GENERAL PRINCIPLES:
CA
1 Litonjua v. Litonjua
Partnership, how formed
Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a
contract of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo
that the latter is allowing Aurelio to manage their family business (if Eduardo’s away) and in
exchange thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A
memorandum was subsequently made for the said partnership agreement. The memorandum
this time stated that in exchange of Aurelio, who just got married, retaining his share in the
family business (movie theatres, shipping and land development) and some other immovable
properties, he will be given P1 Million or 10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater.
In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded
an accounting and the liquidation of his share in the partnership. Eduardo did not heed and
so Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: No. The partnership is void and legally nonexistent. The documentary evidence
presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove
partnership.
The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that said letter
does not meet the public instrumentation requirements exacted under Article 1771 (how
partnership is constituted) of the Civil Code. Moreover, being unsigned and doubtless referring
to a partnership involving more than P3,000.00 in money or property, said letter cannot be
presented for notarization, let alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 (capitalization of a partnership) of the Code. And
inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter
of validity when immovable property is contributed to the partnership, the next logical point of
inquiry turns on the nature of Aurelio’s contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not a public instrument
and again, no inventory was made of the immovable property and no inventory was attached
to the Memorandum. Article 1773 of the Civil Code requires that if immovable property is
contributed to the partnership an inventory shall be had and attached to the contract.
2 Evangelista v. CIR; AFISCO v.
Facts: Petitioners borrowed money from their father and purchased several lands. For several
years, these lands were leased to tenants by the petitioners. In 1954, respondent Collector of
Internal Revenue demanded from petitioners the payment of income tax on corporations, real
estate dealer's fixed tax and corporation residence tax for the years 1945-1949. A letter of
demand and corresponding assessments were delivered to petitioners. Petitioners claim that
they should be absolved from paying said taxes since they are not a corporation.
Issue: Whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as
well as to the residence tax for corporations and the real estate dealers fixed tax.
Held: Yes. Petitioners are subject to the income tax and residence tax for corporation.
As defined in section 84 (b) of the Internal Revenue Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates
that a joint venture need not be undertaken in any of the standard forms, or in conformity with
the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Partnership, as has been defined in the
civil code refers to two or more persons who bind themselves to contributemoney, properly,
or industry to a common fund, with the intention of dividing the profits among themselves.
Thus, petitioners, beingengaged in the real estate transactions for monetary gain and dividing
the same among themselves constitute a partnership so far as the Code is concerned and
are subject to income tax for corporation.
Since Sec 2 of the Code in defining corporations also includes joint-stock company,
partnership, joint account, association or insurance company, no matter how created or
organized, it follows that petitioners, regardless of how their partnership was created is also
subject to the residence tax for corporations.
3 Lim Tong Lim v. Philippine Fishing Gear 4 AFISCO v. CA
Corporation by Estoppel ***************
It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing Facts:
with him and one Antonio Chua. The three agreed to purchase two fishing boats but since
The petitioners are 41 local insurance firms which entered into Reinsurance Treaties
they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim).
with Munich, a non-resident foreign insurance corporation. The reinsurance treaties required
They again borrowed money and they agreed to purchase fishing nets and other fishing
them to form an “insurance pool” or “clearing house” in order to facilitate the handling of the
equipments. Now, Yao and Chua represented themselves as acting in behalf of “Ocean Quest
business they contracted with Munich. The CIR assessed the insurance pool deficiency
Fishing Corporation” (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI)
corporate taxes and withholding taxes on dividends paid on Munich and to the petitioners
for the purchase of fishing nets amounting to more than P500k.
respectively. The assessments were protested by the petitioners.
They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some
time to pay. Yao waived his rights. Lim Tong Lim however argued that he’s not liable because The CA ruled that the insurance pool was a partnership taxable as a corporation and that the
he was not aware that Chua and Yao represented themselves as a corporation; that the two latter’s collection of premiums on behalf of its members was taxable income.
acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
The petitioners belie the existence of a partnership because, according to them, the reinsurers
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim did not share the same risk or solidary liability, there was no common fund, the executive
had decided to engage in a fishing business, which they started by buying boats worth P3.35 board of the pool did not exercise control and management of its funds and the pool was not
million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they engaged in business of reinsurance from which it could have derived income for itself.
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 Issues:
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 May the insurance pool be deemed a partnership or an association that is taxable as a
and operation of the boats would be divided equally among them also shows that they had corporation?
indeed formed a partnership.
Should the pool’s remittances to member companies and to Munich be taxable as dividends?
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed
to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in
his boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua Ruling: The pool is taxable as a corporation.
and Yao decided to form a corporation. Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation In the present case, the ceding companies entered into a Pool Agreement or an association
and those benefited by it, knowing it to be without valid existence, are held liable as general that would handle all the insurance businesses covered under their quota-sharing reinsurance
partners. treaty and surplus reinsurance treaty with Munich. There are unmistakable indicators that it is
a partnership or an association covered by NIRC.
The pool has a common fund, consisting of money and other valuables that are deposited in
the name and credit of the pool.
The pool functions through an executive board which resembles the BOD of a corporation.
Though the pool itself is not a reinsurer, its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich because without it they would not
have received their premiums. Profit motive or business is therefore the primordial reason for
the pool’s formation.
The fact that the pool does not retain any profit or income does not obliterate an antecedent
fact that of the pool is being used in the transaction of business for profit. It is apparent, and
petitioners admit that their association or co-action was indispensable to the transaction of the
business. If together they have conducted business, profit must have been the object as
indeed, profit was earned. Though the profit was apportioned among the members, this is one
a matter of consequence as it implies that profit actually resulted.
Petitioners' reliance on Pascual v. Commissioner is misplaced, because the facts obtaining
therein are not on all fours with the present case. In Pascual, there was no unregistered
partnership, but merely a co-ownership which took up only 2 isolated transactions. The CA
did not err in applying Evangelista, which involved a partnership that engaged in a series of
transactions spanning more than 10 years, as in the case before us.
5 Gatchalian v. CIR
Co-ownership or Co-possession
Facts: 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),
saidticket was registered in the name of Jose Gatchalian and Company. The ticket won one
of the third-prizes in the amount of P50,000.
Jose Gatchalian was required to file the corresponding income tax return covering the prize
won. Defendant-Collector made anassessment against Jose Gatchalian and Co. requesting
the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan.
Plaintiffs, however through counsel made a request for exemption. It was denied.
Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy was issued.
Plaintiffs paid under protest a part of the tax and penalties to avoid the effects of the warrant.
A request that the balance be paid by plaintiffs in installments was made. This was granted
on the condition that a bond be filed. Plaintiffs failed in their installment payments. Hence a
request for execution of the warrant of distraint and levy was made. Plaintiffs paid under
protest to avoid the execution. A claim for refund was made by the plaintiffs, which was
dismissed, hence the appeal.
Issue: WON the plaintiffs formed a partnership or a community property
Held: Yes. According to the stipulation 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.
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 Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection 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.
6 ADRIANO ARBES, ET AL vs. VICENTE POLISTICO, ET AL., G.R. No. 31057 September
7, 1929 VILLAMOR, J.
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 brought for 2 nd time. In the 1st one, the court 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. The court appointed commissioner
of Insular Auditor's Office, to examine all the books, documents, and accounts of "Turnuhan
Polistico & Co.," and to receive whatever evidence. Commissioner's report show a balance of
P24, 607.80 cash on hand. Despite defendant’s objection to the report, the trial court rendered
judgment holding said association is unlawful. And sentenced defendants jointly and severally
to return the amount and documents to the plaintiffs and members of the association. The
Appellant alleged that the association being unlawful, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be included, as a party defendant.
Referring to article 1666 of the Civil Code, which provides: †œA 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.
ISSUE: Whether or not charitable institution is a necessary party to this case.
HELD: No. 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. 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 to annul 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. The profits are so applied, and not the contributions,
because this would be an excessive and unjust sanction for, as we have seen, there is no
reason, in such a case, for depriving the partner of the portion of the capital that he contributed,
the circumstances of the two cases being entirely different. Art. 1807. Every partner must
account to the partnership for any benefit, and hold as trustee for it any profits derived by him
without the consent of the other partners from any transaction connected with the formation,
conduct, or liquidation of the partnership or from any use by him of its property.
7 Aguila v. CA
Identity Separate and Distinct
In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement with
a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan was for P200k. To
secure the loan, the spouses mortgaged their house and lot located in a subdivision. The
terms of the loan further stipulates that in case of non-payment, the property shall be
automatically appropriated to the partnership and a deed of sale be readily executed in favor
of the partnership. She does have a 90 day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn over the property and
so the firm filed an ejectment case against her (wherein she lost). She also failed to redeem
the property within the period stipulated. She then filed a civil case against Alfredo Aguila,
manager of the firm, seeking for the declaration of nullity of the deed of sale. The RTC retained
the validity of the deed of sale. The Court of Appeals reversed the RTC. The CA ruled that the
sale is void for it is a pactum commissorium sale which is prohibited under Art. 2088 of the
Civil Code (note the disparity of the purchase price, which is the loan amount, with the actual
value of the property which is after all located in a subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party in interest. As
pointed out by Aguila, he is not the real party in interest but rather it was the partnership A.C.
Aguila & Sons, Co. The Rules of Court provide that “every action must be prosecuted and
defended in the name of the real party in interest.” A real party in interest is one who would
be benefited or injured by the judgment, or who is entitled to the avails of the suit. Any decision
rendered against a person who is not a real party in interest in the case cannot be
executed. Hence, a complaint filed against such a person should be dismissed for failure to
state a cause of action, as in the case at bar.
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, Felicidad 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. 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.
8 Ona v CIR
Facts:
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children.
A civil case was instituted for the settlement of her state, in which Oña was appointed
administrator and later on the guardian of the three heirs who were still minors when the
project for partition was approved. This shows that the heirs have undivided ½ interest in 10
parcels of land, 6 houses and money from the War Damage Commission.
Although the project of partition was approved by the Court, no attempt was made to divide
the properties and they remained under the management of Oña who used said properties in
business by leasing or selling them and investing the income derived therefrom and the
proceeds from the sales thereof in real properties and securities. As a result, petitioners’
properties and investments gradually increased. Petitioners returned for income tax purposes
their shares in the net income but they did not actually receive their shares because this left
with Oña who invested them.
Based on these facts, CIR decided that petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, particularly for years 1955 and 1956.
Petitioners asked for reconsideration, which was denied hence this petition for review from
CTA’s decision.
Issue:
W/N there was a co-ownership or an unregistered partnership
W/N the petitioners are liable for the deficiency corporate income tax
Held:
Unregistered partnership. The Tax Court found that instead of actually distributing the estate
of the deceased among themselves pursuant to the project of partition, the heirs allowed their
properties to remain under the management of Oña and let him use their shares as part of the
common fund for their ventures, even as they paid corresponding income taxes on their
respective shares.
Yes. 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
either duly executed in an extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding. The reason is simple. 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, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at least, an unregistered
partnership is formed.
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships —
The term “partnership” includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial operation,
or venture is carried on… (8 Merten’s Law of Federal Income Taxation, p. 562 Note 63;
emphasis ours.)
with the exception only of duly registered general copartnerships — within the purview of the
term “corporation.” It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for
corporations. Judgment affirmed.
9 Obillos v. CIR
Facts:
In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan. The
next day, he transferred his rights to his four children for them to build their own residences.
The Torrens title would show that they were co-owners of the two lots. However, the
petitioners resold them to Walled City Securities Corporation and Olga Cruz Canda for P313k
or P33k for each of them. They treated the profit as capital gains and paid an income tax of
P16, 792.00.
The CIR requested the petitioners to pay the corporate income tax of their shares, as this
entire assessment is based on the alleged partnership under Article 1767 of the Civil Code;
simply because they contributed each to buy the lots, resold them and divided the profits
among them.
But as testified by Obillos, they have no intention to form the partnership and that it was merely
incidental since they sold the said lots due to high demand of construction. Naturally, when
they sell them as co-partners, it will result to the share of profits. Further, their intention was
to divide the lots for residential purposes.

Issue:
Was there a partnership, hence, they are subject to corporate income taxes?
Ruling:
Not necessarily. As Article 1769 (3) of the Civil Code provides: the sharing of gross returns
does not in itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns are derived. There must be
an unmistakeable intention to form a partnership or joint venture.
In this case, the Commissioner should have investigated if the father paid donor's tax to
establish the fact that there was really no partnership.
10 Pascual v CIR
FACTS:
Petitioners bought two (2) parcels of land and a year after, they bought another three (3)
parcels of land. Petitioners subsequently sold the said lots in 1968 and 1970, and realized net
profits. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years. However, the Acting BIR
Commissioner assessed and required 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 asserting that they had availed of tax amnesties way back in 1974. In a
reply, respondent Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered partnership or
joint venture taxable as a corporation under Section 20(b) and its income was subject to the
taxes prescribed under Section 24, both of the National Internal Revenue Code that 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.
ISSUE:
Whether the Petitioners should be treated as an unregistered partnership or a co-ownership
for the purposes of income tax.
RULING:
The Petitioners are simply under the regime of co-ownership and not under unregistered
partnership.
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 (Art. 1767, Civil Code of the Philippines). In the present case, there is no evidence
that petitioners entered into an agreement to contribute money, property or industry to a
common fund, and that they intended to divide the profits among themselves. 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. Hence, there is no
adequate basis to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased properties and sold the
same a few years thereafter did not thereby make them partners. They shared in the gross
profits as co- owners and paid their capital gains taxes on their net profits and availed of the
tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
11 Heirs of Jose Lim and Juliet Lim
Partner – Periodic Accounting – Profit Sharing
In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a partnership agreement
with Jimmy Yu and Norberto Uy. The three contributed P50,000.00 each and used the funds
to purchase a truck to start their trucking business. A year later however, Jose Lim died. The
eldest son of Jose Lim, Elfledo Lim, took over the trucking business and under his
management, the trucking business prospered. Elfledo was able to but real properties in his
name. From one truck, he increased it to 9 trucks, all trucks were in his name however. He
also acquired other motor vehicles in his name.
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack. Elfledo’s wife,
Juliet Lim, took over the properties but she intimated to Jimmy and the heirs of Norberto that
she could not go on with the business. So the properties in the partnership were divided
among them.
Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do an
accounting of all income, profits, and properties from the estate of Elfledo Lim as they claimed
that they are co-owners thereof. Juliet refused hence they sued her.
The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the partnership
that Jose Lim formed with Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim was
the partner and not Elfledo Lim. The heirs testified that Elfledo was merely the driver of Jose
Lim.
ISSUE: Who is the “partner” between Jose Lim and Elfledo Lim?
HELD: It is Elfledo Lim based on the evidence presented regardless of Jimmy Yu’s testimony
in court that Jose Lim was the partner. If Jose Lim was the partner, then the partnership would
have been dissolved upon his death (in fact, though the SC did not say so, I believe it should
have been dissolved upon Norberto’s death in 1993). A partnership is dissolved upon the
death of the partner. Further, no evidence was presented as to the articles of partnership or
contract of partnership between Jose, Norberto and Jimmy. Unfortunately, there is none in
this case, because the alleged partnership was never formally organized.
But at any rate, the Supreme Court noted that based on the functions performed by Elfledo,
he is the actual partner.
The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and
Norberto:
1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a
date that coincided with the payment of the initial capital in the partnership;
2.) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority,
without any intervention or opposition whatsoever from any of petitioners herein;
3.) all of the properties, particularly the nine trucks of the partnership, were registered in the
name of Elfledo;
4.) Jimmy testified that Elfledo did not receive wages or salaries from the partnership,
indicating that what he actually received were shares of the profits of the business; and
5.) none of the heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in the case of Heirs of Tan Eng Kee, a demand for
periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and Juliet formed part of the estate
of Jose, having been derived from Jose’s alleged partnership with Jimmy and Norberto.
Elfledo was not just a hired help but one of the partners in the trucking business, active and
visible in the running of its affairs from day one until this ceased operations upon his demise.
The extent of his control, administration and management of the partnership and its business,
the fact that its properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only contributed in the initial capital
but had no say thereafter on how the business was ran. Evidently it was through Elfredo’s
efforts and hard work that the partnership was able to acquire more trucks and otherwise
prosper. Even the appellant participated in the affairs of the partnership by acting as the
bookkeeper sans salary.
12 Lilibeth Sunga-Chan
Prescription – Demand for an accounting – Oral Partnership
In 1977, Chua and Jacinto Sunga verbally agreed to form a partnership for the sale and
distribution of Shellane LPGs. Their business was very profitable but in 1989 Jacinto died.
Upon Jacinto’s death, his daughter Lilibeth took over the business as well as the business
assets. Chua then demanded for an accounting but Lilibeth kept on evading him. In 1992
however, Lilibeth gave Chua P200k. She said that the same represents a partial payment;
that the rest will come after she finally made an accounting. She never made an accounting
so in 1992, Chua filed a complaint for “Winding Up of Partnership Affairs, Accounting,
Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment” against
Lilibeth.
Lilibeth in her defense argued among others that Chua’s action has prescribed.
ISSUE: 1 Whether or not Chua’s claim is barred by prescription.
2 Whether or not respondent Lamberto Chua and Jacinto L. Sunga has entered into a
partnership?
HELD: 1 No. The action for accounting filed by Chua three (3) years after Jacinto’s death
was well within the prescribed period. The Civil Code provides that an action to enforce an
oral contract prescribes in six (6) years while the right to demand an accounting for a partner’s
interest as against the person continuing the business accrues at the date of dissolution, in
the absence of any contrary agreement. Considering that the death of a partner results in the
dissolution of the partnership, in this case, it was after Jacinto’s death that Chua as the
surviving partner had the right to an account of his interest as against Lilibeth. It bears
stressing that while Jacinto’s death dissolved the partnership, the dissolution did not
immediately terminate the partnership. The Civil Code expressly provides that upon
dissolution, the partnership continues and its legal personality is retained until the complete
winding up of its business, culminating in its termination.
2 Yes. The court ruled that 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. Also, Article 1772 of the Civil Code requires that partnership with a capital
of Php3,000.00 or more must register with the Securities and Exchange Commission, however
this registration requirement is not mandatory. Article 1768 of the Civil Code explicitly provides
that the partnership retains its juridical personality even if it fails register. The failure to register
the contract of partnership does not invalidate the same as among the partners, so long as
the contract has the essential requisites, because the main purpose of registration is to give
notice to third parties, and it can be assumed that the members themselves knew of the
contents of their contract.
13 CIR v Suter
FACTS: A limited partnership named William J. Suter 'Morcoin' Co., Ltd was formed
30September 1947 by William J. Suter as the general partner, and Julia Spirig
andGustav Carlson. They contributed, respecti vely, P20,000.00, P18,000.00 andP2,000.00.
it was also duly registered with the SEC. On 1948 Suter and Spirig got married and in effect
Carlson sold his share to the couple, the same was also registered with the SEC.
The limited partnership had been filingits income tax returns as acorporation, without
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the
latter, in an assessment, consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax
against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
ISSUE: Whether or not the limited partnership has been dissolved after the marriage of Suter
and Spirig and buying the interest of limited partner Carlson.
RULING: No, the limited partnership was not dissolved.
A husband and a wife may not enter into a contract of generalcopartnership, because under
the Civil Code, which applies in the absence of express provision in the Code of Commerce,
persons prohibited from makingdonations to each other are prohibited from entering into
universal partnerships. (2Echaverri 196) It follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing partnership.
What the law prohibits was when the spouses entered into a generalpartnership. In the case
at bar, the partnership was limited.
14 Primelink v. Lazatin-Magat
Dissolution and Winding Up – Joint Venture Agreement – Rights of Innocent Party
In 1994, Primelink Properties and the Lazatin siblings entered into a joint venture agreement
whereby the Lazatins shall contribute a huge parcel of land and Primelink shall develop the
same into a subdivision. For 4 years however, Primelink failed to develop the said land. So in
1998, the Lazatins filed a complaint to rescind the joint venture agreement with prayer for
preliminary injunction. In said case, Primelink was declared in default or failing to file an
answer and for asking multiple motions for extension. The trial court eventually ruled in favor
of the Lazatins and it ordered Primelink to return the possession of said land to the Lazatins
as well as some improvements which Primelink had so far over the property without the
Lazatins paying for said improvements. This decision was affirmed by the Court of Appeals.
Primelink is now assailing the order; that turning over improvements to the Lazatins without
reimbursement is unjust; that the Lazatins did not ask the properties to be placed under their
possession but they merely asked for rescission.
ISSUE: Whether or not the improvements made by Primelink should also be turned over
under the possession of the Lazatins.
HELD: Yes. In the first place, even though the Lazatins did specifically pray for possession
the same (placing of improvements under their possession) is incidental in the relief they
prayed for. They are therefore entitled possession over the parcel of land plus the
improvements made thereon made by Primelink.
In this jurisdiction, joint ventures are governed by the laws of partnership. Under the laws of
partnership, when a partnership is dissolved, as in this case when the trial court rescinded the
joint venture agreement, the innocent party has the right to wind up the partnership affairs.
With the rescission of the JVA on account of petitioners’ fraudulent acts, all authority of any
partner to act for the partnership is terminated except so far as may be necessary to wind up
the partnership affairs or to complete transactions begun but not yet finished. On dissolution,
the partnership is not terminated but continues until the winding up of partnership affairs is
completed. Winding up means the administration of the assets of the partnership for the
purpose of terminating the business and discharging the obligations of the partnership.
It must be stressed, too, that although the Lazatins acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership property,
subject to the rights and obligations of the parties, inter se, of the creditors and of third parties
and subject to the outcome of the settlement of the accounts between the parties, absent any
agreement of the parties in their JVA to the contrary (here no agreement in the JVA as to
winding up). Until the partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all.
Rights and Obligations of the Partners:
Monasque v Ca
FACTS: Petitioner Elmo Munasque in behalf of the partnership "Galan & Munasque, as a
Contractor, entered into a written contract with respondent Tropical for remodeling of its Cebu
Branch building. A total amount of P25, 000 was to be paid under the contract for the entire
services of the Contractor. The first payment made by Tropical was in the form of a check for
P7, 000 in the name of petitioner. Petitioner endorsed the check in favor of Galan to enable
the latter to deposit it in the bank and pay for the materials and labor used. A misunderstanding
ensued between Munasque and Galan which came to the knowledge of Tropical, thus, the
second check issued by the latter was drawn in the name of "Galan and Associates" and was
encashed by Galan. Meanwhile, the construction continued through the sole efforts of
petitioner, which caused him to borrow money from a certain Mr. Espina. Two checks were
subsequently given to petitioner pursuant to a court order. Petitioner filed a complaint for
payment of sum of money and damages against the respondents seeking to recover the
amounts covered by the two checks and the additional expenses that petitioner incurred in
the construction. Ruling of Lower and Appellate Courts: Both the trial and appellate courts
absolved respondents from any liability and held petitioner together with Galan jointly liable to
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit
that they extended to the partnership.
ISSUE: Whether or not Petitioner Munasque solidarily or jointly liable with Respondent Galan
to pay the credits of intervenors Blue Diamond Glass and Cebu Southern Hardware.
HELD: Petitioner is solidarily liable with respondent Galan to pay the credits of the two
intervenors. Therefore, petitioner may recover from respondent Galan any amount that he
pays, in his capacity as a partner,to the above intervenors. Art. 1816 should be construed
together with Article 1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles 1822 and 1823".The
obligation is solidary because the law protects him, who in good faith relied upon the authority
of a partner, whether such authority is real or apparent. That is why under Article 1824 of the
Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable. In this case, Tropical, Blue Diamond and Cebu Hardware had
every reason to believe that partnership existed between petitioner and Galan, thus, it is fair
that consequences of any wrongful act committed by any of the partners therein should be
answered solidarily by all the partners and the partnership as a whole. As between petitioner
Munasque and Galan, justice so dictates that Munasque be reimbursed by Galan for the
payments made by the former as it was satisfactorily established that Galan acted in bad faith
in his dealings with Munasque as a partner.
Termination of the Partnership:
1 Rojas v. Maglana
FACTS:
Maglana and Rojas executed their Articles of Co-partnership called “East coast Development
Enterpises” which had an indefinite term of existence and was registered with the SEC and
had a Timber License. One of the EDE’s purposes was to apply or secure timber and/or
private forest lands and to operate, develop and promote such forests rights and concessions.
M shall manage the business affairs while R shall be the logging superintendent. All profits
and losses shall be divided share and share alike between them. Later on, the two availed the
services of Pahamotang as industrial partner and executed another articles of co-partnership
with the latter. The purpose of this second partnership was to hold and secure renewal of
timber license and the term of which was fixed to 30 years. Still later on, the three executed a
conditional sale of interest in
the partnership wherein M and R shall purchase the interest, share and participation in the
partnership of P. It was also agreed that after payment of such including amount of loan
secured by P in favor of the partnership, the two shall become owners of all equipment
contributed by P. After this, the two continued the partnership without any written agreement
or reconstitution of their articles of partnership. Subsequently, R entered into a management
contract with CMS Estate Inc. M wrote him re: his contribution to the capital investments as
well as his duties as logging superintendent. R replied that he will not be able to comply with
both. M then told R that the latter’s share will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or dispute. R took funds from the partnership
more than his contribution. M notified R that he dissolved the partnership. R filed an action
against M for the recovery of properties and accounting of the partnership and damages.
CFI: the partnership of M and R is after P retired is one of de facto and at will; the sharing of
profits and losses is on the basis of actual contributions; there is no evidence these properties
were acquired by the partnership funds thus it should not belong to it; neither is entitled to
damages; the letter of M in effect dissolved the partnership; sale of forest concession is valid
and binding and should be considered as M’s contribution; R must pay or turn over to the
partnership the profits he received from CMS and pay his personal account to the partnership;
M must be paid 85k which he should’ve received but was not paid to him and must be
considered as his contribution.
ISSUE
What is the nature of the partnership and legal relationship of M-Rafter P retired from the
second partnership? May M unilaterally dissolve the partnership?
SC: There was no intention to dissolve the first partnership upon the constitution of the second
as everything else was the same except for the fact that they took in an industrial partner: they
pursued the same purposes, the capital contributions call for the same amounts, all
subsequent renewals of Timber License were secured in favor of the first partnership, all
businesses were carried out under the registered articles. M and R agreed to purchase the
interest, share and participation of P and after, they became owners of the equipment
contributed by P. Both considered themselves as partners as per their letters. It is not
a partnership de facto or at will as it was existing and duly registered. The letter of M dissolving
the partnership is in effect a notice of withdrawal and may be done by expressly withdrawing
even before expiration of the period with or without justifiable cause. As to the liquidation of
the partnership it shall be divided “share and share alike” after an accounting has been made.
R is not entitled to any profits as he failed to give the amount he had undertaken to contribute
thus, had become a debtor of the partnership. M cannot be liable for damages as R
abandoned the partnership thru his acts and also took funds in an amount more than his
contribution.
2 Yu vs NLRC
Liquidation
Facts:
Benjamin Yu used to be the Assistant General Manager of Jade Mountain, a partnership
engaged in marble quarrying and export business. The majority of the founding partners sold
their interests in said partnership to Willy Co and Emmanuel Zapanta without Yu’s knowledge.
Said new partnership continued operating under the same name and continued the business’s
operations. However, it transferred its main office from Makati to Mandaluyong. Said new
partnership did not anymore availed of the services of Yu. Thus, he filed a complaint for illegal
dismissal, recovery of unpaid wages and damages.
Issue:
1 WON the partnership which had hired Yu as Asst. Gen. Manager had been extinguished
and replaced by a new partnership composed of Co and Zapanta; 2 if indeed a new
partnership had come into existence, WON Yu could nonetheless assert his rights under his
employment contract with the old partnership as against the new partnership.
Held:
1. Yes. Changes in the membership of the partnership resulted in the dissolution of the old
partnership which had hired Yu and the emergence of a new partnership composed of Co and
Zapanta.
Legal bases:
Art. 1828. The dissolution of a partnership is the change in the relation of thepartners cause
d by any partner ceasing to be associated in the carrying on asdistinguished from the
winding up of the business.
Art. 1830. Dissolution is caused:(1) without violation of the agreement between the
partners;(b) by the express will of any partner, who must act in good faith, when no definite
term or particular undertaking is specified;(2) in contravention of the agreement between
the partners, where the circumstances do not permit a dissolution under any other provision
of this article, by the express will of any partner at any time;
No winding up of affairs in this case as contemplated in Art. 1829: on dissolution the
partnership is not terminated, but continues until the winding up of partnership affairs is
completed
the new partnership simply took over the business enterprise owned by the oldpartnership, a
nd continued using the old name of Jade Mountain Products CompanyLimited, without
winding up the business affairs of the old partnership, paying off its debts,liquidating and
distributing its net assets, and then re assembling the said assets or mostof them and
opening a new business enterprise.
2. Yes. The new partnership is liable for the debts of the old partnership.
Legal basis: Art. 1840 (see codal)
Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his
employment with the previous partnership, against the new partnership. But Yu is not entitled
to reinstatement. Reason: new partnership was entitled to appoint and hire a new gen. or asst.
gen. manager to run the affairs of the business enterprise take over. An asst. gen. manager
belongs to the most senior ranks of management and anew partnership is entitled to appoint
a top manager of its own choice and confidence. The non-retention of Yu did not constitute
unlawful termination. The new partnership had its own new General Manager, Co, the
principal new owner himself. Yu’s old position thus became superfluous or redundant. Yu is
entitled to separation pay at the rate of one month’s pay for each year of service that he had
rendered to the old partnership, a fraction of at least 6 months being considered as a whole
year.