1. CONCEPT OF PARTNERSHIP EE.M.
DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1767
1.CIR v. Ledesma
FACTS:
Carlos Ledesma, Julieta Ledesma and the Spouses
Amparo Ledesma and Vicente Gustilo Jr., purchased from their
parents the sugar plantation known as Hacienda Fortuna. By
virtue of the sale the respondents owned one-third each of the
undivided portion of the plantation. The respondents took over the
sugar cane farming on the plantation beginning with the crop year
1948-1949 and the San Carlos Milling Co. Ltd. Credited them with
their share in the gross sugar production in the same crop year.
In running the sugar plantation, the respondents shared
equally expenses of production, on basis of their respective one-
third undivided portions of the plantation and the San Carlos Milling
Co., Ltd. issued to respondents separate quedans for the sugar
produced, and based on the quota under the plantation audits
respectively issued to them. On July 11, 1949, the respondents
organized themselves into a general co-partnership under the firm
name Hacienda Fortuna. The articles of general co-partnership
were registered in the commercial register of the office of the
Register of Deeds in Bacolod City, on July 14, 1949. The general
partnership provides the agreement shall have retroactive effect as
of January 1, 1949.
In 1959, the Commissioner of Internal Revenue assessed a
corporate income tax against the partnership Hacienda Fortuna
for the calendar year of 1949. The respondents contested upon the
ground that the Hacienda Fortuna was a registered general co-
partnership and requested for the cancellation of the assessment.
The Commissioner contested that the income realized by
the partnership prior to the registration cannot be exempt from the
payment of corporate income tax. The respondents asked for
reconsideration upon the ground that during the period of January
1 to July 13, 1949 the respondents were operating merely as co-
owners of the plantation. They claimed that the case of Hacienda
Fortuna was really one of co-ownership and not that of an
unregistered co-partnership and that it is not subject to corporate
tax.
ISSUES:
WON the Hacienda Fortuna is an unregistered partnership prior
to its registration and
WON it should pay corporate income tax during the period of Jan
1, 1949-July 13, 1949
RULING:
The respondents had actually operated the "Hacienda
Fortuna" as a general partnership from January 1, 1949. Although
petitioners acquired undivided shares in the Hacienda Fortuna, the
intention of the parties was to form a general partnership. Their
intention is confirmed by the fact that they actually organized a
general co-partnership on July 11, 1949 and the Articles of General
Co-partnership which was registered on July 14, 1949 provides that
the agreement shall be retroactive as of January 1, 1949.
The Section 24 of the Revenue Code imposes an income
tax on corporations and the term "corporation" includes
unregistered general co-partnerships. Hence, if the Sec 24 of the
Revenue Code will be followed, Hacienda Fortuna is liable to pay
corporate income tax prior to the date of its registration. However,
as early as 1924, the BIR had applied the status-at-the-end-of-the-
taxable-year rule in determining the income tax liability of a
partnership, such that partnership is considered a registered
partnership for the entire taxable year even if its articles of co-
1. CONCEPT OF PARTNERSHIP EE.M.DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1767
partnership are registered only at the middle of the taxable year, or
in the last month of the taxable year.
The Supreme Court ruled that the exclusion of a registered
partnership from the entities subject to the payment of corporate
income tax should be made to cover the entire taxable year,
regardless of whether the registration takes place at the middle, or
towards the last days, of the taxable year. This is so because, after
all, the taxable status of the taxpayer, for the purposes of the
payment of income tax, is determined as of the end of the taxable
year, and the income tax is collected after the end of the taxable
year. Since it is the policy of the government to encourage a
partnership to register its articles of co-partnership in order that the
government can better ascertain the profits of the partnership and
the distribution of said profits among the partner, this benefit of
exclusion from paying corporate income tax arising from
registration should be liberally extended to registered, or
registering, partnerships in order that the purpose of the
government may be attained. The provision of Section 24 of the tax
code excluding "registered general co-partnership" from the
payment of corporate income tax is not an exemption clause but a
classification clause which must be construed liberally in favor of
the taxpayer.
Therefore, even though the Hacienda Fortuna is
considered as an unregistered partnership prior to its registration,
its subsequent registration exempted the partnership from paying
corporate income tax for the period of Jan 1, 1949-July 13, 1949.
2. CHARLES F. WOODHOUSE vs. FORTUNATO HALILI
FACTS:
On November 29, 1947, the plaintiff entered on a written
agreement with the defendant, the provisions of which are
(1) that they shall organize a partnership for the bottling and
distribution of Mision soft drinks, plaintiff to act as industrial
partner or manager, and the defendant will furnish the capital
necessary therefor; (2) that the defendant was to decide matters
of general policy regarding the business, while the plaintiff was to
attend to the operation and development of the bottling plant; (3)
that the plaintiff was to secure the Mision Soft Drinks franchise for
and in behalf of the proposed partnership; and (4) that the plaintiff
was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the
Mission Dry Corporation of Los Angeles, California, U.S.A.,
manufacturers of the bases and ingredients of the beverages
bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a
million dollars. In order to close the deal, he requested that the
right to bottle and distribute be granted him for a limited time
under the condition that it will finally be transferred to the
corporation.
When the bottling plant was already on operation, plaintiff
demanded of defendant that the partnership papers be executed.
At first defendant excused himself and continued to refuse the
execution of partnership papers.
The plaintiff prays for the execution of the contract of partnership,
an accounting of the profits, and a share thereof of 30 per cent, as
well as damages. The CFI held that the execution of the contract
1. CONCEPT OF PARTNERSHIP EE.M.DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1767
of partnership could not be enforced upon the parties, but it also
held that the defense of fraud was not proved.
ISSUE:
WON false representation or fraud, if it existed, annuls the
agreement to form the partnership.
RULING:
No.
Article 1270 of the Spanish Civil Code distinguishes two kinds of
(civil) fraud, the causal fraud, which may be a ground for the
annulment of a contract, and the incidental deceit, which only
renders the party who employs it liable for damages. The
Supreme Court held that in order that fraud may vitiate consent, it
must be the causal, not merely the incidental, inducement to the
making of the contract.
The record abounds with circumstances indicative that the fact
that the principal consideration, the main cause that induced
defendant to enter into the partnership agreement with plaintiff,
was the ability of plaintiff to get the exclusive franchise to bottle
and distribute for the defendant or for the partnership. The original
draft prepared by defendant's counsel was to the effect that
plaintiff obligated himself to secure a franchise for the defendant.
Correction appears in this same original draft, but the change is
made not as to the said obligation but as to the grantee. In the
corrected draft the word "capitalist"(grantee) is changed to
"partnership." The contract in its final form retains the substituted
term "partnership."
The defendant was, therefore, led to the belief that plaintiff had
the exclusive franchise, but that the same was to be secured for
or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract
was perfected. But while he had already lost his option thereto
(when the contract was entered into), the principal obligation that
he assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the partnership
agreement.
But, on the other hand, this supposed ownership of an exclusive
franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 percent granted him in the net profits
of the partnership business. Defendant agreed to give plaintiff 30
per cent share in the net profits because he was transferring his
exclusive franchise to the partnership.
We conclude from the above that while the representation that
plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other words,
by pretending that he had the exclusive franchise and promising
to transfer it to defendant, he obtained the consent of the latter to
give him (plaintiff) a big slice in the net profits. This is the dolo
incidente defined in article 1270 of the Spanish Civil Code,
because it was used to get the other party's consent to a big
share in the profits, an incidental matter in the agreement.
Having arrived at the conclusion that the agreement may not be
declared null and void, the question that next comes before us is,
May the agreement be carried out or executed? We find no merit
in the claim of plaintiff that the partnership was already a fait
accompli from the time of the operation of the plant, as it is
evident from the very language of the agreement that the parties
intended that the execution of the agreement to form a
partnership was to be carried out at a later date.
1. CONCEPT OF PARTNERSHIP EE.M.DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1767
3. Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin
Bacorro v. CA, SEC and
Joaquin Misa G.R. No. 109248 July 3, 1995
Vitug, J.
Facts:
On February 17, 1988 ,Gregorio Ortega, then one of the junior
partners in the law firm Bito, Misa, and Lozada withdrew in said firm
by writing several letter of withdrawal and retirement from the
partnership. On June 30, 1988, he filed with the Commission's
Securities Investigation and Clearing Department (SICD) a petition
for dissolution and liquidation of partnership.
On July 13, 1988, respondents-appellees filed their opposition
to the petition.
On 31 March 1989, the hearing officer rendered a decision
ruling that the Petitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership. Hence, the
petitioner and respondents are enjoined to abide by the provisions of
their Agreement relative to the matter governing the liquidation of
the shares of any retiring or withdrawing partner in the partnership
interest.
On appeal, the SEC en banc reversed the decision of the
Hearing Officer and held that the withdrawal of Attorney Joaquin L.
Misa had dissolved the partnership of "Bito, Misa & Lozada." The
Commission ruled that, being a partnership at will, the law firm could
be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can
be forced to continue in the partnership against his will.
The parties sought a reconsideration of the above decision.
Attorney Misa, in addition, asked for an appointment of a receiver to
take over the assets of the dissolved partnership and to take charge
of the winding up of its affairs.
The parties filed with the appellate court separate appeals
Issue:
1. Whether or not the partnership of Bito, Misa & Lozada (now Bito,
Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the withdrawal of Misa dissolved the partnership
regardless of his good or bad faith.
Held:
1. Yes. The partnership agreement of the firm provides that
the partnership shall continue so long as mutually satisfactory and
upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners. Furthermore, the partnership
agreement does not provide for a specified period or undertaking.
2. Yes. Any one of the partners may, at his sole pleasure,
dictate dissolution of the partnership at will. He must, however, act in
good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for
damages. The presence of a period for its specific duration or the
statement of a particular purpose for its creation can prevent the
dissolution of any partnership by an act or will of a partner. Among
partners, mutual agency arises and the doctrine of delectus personae
allows them to have the power, although not necessarily the right, to
dissolve the partnership.
4. AURBACH VS SANITARY WARES MFG. CORP
(GR No. 75875, December 15, 1989)
FACTS:
1. CONCEPT OF PARTNERSHIP EE.M.DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1767
American Standard Inc. (ASI), a foreign corporation, entered
into an Agreement with Sanitary Wares Manufacturing Corporation
(Saniwares), a domestic corporation, to participate in the ownership
of an enterprise which would engage primarily in the business of
manufacturing and selling vitreous china and sanitary wares.
The Articles of Incorporation provide that as long as ASI shall
own atleast 30% of the outstanding stock, it shall designate three of
the nine directors, and the other six shall be designated by other
stockholders.
Later, the 30% capital stock of ASI was increased to 40%.
Consequently, in the annual stockholders meeting, ASI invoked its
right to cumulative voting (based on its additional 10% equity) hence
nominated 4 candidates for the Board of Directors. However, this was
ruled out of order and the stockholders proceeded with the election
of directors 3 from ASI and 6 from the others. This resulted to a
heated argument between the ASI Group of foreign investors
(petitioners) and the Lagdameo Group composed of Filipino investors
(respondents). In a separate venue, ASI Group later conducted
another voting resulting to the election of 5 directors.
The parties then filed separate petitions with the Securites
and Exchange Commission (SEC). The Hearing Officer as affirmed by
SEC en banc, upheld the election of the Lagdameo Group. The Court of
Appeals affirmed.
Hence this petition.
ISSUE:
Whether or not ASI may invoke cumulative voting
HELD:
No. The Supreme Court (SC) held that an examination of
important provisions of the Agreement shows that the parties agreed
to establish a joint venture and not a corporation. This is manifested
by several provisions protecting the interests of ASI as the minority.
Having established as a joint venture, the rigid rules of construction
in Corporation Law do not apply.
SC then decided the issue based on the intention of the parties
manifested by the words of the Agreement. It ruled that the provision
of the Agreement granting ASI the right to designate three directors
is an implied waiver of its cumulative voting. From the foregoing, ASI
cannot nominate more than three directors. For this reason, SC
affirmed the results of the first election.
The legal concept of a joint venture has no precise legal
definition, but it has been understood to mean an organization
formed for some temporary purpose. It is hardly distinguishable from
partnership, since their elements are similar community of interest
in the business, sharing of profits and losses, and a mutual right of
control. 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. SC however recognized a distinction between the
two, and held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture.
5. LIM TONG LIM vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC.
G.R. No. 136448, November 3, 1999
Facts:
Antonio Chua, Peter Yao and Petitioner Lim Tong Lim were
engaged in the fishing business. They purchased fishing nets and
floats from Respondent Philippine Fishing Gear Industries, Inc. The
buyers, however, failed to pay for the items. Hence, Respondent filed
a collection suit against Chua, Yao and Petitioner, in their capacities
as general partners, with a prayer for a writ of preliminary
attachment. The lower court issued a Writ of Preliminary Attachment
and the items were attached.
1. CONCEPT OF PARTNERSHIP EE.M.DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1767
Upon motion of Respondent, the items were ordered sold at
public auction wherein Respondent was the sole and winning bidder.
The proceeds of the sale paid for by Respondent were deposited in
court, and replaced the attached property as a guaranty in case
Respondent gets a favorable ruling.
The trial court eventually ruled that Respondent was entitled
to the Writ of Attachment and that Chua, Yao and Petitioner, as
general partners, were jointly liable to pay respondent. The CA
affirmed the decision of the lower court. Hence, petitioner brought
this petition for review on certiorari.
Issue:
Whether by their acts, Petitioner, Chua and Yao could be
deemed to have entered into a partnership.
Ruling:
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.
A partnership may be deemed to exist among parties who
agree to borrow money to pursue a business and to divide the profits
or losses that may arise therefrom, even if it is shown that they have
not contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily
cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly transacted
on its behalf, but reaped benefits from that contract.

Yes. The facts as found by the two lower courts clearly showed
that there existed a partnership among Chua, Yao and him, pursuant
to Article 1767 of the Civil Code.

It is clear that Chua, Yao and Lim had decided to engage in a

fishing business, which they started by buying boats 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.