The plaintiff had no voice nor vote in the
JOHN FORTIS v. management of the affairs of the company. The fact
GUTIERREZ HERMANOS
GR No 2484, April 11, 1906
Prepared by: Abeleda, Iana Ysabel A.
FACTS:
John Fortis is an employee of Gutierrez Hermanos
during the years 1900 to 1902. He brought this action
to recover a balance of his salary for the year 1902,
alleging that he was entitled, as salary, to 5 per cent
of the net profits of the business of the defendants for
said year. The complaint also contained a cause of
action for the sum of 600 pesos, money expended by
plaintiff for the defendants during the year 1903.
The lower court ruled in favor of Fortis and ordered
judgment against the defendants for the sum
13,566.93 pesos, Mexican currency, with interest
thereon from December 31, 1904. The court also
ordered judgment against the defendants for the 600
pesos mentioned in the complaint, and interest
thereon. The total judgment rendered against the
defendants in favor of the plaintiff, reduced to
Philippine currency, amounted to P13,025.40. The
defendants moved for a new trial, which was denied,
and they have brought the case here by bill of
exceptions.
The evidence is sufficient to support the finding of
the court below to the effect that the plaintiff worked
for the defendants during the year 1902 under a
contract made by Miguel Alonzo Gutierrez by which
he was to receive as compensation 5 per cent of the
net profits of the business. By the provisions of the
articles of partnership Gutierrez was made one of the
managers of the company, with full power to transact
all of the business thereof. As such manager, he had
authority to make a contract of employment with the
plaintiff.
ISSUE/S:
1. Whether or not Fortis is a co-partner
RULING:
No, the contract was a mere contract of employment.
that the compensation received by him was to be
determined with reference to the profits made by the
defendants in their business did not in any sense
make by a partner therein. The articles of partnership
between the defendants provided that the profits
should be divided among the partners named in a
certain proportion. The contract made between the
plaintiff and the then manager of the defendant
partnership did not in any way vary or modify this
provision of the articles of partnership.
The profits of the business could not be determined
until all of the expenses had been paid. A part of the
expenses to be paid for the year 1902 was the salary
of the plaintiff. That salary had to be deducted before
the net profits of the business, which were to be
divided among the partners, could be ascertained. It
was undoubtedly necessary in order to determine
what the salary of the plaintiff was, to determine
what the profits of the business were, after paying all
of the expenses except his, but that determination
was not the final determination of the net profits of
the business. It was made for the purpose of fixing
the basis upon which his compensation should be
determined.
In reference to the cause of action relating to the 600
pesos, it appears that the plaintiff left the employ of
the defendants on the 19th of March, 1903; that at
their request he went to Hongkong, and was there for
about two months looking after the business of the
defendants in the matter of the repair of a certain
steamship. The appellants in their brief say that the
plaintiff is entitled to no compensation for his
services thus rendered, because by the provisions of
article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is
supposed to be gratuitous. That article is not
applicable to this case, because the amount of 600
pesos not claimed as compensation for services but
as a reimbursement for money expended by the
plaintiff in the business of the defendants. The article
of the code that is applicable is article 1728.
The judgment of the court below is affirmed, with the
costs, of this instance against the appellants. After the
expiration of twenty days from the date of this
decision let final judgment be entered herein, and ten
days thereafter let the case be remanded to the lower
court for execution.
 liability could be presumed from the equal
LIM TONG LIM v. distribution of the profit and loss.
PHILIPPINE FISHING GEAR Lim appealed to the Court of Appeals (CA) which, as
INDUSTRIES, INC. already stated, affirmed the RTC.
GR No 136448, November 3, 1999
Hence, petitioner brought this recourse before this
Prepared by: Abeleda, Iana Ysabel A.
Court.
FACTS:
ISSUE/S:
On behalf of "Ocean Quest Fishing Corporation,"
1. Whether or not by their acts, Lim, Chua, and
Antonio Chua and Peter Yao entered into a Contract
Yao could be deemed to have entered into a
dated February 7, 1990, for the purchase of fishing
partnership
nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed
HELD:
that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a
YES, the facts found by the lower court clearly
signatory to the agreement. The total price of the nets
showed that there existed a partnership among them.
amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation.
Art. 1767 of the Civil Code provides:
"ARTICLE 1767. By the contract of partnership, two
The buyers, however, failed to pay for the fishing nets
or more persons bind themselves to contribute
and the floats; hence, private respondent filed a
money, property, or industry to a common fund, with
collection suit against Chua, Yao and Petitioner Lim
the intention of dividing the profits among
Tong Lim with a prayer for a writ of preliminary
themselves."
attachment. The suit was brought against the three in
their capacities as general partners, on the allegation
From the factual findings of both lower courts, it is
that "Ocean Quest Fishing Corporation" was a
clear that Chua, Yao and Lim had decided to engage in
nonexistent corporation as shown by a Certification
a fishing business, which they started by buying boats
from the Securities and Exchange Commission.
worth P3.35 million, financed by a loan secured from
Jesus Lim who was petitioner's brother. In their
Instead of answering the Complaint, Chua filed a
Compromise Agreement, they subsequently revealed
Manifestation admitting his liability and requesting a
their intention to pay the loan with the proceeds of
reasonable time within which to pay. He also turned
the sale of the boats, and to divide equally among
over to respondent some of the nets which were in
them the excess or loss. These boats, the purchase
his possession. Peter Yao filed an Answer, after which
and the repair of which were financed with borrowed
he was deemed to have waived his right to cross-
money, fell under the term "common fund" under
examine witnesses and to present evidence on his
Article 1767. The contribution to such fund need not
behalf, because of his failure to appear in subsequent
be cash or fixed assets; it could be an intangible like
hearings. Lim Tong Lim, on the other hand, filed an
credit or industry. That the parties agreed that any
Answer with Counterclaim and Crossclaim and
loss or profit from the sale and operation of the boats
moved for the lifting of the Writ of Attachment. The
would be divided equally among them also shows
trial court maintained the Writ, and upon motion of
that they had indeed formed a partnership. Moreover,
private respondent, ordered the sale of the fishing
it is clear that the partnership extended not only to
nets at a public auction. Philippine Fishing Gear
the purchase of the boat, but also to that of the nets
Industries won the bidding and deposited with the
and the floats. The fishing nets and the floats, both
said court the sales proceeds of P900,000.
essential to fishing, were obviously acquired in
furtherance of their business.
The trial court ruled that a partnership among Lim,
Chua and Yao existed based (1) on the testimonies of
Given the preceding facts, it is clear that there was,
the witnesses presented and (2) on a Compromise
among petitioner, Chua and Yao, a partnership
Agreement executed by the three. The trial court
engaged in the fishing business. They purchased the
noted that the Compromise Agreement was silent as
boats, which constituted the main assets of the
to the nature of their obligations, but that joint
partnership, and they agreed that the proceeds from
the sales and operations thereof would be divided
among them.
We are not convinced by petitioner'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 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.
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.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
 are to be divided between them at the rate of 50-50
ROSARIO U. YULO, assisted and after December 31, 1950, the showhouse
by her husband JOSE C. building shall belong exclusively to the second party,
Mrs. Yulo.
YULO v. YANG CHIAO SENG The land on which the theatre was constructed was
GR No L-12541, August 28, 1959
leased by plaintiff Mrs. Yulo from Emilia and Maria
Prepared by: Abeleda, Iana Ysabel A.
Carrion Santa Marina. On April 12, 1949, the attorney
for the owners notified Mrs. Yulo of the owner's
FACTS:
desire to cancel the contract of lease on July 31, 1949.
On February 9, 1950, the Municipal Court of Manila
On June 17, 1945, defendant Yang Chiao Seng wrote a
rendered judgment ordering the ejectment of Mrs.
letter to the plaintiff Mrs. Rosario U. Yulo, proposing
Yulo and Mr. Yang.
the formation of a partnership between them to run
and operate a theatre on the premises occupied by
On October 27, 1950, Mrs. Yulo demanded from Yang
former Cine Oro at Plaza Sta. Cruz, Manila. The
Chiao Seng her share in the profits of the business.
principal conditions of the offer are (1) that Yang
Yang answered the letter saying that upon the advice
Chiao Seng guarantees Mrs. Yulo a monthly
of his counsel he had to suspend the payment (of the
participation of P3,000, payable quarterly in advance
rentals) because of the pendency of the ejectment
within the first 15 days of each quarter, (2) that the
suit by the owners of the land against Mrs. Yulo. In
partnership shall be for a period of two years and six
this letter Yang alleges that inasmuch as he is a
months, starting from July 1, 1945 to December 31,
sublessee and inasmuch as Mrs. Yulo has not paid to
1947, with the condition that if the land is
the lessors the rentals from August, 1949, he was
expropriated or rendered impracticable for the
retaining the rentals to make good to the landowners
business, or if the owner constructs a permanent
the rentals due from Mrs. Yulo in arrears (Exh. "E").
building thereon, or Mrs. Yulo's right of lease is
terminated by the owner, then the partnership shall
In view of the refusal of Yang to pay to her the
be terminated even if the period for which the
amount agreed upon, Mrs. Yulo instituted this action
partnership was agreed to be established has not yet
on May 26, 1954, alleging the existence of a
expired; (3) that Mrs. Yulo is authorized personally to
partnership between them, and that defendant Yang
conduct such business in the lobby of the building as
Chiao Seng has refused to pay her share from
is ordinarily carried on in lobbies of theatres in
December, 1949 to December, 1950; that after
operation, provided the said business may not
December 31, 1950 the partnership between Mrs.
obstruct the free ingress and egrees of patrons of the
Yulo and Yang terminated, as a result of which,
theatre; (4) that after December 31, 1947, all
plaintiff became the absolute owner of the building
improvements placed by the partnership shall belong
occupied by the Cine Astor. However, in answer to
to Mrs. Yulo, but that if the partnership agreement is
the complaint, defendant alleges that the real
terminated before the lapse of one and a half years
agreement between the plaintiff and the defendant
period under any of the causes mentioned in
was one of lease and not of partnership; that the
paragraph (2) then Yang Chiao Seng shall have the
partnership was adopted as a subterfuge to get
right to remove and take away all improvements that
around the prohibition contained in the contract of
the partnership may place in the premises.
lease between the owners and the plaintiff against
the sublease of the said property.
Pursuant to the above offer, which plaintiff evidently
accepted, the parties executed a partnership
After trial, the court found that there was no
agreement establishing the "Yang & Company,
partnership created between the plaintiff and the
Limited," which was to exist from July 1, 1945 to
defendant because defendant has not actually
December 31, 1947. The capital is fixed at P100,000,
contributed the sum mentioned in the Articles of
P80,000 of which is to be furnished by Yang Chiao
Partnership, or any other amount; that the real
Seng and P20,000, by Mrs. Yulo. All gains and profits
agreement between the plaintiff and the defendant is
are to be distributed among the partners in the same
one of lease for the reason that under the agreement
proportion as their capital contribution, and the
the plaintiff did not share either in the profits or in
liability of Mrs. Yulo, in case of loss, shall be limited to
the losses of the business as required by Article 1769
her capital contribution. In June, 1946, they executed
of the Civil Code; and that the fact that plaintiff was
a supplementary agreement, extending the
granted a "guaranteed participation" in the profits
partnership for a period of three years. The benefits
also belies the supposed existence of a partnership
between them.
ISSUE/S:
1. Whether or not a partnership exists between
the plaintiff and the defendant
HELD:
NO, the agreement was a sublease, not a partnership.
The following are the requisites of partnership: (1)
two or more persons who bind themselves to
contribute money, property, or industry to a common
fund; (2) intention on the part of the partners to
divide the profits among themselves. (Art. 1767, Civil
Code.)
Mendiola vs. CA
GR No 159333, July 31, 2006
Prepared by Abella, Marc, A.
FACTS:
Pacific Forest Resources, Phils., Inc. (Pacfor)
is a corporation organized and existing under the
laws of California, USA. Pacfor entered into a "Side
Agreement on Representative Office known as Pacific
Forest Resources (Phils.), Inc." with Arsenio T.
Mendiola (ATM). "The Side Agreement outlines the
business relationship of the parties with regard to the
Philippine operations of Pacfor. Private respondent
will establish a Pacfor representative office in the
Philippines, to be known as Pacfor Phils, and
Mendiola will be its President. Mendiola’s base salary
and the overhead expenditures of the company shall
be borne by the representative office and funded by
Pacfor/ATM, since Pacfor Phils. is equally owned on a
50-50 equity by ATM and Pacfor-USA.
Thereafter, the SEC granted the application of
Pacfor for a license to transact business in the
Philippines under the name of Pacfor or Pacfor Phils.
In its application, Pacfor proposed to establish its
representative office in the Philippines with the
purpose of monitoring and coordinating the market
activities for paper products. It also designated
Mendiola as its resident agent in the Philippines,
authorized to accept summons and processes in all
legal proceedings, and all notices affecting the
corporation.
Then, Mendiola wrote Pacfor seeking
confirmation of his 50% equity of Pacfor Phils. Pacfor
replied that Mendiola is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and
In the first place, plaintiff did not furnish the
supposed P20,000 capital. In the second place, she
did not furnish any help or intervention in the
management of the theatre. In the third place, it does
not appear that she has ever demanded from
defendant any accounting of the expenses and
earnings of the business. Were she really a partner,
her first concern should have been to find out how
the business was progressing, whether the expenses
were legitimate, whether the earnings were correct,
etc. She was absolutely silent with respect to any of
the acts that a partner should have done; all that she
did was to receive her share of P3,000 a month,
which cannot be interpreted in any manner than a
payment for the use of the premises which she had
leased from the owners.
distinct from Pacfor-USA. "It's simply a 'theoretical
company' with the purpose of dividing the income
50-50." Mendiola presumably knew of this
arrangement from the start, having been the one to
propose to Pacfor the setting up of a representative
office, and "not a branch office" in the Philippines to
save on taxes. Mendiola claimed that he was all along
made to believe that he was in a joint venture with
them. Then, Pacfor ordered Mendiola to turn over to
it all papers, documents, files, records, and other
materials in his or ATM Marketing Corporation's
possession that belong to Pacfor or Pacfor Phils.
Thereafter, private respondent Pacfor placed
petitioner on preventive suspension and ordered him
to show cause why no disciplinary action should be
taken against him. In effect, private respondent
Pacfor placed petitioner on preventive suspension
and ordered him to show cause why no disciplinary
action should be taken against him.
ISSUE/S:
1. Whether or not there is a partnership or co-
ownership between Mendiola and Pacfor?
RULING:
We hold that petitioner is an employee of
private respondent Pacfor and that no partnership
or co-ownership exists between the parties.
In a partnership, the members become co-
owners of what is contributed to the firm capital and
of all property that may be acquired thereby and
through the efforts of the members. The property or
stock of the partnership forms a community of goods,
a common fund, in which each party has a
proprietary interest. In fact, the New Civil Code
regards a partner as a co-owner of specific
partnership property. Each partner possesses a joint
interest in the whole of partnership property. If the
relation does not have this feature, it is not one of
partnership. This essential element, the community
of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations
between petitioner and private respondent Pacfor.
Petitioner is not a part-owner of Pacfor Phils. William
Gleason, private respondent Pacfor's President
established this fact when he said that Pacfor Phils. is
simply a "theoretical company" for the purpose of
dividing the income 50-50. He stressed that
petitioner knew of this arrangement from the very
start, having been the one to propose to private
respondent Pacfor the setting up of a representative
office, and "not a branch office" in the Philippines to
save on taxes. Thus, the parties in this case, merely
Aurbach v. Sanitary Wares
Mftg. Corp.
GR No 75875, December 15, 1989
Prepared by: Abella, Marc Gabriel, A.
FACTS:
Respondent Saniwares is a domestic corporation that
—along with other Filipino investors—entered into
an [Agreement] with American Standard, Inc. (ASI; a
foreign corporation) whereby they agreed to
participate in the ownership of an enterprise of
primarily manufacturing in the Philippines and
selling locally and abroad.
The [Agreement] has the following relevant
provisions:
3(a)(1) Articles of Incorporation – Cumulative voting
of directors
5(a) Management – Management of the Corporation
shall be vested in a Board of Directors (BOD), which
shall consist of nine individuals. ASI shall own at least
30% of the outstanding stock of the Corp., 3 of the
nine directors shall be designated by ASI and the
other 6 shall be designated by the other stockholders
of the Corp.
At the request of ASI the [Agreement] contained
provisions designed to protect it as a minority group,
namely:
(1) the grant of veto powers over a number of
corporate acts and
(2) the right to designate certain officers, such as a
member of the Executive Committee whose vote was
required for important corporate transactions.
shared profits. This alone does not make a
partnership.
Besides, a corporation cannot become a
member of a partnership in the absence of express
authorization by statute or charter. This doctrine is
based on the following considerations: (1) that the
mutual agency between the partners, whereby the
corporation would be bound by the acts of persons
who are not its duly appointed and authorized agents
and officers, would be inconsistent with the policy of
the law that the corporation shall manage its own
affairs separately and exclusively; and, (2) that such
an arrangement would improperly allow corporate
property to become subject to risks not contemplated
by the stockholders when they originally invested in
the corporation. No such authorization has been
proved in the case at bar.
A dispute arose during the 1983 election of the
members of the BOD, where there the nomination of
BOD members exceeded 9 persons. Presiding over
the election Chairman Young (one of Saniwares’
incorporators) upheld the nominations Lagdameo
group (nominations of the Filipino investors) but
ruled out the nominations of Salazar and Chamsay
(nominations of ASI) on the basis of Section 5(a) of
the [Agreement] and despite the appeals and protests
of ASI, Chairman Young made no reconsideration.
Having adjourned the meeting with their protests
unheard, ASI continued the meeting which was
presided by Salazar. ASI nominated and certified as
elected directors: Aurbach, Griffin, Whittingham,
Chamsay and Salazar (petitioners); explaining that
there was a tie among the other 6 nominees for the 4
remaining positions and the body decided not to
break the tie.
As a result, two separate petitions were filed and
consolidated in the SEC, each party claiming to be the
legitimate director of the corporation. The SEC ruled
in favor of the Lagdameo group, affirmed by the SEC
en banc.
The CA eventually ruled that in all subsequent
elections:s
 ASI cannot nominate more than 3 directors
 Filipino stockholders cannot interfere with
ASI’s choice of nominations and can only
nominate 6 nominees
 In the event that they cannot agree on the 6
nominees, they shall vote only among
themselves, with cumulative voting allowed
without interference from ASI
ISSUE/S:

2. Preliminary Issue: Whether or not the nature
of the business of the parties is a joint venture
or a corporation.
3. Main Issue: Taking into account the nature of
the business, whether or not the Law on
Partnership or the Corporation Code applies
in the interpretation of rules of election.
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.
Moreover, the usual rules as regards the
construction and operations of contracts
generally apply to a contract of joint venture.

RULING: In upholding the [Agreement], the proper

1. It is a Joint venture and not a corporation.
The determination of the nature of the
business established depends upon their
actual intention which is determined in
accordance with the rules governing the
interpretation and construction of contracts.
The Court based its determination on the
important provisions of the [Agreement],
namely:
 under the Agreement there are two
groups of stockholders who
established a corporation with
provisions for a special contractual
relationship [the joint venture in
question] between the parties, i.e., ASI
and the other stockholders.
 ASI in its communications referred to
the enterprise as joint venture.
interpretation of the election rules is that the
allocation of director seats under Section 5
(a) 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).
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. This is
the proper interpretation of the Agreement of
the parties as regards the election of
members of the board of directors.
To allow the ASI Group to vote their
additional equity to help elect even a Filipino
director who would be beholden to them
would obliterate their minority status as
agreed upon by the parties.

 Chairman Young 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.

2. Upon the premise that the business is a

joint venture, the Law on Partnership
applies and not the Corporation Code.
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
 Alfredo N. Aguila, Jr Vs. Ca
GR No 127347., November 25, 1999.
Prepared by: Abella, Marc Gabriel, A
FACTS:
Alfredo n. Aguila, Jr (Aguila) is the manager of
A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Felicidad S. Vda. De Abrogar
(Abrogar) and her late husband, Ruben M. Abrogar,
were the registered owners of a house and lot in
Marikina, Metro Manila.
Then, Abrogar, with the consent of her late
husband, and A.C. Aguila & Sons, Co., represented by
Alfredo, entered into a Memorandum of Agreement,
which provides:
(1) That the SECOND PARTY [A.C. Aguila &
Sons, Co.] shall buy the above-described
property from the FIRST PARTY [Felicidad S.
Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be
executed by the FIRST PARTY conveying the
property to the SECOND PARTY for and in
consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine
Currency;
(2) The FIRST PARTY is hereby given by the
SECOND PARTY the option to repurchase the
said property within a period of ninety (90)
days from the execution of this memorandum
of agreement effective April 18, 1991, for the
amount of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00);
Abrogar failed to redeem the property within
the 90-day period as provided in the Memorandum of
Agreement. Thereafter, Abrogar then received a
letter from A.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 Abrogar to vacate the subject premises, A.C.
Aguila & Sons, Co. filed an ejectment case against her
in the Metropolitan Trial Court.
In a decision, the Metropolitan Trial Court
ruled in favor of A.C. Aguila & Sons, Co. on the ground
that Abrogar did not redeem the subject property
before the expiration of the 90-day period provided
in the Memorandum of Agreement. Abrogar appealed
first to the Regional Trial Court, then to the Court of
Appeals, and later to this Court, but she lost in all the
cases.
VILLAREAL V. RAMIREZ
GR No 144214; July 14, 2003
Prepared by: Bacongol, Bryan Bab Emmanuel A.
Abrogar then filed a petition for declaration of
nullity of a deed of sale with the Regional Trial Court.
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. It appears, however, that private
respondent had filed a criminal complaint for
falsification against petitioner with the Office of the
Prosecutor.
ISSUE/S:
1. Whether Alfredo N. Aguila is the proper party
to be impleaded in the case filed?
RULING:
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.
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.
Our conclusion that petitioner is not the
real party in interest against whom this action
should be prosecuted makes it unnecessary to
discuss the other issues raised by him in this
appeal.
FACTS:
On July 25, 1984, Luzviminda J. Villareal, Carmelito
Jose and Jesus Jose formed a partnership with a
capital of P750,000 for the operation of a restaurant
and catering business under the name "Aquarius
Food House and Catering Services”
Villareal- general manager; Jose- operations manager
Donaldo Efren C. Ramirez joined as a partner in the
business on September 5, 1984. His capital
contribution of P250,000 was paid by his parents,
Cesar Ramirez and Carmelita Ramirez.
After Jesus Jose withdrew from the partnership in
January 1987, his capital contribution of P250,000
was refunded to him in cash by agreement of the
partners.
Without prior knowledge of respondents, petitioners
closed down the restaurant, allegedly because of
increased rental. The restaurant furniture and
equipment were deposited in the respondents' house
for storage.
On March 1, 1987, spouses wrote petitioners, saying
that they were no longer interested in continuing
their partnership and they were accepting the offer to
return their capital contribution.
Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant
furniture and equipment stored in their house. She
also reiterated the request for the return of their one-
third share in the equity of the partnership.
Respondents filed a complaint for collection of sum of
money before RTC Branch 59, Makati
Petitioners -respondents had expressed a desire to
withdraw from the partnership and had called for its
dissolution under Articles 1830 and 1831 of the Civil
Code. Respondents had already been paid P400,000
Respondents- they did not know of any loan
encumbrance on the restaurant. If such allegation
were true, then the loans incurred by petitioners
should be regarded as purely personal and, as such,
not chargeable to the partnership
Filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment
appraised at P29,000 and the display freezer for
P5,000
RTC- The trial court ruled that the parties had
voluntarily entered into a partnership, which could
be dissolved at any time. Petitioners clearly intended
to dissolve it when they stopped operating the
restaurant. Hence, the trial court rendered judgment
in favor of respondents and against the petitioners
ordering the latter to pay jointly and severally
respondents for actual damages in the amount of
P250,000.00, attorney's fees and the costs of suit."
CA- although respondents had no right to demand
the return of their capital contribution, the
partnership was nonetheless dissolved when
petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a
proper accounting of the partnership accounts for
liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the
appellate court computed their liability and rendered
judgment ordering petitioners jointly and severally to
pay and reimburse to respondents the amount of
P253,114.00. Hence, the present petition.
Outstanding obligation- P240,258; Remaining capital-
P1M; P759,342 must be divided to 3= P253,114 each
ISSUE: WON petitioners are liable to respondents for
the latter’s share in the partnership.
RULING: respondents have no right to demand from
petitioners the return of their equity share. Except as
managers of the partnership, petitioners did not
personally hold its equity or assets. "The
partnership has a juridical personality separate
and distinct from that of each of the partners."
Since the capital was contributed to the
partnership, not to petitioners, it is the
partnership that must refund the equity of the
retiring partners.
The amount to be refunded is necessarily limited to
its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its
assets. However, before the partners can be paid
their shares, the creditors of the partnership must
first be compensated. After all the creditors have
been paid, whatever is left of the partnership assets
becomes available for the payment of the partners'
shares. In the present case, the exact amount of
refund equivalent to respondents' one-third share in
the partnership cannot be determined until all the
partnership assets will have been liquidated. CA's
computation of the amount to be refunded to
respondents as their share was thus erroneous.
It seems that the appellate court was under the
misapprehension that the total capital contribution
was equivalent to the gross assets to be distributed to
the partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea
that the capital contribution at the beginning of the
partnership remains intact, unimpaired and available
for distribution or return to the partners. Such idea is
speculative, conjectural and totally without factual or
legal support.
Generally, in the pursuit of a partnership business, its
capital is either increased by profits earned or
decreased by losses sustained. It does not remain
static and unaffected by the changing fortunes of the
business. In the present case, the financial statements
PASCUAL VS. CIR
GR No. 78133; October 18, 1988
Prepared by: Bacongol, Bryan Bab Emmanuel A.
FACTS:
On June 22, 1965, petitioners bought two (2) parcels
of land from Santiago Bernardino, et al. and on May
28, 1966, they bought another three (3) parcels of
land from Juan Roque.
The first two parcels of land were sold by petitioners
in 1968 to Marenir Development Corporation, while
the three parcels of land were sold by petitioners to
Erlinda Reyes and Maria Samson (1970)
Petitioners realized a net profit in the sale made in
1968 in the amount of P165,224.70, while they
realized a net profit of P60,000.00 in the sale made in
1970.
Taxes were paid in 1973 and 1974 by availing tax
amnesties
presented before the trial court showed that the
business had made meager profits. However, notable
therefrom is the omission of any provision for the
depreciation of the furniture and the equipment. The
amortization of the goodwill (initially valued at
P500,000) is not rejected either. Properly taking
these non-cash items into account will show that the
partnership was actually sustaining substantial
losses, which consequently decreased the capital of
the partnership. Both the trial and the appellate
courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter failed
to recognize the consequent corresponding decrease
of the capital.
CA's finding that the partnership had an outstanding
obligation in the amount of P240,658 was not
supported by evidence. Failed to reduce the
capitalization by P250,000, which was the amount
paid by the partnership to Jesus Jose when he
withdrew from the partnership.
On March 31, 1979, then BIR Commissioner Efren I.
Plana, assessed and required the petitioners to pay a
total amount of P107,101.70 as alleged deficiency
corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter
of June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.
Respondent Commissioner, by way of reply dated
August 22, 1979, informed petitioners that in the
years 1968 and 1970, petitioners as co-owners in the
real estate transactions formed an unregistered
partnership or joint venture taxable as a corporation
under Section 20(b) and its income was subject to the
taxes prescribed under Section 24 NIRC the
unregistered partnership was subject to corporate
income tax as distinguished from profits derived
from the partnership by them which is subject to
individual income tax; and that the availment of tax
amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual
income tax liabilities but did not relieve them from
the tax liability of the unregistered partnership.
Hence, the petitioners were required to pay the
deficiency income tax assessed.
Petitioners filed a petition for review with CTA which
affirmed the decision of commissioner. Evangelista
case- unregistered partnership was in fact formed by
petitioners which like a corporation was subject to
corporate income tax distinct from that imposed on
the partners.
ISSUE: Whether or not petitioners are subject to tax
on corporations provided in NIRC
RULING: Article 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.
The first element is undoubtedly present in the case
at bar, for, admittedly, petitioners have agreed to, and
did, contribute money and property to a common
fund. Upon consideration of all the facts and
circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide
the same among themselves.
1. Said common fund was not something they
found already in existence. It was not a
property inherited by them pro indiviso.
They created it purposely.
2. They invested the same, not merely in one
transaction, but in a series of transactions.
The number of lots (24) acquired and
transactions undertaken, as well as the brief
interregnum between each, particularly the
last three purchases, is strongly indicative of
a pattern or common design that was not
limited to the conservation and preservation
of the aforementioned common fund or even
of the property acquired by petitioners in
February, 1943. In other words, one cannot
but perceive a character of habituality
peculiar to business transactions engaged in
for purposes of gain.
3. The aforesaid lots were not devoted to
residential purposes or to other personal
uses, of petitioners
4. Since August, 1945, the properties have been
under the management of one person,
namely, Simeon Evangelists, with full power
to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts, and
to indorse and deposit notes and
checks. Thus, the affairs relative to said
properties have been handled as if the same
belonged to a corporation or business
enterprise operated for profit.
5. The foregoing conditions have existed for
more than ten (10) years, or, to be exact, over
fifteen (15) years, since the first property was
acquired, and over twelve (12) years, since
Simeon Evangelists became the manager
6. Petitioners have not testified or introduced
any evidence, either on their purpose in
creating the set up already adverted to, or on
the causes for its continued existence.
Although, taken singly, they might not suffice to
establish the intent necessary to constitute a
partnership, the collective effect of these
circumstance is such as to leave no room for doubt on
the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein,
and, hence, those cases are not in point."
In the instant case, petitioners bought two (2) parcels
of land in 1965. They did not sell the same nor make
any improvements thereon. In 1966, they bought
another three (3) parcels of land from one seller. It
was only 1968 when they sold the two (2) parcels of
land after which they did not make any additional or
new purchase. The remaining three (3) parcels were
sold by them in 1970. The transactions were isolated.
The character of habituality peculiar to business
transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to
tenants for several years. The business was under the
management of one of the partners. Such condition
existed for over fifteen (15) years. None of the
circumstances are present in the case at bar. The co-
ownership started only in 1965 and ended in 1970.
There is no evidence that petitioners entered into an
agreement to contribute money, property or industry
to a common fund, and that they intended to divide
the profits among themselves. Respondent
commissioner and/ or his representative just
assumed these conditions to be present on the basis
of the fact that petitioners purchased certain parcels
of land and became co-owners thereof.
In Evangelists, there was a series of transactions
where petitioners purchased 24 lots showing that the
purpose was not limited to the conservation or
preservation of the common fund or even the
properties acquired by them. The character of
habituality peculiar to business transactions engaged
in for the purpose of gain was present. Moreover, the
properties were leased out to tenants for several
years. The business was under the management of
one of the partners. Such condition existed for
over15years. None of the circumstances are present
in the case at bar.
Persons who contribute property or funds for a
common enterprise and agree to share the gross
returns of that enterprise in proportion to their
contribution, but who severally retain the title to
their respective contribution, are not thereby
rendered partners. They have no common stock or
capital, and no community of interest as principal
proprietors in the business itself which the proceeds
derived
A joint purchase of land, by two, does not constitute a
co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale
ONA vs. CIR
GR No L-19342; May 25, 1972
Prepared by: Bacongol, Bryan Bab Emmanuel A.
FACTS:
Julia Buñ ales died on March 23, 1944, leaving as heirs
her surviving spouse, Lorenzo T. Oñ a and her five
children.
A civil case was instituted in CFI Manila for
settlement of her estate.
Lorenzo T. Oñ a the surviving spouse was appointed
administrator of the estate of said deceased. He
submitted the project of partition, which was
approved by the Court on May 16, 1949.
Since Luz, Virginia and Lorenzo Jr were all minors, he
filed a petition for appointment as their guardians.
The project of partition shows that the heirs have
undivided 1/2 interest in ten parcels of land with a
total assessed value of P87,860.00, six houses with a
total assessed value of P17,590.00 and an
of land create a partnership; the parties are only
tenants in common.
The sharing of returns does not in itself establish a
partnership whether or not the persons sharing
therein have a joint or common right or interest in
the property. There must be a clear intent to form a
partnership, the existence of a juridical personality
different from the individual partners, and the
freedom of each party to transfer or assign the whole
property.
In the present case, there is clear evidence of co-
ownership between the petitioners. There is no
adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two
isolated transactions whereby they purchased
properties and sold the same a few years thereafter
did not thereby make them partners.
And even assuming for the sake of argument that
such unregistered partnership appears to have been
formed, petitioners have availed of the benefits of tax
amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further
tax liability arising therefrom.
undetermined amount to be collected from the War
Damage Commission. They received from said
Commission the amount of P50,000
This amount was not divided among them but was
used in the rehabilitation of properties owned by
them in common. 2 parcels were acquired after the
death of the decedent with money borrowed from the
Philippine Trust Company in the amount of
P72,173.00
It also showed that the estate shares equally with the
administrator in the obligation of P94,973 consisting
of loans contracted by the latter
Although the project of partition was approved by the
Court, no attempt was made to divide the properties.
Instead, the properties remained under the
management of Lorenzo T. Oñ a who used said
properties in business by leasing or selling them and
investing the income derived therefrom and the
proceeds from the sales in real properties and
securities.
The properties and investments gradually increased
from P105,450 (1949) to P480,005 (1956)
The incomes are recorded in the books of account
kept by Lorenzo T. Oñ a where the corresponding
shares of the petitioners in the net income for the
year are also known. However, petitioners did not
actually receive their shares in the yearly income.
CIR- petitioners formed an unregistered partnership ,
hence, subject to corporate income tax. He assessed
against the petitioners the amounts of P8,092.00 and
P13,899.00 as corporate income taxes for 1955 and
1956
Petitioners protested against the assessment and
asked for reconsideration. Denied.
ISSUE: Whether or not the CTA erred in holding that
the petitioners formed an unregistered partnership.
RULING: No. It is incontrovertible that petitioners
did not merely limit themselves to holding the
properties inherited by them. It is admitted that
during the material years involved, some of the said
properties were sold at considerable profit, and that
with said profit, petitioners engaged, thru Lorenzo T.
Oñ a, in the purchase and sale of corporate securities.
All the profits from these ventures were divided
among petitioners proportionately in accordance
with their respective shares in the inheritance.
From the moment petitioners allowed not only the
incomes from their respective shares of the
inheritance but even the inherited properties
themselves to be used by Lorenzo T. Oñ a as a
common fund in undertaking several transactions or
in business, with the intention of deriving profit to be
shared by them proportionally, such act was
tantamonut to actually contributing such incomes to
a common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the
above-mentioned provisions of the Tax Code.
HEIRS OF TAN ENG KEE v.
COURT OF APPEALS and
BENGUET LUMBER
COMPANY
GR No 126881, October 3, 2000
Prepared by: Baliwag, Kiara Louise T.
In cases of inheritance, there should be a period
when the heirs can be considered as co-owners
rather than unregistered co-partners within the
contemplation of our corporate tax laws. Before the
partition and distribution of the estate of the
deceased, all the income thereof does belong
commonly to all the heirs, obviously, without them
becoming thereby unregistered co-partners, but it
does not necessarily follow that such status as co-
owners continues until the inheritance is actually and
physically distributed among the heirs.
For tax purposes, the co-ownership of inherited
properties is automatically converted into an
unregistered partnership the moment the said
common properties and/or the incomes derived
therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in
a project partition.
From the moment of such partition, the heirs are
entitled already to their respective definite shares of
the estate and the incomes thereof, for each of them
to manage and dispose of as exclusively his own
without the intervention of the other heirs, and,
accordingly he becomes liable individually for all
taxes in connection therewith. If after such partition,
he allows his share to be held in common with his co-
heirs under a single management to be used with the
intent of making profit thereby in proportion to his
share unregistered partnership is formed.
Accordingly, the partnership income must include
not only the income derived from the purchase and
sale of other properties but also the income of the
inherited properties.
FACTS:
Following the death of Tan Eng Kee, the common-law
spouse of the decedent, joined by their children,
collectively known as herein petitioners HEIRS OF
TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY. The complaint was for
accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan
Eng Kee and Tan Eng Lay.
The amended complaint principally alleged that after
the second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together,
entered into a partnership engaged in the business of
selling lumber and hardware and construction
supplies. They named their enterprise "Benguet
Lumber" which they jointly managed until Tan Eng
Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of
the alleged partners. However, they claimed that 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 Eng Kee and his heirs of their rightful
participation in the profits of the business.
Petitioners prayed for accounting of the partnership
assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net
assets of Benguet Lumber.
The RTC ruled that Tan Eng Kee and Tan Eng Lay
were joint adventurers and/or partners and that
petitioners-heirs of the deceased Tan Eng Kee had a
legal right to share in the company’s assets. The Court
of Appeals reversed the decision of the RTC, ruling
that there was no partnership between Tan Eng Lay
and Tan Eng Kee and that Benguet Lumber was a sole
proprietorship. It further ruled that Tan Eng Kee was
only an employee thereof, based on his SSS coverage
and the payrolls where he was similarly listed only as
an employee.
ISSUE:
Whether or not a partnership existed between Tan
Eng Kee and Tan Eng Lay
RULING:
NO. The evidence presented by petitioners falls short
of the quantum of proof required to establish a
partnership. Unfortunately for petitioners, Tan Eng
Kee has passed away. Only he, aside from Tan Eng
Lay, could have expounded on the precise nature of
the business relationship between them. In the
absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the
purpose of establishing a partnership. The
testimonies to that effect of petitioners' witnesses is
directly controverted by Tan Eng Lay.  the existence of the parties' intent. Yet, in the case at
Besides, 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.
This brings us to the matter of the payrolls
purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called.
The authenticity of these documents was questioned
by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and
children. As aforesaid, the criminal cases were
dismissed for insufficiency of evidence. The payrolls
in fact show that Tan Eng Kee received sums as
wages of an employee. In connection therewith,
Article 1769 of the Civil Code provides: x x x
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.
Nevertheless, petitioners would still want us to infer
or believe the alleged existence of a partnership from
this set of circumstances: that Tan Eng Lay and Tan
Eng Kee were commanding the employees; that both
were supervising the employees; that both were the
ones who determined the price at which the stocks
were to be sold; and that both placed orders to the
suppliers of the Benguet Lumber Company. They also
point out that the families of the brothers Tan Eng
Kee and Tan Eng Lay lived at the Benguet Lumber
Company compound, a privilege not extended to its
ordinary employees.
Where circumstances taken singly may be inadequate
to prove the intent to form a partnership,
nevertheless, the collective effect of these
circumstances may be such as to support a finding of
bench, even the aforesaid circumstances when taken
together are not persuasive indicia of a partnership.
They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in
what capacity is unclear. We cannot discount the
likelihood that as a member of the family, he
occupied a niche above the rank-and-file employees.
He would have enjoyed liberties otherwise
unavailable were he not kin, such as his residence in
the Benguet Lumber Company compound. He would
have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers
of supervision. It may even be that among his duties
ARBES v. POLISTICO
GR No 31057, September 7, 1929
Prepared by: Baliwag, Kiara Louise T.
FACTS:
This is an action to bring about liquidation of the
funds and property of the association called
"Turnuhan Polistico & Co." The plaintiffs were
members or shareholders, and the defendants were
designated as president-treasurer, directors and
secretary of said association.
This case is now brought before the Supreme Court
for the second time. In the first case, the Supreme
Court held then that in an action against the officers
of a voluntary association to wind up its affairs and
enforce an accounting for money and property in
their possessions, it is not necessary that all members
of the association be made parties to the action.
(Borlasa vs. Polistico) The case having been remanded
to the court of origin and by agreement of the parties,
the court appointed a commissioner of the Insular
Auditor's Office to examine all the books, documents,
and accounts of "Turnuhan Polistico & Co.," and to
receive whatever evidence the parties might desire to
present. The commissioner rendered his report
which showed a balance of P24,607.80 cash on hand
after deducting the expenses from the income.
The defendants objected to the commissioner's
report, but the trial court, having examined the
reasons for the objection, found the same sufficiently
explained in the report and the evidence, and
accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful,
and sentencing the defendants jointly and severally
to return the amount of P24,607.80, as well as the
documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the
rest of the members of the said association
represented by said plaintiffs.
is to place orders with suppliers. Again, the
circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties
of a manager, even in a business organized and run as
informally as Benguet Lumber Company.
There being no partnership, it follows that there is no
dissolution, winding up or liquidation to speak of.
Hence, the petition must fail.
There is no question that "Turnuhan Polistico & Co."
is an unlawful partnership, but the appellants allege
that because it is so, some charitable institution to
whom the partnership funds may be ordered to be
turned over, should be included, as a party defendant.
The appellants refer to Article 1666 of the Civil Code
[now Article 1770], which provides:
A partnership must have a lawful object, and must be
established for the common benefit of the partners.
When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in
default of such, to those of the province.
ISSUES:
1. Whether or not a charitable institution is a
necessary party to the case
2. Whether or not an action to obtain the
earnings of an unlawful partnership can be
allowed
3. Whether or not upon the dissolution of the
unlawful partnership, the partners must be
reimbursed the amount of their respective
contributions
RULING:
1. NO. Appellant's contention on this point is
untenable. According to said article, no charitable
institution is a necessary party in the present
case of determination of the rights of the parties.
The action which may arise from said article, in
the case of unlawful partnership, is that for the
recovery of the amounts paid by the member
from those in charge of the administration of said
partnership, and it is not necessary for the said
parties to base their action to the existence of the
partnership, but on the fact that of having
contributed some money to the partnership
capital. And hence, the charitable institution of
the domicile of the partnership, and in the default
thereof, those of the province are not necessary
parties in this case. 
2. NO. The article cited above permits no action for
the purpose of obtaining the earnings made by
the unlawful partnership, during its existence as
result of the business in which it was engaged,
because for the purpose, as Manresa remarks, the
partner will have to base his action upon the
partnership contract, which is null and without
legal existence by reason of its unlawful object;
and it is self-evident that what does not exist
cannot be a cause of action. Hence, paragraph 2 of
the same article provides that when the
dissolution of the unlawful partnership is
decreed, the profits cannot inure to the benefit of
the partners, but must be given to some
charitable institution.
3. YES. Commenting on said article, Manresa, among
other things says: “Our Code does not state
whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be
returned to the partners, because it only deals
with the disposition of the profits; but the fact
JOSE GATCHALIAN, ET AL.,
v. CIR
GR No 45425, April 29, 1939
Prepared by: Baliwag, Kiara Louise T.
FACTS:
Prior to December 15, 1934, the fifteen (15)
plaintiffs, in order to enable them to purchase one
sweepstakes ticket valued at two pesos (P2),
subscribed and paid therefor varying amounts for a
total value amounting to two pesos (P2). Immediately
thereafter but prior to December 15, 1934, plaintiffs
purchased, in the ordinary course of business, from
one of the duly authorized agents of the National
Charity Sweepstakes Office one ticket for the sum of
two pesos (P2) and that the said ticket was registered
in the name of Jose Gatchalian and Company. As a
result of the drawing of the sweepstakes on
December 15, 1934, the above-mentioned ticket won
one of the third prizes in the amount of P50,000 and
the corresponding check covering the prize was
drawn in favor of Jose Gatchalian & Company against
the Philippine National Bank, which check was
cashed during the latter part of December 1934 by
Jose Gatchalian & Company.
Later on, Jose Gatchalian was required by the income
tax examiner to file the corresponding income tax
return covering the prize won by Jose Gatchalian &
Company. On January 8, 1935, the defendant
Commissioner of Internal Revenue (CIR) made an
that said contributions are not included in the
disposal prescribed for said profits, shows that in
consequence of said exclusion, the general rules
of law must be followed, and hence, the partners
must be reimbursed the amount of their
respective contributions. Any other solution
would be immoral, and the law will not consent
to the latter remaining in the possession of the
manager or administrator who has refused to
return them, by denying to the partners the
action to demand them.”
NOTE: The 2nd paragraph of Article 1666 as cited in
this case, now Article 1770 of the Civil Code, has
already been repealed to read as follows: “When an
unlawful partnership is dissolved by a judicial decree,
the profits shall be confiscated in favor of the State,
without prejudice to the provisions of the Penal Code
governing the confiscation of the instruments and
effects of a crime.”
assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to
the deputy provincial treasurer of Pulilan, Bulacan.
The plaintiffs requested for exemption from payment
of the income tax, but the defendant denied the
plaintiffs’ request.
The plaintiffs eventually paid under protest the
balance of the tax as well as the corresponding
penalties in order to avoid annoyance and
embarrassment arising from the embargo and levy of
their property. Thereafter, they formally protested to
the defendant against the payment of the amount and
requested the refund of the total sum of P1,863.44
paid under protest by them. However, the defendant
overruled the protest and denied the refund thereof.
ISSUE:
Whether or not the plaintiffs formed a partnership
thereby making them liable for the payment of
income tax
RULING:
YES. There is no doubt that if the plaintiffs merely
formed a community of property the latter is exempt
from the payment of income tax under the law. But
according to the stipulated facts the plaintiffs
organized a partnership of a civil nature because each
of them put up money to buy a sweepstakes ticket for
the sole purpose of dividing equally the prize which
they may win, as they did in fact in the amount of
P50,000 (Article 1665, Civil Code). The partnership
was not only formed, but upon the organization
thereof and the winning of the prize, Jose Gatchalian
personally appeared in the office of the Philippine
Charity Sweepstakes, in his capacity as co-partner, as
such collected the prize, the office issued the check
for P50,000 in favor of Jose Gatchalian and company,
and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea
that the plaintiffs organized and formed a community
of property only.
ANGELES V. SECRETARY OF
JUSTICE
GR No 142612, July 29, 2005
Prepared by: BAUTISTA, Patricia Anne D.
FACTS:
The Angeles spouses filed a criminal complaint
for estafa against Mercado. Mercado is the
brother- in- law of the Angeles spouses.
In their affidavits, the Angeles spouses claimed
that in November 1992, Mercado convinced
them to enter into a contract of antichresis,
colloquially known as sanglaang-perde, covering
eight parcels of land ("subject land") planted
with fruit-bearing lanzones trees located in
Nagcarlan, Laguna and owned by Juana Suazo.
The contract of antichresis was to last for five
years with ₱210,000 as consideration. As the
Angeles spouses stay in Manila during weekdays
and go to Laguna only on weekends, the parties
agreed that Mercado would administer the lands
and complete the necessary paperwork.
After three years, the Angeles spouses asked for
an accounting from Mercado. Mercado explained
that the subject land earned ₱46,210 in 1993,
which he used to buy more lanzones trees.
Mercado also reported that 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
his spouse’s names.
In his counter-affidavit, Mercado denied the
Angeles spouses’ allegations. Mercado claimed
that there exists an industrial partnership,
Having organized and constituted a partnership of a
civil nature, the said entity is the one bound to pay
the income tax which the defendant collected under
the aforesaid Section 10 (a) of Act No. 2833, as
amended by Section 2 of Act No. 3761. There is no
merit in plaintiffs' contention that the tax should be
prorated among them and paid individually, resulting
in their exemption from the tax.
colloquially known as sosyo industrial, between
him and his spouse as industrial partners and the
Angeles spouses as the financiers. This industrial
partnership had existed since 1991, before the
contract of antichresis over the subject 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.
Mercado attached bank receipts showing
deposits in behalf of Emerita Angeles and
contracts under his name for the Angeles
spouses. Mercado also attached the minutes of
the barangay conciliation proceedings. During
the barangay conciliation proceedings, Oscar
Angeles stated 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.
RULING OF THE PROVINCIAL PROSECUTION
OFFICE
The Provincial Prosecution Office issued a
resolution recommending the filing of estafa
against Mercado. However, this resolution was
issued without Mercado’s counter- affidavit.
Subsequently, Mercado filed his counter-
affidavit so the Provincial Prosecution Office
issued an amended resolution dismissing the
Angeles spouses’ complaint for estafa against
Mercado and stated that:
 The subject of the complaint hinges on a
partnership gone sour.
  The accusation of “estafa” lacks enough
credible evidentiary support to sustain a
prima facie finding.
The Angeles spouses filed an MR which was
denied.
RULING OF THE SECRETARY OF JUSTICE
On appeal to the Secretary of Justice, the Angeles
spouses emphasized that the document
evidencing the contract of sanglaang-perde with
Juana Suazo was executed in the name of the
Mercado spouses, instead of the Angeles spouses
and held that a partnership truly existed
between the [Angeles spouses] and [Mercado]
since:
 They contributed money to a common
fund and divided the profits among
themselves. Records would show that
[Mercado] was able to make deposits for
the account of the [Angeles spouses].
These deposits represented their share in
the profits of their business venture.
Although the [Angeles spouses] deny the
existence of a partnership, they, however,
never disputed that the deposits made by
[Mercado] were indeed for their account.
The transcript of notes on the dialogue between
the [Angeles spouses] and [Mercado] during the
hearing of their barangay conciliation case
reveals that the [Angeles spouses] acknowledged
their joint business ventures with [Mercado]
although they assailed the manner by which
[Mercado] conducted the business and handled
and distributed the funds.
Consequently, 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 or not a partnership existed
between the Angeles spouses and Mercado.
RULING: YES. A partnership existed between
the Angeles spouses and Mercado.
The Angeles spouses allege that they had no
partnership with Mercado. The Angeles spouses
rely on Articles 1771 to 1773 of the Civil Code,
which state that:
Art. 1771. A partnership may be constituted in
any form, except where immovable property or
real rights are contributed thereto, in which case
a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a
capital of three thousand pesos or more, in
money or property, shall appear in a public
instrument, which must be recorded in the Office
of the Securities and Exchange Commission.
Failure to comply with the requirements of the
preceding paragraph shall not affect the liability
of the partnership and the members thereof to
third persons.
Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to the
public instrument.
The Angeles spouses’ position that there is no
partnership because of the lack of a public
instrument indicating the same and a lack of
registration with the Securities and Exchange
Commission ("SEC") holds no water.
First, 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."
Indeed, the Angeles spouses admit to facts that
prove the existence of a partnership: a contract
showing a sosyo industrial or industrial
partnership, contribution of money and industry
to a common fund, and division of profits
between the Angeles spouses and Mercado.