
advantages and disadvantages in the practice of the profession. An able lawyer without
connections will have to make a name for himself starting from scratch. Another able lawyer,
who can join an old firm, can initially ride on that old firm’s reputations established by deceased
partners.

Secondly, Art. 1840 of the Civil Code treats more of a commercial partnership with a good will
to protect rather than of a professional partnership.

In the Philippines, no local custom permits or allows the continued use of a deceased former
partner’s name in the firm names of law partnerships. Firm names, under our custom, identify
the more creative and/or more senior partners or members of the law firm.
2. G.R. No. 127405
October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondents

Facts:

William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form
a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao also
contributed some cash and she shall also act as president and general manager; and Anay shall
be in charge of marketing. Belo and Tocao specifically asked Anay because of her experience
and connections as a marketer. They agreed further that Anay shall receive the following:
1. 10% share of annual net profits
2. 6% overriding commission for weekly sales
3. 30% of sales Anay will make herself
4. 2% share for her demo services

They operated under the name Geminesse Enterprise, this name was however registered as asole
proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement was
not reduced to writing because Anay trusted Belo’s assurances. The venture succeeded under
Anay’s marketing prowess. But then the relationship between Anay and Tocao soured. One day,
Tocao advised one of the branch managers that Anay was no longer a part of the company. Anay
then demanded that the company be audited and her shares be given to her.

Issue:
Whether or not there is a partnership

Held:
Yes, even though it was not reduced to writing, for a partnership can be instituted in any form.
The fact that it was registered as a sole proprietorship is of no moment for such registration was
only for the company’s trade name. Anay was not even an employee because when they
ventured into the agreement, they explicitly agreed to profit sharing this is even though Anay
was receiving commissions because this is only incidental to her efforts as a head marketer. The
Supreme Court also noted that a partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the
partnership as well as damages or share in the profits “realized from the appropriation of the
partnership business and goodwill.” An innocent partner thus possesses “pecuniary interest in
every existing contract that was incomplete and in the trade name of the co-partnership and
assets at the time he was wrongfully expelled.”

SYNOPSIS
For having been excluded from the partnership "Geminesse Enterprises," Nenita Anay brought a
complaint for sum of money with damages against Marjorie D. Tocao and William Belo before
the Regional Trial Court of Makati. In their answer, Tocao and Belo asserted that Geminesse
Enterprises was the sole proprietorship of Tocao and that Anay merely acted as Marketing
Demonstrator of Geminesse. Thus, Tocao and Belo theorized that Anay's complaint which
pertains to her compensation or dismissal, should have been lodged with the Department of
Labor. At the pre-trial, the parties defined as the main issue, the question of whether or not Anay
was a partner of Tocao and Belo. The trial court ruled that she was.

Tocao and Belo admitted that Anay had the expertise to engage in the business of distributorship
of cookware. Anay contributed such expertise to the partnership and, hence, under the law, she
was the industrial or managing partner. It was through her reputation that the partnership was
able to open the business of distributorship; it was through the same efforts that the business
was propelled to financial success. Moreover, Anay had a voice in the management of the affairs
of the business, including selection of people who would constitute the administrative staff and
the sales force. Likewise, Tocao admitted that, like her who owned Gimenesse Enterprises, Anay
received only commissions and transportation and representation allowances and not a fixed
salary. If indeed Tocao was Anay's employer, it was difficult to believe that they shall receive the
same income in the business.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF TRIAL COURT GENERALLY UPHELD ON

APPEAL. — The issue of whether or not a partnership exists is a factual matter which are within
the exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the conclusion
drawn by the court a quo. In this case, both the trial court and the Court of Appeals are one in
ruling that petitioners and private respondent established a business partnership. This Court
finds no reason to rule otherwise. DASCIc

2. CIVIL LAW; PARTNERSHIP; WHEN CONSIDERED A JURIDICAL PERSONALITY. — To be considered

a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and (2) intention on
the part of the partners to divide the profits among themselves.

3. ID.; ID.; MAY BE CONSTITUTED IN ANY FORM EXCEPT WHERE REAL RIGHTS ARE INVOLVED. —
It may be constituted in any form; a public instrument is necessary only where immovable
property or real rights are contributed thereto. This implies that since a contract of partnership
is consensual, an oral contract of partnership is as good as a written one. Where no immovable
property or real rights are involved, what matters is that the parties have complied with the
requisites of a partnership.

4. ID.; ID.; INDUSTRIAL PARTNER; EXAMPLE THEREOF. — Petitioners admit that private
respondent had the expertise to engage in the business of distributorship of cookware. Private
respondent contributed such expertise to the partnership and hence, under the law, she was the
industrial or managing partner. It was through her reputation with the West Bend Company that
the partnership was able to open the business of distributorship of that company's cookware
products; it was through the same efforts that the business was propelled to financial success.

5. ID.; ID.; ACTS INDICATING THAT ONE IS A PARTNER. — Petitioner Belo's denial that he financed
the partnership rings hollow in the face of the established fact that he presided over meetings
regarding matters affecting the operation of the business. Moreover, his having authorized in
writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could
not be interpreted otherwise than that he had a proprietary interest in the business. If he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code, he
should have presented documentary evidence therefor. While Article 2055 of the Civil Code
simply provides that guaranty must be "express," Article 1403, the Statute of Frauds, requires
that "a special promise to answer for the debt, default or miscarriage of another" be in writing.
While it is true that the receipt of a percentage of net profits constitutes only prima facie
evidence that the recipient is a partner in the business, the evidence in the case at bar controverts
an employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship, including selection
of people who would constitute the administrative staff and the sales force. Secondly, petitioner
Tocao's admissions militate against an employer-employee relationship. She admitted that, like
her who owned Geminesse Enterprise, private respondent received only commissions and
transportation and representation allowances and not fixed salary.

6. ID.; ID.; RIGHTS AND OBLIGATIONS OF A PARTNER; TO SHARE IN THE PROFITS AND LOSSES OF
THE VENTURE; EXCEPTION. — In a partnership, each partner must share in the profits and losses
of the venture, except that the industrial partner shall not be liable for the losses. As an industrial
partner, private respondent had the right to demand for a formal accounting of the business and
to receive her share in the net profit.

7. ID.; ID.; UNACCOUNTED STOCK PROVES THE EXISTENCE OF A PARTNERSHIP. — Petitioners

underscore the fact that the Court of Appeals did not return the "unaccounted and unremitted
stocks of Geminesse Enterprise amounting to P208,250.00." Obviously a ploy to offset the
damages awarded to private respondent, that claim, more than anything else, proves the
existence of a partnership between them. In Idos v. Court of Appeals, this Court said: "The best
evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to
the trial court. Since the partnership has not been terminated, the petitioner and private
complainant remained as co-partners. . . . ."

8. ID.; ID.; EXISTS UNTIL DISSOLVED UNDER THE LAW. — A mere falling out or misunderstanding
between partners does not convert the partnership into a sham organization. The partnership
exists until dissolved under the law.
9. ID.; ID.; DISSOLUTION AND WINDING UP; PARTNERSHIP AT WILL MAY BE DISSOLVED BY THE
WILL OF A PARTNER. — Since the partnership created by petitioners and private respondent has
no fixed term and is therefore a partnership at will predicated on their mutual desire and consent,
it may be dissolved by the will of a partner.

10. ID.; ID.; ID.; UNJUSTIFIED DISSOLUTION SUBJECTS GUILTY PARTNER TO DAMAGES. — An
unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership. ADScCE

11. ID.; ID.; ID.; UNILATERAL EXCLUSION OF ONE PARTNER, AN EFFECTIVE WITHDRAWAL FROM
THE PARTNERSHIP; CASE AT BAR. — Petitioner Tocao's unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership
and considered herself as having ceased to be associated with the partnership in the carrying on
of the business. Nevertheless, the partnership was not terminated thereby; it continues until the
winding up of the business.

||| (Tocao v. Court of Appeals, G.R. No. 127405, [October 4, 2000], 396 PHIL 166-186)
3. Aurbach vs. Sanitary Wares
G.R. No. 75875 December 15, 1989

FACTS:
Saniwares, a domestic corporation, was incorporated for the primary purpose of manufacturing
and marketing sanitary wares. One of the incorporators, Mr. Young went abroad to look for
foreign partners.

ASI, a foreign corporation domiciled in the US entered into an agreement with Saniwares and
some Filipino investors whereby ASI and the Filipino investors agreed to participate in the
ownership of an enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad China and sanitarywares.

The parties agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise which name shall be Sanitary Wares Manufacturing Corporation. The
agreement has the provision that the management of the corporation shall be vested in the
Board of Directors (BOD) which shall consists of 9 individuals. And as long as ASIwill own 30% of
the outstanding capital stock, 3 of the 9 directors shall be designated by ASI and the other
directors by the other stockholders.

Veto power was also given to ASI which is designed to protect it as a minority group. The joint
enterprise prospered. However, disagreements came up due to objection of ASI of the desired
expansion of the Filipino group. When the time came to elect the BOD, instead of 9 nominees,
11
were nominated contrary to the usual practice. The meeting was subsequently adjourned.ASI,
other stockholders and Salazar, one of the nominees as director continued the meeting at the
elevator lobb of ASI Building and consequently, 5 directors were elected as certified by the acting
secretary.

ISSUE: Whether or not the directors as nominated by the ASI group are valid members of the
BOD of Saniwares

HELD:
No. A corporation cannot enter into a partnership contract but may engage in a joint venture
with other. Since the relationship is a joint venture, the agreement of the parties governs.
1. COMMERCIAL LAW; JOINT VENTURE; WHETHER THERE EXISTS A JOINT VENTURE DEPENDS
UPON THE PARTIES' ACTUAL INTENTION WHICH IS DETERMINED IN ACCORDANCE WITH THE
RULES COVERING THE INTERPRETATION AND CONSTRUCTION OF CONTRACTS. — The rule is that
whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and construction of contracts. (Terminal
Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California
Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
2. ID.; ID.; ESTABLISHED IN CASE AT BAR. — In the instant cases, our examination of important
provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and
Young Group shows that the parties agreed to establish a joint venture and not a corporation.
The history of the organization of Saniwares and the unusual arrangements which govern its
policy making body are all consistent with a joint venture and not with an ordinary corporation.
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in
the selection of the nine directors on a six to three ratio. Each group is assured of a fixed number
of directors in the board. Moreover, ASI in its communications referred to the enterprise as joint
venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein
contained shall be construed to constitute any of the parties hereto partners or joint venturers
in respect of any transaction hereunder" was merely to obviate the possibility of the enterprise
being treated as partnership for tax purposes and liabilities to third parties.

3. ID.; ID.; CONCEPT OF JOINT VENTURE; DISTINGUISHED FROM PARTNERSHIP. — The point of
query, however, is whether or not that provision is applicable to a joint venture with clearly
defined agreements: "The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are similar — community of interest
in the business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdictions is that the partnership contemplates a general business
with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a
joint venture is a form of partnership and should thus be governed by the law of partnerships.
The Supreme Court has however recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos
and Lopez — Campos Comments, Notes and Selected Cases, Corporation Code 1981). Moreover,
the usual rules as regards the construction and operations of contracts generally apply to a
contract of joint venture. (O'Hara v. Harman 14 App. Dev. (167) 43 NYS 556).

4. ID.; ID.; RIGHT OF STOCKHOLDERS TO CUMULATE VOTES IN ELECTING DIRECTORS LIES IN THE
AGREEMENT OF PARTIES. — Bearing these principles in mind, the correct view would be that the
resolution of the question of whether or not the ASI Group may vote their additional equity lies
in the agreement of the parties. The appellate court was correct in upholding the agreement of
the parties as regards the allocation of director seats under Section 5 (a) of the "Agreement," and
the right of each group of stockholders to cumulative voting in the process of determining who
the group's nominees would be under Section 3(a) (1) of the "Agreement." As pointed out by SEC,
Section 5(a) of the Agreement relates to the manner of nominating the members of the board of
directors while Section 3 (a) (1) relates to the manner of voting for these nominees.

5. ID.; ANTI-DUMMY; LIMITS THE ELECTION OF ALIENS AS MEMBERS OF THE BOARD OF

DIRECTORS IN PROPORTION TO THEIR ALLOWANCE PARTICIPATION OF THE ENTITY. — Equally
important as the consideration of the contractual intent of the parties is the consideration as
regards the possible domination by the foreign investors of the enterprise in violation of the
nationalization requirements enshrined in the Constitution and circumvention of the Anti-
Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the
ASI group to elect board directors in proportion to their share in the capital of the entity. It is to
be noted, however, that the same law also limits the election of aliens as members of the board
of directors in proportion to their allowance participation of said entity.
4. LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES INC.
317 SCRA 728 (1999)
G.R. No. 136448. November 3, 1999

SYNOPSIS

Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing Corporation
for the purchase of fishing nets from respondent Philippine Fishing Gear Industries, Inc. Chua and
Yao claimed that they were engaged in business venture with petitioner Lim Tong Lim, who,
however, was not a signatory to the contract. The buyers failed to pay the fishing nets.
Respondent filed a collection against Chua, Yao and petitioner Lim in their capacities as general
partners because it turned out that Ocean Quest Fishing Corporation is a non-existent
corporation. The trial court issued a Writ of Preliminary Attachment, which the sheriff enforced
by attaching the fishing nets. The trial court rendered its decision ruling that respondent was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly
liable to pay respondent. Lim appealed to the Court of Appeals, but the appellate court affirmed
the decision of the trial court that petitioner Lim is a partner and may thus be held liable as such.
Hence, the present petition. Petitioner claimed that since his name did not appear on any of the
contracts and since he never directly transacted with the respondent corporation, ergo, he
cannot be held liable. cIaCTS

The Supreme Court denied the petition. The Court ruled that having reaped the benefits of the
contract entered into by Chua and Yao, with whom he had an existing relationship, petitioner Lim
is deemed a part of said association and is covered by the doctrine of corporation by estoppel.
The Court also ruled that under the principle of estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid existence, are held liable as general
partners

FACTS:
Antonio Chua and Peter Yap bought nets of various sizes and floats from Philippine Fishing Gear
(PFG) for Ocean Quest Fishing Corporation (OQF), saying that petitioner was also involved with
OQF despite not being a signatory to the agreement.

They failed to pay the purchase price, hence PFG filed a collection case against OQF. PFG also
alleged that OQF is a non-existent corporation by virtue of a certification by the SEC. RTC issued
the writ of attachment on the nets, and was sold at a public auction with the proceeds deposited
to the court. RTC ruled there was partnership between the three (Chua, Yao, Lim) anchoring on
the Compromise Agreement they executed in the civil case filed by Chua and Yao against Lim for
the declaration of ownership of the fishing boats, among other things. CA affirmed.

ISSUE: Whether or not by their acts, Lim, Chua, and Yao are deemed to have entered into a
partnership.
HELD: Yes. A partnership is a contract where 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. The three engaged in a commercial venture for commercial fishing and contracted
loans to buy two fishing boats, and the nets and floats needed to operate the fishing business. 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. It extended to the fishing nets and the floats, both
essential to fishing, which were obviously acquired in furtherance of their business.

Petitioner’s defense that he was a mere lessor does not hold water. 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
petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership
among all three.

Corporation by estoppels: Although the partnership/corporation was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held liable as
general partners.

SYLLABUS

1. CIVIL LAW; PARTNERSHIP; AGREEMENT THAT ANY LOSS OR PROFIT FROM THE SALE AND
OPERATION OF THE BOATS WOULD BE DIVIDED EQUALLY AMONG THEM SHOWS THAT THE
PARTIES HAD INDEED FORMED A PARTNERSHIP. — From the factual findings of both lower courts,
it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started
by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the
excess or loss. These boats, the purchase and the repair of which were financed with borrowed
money, fell under the term "common fund" under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership. 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 petitioner, 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.

2. ID.; ID.; COMPROMISE AGREEMENT OF THE PARTIES NOT THE SOLE BASIS OF PARTNERSHIP.
— Petitioner argues that the appellate court's sole basis for assuming the existence of a
partnership 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. His arguments are baseless. 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,
petitioner fails to appreciate that the CA and the RTC delved into the history of the document
and explored all the possible consequential combinations in harmony with law, logic and fairness.
Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument
that the existence of a partnership was based only on the Compromise Agreement.

3. ID.; ID.; PETITIONER WAS A PARTNER, NOT A LESSOR. — Verily, as found by the lower courts,
petitioner entered into a business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the upgrading of the vessels which would be
used in their fishing business. The sale of the boats, as well as the division among the three of
the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own property but an asset of the partnership. It is not
uncommon to register the properties acquired from a loan in the name of the person the lender
trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus
Lim. We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property
to pay a debt he did not incur, if the relationship among the three of them was merely that of
lessor-lessee, instead of partners.
5. MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A.
ANAY, respondents.
G.R. No. 127405, October 4, 2000

FACTS: Nenita A. Anay met petitioner William T. Belo. Belo introduced Anay to petitioner
Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cook wares. Belo volunteered to finance the joint
venture and assigned to Anay the job of marketing the product considering her experience and
established established relationship with West Bend Company, manufacturer of kitchen wares in
Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for sales. Anay
organized the administrative staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them to different
branches. The parties agreed that Anay would be entitled to: 1. ten percent (10%) of the annual
net profits of the business; 2. overriding commission of six percent (6%) of the overall weekly
production; 3. thirty percent (30%) of the sales she would make; and 4. two percent (2%) for her
demonstration services.
Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off
successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao's name.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to the Cubao
sales office to the effect that she was no longer the vice-president of Geminesse Enterprise.
ISSUE: Whether or not Anay was a partner of Tocao and Belo.
HELD: Yes. Anay is an industrial partner. Tocao and Belo admitted that Anay had the expertise to
engage in the business of distributorship of cookware. Anay contributed such expertise to the
partnership and, hence, under the law, she was the industrial or managing partner. It was through
her reputation that the partnership was able to open the business of distributorship; it was
through the same efforts that the business was propelled to financial success.
Moreover, Anay had a voice in the management of the affairs of the business, including selection
of people who would constitute the administrative staff and the sales force. Likewise, Tocao
admitted that, like her who owned Gimenesse Enterprises, Anay received only commissions and
transportation and representation allowances and not a fixed salary. If indeed Tocao was Anay's
employer, it was difficult to believe that they shall receive the same income in the business.

CIVIL LAW; PARTNERSHIP; WHEN CONSIDERED A JURIDICAL PERSONALITY. — To be considered a

juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and (2) intention on
the part of the partners to divide the profits among themselves.
ID.; ID.; MAY BE CONSTITUTED IN ANY FORM EXCEPT WHERE REAL RIGHTS ARE INVOLVED. — It
may be constituted in any form; a public instrument is necessary only where immovable property
or real rights are contributed thereto. This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as a written one. Where no immovable
property or real rights are involved, what matters is that the parties have complied with the
requisites of a partnership.
ID.; ID.; INDUSTRIAL PARTNER; EXAMPLE THEREOF. — Petitioners admit that private respondent
had the expertise to engage in the business of distributorship of cookware. Private respondent
contributed such expertise to the partnership and hence, under the law, she was the industrial
or managing partner. It was through her reputation with the West Bend Company that the
partnership was able to open the business of distributorship of that company's cookware
products; it was through the same efforts that the business was propelled to financial success.
ID.; ID.; ACTS INDICATING THAT ONE IS A PARTNER. — Petitioner Belo's denial that he financed
the partnership rings hollow in the face of the established fact that he presided over meetings
regarding matters affecting the operation of the business. Moreover, his having authorized in
writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could
not be interpreted otherwise than that he had a proprietary interest in the business. If he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code, he
should have presented documentary evidence therefor. While Article 2055 of the Civil Code
simply provides that guaranty must be "express," Article 1403, the Statute of Frauds, requires
that "a special promise to answer for the debt, default or miscarriage of another" be in writing.
While it is true that the receipt of a percentage of net profits constitutes only prima facie
evidence that the recipient is a partner in the business, the evidence in the case at bar controverts
an employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship, including selection
of people who would constitute the administrative staff and the sales force. Secondly, petitioner
Tocao's admissions militate against an employer-employee relationship. She admitted that, like
her who owned Geminesse Enterprise, private respondent received only commissions and
transportation and representation allowances and not fixed salary.
ID.; ID.; RIGHTS AND OBLIGATIONS OF A PARTNER; TO SHARE IN THE PROFITS AND LOSSES OF
THE VENTURE; EXCEPTION. — In a partnership, each partner must share in the profits and losses
of the venture, except that the industrial partner shall not be liable for the losses. As an industrial
partner, private respondent had the right to demand for a formal accounting of the business and
to receive her share in the net profit.
ID.; ID.; UNACCOUNTED STOCK PROVES THE EXISTENCE OF A PARTNERSHIP. — Petitioners
underscore the fact that the Court of Appeals did not return the "unaccounted and unremitted
stocks of Geminesse Enterprise amounting to P208,250.00." Obviously a ploy to offset the
damages awarded to private respondent, that claim, more than anything else, proves the
existence of a partnership between them. In Idos v. Court of Appeals, this Court said: "The best
evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to
the trial court. Since the partnership has not been terminated, the petitioner and private
complainant remained as co-partners. . . . ."
ID.; ID.; EXISTS UNTIL DISSOLVED UNDER THE LAW. — A mere falling out or misunderstanding
between partners does not convert the partnership into a sham organization. The partnership
exists until dissolved under the law.
ID.; ID.; DISSOLUTION AND WINDING UP; PARTNERSHIP AT WILL MAY BE DISSOLVED BY THE WILL
OF A PARTNER. — Since the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual desire and consent,
it may be dissolved by the will of a partner.
ID.; ID.; ID.; UNJUSTIFIED DISSOLUTION SUBJECTS GUILTY PARTNER TO DAMAGES. — An
unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership.
ID.; ID.; ID.; UNILATERAL EXCLUSION OF ONE PARTNER, AN EFFECTIVE WITHDRAWAL FROM THE
PARTNERSHIP; CASE AT BAR. — Petitioner Tocao's unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership
and considered herself as having ceased to be associated with the partnership in the carrying on
of the business. Nevertheless, the partnership was not terminated thereby; it continues until the
winding up of the business.
6. AGUILA, JR. v. COURT OF APPEALS 316 SCRA 246 (1999)
G.R. No. 127347. November 25, 1999

FACTS:
Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C. Aguila & Sons, Co., a partnership engaged
in lending activities. Felicidad S. Vda. de Abrogar (private respondent) and her late husband,
Ruben M. Abrogar, were the registered owners of a house and lot, covered by Transfer Certificate
of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into
a Memorandum of Agreement which provided that A.C. Aguila & Sons, Co. shall buy the property
from private respondent for P200,000 subject to an option to repurchase for P230,000 (valid for
90 days), etc. On the same day, the parties likewise executed a deed of absolute sale, dated June
11, 1991, wherein private respondent, with the consent of her late husband, sold the subject
property to A.C. Aguila & Sons, Co., represented by petitioner, for P200,000,00. In a special power
of attorney dated the same day, April 18, 1991, private respondent authorized petitioner to cause
the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of
A.C. Aguila and Sons, Co., in the event she failed to redeem the subject property as provided in
the Memorandum of Agreement. Private respondent failed to redeem the property. Pursuant to
the special power of attorney mentioned above, petitioner caused the cancellation of TCT No.
195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co.
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil,
counsel forA.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after
receipt of the letter and surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise,
the latter would bring the appropriate action in court. Upon the refusal of private respondent to
vacate the subject premises, A.C. Aguila & Sons, Co. filed an ejectment case against her in the
Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. MeTC, Marikina, MM (April 3,
1992): Ruled in favor of A.C. Aguila & Sons, Co. Private respondent appealed to RTC Pasig, CA,
and then SC but she still lost. Private respondent then filed a petition for declaration of nullity of
a deed of sale filed by Felicidad S. Vda. de Abrogar against Alfredo N. Aguila, Jr. She alleged that
the signature of her husband on the deed of sale was a forgery because he was already dead
when the deed was supposed to have been executed on June 11, 1991.
• RTC, Marikina, MM (April 11,1995): Dismissed.
• CA, (November 29,1990): Reversed ruling of the RTC. Hence, this petition for review on
certiorari.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against
which this case should have been brought; (2) the judgment in the ejectment case is a bar to the
filing of the complaint for declaration of nullity of a deed of sale in this case; and (3) the contract
between A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale and not an
equitable mortgage as held by the appellate court.

ISSUE:
Whether the real party in interest is A.C. Aguila & Co. and not petitioner. – YES

RATIO:
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct
from that of each of the partners." The partners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a different juridical personality is being used
for fraudulent, unfair, or illegal purposes. In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co.
and the Memorandum of Agreement was executed between private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is
the partnership, not its officers or agents, which should be impleaded in any litigation involving
property registered in its name. A violation of this rule will result in the dismissal of the complaint.

CIVIL LAW; PARTNERSHIP; PARTNERS CANNOT BE HELD LIABLE FOR THE OBLIGATIONS OF THE
PARTNERSHIP UNLESS IT IS SHOWN THAT THE LEGAL FICTION OF A DIFFERENT JURIDICAL
PERSONALITY IS BEING USED FOR FRAUDULENT, UNFAIR OR ILLEGAL PURPOSES. — Under Article
1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that
of each of the partners." The partners cannot be held liable for the obligations of the partnership
unless it is shown that the legal fiction of a different juridical personality is being used for
fraudulent, unfair, or illegal purposes. In this case, private respondent has not shown that A. C.
Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair or illegal
purposes. Moreover, the title to the subject property is in the name of A. C. Aguila & Sons, Co.,
and the Memorandum of Agreement was executed between private respondent, with the
consent of her late husband, and A. C. Aguila & Sons, Co., represented by petitioner. Hence, it is
the partnership, not its officers or agents, which should be impleaded in any litigation involving
property registered in its name. A violation of this rule will result in the dismissal of the complaint.
We cannot understand why both the Regional Trial Court and the Court of Appeals sidestepped
this issue when it was squarely raised before them by petitioner.
7.Heirs of Tan Eng Kee v. Court of Appeals

Facts: After the second World War, Tan EngKee and Tan Eng Lay, pooling their resources and
industry together, entered into a partnership engaged in the business of selling lumber and
hardware and construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan EngKee's death. Petitioners THE HEIRS OF TAN ENG KEE herein averred
that the business prospered due to the hard work and thrift of the alleged partners. However,
they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership
"Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan EngKee and his heirs of their rightful participation in the profits
of the business. Petitioners prayed for accounting of the partnership assets, and the dissolution,
winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.
However, Tan Eng Lay contested that Tan Eng Kee was merely an employee and that Benguet
Lumber was his sole proprietorship. Thus, the heirs averred that there was an oral formation of
a partnership on the basis that:
Tan Eng Kee commanded and supervised the employees along with Tan Eng Lay;
Tan Eng Kee also determined the price at which the stocks were sold;
Tan Eng Kee also placed orders to the suppliers; and
Both partners’ families lived together in the same compound.
Tan Eng Lay, however, protested that:
Even a mere supervisor could give orders to subordinates;
Even a messenger can order materials from suppliers; and
Tan Eng Kee and Tan Eng Lay are brothers so that the privilege was accorded due to their personal
relations.

Issue: Whether or not there was a partnership.

Ruling: In determining whether a partnership exists, these rules shall apply: (1) Except as provided
by Article 1825, persons who are not partners as to each other are not partners as to third
persons; (2) Co-ownership or co-possession does not of itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property which the returns
are derived; (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 installment 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. In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only
an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not present and offer evidence that would
show that Tan Eng Kee received amounts of money allegedly representing his share in the profits
of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any,
as his share in the profits of Benguet Lumber Company for any particular period. Hence, they
failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business
between themselves, which is one of the essential features of a partnership. It is indeed odd, if
not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng
Kee never asked for an accounting. The essence of a partnership is that the partners share in the
profits and losses. Each has the right to demand an accounting as long as the partnership exists.
We have allowed a scenario wherein "[i]f excellent relations exist among the partners at the start
of the business and all the partners are more interested in seeing the firm grow rather than get
immediate returns, a
deferment of sharing in the profits is perfectly plausible."31 But in the situation in the case at
bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take
ordinary care of his concerns. A demand for periodic accounting is evidence of a partnership.
During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting
from his brother, Tang Eng Lay.
8.JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
brothers and sisters, petitioners vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF
TAX APPEALS, respondent

Facts: This case is about the income tax liability of four brothers and sisters who sold two parcels
of land which they had acquired from their father. Jose Obillos, Sr. completed payment to Ortigas
& Co., Ltd. on two lots located at Greenhills, San Juan, Rizal. The next day he transferred his rights
to his four children, the petitioners, to enable them to build their residences. Presumably, the
Torrens titles issued to them would show that they were co-owners of the two lots. After having
held the two lots for more than a year, the petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canda. One day before the expiration of the five-year prescriptive
period, the Commissioner of Internal Revenue required the four petitioners to pay corporate
income tax in addition to individual income tax on their shares thereof. The petitioners are being
held liable for deficiency income taxes and penalties in addition to the tax on capital gains already
paid by them. The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the
Tax Code.

Issue: Whether or not the petitioners formed a partnership, hence, are liable for tax.

Ruling: We hold that it is error to consider the petitioners as having formed a partnership under
article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the
two lots, resold the same and divided the profit among themselves. To regard the petitioners as
having formed a taxable unregistered partnership would result in oppressive taxation and
confirm the dictum that the power to tax involves the power to destroy. That eventuality should
be obviated. As testified by Jose Obillos, Jr., they had no such intention. They were co-owners
pure and simple. To consider them as partners would obliterate the distinction between a co-
ownership and a partnership. The petitioners were not engaged in any joint venture by reason of
that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not
feasible to build their residences on the lots because of the high cost of construction, then they
had no choice but to resell the same to dissolve the co-ownership. The division of the profit was
merely incidental to the dissolution of the co-ownership which was in the nature of things a
temporary state. It had to be terminated sooner or later. Article 1769(3) of the Civil Code provides
that "the sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the
returns are derived". There must be an unmistakable intention to form a partnership or joint
venture.
9.Narra Nickel Mining and Development Corp. vs
Redmont Consolidated Mines Corporation
G.R. No. 195580 April 21, 2014

Facts: Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont),
a domestic corporation organized and existing under Philippine laws, took interest in mining and
exploring certain areas of the province of Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur. Petitioner
McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in
Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP
were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006,
assigned to petitioner McArthur. Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & Development Corporation (PLMDC)
which previously filed an application for an MPSA with the MGB, Region IV-B, DENR on January
6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277
hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently,
PLMDC conveyed, transferred and/or assigned its rights and interests over the MPSA application
in favor of Narra. Another MPSA application of
SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47)
over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province
of Palawan. SMMI subsequently conveyed, transferred and assigned its rights and interest over
the said MPSA application to Tesoro. On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions for the denial of petitioners’
applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. In the
petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra
are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the
driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since
it knows that it can only participate in mining activities through corporations which are deemed
Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned
by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs,
which are reserved only for Filipino citizens.

Issue: Whether or not the petitioner corporations are Filipino and can validly be issued MPSA and
EP.

Held: No. The SEC Rules provide for the manner of calculating the Filipino interest in a corporation
for purposes, among others, of determining compliance with nationality requirements (the
‘Investee Corporation’). Such manner of computation is necessary since the shares in the
Investee Corporation may be owned both by individual stockholders (‘Investing Individuals’) and
by corporations and partnerships (‘Investing Corporation’). The said rules thus provide for the
determination of nationality depending on the ownership of the Investee Corporation and, in
certain instances, the Investing Corporation.
Under the SEC Rules, there are two cases in determining the nationality of the Investee
Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30
May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal
Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-
owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, “but if the percentage of Filipino ownership
in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of Philippine nationality.” Under
the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and
the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total
percentage of Filipino ownership. Moreover, the ultimate Filipino ownership of the shares must
first be traced to the level of the Investing Corporation and added to the shares directly owned
in the Investee Corporation.
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second
part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt
(i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less
than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either
60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule will not apply.