Case Digests for Civil Law

Partnership Cases

Case Digests for Civil Law

Karl CabiliUniversity of Santo Tomas- Faculty of Civil lawCompilation of cases with facts, issues, rulings on Partnership.

Article 1767

Luciano E. Salazar vs. Sanitary Wares Manufacturing Corporation, et al.G.R. Nos. 75975-76December 15, 1989

FACTS:Saniwares was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young, went abroad to look for foreign partners, for its expansion plans. Delaware entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by "Sanitary Wares Manufacturing Corporation." An agreement was made, this containing provisions designed to protect a minority group, including the grant of veto powers over a number of corporate acts and the right to designate certain officers. The relations of the members of the Corporation deteriorated over time, and, during the election of its Board of Directors, the ASI group and the Filipino Investors had a disagreement regarding the election of the six Philippine Investors. This disagreement resulted in the filing of the two groups of different sets of representatives of the Philippine Investors for the Sanitary Wares Mfg Corp.

ISSUE:Was the business established by the two a Joint Venture?

RULING:Yes. In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to assume some other relation is a question of fact for the jury. The history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. It has been noted that the important provisions of the Agreement and evidences presented show that the parties have agreed to establish a joint venture. Moreover, ASI in its communications referred to the enterprise as joint venture. Furthermore, it is ruled by Jurisprudence that a Corporation may enter into a joint venture Partnership with another so long as the nature of such venture is in line with its business and authorized by its charter this which is noticeable in the case at hand.

Thus, being a joint venture, they are to follow the Agreement set by them wherein the ASI is only to elect three out of the nine directors while the rest shall be designated by the Filipino Stockholders.

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Commissioner of Internal Revenue vs. Suter, and the Court of Tax AppealsG.R. No. L-25532February 28, 1969

FACTS:A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by respondent William J. Suter, as a General Partner, and Julia Spirig and Gustav Carlson, as limited partners. It was registered as a Limited Partnership with the Securities and Exchange Commission (SEC). In 1948, however, Suter and Spirig got married and, thereafter, on 18 December 1948, Carlson sold his share in the partnership to the two. The Commissioner of Internal Revenue, in 1959 found in an assessment that the income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulted in a deficiency of income tax.

ISSUE:Was the Partnership dissolved after the marriage of the partners and the subsequent sale to the spouses by the remaining partner of his participation in the partnership?

RULING:No. The Partnership was formed by Mr. Suter, Ms. Spirig, and Mr. Carlson for the business of importing, marketing, distributing, and operating automatic phonographs, radios, television sets, and gaming machines, their parts, and their accessories. What they have all donated to the mutual fund was owned by each other separately. The Partnership was also formed long before the marriage of Suter and Spirig. Furthermore, though it is true that the Partners are now spouses to each other, and that the third partner has sold his share in the Partnership to the said spouses, the respondents-partners capital contribution were separately owned and contributed before the occurrence of the wedding; thus they separately own their respective contributions in the Partnership. They are not prohibited by the Civil Code to enter into a contract of Partnership.

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Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448November 3, 1999

FACTS:On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. They, however, failed to pay for the fishing nets and the floats, leading the respondent to file a collection suit against the three in their capacities as General Partners with a prayer for a writ of preliminary attachment. Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay and also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. The trial court rendered its Decision ruling that, as general partners, they were jointly liable to pay respondent.

ISSUES:Was there Partnership between the three mentioned persons?

RULING:Yes. It is stated in the A. 1767 of the Civil Code that By 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. It is found from the findings of the court 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. 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, nets, and floats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution contemplated in the Article may be in the form of cash, fixed assets, credit, or industry. Their agreement 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.

(The case also appear under Article 1825 with a separate issue and ruling relevant to said article)

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Ortega, Del Castillo, Jr., and Bacorro vs. CA, SEC, and Misa G.R. No. 109248 July 3, 1995

FACTS:The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. On 19 December 1980, appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners. On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating that they are withdrawing and retiring from the firm and that liquidation be made. On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership.

ISSUESWas there a Partnership formed by the Firm?

RULINGYes. According to the Paragraph 2 of A. 1767 of the Civil Code, Two or more persons may also form a partnership for the exercise of a profession. Bearing the case at hand, the Organization is a firm composed of Lawyers, all whom are practicing the profession as a Lawyer. It can thus be said that, in accordance with the whole of the mentioned article, there exist a Partnership between the Petitioner and the Respondents. However, their Partnership is formed only for the practice of law as a mere association only. It cannot be likened to the Partnership contemplated in Par. 1 of the aforementioned Article, which is carried out for the purpose of trade or business.

(The case also appear under Articles 1784 and 1830 with separate issues and rulings relevant to said articles)

Charles F. Woodhouse vs. Fortunato F. HaliliG.R. No. L-4811 July 31, 1953

FACTS:On November 29, 1947, Woodhouse entered into a written agreement with Halili stating that: 1) that they shall organize a partnership for the bottling and distribution of Mission soft drinks where the plaintiff to act as industrial partner and the defendant a capitalist, and 2) that plaintiff was to secure its franchise for and in behalf of the proposed partnership. Prior to entering into this agreement, Woodhouse had informed the Mission Dry Corporation that he had interested a prominent financier in the business in the bottling and distribution of the said beverages and 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. He was given "a thirty-days" option on exclusive bottling and distribution rights for the Philippines, thus formal negotiations ensued on November 27, 1947. The contract was signed by the Plaintiff on December 3, 1947. The two returned to the Philippines in January 1948, while the operations began on the first week of February 1948. Woodhouse then demanded Halili the execution of the partnership papers, however, the latter made excuses and wouldnt execute the agreement.

ISSUE:Did the fraud by Woodhouse (Plaintiff) regarding his false representation annul the Partnership Agreement between the two?

RULING:No. In order for a fraud to vitiate consent in the Contract, the fraud must be the Causal Inducement in the making of a Contract. It is noticeable in the case that the principal consideration that induced Halili to enter into the partnership with Woodhouse, was the latters ability to get the exclusive franchise to bottle and distribute for the partnership and not something else. The supposed ownership of an exclusive franchise, however, was actually the consideration or price Woodhouse gave in exchange for the share of 30 per cent granted him in the net profits of the partnership business.

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Article 1768

Aguila Jr vs. Court of Appeals G.R. No. 127347November 25, 1999

FACTS: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 P200,000. 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.

RULING: 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 Article 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from that of each of the partners. The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes. In this case, 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.

(The case also appear under Article 1819)

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Ang Pue & Co. vs. Sec. of Commerce and IndustryG.R. No. L-17295 July 30, 1962

FACTS:Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a term of five years from May 1, 1953, extendible by their mutual consent. The corresponding articles of partnership were registered in the Office of the Securities & Exchange Commission on June 16, 1953. On June 19, 1954 RA No. 1180 was enacted to regulate the retail business. It provided, among other things, that, after its enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term.On April 15, 1958 prior to the expiration of the 5-year term of the partnership, but after the enactment of the RA 1180, the partners amended the original articles of partnership so as to extend the term of life of the partnership to another 5 years. When the amended articles were presented for registration in the Office of the SEC on April 16, 1958, registration was refused upon the ground that the extension was in violation of the aforesaid Act.

ISSUE:Whether or not a corporation or a partnership could claim a juridical personality of its own as a matter of absolute right?

RULING:To organize a corporation or a partnership that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege, which may be enjoyed only under such terms as the State, may deem necessary to impose. That the State, through Congress, and in the manner provided by law, had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may engage in the retail business can not be seriously disputed. That this provision was clearly intended to apply to partnership already existing at the time of the enactment of the law is clearly showing by its provision giving them the right to continue engaging in their retail business until the expiration of their term or life.

To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the provisions of RA 1180 cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision constitute a property right of which the partners can not be deprived without due process or without their consent. The agreement contain therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension. In the present case, as already stated, when the partners amended the articles of partnership, the provisions of RA1180 were already in force, and there can be not the slightest doubt that the right claimed by appellants to extend the original term of their partnership to another five years would be in violation of the clear intent and purpose of the law aforesaid.

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Article 1769

Heirs of Tan Eng Kee vs. Court of AppealsG.R. No.126881October 3, 2000

FACTS:Benguet Lumber has been around even before World War II but during the war, its stocks were confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee pooled their resources in order to revive the business. In 1981, Tan Eng Lay caused the conversion of Benguet Lumber into a corporation called Benguet Lumber and Hardware Company, with him and his family as the incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of Tan Eng Kee demanded for an accounting and the liquidation of the partnership.

Tan Eng Lay denied that there was a partnership between him and his brother. He said that Tan Eng Kee was merely an employee of Benguet Lumber. He showed evidence consisting of Tan Eng Kees payroll; his SSS as an employee and Benguet Lumber being the employee. As a result of the presentation of said evidence, the heirs of Tan Eng Kee filed a criminal case against Tan Eng Lay for allegedly fabricating those evidence. Said criminal case was however dismissed for lack of evidence.

ISSUE: Whether or not Tan Eng Kee is a partner.

RULING: No. There was no certificate of partnership between the brothers. The heirs were not able to show what was the agreement between the brothers as to the sharing of profits. All they presented were circumstantial evidence, which in no way proved partnership.

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kees death in 1984. It had no business book, no written account nor any memorandum for that matter and no license mentioning the existence of a partnership.

In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole proprietorship. He registered the same as such in 1954; that Kee was just an employee based on the latters payroll and SSS coverage, and other records indicating Tan Eng Lay as the proprietor. Also, the business definitely amounted to more P3,000.00 hence if there was a partnership, it should have been made in a public instrument.

But the business was started after the war (1945) prior to the publication of the New Civil Code in 1950? Even so, nothing prevented the parties from complying with this requirement.

Also, the Supreme Court emphasized that for 40 years, 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. Even if it can be speculated that a scenario wherein if excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of his concerns. A demand for periodic accounting is evidence of a partnership which Kee never did.

The Supreme Court also noted:In determining whether a partnership exists, these rules shall apply:(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property, which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;(b) As wages of an employee or rent to a landlord;(c) As an annuity to a widow or representative of a deceased partner;(d) As interest on a loan, though the amount of payment vary with the profits of the business;(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

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Pascual vs. Commissioner of Internal RevenueG.R. No. L-78133October 18, 1988

FACTS:Mariano Pascual and Renato Dragon bought two parcels of land from Santiago Bernardino, et al. on June 22, 1965. On May 22, 1966, Pascual and Dragon bought another three parcels of land from Juan Roque. The Bernardino properties were sold in 1968 to Marenir Development Corporation, for a net profit of P165,224.70. The Roque properties were sold to Erlinda Reyes and Maria Samson in 1970 for a net profit of P60,000.00. Pascual and Dragon paid the capital gains taxes in 1973 and 1974, availing of the tax amnesties granted in those years. However, in March 31, 1979, the Acting Commissioner wrote to Pascual and Dragon, demanding the amount of P107,101.70 representing their deficiency income taxes for the years 1968 and 1970.Pascual and Dragon contested this assessment, contending that they availed of the tax amnesties of1973 and 1974 and should no longer have to pay their deficiency income taxes. The Commissioner replied saying that because they derived profits from the sale of properties that they co-owned, their co-ownership was actually an unregistered partnership taxable for corporate income tax separate and distinct from that of the partners under 20[b], NIRC and the profit that this corporation obtained was subject to taxes prescribed under 24, NIRC. Although they did pay taxes in 1973 and 1974, what was paid was the tax due on their personal income from the transaction, and not the tax due on the income derived from their de facto partnership. Pascual and Dragon filed a Petition for Review with the CTA, which affirmed the decision of the CIR. The CTA based its ruling on Evangelista vs. Commissioner of Internal Revenue (102 Phil. 140 [1957]),where an unregistered partnership was formed and was subjected to corporate income tax distinct from that imposed on the partners. Pascual and Dragon elevated the case to the Supreme Court, contending that there was insufficient evidence to show that they had in fact created an unregistered partnership.

ISSUE:Was there an unregistered partnership created by Pascual and Dragon such that it could be subject to corporate income tax distinct from the income tax of the partners?

RULING:The Supreme Court found in favor of Pascual and Dragon, saying that the case of Evangelista, used by the CTA in resolving the issue, differed significantly from the case at bar. In Evangelista, the Supreme Court found that there was a clear intention to invest money and to create profit from a series of real estate transactions. In the case at bar, the purchase and sale of land were found to be isolated incidents that did not show the character of habituality peculiar to business transactions for the purpose of gain. The sharing of returns does not in itself establish a partnership whether or not the persons sharing have a joint or common right or interest in the property. The Court cited Justice Bautistas concurring opinion in Evangelista, which noted that the mere fact of sharing of profits from a transaction involving land held in co-ownership does not a partnership make. An isolated transaction where two or more persons contribute funds to buy certain real estate for profit in the absence of any other circumstances showing a contrary intention cannot be considered a partnership.

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Sardane vs. Court of AppealsG.R. No. L-47045November 22, 1988

FACTS:Acojedo, herein private respondent brought an action for collection of a sum of P5,217.25 based on promissory notes executed by the herein petitioner Nobio Sardane in favor of the Acojedo. It has been established in the trial court that on many occasions, Acojedo demanded the payment of the total amount of P5,217.25. The failure of the petitioner to pay the said amount prompted Acojedo to seek the services of lawyer who made a letter formally demanding the return of the sum loaned. Because of the failure of the petitioner to heed the demands extrajudicially made by Acojedo, the latter was constrained to bring an action for collection of sum of money. In an oral testimony given by petitioner Sardane he stated that a partnership existed between him and Acojedo which vary the meaning of the abovementioned promissory notes, and that the said amount taken by him from Acojedo was not his personal debt, but expenses of the partnership between him and Acojedo. Consequently, said trial court concluded that the promissory notes involved were merely receipts for the contributions to said partnership.

ISSUE:Whether there exists a partnership?

RULING:No. The Court of Appeals held, and SC agrees, that even if evidence aliunde other than the promissory notes may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private parties hereto. As manager of the basnig Sardane naturally, some degree of control over the operations and maintenance thereof had to be exercised by herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such profits were received in payment as wages of an employee.

The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. which involved the same factual and legal milieu.

There are other considerations noted by respondent Court which negate herein petitioner's pretension that he was a partner and not a mere employee indebted to the present private respondent. Thus, in an action for damages filed by herein private respondent against the North Zamboanga Timber Co., Inc. arising from the operations of the business, herein petitioner did not ask to be joined as a party plaintiff. Also, although he contends that herein private respondent is the treasurer of the alleged partnership, yet it is the latter who is demanding an accounting. The advertence of the Court of First Instance to the fact that the casco bears the name of herein petitioner disregards the finding of the respondent Court that it was just a concession since it was he who obtained the engine used in the Sardaco from the Department of Local Government and Community Development. Further, the use by the parties of the pronoun "our" in referring to "our basnig, our catch", "our deposit", or "our boseros" was merely indicative of the camaraderie and not evidentiary of a partnership, between them.

Afisco Insurance vs. Court of AppealsG.R. No.112675January 25, 1999

FACTS:Petitioners are 41 non-life insurance corporations that entered into a reinsurance treaty with MUNICH a non-resident foreign insurance corporation. Munich required these 41 companies to form a pool referred to as CLEARING HOUSE in the case.

The pool then submitted an income tax return. BIR then assessed (assessment was made beyond the allowable period of assessment) a deficiency corporate income tax. This assessment was protested by petitioners through SGV contending that they are not an unregistered partnership, that they have tax exemption and that there is double taxation, and that the assessment made was beyond the period allowed by law. BIR denied the protest. The case was then elevated to the CA, which ruled that the pool was a partnership taxable as a corporation and that the collection of the premiums from Munich form part of their income, and thus considered as taxable income.

Petitioners contend that they cannot be taxed as a corporation, because (a) the reinsurance policies were written by them individually and separately, (b) their liability was limited to the extent of their allocated share in the original risks insured and not solidary, (c) there was no common fund, (d) the executive board of the pool did not exercise control and management of its funds, unlike the board of a corporation, (e) the pool or clearing house was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself. They further contend that remittances to Munich are not dividends and to subject it to tax would be tantamount to an illegal double taxation, as it would result to taxing the same premium income twice in the hands of the same taxpayer.

ISSUE: May the insurance pool be deemed a partnership or an association that is taxable as a corporation?

RULING:The pool is taxable as a corporation.

In the present case, the ceding companies entered into a Pool Agreement or an association that would handle all the insurance businesses covered under their quota-sharing reinsurance treaty and surplus reinsurance treaty with Munich. There are unmistakable indicators that it is a partnership or an association covered by NIRC.

a. The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool.

b. The pool functions through an executive board which resembles the BOD of a corporation.

c. 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 pools 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.

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Article 1770

Pioneer Insurance and Surety Corp. vs. Court of AppealsG.R. No. 84197; GR No. 84157 July 28, 1989

FACTS: Herein petitioner (Jacob Lim) was engaged in airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. He entered into a contract of sale with Japan Domestic Airlines, purchasing two aircrafts and one set of necessary spare price to be paid in installments. Pioneer Insurance and Surety Corporation as surety executed and issued its Surety Bond in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. It appears that Bormaheco, Francisco and Modesto Cervantes and Constancio Maglana (respondents) contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed two separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreement contain that the parties bind themselves to jointly and severally indemnify Pioneer in case of loss or damage in consequence of having become the surety. Meanwhile, Lim doing business under the name of SAL, executed chattel mortgage in favor of Pioneer. After sometime, Lim defaulted in paying subsequent installments, thereby prompting JDA to request payments from the surety. Pioneer was then obliged to pay, in which he complied with. Thereafter, Pioneer filed extrajudicial foreclosure of chattel mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts. After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneers complaint against all other defendants. CA modified its decision plaintiffs complaint against all the defendants was dismissed. In all other respects the trial courts decision was affirmed.

ISSUE: How are losses to be treated in situations where there contributions to the intended corporation where not invested through corporate form.

HELD: These questions are premised on the petitioners theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners. However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution. A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter. No de facto partnership was created among the parties, which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts.

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Innocencia Deluao and Felipe Deluao v. Nicanor CasteelNo. L-21906 December 24, 1968

FACTS:Nicanor Casteel filed various fishpond application for a big tract of swampy land, which was not approved several times. Meanwhile, during the pendency of his fourth attempt for the application, few other persons also filed fishpond application, one of those is herein petitioner. Due to the threat poised upon his position by other applicants, Casteel then decided to occupy said area by introducing improvements thereon. However, he lacks financial resources. Hence he sought financial aid from his uncle, Felipe Deluao, who extended loans to him. Thereafter, the parties executed contract of service of which they agreed that Innocencia Deluao will hire Nicanor Casteel to render services and be the manager and sole buyer of all the fish products of the said fishpond. Subsequently, Deluaos pending fishpond application was rejected by the Director of Fisheries on which he did not file any petition for reinvestigation. On the other hand, Casteels application was approved and he was given permit to exploit fishpond. As a result, Casteel forbade Innocencia Deluao from administering further the fishpond. Alleging violations of the contract of service, Deluao filed an action for specific performance before the Court of First Instance, praying that Casteel should respect and abide with terms and condition of the said contract, and that she should be allowed to continue administering said fishpond and collecting the proceeds from the sale of the fishes caught. Injunction was also filed by Deluao, restraining Casteel from doing acts complained of and that such injunction be made permanent. Casteel countered such complaint by alleging that he was the owner and lawful occupant and applicant of the said fishpond in dispute. The lower court decided in favor of Deluao. Hence this instant appeal.

ISSUE:Whether or not the contract of service executed by the parties created co-ownership and partnership between the appellant and appellees.

HELD: The court ruled that the evidence substantiate that the initial intention of the parties was not to form co-ownership but to establish partnership Deluao as the capitalist partner and Casteel as the industrial partner and the ultimate undertaking of which is to divide into two equal parts the fishpond as might have been developed by the amount extended by the plaintiff-appellees with the further provision that Casteel should reimbursed the expenses incurred by the appellees over one-half of the fishpond that would pertain to him. Although the contract was denominated as contract of service, it was actually a memorandum of their partnership agreement. Art.1830 of the Civil Code enumerates as one of the causes of dissolution of the partnership is when any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership. The Fisheries Act prohibits the holder of a fishpond permit from transferring or subletting the fishpond granted to him without the previous consent or approval of the Secretary of Agriculture and Natural Resources. To that effect, since the partnership had for its object the division into two equal parts of the fishpond between the appellees and the appellant after it shall have been awarded to the latter, and therefore it envisage an unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond. The approval of was an event which makes it unlawful for the business of the partnership to be carried on in partnership. The case is remanded to the lower court for reception of evidence as regards the accounting of the profits realized by the partnership before the exploitation of the fishpond was granted to Casteel.

(The case also appear under Articles 1811 and 1830 with separate issues and rulings relevant to said articles)

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Article 1771

Mauricio Agad vs. Severino Mabato, and Mabato and Agad Co.G.R. No. L-24193June 28, 1968

FACTS:Plaintiff Mauricio Agad alleging that he and defendant Severino Mabato are partners in a fishpond business, filed a complaint for payment of sum of money amounting to P14,000 as share of profits in the partnership from 1957 to 1963 and for the dissolution of partnership. Mabato, on the other hand, moved to dismissed the complaint for lack of cause of cause of action alleging that the contract had not been perfected because Agad had failed to give his P1,000 contribution to the partnership capital. Defendant also raised the ground of lack of jurisdiction of the court because the case involves principally the determination of rights over public lands. The court granted the dismissal of the case on the ground of failure to state cause of action which was predicated on the theory that the contract of partnership is null and void pursuant to Art. 1773 of the Civil Code, because an inventory of the fishpond referred thereto has not been attached thereto.

ISSUE:Whether or not an immovable property or real rights has been contributed to the partnership, which will render it null and void for non-compliance with the inventory requirement as provided under Art. 1773, in connection with Art. 1711 of the Civil Code

RULING:None of the partners contributed either a fishpond or real right to any fishpond. Their contributions were limited to the sum of P1,000 each. It should be noted that the partnership was established "to operate a fishpond" not "to engage in fishpond business". The validity of the partnership was upheld.

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. 1771, Civil Code)

A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties and attached to public instrument.

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Article 1772

Commissioner of Internal Revenue vs. LedesmaG.R. No. L-17509January 30, 1970

FACTS:On July 9, 1949 herein respondents, Carlos Ledesma, Julieta Ledesma and the spouses Amparo Ledesma and Vicente Gustilo, Jr., purchased from their parents, Julio Ledesma and Florentina de Ledesma, the sugar plantation known as "Hacienda Fortuna." By virtue of the purchase, respondents acquired one-third each of the undivided portion of the plantation. In their individual income tax returns for the year 1949 the respondents included as part of their income their respective net profits derived from their individual sugar production from.

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 on July 14, 1949. Paragraph 14 of the articles of general partnership provides that the agreement shall have retroactive effect as of January 1, 1949. On March 22, 1959 the Commissioner assessed against the partnership "Hacienda Fortuna" corporate income tax for the calendar year 1949. The respondents contested the assessment upon the ground that the "Hacienda Fortuna" was a registered general co-partnership and requested for the cancellation of the assessment based on the theory that the co-partnership "Hacienda Fortuna" was exempt from the payment of corporate income tax on its income from the day its articles of general co-partnership were registered in the mercantile registry. They were, however, assessed for corporate income tax from January 1 to July 13, 1949. Respondents, through counsel, wrote a letter to the Commissioner asking for the reconsideration of his ruling upon the ground that during the period from January 1 to July 13, 1949 the respondents were operating merely as co-owners of the plantation known as "Hacienda Fortuna", so that the case of the "Hacienda Fortuna" was really one of co-ownership and not that of an unregistered co-partnership which was subject to corporate tax. That request for reconsideration was denied.

It is the position of the Commissioner that from January 1 to July 13, 1949 the partnership "Hacienda Fortune" should be considered still an unregistered co-partnership for the purposes of the assessment of the corporate income tax, notwithstanding the fact that paragraph 14 of its articles of co-partnership provides that the partnership agreement should retroact to January 1, 1949.

Respondents contend that prior to July 14, 1949 they were operating the sugar plantation under a system of co-ownership, and not as a partnership, so that they were not under obligation to pay the corporate income tax. The respondents further contend that even assuming that they were operating the sugar plantation as a partnership the registration of the articles of general co-partnership on July 14, 1949 had operated to exempt said partnership from corporate income tax on its net income during the entire taxable year, from January 1 to December 31, 1949.

ISSUE:Whether or not the partnership known as "Hacienda Fortuna" should pay corporate income tax as an unregistered partnership from January 1, 1949 to July 13, 1949, the period in the year 1949 prior to the date of said registration?

RULING:As early as 1924 the Bureau of Internal Revenue had applied the "status-at-the-end-of-the-taxable-year" rule in determining the income tax liability of a partnership, such that a partnership is considered a registered partnership for the entire taxable year even if its articles of co-partnership are registered only at the middle of the taxable year, or in the last month of the taxable year. it is a fair and sound application of Section 24 of the tax code that once a partnership is registered during a taxable year that partnership should be considered as registered "partnership exempt from the payment of corporate income tax during that taxable year, and only the partners thereof should be made to pay income tax on the profits of the partnership that were divided among them.

It may thus be said that a premium is given to a partnership that is registered by exempting it from the payment of corporate income tax, and making only the individual partners pay income tax on the basis of their respective shares in the partnership profits. On the other hand, the partnership that is not registered is being penalized by making it pay corporate income tax on the profits it realizes during a taxable year and at the same time making the partners thereof pay their individual income tax based on their respective shares in the profits of the partnership. In other words, there is double assessment of income tax against the partners of the unregistered partnership, but only one assessment against the partners of registered partnership.

The exclusion of a registered partnership from the entities subject to the payment of corporate income tax under Section 24 of the tax code 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.

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Article 1773

Solis vs. BarrosoG.R. No. L-27939October 30, 1928

FACTS:The spouses Lambino and Barroso made a donation of propter nuptias of lands in favor of their son Alejo Lambino and Fortunata Solis in a private document in consideration of the marriage, which the latter were about to enter into. One of the conditions of this donation is that in case of the death of one of the donees, one-half of these lands thus donated would revert to the donors while the surviving donee would retain the other half. On the 8th of the said month of June 1919, Alejo Lambino and Fortunata Solis were married and immediately thereafter the donors delivered the possession of the donated lands to them. On August 3, 1919 donee, Alejo Lambino, died. In the same year donor Juan Lambino also died. After the latter's death, his wife, Maxima Barroso, recovered possession of the donated lands.

The surviving donee Fortunata Solis filed the action demanding of the defendants the execution of the proper deed of donation according to law, transferring one-half of the donated property, and moreover, to proceed to the partition of the donated property and its fruits.

ISSUE:Whether or not there is a valid donation?

RULING:Donations for valuable consideration are such as compensate services which constitute debts recoverable from the donor, or which impose a charge equal to the amount of the donation upon the donee, neither of which is true of the present donation, which was made only in consideration of marriage. The lower court insists that, by the fact that this is a donation propter nuptias, it is based upon the marriage as a consideration, and must be considered onerous. Neither is this opinion well founded. In donations propter nuptias, the marriage is really a consideration, but not in the sense of being necessary to give birth to the obligation. This may be clearly inferred from article 1333, which makes the fact that the marriage did not take place a cause for the revocation of such donations, thus taking it for granted that there may be a valid donation propter nuptias, even without marriage, since that which has not existed cannot be revoked. And such a valid donation would be forever valid, even if the marriage never took place, if the proper action for revocation were not instituted, or if it were instituted after the lapse of the statutory period of prescription. This is, so because the marriage in a donation propter nuptias is rather a resolutory condition which, as such, presupposes the existence of the obligation, which may be resolved or revoked, and it is not a condition necessary for the birth of the obligation.

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Torres vs. Court of AppealsG.R. No. 134559December 9, 1999

FACTS:In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel over a parcel of land, the sisters received no cash payment from Manuel but the promise of profits (60% for the sisters and 40% for Manuel) said parcel of land is to be developed as a subdivision.

Manuel then had the title of the land transferred in his name and he subsequently mortgaged the property. He used the proceeds from the mortgage to effect the survey and subdivision of the lots; approval of the subdivision project; advertisement in the local newspaper; construction of roads, curbs and gutters; and also contracted an engineering firm for the building of housing units. Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project

The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value of the property, which according to the sisters is what is due them as per the contract.

The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court. The sisters then appealed before the Supreme Court where they argued that there is no partnership between them and Manuel because the joint venture agreement is void.

ISSUE: Whether or not there exists a partnership.

RULING: Yes. The joint venture agreement the sisters entered into with Manuel is a partnership agreement whereby they agreed to contribute property (their land) which was to be developed as a subdivision. While on the other hand, though Manuel did not contribute capital, he is an industrial partner for his contribution for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage (60-40). Clearly, the contract manifested the intention of the parties to form a partnership. Further still, the sisters cannot invoke their right to the 60% value of the property and at the same time deny the same contract which entitles them to it.

At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to Manuel (the sisters on their appeal did not show evidence as to Manuels fault in the failure of the partnership). The sisters must then bear their loss (which is 60%). Manuel does not bear the loss of the other 40% because as an industrial partner he is exempt from losses.

Article 1775

Smith vs. LopezG.R. No. 1472 September 30, 1905

FACTS:Smith and Reyes, as proprietors of the Philippine Gas Light Company, brought this action against the defendant sisters, Jacinta and Ignacia Lopez de Pineda, to recover from them the sum of 3,270 pesos, Mexican currency, with interest due thereon and costs of proceedings, for work performed in connection with the installation of a water system, urinals, closets, shower baths, and drain pipes in the house belonging to the defendants. The plaintiffs alleged that they had complied with the agreement made with the father of the defendants, the administrator of the property, and defendants having refused to pay the same as agreed.

The court, after considering the allegations made and the evidence introduced by both parties, on April 3, 1903, entered judgment against the defendants and in favor of the plaintiffs. To this judgment defendants duly excepted, having first moved for a new trial.

One of the errors assigned by counsel for defendants and appellants in this court is that the court below erred in recognizing plaintiffs capacity to sue as a partnership, there being no evidence to show that they were legally organized as such.

ISSUE:Whether or not plaintiffs as proprietors have capacity to sue.

RULING:Messrs. Smith and Reyes executed the contract in their own individual capacity and not in the name of any partnership. They acted as co-owners of the Philippine Gas Light Company. In their complaint they sought to enforce a legitimate right, which they had as such co-owners. (Arts. 392 et seq., and 1669 of the Civil Code.)

The plaintiffs were not seeking to enforce a right pertaining to a legal entity. They were not obliged to register in the Mercantile Registry. They were merely merchants having a common interest in the business. They were under no obligation to register. (Arts. 16 and 17 of the Code of Commerce.)

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Article 1776 1783

Lyons vs. RosenstockG.R. No. L-35469March 17, 1932

FACTS:Elser and Lyons are engaged in real estate. To secure the loan needed to complete the amount for the first payment on the San Juan Estate, Elser mortgage the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to come into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company. The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered it to Elser. But notwithstanding the fact that these documents were executed and delivered, the new mortgage and the release of the old were never registered; and on September 25, 1920, thereafter, Elser returned the cancellation of the mortgage on the Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he had delivered to it upon the consent of Lyons for the mortgage to remain on the Carriedo property.

The development of the San Juan Estate was a success from the start, the financing apart from the modest financial participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely upon his own account. The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint.

ISSUE:Whether or not Lyons is a partner of Elser and thus entitled to the profit of the venture?

RULING:No. Lyons himself did not want to participate in the development of the project. No partnership was formed. The mortgage of the property is immaterial to the issue of partnership existence.

In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money belonging to another. Of course, if an actual relation of partnership had existed in the money used, the case might be difference; and much emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed. But there was clearly no general relation of partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into a proposition which would make Lyons a participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United States with reference to trust supply a basis for this action. The doctrines referred to operate, however, only where money belonging to one person is used by another for the acquisition of property which should belong to both; and it takes but little discernment to see that the situation here involved is not one for the application of that doctrine, for no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if any damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the Carriedo property, Elser's estate would be liable for such damage. But it is evident that Lyons was not prejudice by that act.

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Article 1784

Ortega, Del Castillo, Jr., and Bacorro vs. CA, SEC, and Misa G.R. No. 109248 July 3, 1995

FACTS:The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. On 19 December 1980, appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners. On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating that they are withdrawing and retiring from the firm and that liquidation be made. On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership.

ISSUEWhen did the Partnership of the Firm begin?

RULINGAccording to A. 1784 of the Civil Code, A Partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. The Partnership was born from the time it was mutually desired and consented by the Parties involved in this case, the firm. Their registration both in the Mercantile Registry as well as on the SEC merely helps any person with an interest against them a chance to get their claims. Thus, the Petitioner may claim any obligation due to him if any from the Partnership from the time he has joined up to the time he dissolved his membership from the Firm in accordance with the agreement between him and the Firm.

(The case also appear under Articles 1767 and 1830 with separate issues and rulings relevant to said articles)

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Article 1786

William Uy vs. Bartolome PuzonNo. L-19819October 26, 1977

FACTS:Defendant Bartolome Puzon had a contract of public works with the government. He sought the financial assistance of the plaintiff William Uy, by virtue of which a partnership was created, (U. P. Construction Company) which became the subcontractor of the projects.

Due to financial constraints, the defendant promised to contribute his share in the capital as soon as his loan with PNB shall be approved. However, his application could only be acted upon if he will be able to clear his obligations with the bank. With this, the plaintiff gave the defendant a certain amount as an advance contribution of the former, to be used by the latter to pay his obligations with the bank. The defendant thus applied the proceeds of the loan to the partnership, a part thereof as reimbursement for the capital contribution of the plaintiff and another part as his partial share contribution. However, to guarantee said loan, defendant, without the knowledge and consent of the plaintiff, assigned to the bank all the payments to be received on account of the projects, which he did upon payment by the government.

As the financial demands of the projects increased, plaintiff made a demand from the defendant to comply with his obligation to complete his capital contribution, but to no avail. Failing to reach an agreement, the defendant, as prime contractor, terminated the subcontract agreement with the firm. The plaintiff instituted a complaint for the dissolution of the partnership and for payment of damages. The trial court rendered a decision against the defendant.

ISSUE:Whether the defendant is guilty of violating the terms of the partnership agreement, hence liable to pay damages.

RULING:Yes. The Court upheld the findings of the lower court as follows:1. Defendant failed to contribute his share in the capital of the partnership. The partners agreed that each shall contribute P50,000. Out of the loan obtained, he actually contributed only P20,000 and thereafter failed to make any further contribution.

2. Defendant misapplied partnership funds by assigning to PNB all payments to be received on account of the contracts with the government. He withheld and applied a large part of such payment (over three hundred thousand pesos) to pay his personal loan with the bank. The balance was deposited in his current account and only a small amount of P27,820 was deposited in the current account of the partnership.

3. Such assignment is prejudicial to the partnership. The amount paid by the government (a little over 1 million pesos) rightfully and legally belongs to the partnership by virtue of the subcontract agreements. Should the defendant gave to the partnership all that were earned and due it, the money would have been used as a safe reserve for the discharge of all obligations of the firm and the partnership would have been able to successfully and profitably carried out the projects it subcontracted.

Since the defendant was at fault, he is liable to reimburse the plaintiff whatever amount the latter had invested in or spent for the partnership on account of the construction projects. In addition, under Article 2200 of the Civil Code, indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits, which the obligee failed to obtain. The defendant, therefore, is also liable to pay compensatory damages.

Article 1788

Liwanag vs. Court of AppealsG.R. No. 114398October 24, 1997

FACTS: Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of complainant Isidora Rosales (Rosales) and asked her to join them in the business of buying and selling cigarettes. Convinced of the feasibility of the venture, Rosales readily agreed. Under their agreement, Rosales would give the money needed to buy the cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40% commission to her if the goods are sold; otherwise the money would be returned to Rosales. Consequently, Rosales gave several cash advances to Liwanag and Tabligan amounting to P633, 650.00. During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on the progress of the transactions. The visits, however, suddenly stopped, and all efforts by Rosales to obtain information regarding their business proved futile. Alarmed by this development and believing that the amounts she advanced were being misappropriated, Rosales filed a case of estafa against Liwanag. After trial on the merits, the trial court rendered finding Liwanag guilty as charged. Appeal to the CA was unavailing since Appellate Court affirmed her conviction. On petition for review to the High Court, Liwanag advances the theory that the intention of the parties was to enter into a contract of partnership, wherein Rosales would contribute the funds while she would buy and sell the cigarettes, and later divide the profits between them. She also argues that the transaction can also be interpreted as a simple loan, with Rosales lending to her the amount stated on an installment basis.

ISSUE: Whether or not petitioners contention deserve merit.

RULING: No. The receipt indicates that the money delivered to Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event the cigarettes cannot be sold, the money must be returned to Rosales. Thus, even assuming that a contract of partnership was indeed entered into by and between the parties, we have ruled that when money or property has been received by a partner for a specific purpose (such as that obtaining in the instant case) and he later misappropriated it, such partner is guilty of estafa. Neither can the transaction be considered a loan, since in a contract of loan, once the money is received by the debtor, ownership over the same is transferred. Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales. Since in this case there was no transfer of ownership of the money delivered, Liwanag is liable for conversion under Art. 315, par. 1(b) of the Revised Penal Code.

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US vs. ClarinG.R. No. 5840September 17, 1910

FACTS:Sometime before 1910, Pedro Larin formed a partnership with Pedro Tarug, Eusebio Clarin and Carlos de Guzman. Larin, being the capitalist, agreed to contribute P172.00 to the partnership and the three others shall use said fund to trade mangoes. The three industrial partners bought mangoes and sell them and they earned P203.00 but they failed to give Larins share of the profits. Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against Eusebio Clarin in which he accused him of appropriating to himself not only the P172 but also the share of the profits that belonged to Larin, amounting to P15.50. Clarin was eventually convicted.

ISSUE: Whether or not the conviction is correct.

RULING:No. The P172.00 having been received by the partnership, the business commenced and profits accrued, the action that lies with the partner who furnished the capital for the recovery of his money is not a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should be any.

The then Penal Code provides that those who are guilty of estafa are those who, to the prejudice of another, shall appropriate or misapply any money, goods, or any kind of personal property which they may have received as a deposit on commission for administration or in any other producing the obligation to deliver or return the same, (as, for example, in commodatum, precarium, and other unilateral contracts which require the return of the same thing received) does not include money received for a partnership; otherwise the result would be that, if the partnership, instead of obtaining profits, suffered losses, as it could not be held liable civilly for the share of the capitalist partner who reserved the ownership of the money brought in by him, it would have to answer to the charge of estafa, for which it would be sufficient to argue that the partnership had received the money under obligation to return it.

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Article 1789

Evangelista & Co., et al. vs. Estrella Abad SantosNo. L-31684June 28, 1973

FACTS:In the amended Articles of Co-partnership dated June 7, 1955, respondent was included as an industrial partner in the petitioner co-partnership, where the individual petitioners are the original capitalist partners. The amended articles further provided that the profits and losses shall be divided in proportion of 70% for the capitalist partners and 30% for the industrial partner.

On December 16, 1963, respondent initiated a suit against the petitioners, alleging that the partnership had been paying dividends to the partners except to her and that notwithstanding her demands had refused to give her information regarding the partnership affairs. On the part of the petitioners, they denied all the allegations of the respondent and alleged that the amended articles did not express the true agreement of the parties, that respondent was not an industrial partner but a mere profit-sharer, that she did not in fact contributed her industry to the partnership because she has been devoting all her time to her duties as a judge, and as such, could not lawfully contribute her full time and industry as an industrial partner.

ISSUE:Whether the respondent is an industrial partner.

RULING:Yes. In resolving the contentions raised by the petitioners, the Supreme Court adopted the findings made by the CA.

On the allegation that the amended articles of partnership did not express the true intention of the parties, the lower court (as affirmed by the CA and adopted by the SC) relied on the documentary evidence presented by the respondent, including the amended Articles of Co-partnership, first, because the petitioners have admitted their genuineness and due execution and, secondly, said evidence indubitably show that the respondent is an industrial partner of the company. In addition, such allegation was deemed as an afterthought made by the petitioners only upon the filing of their answer to the complaint, since for a period of eight years they did nothing to correct the alleged false agreement of the parties.

On the contention that respondent was active in the performance of her duties as a judge had never been able to contribute her industry in the firm, and by having such public office she could not lawfully do so. The lower court found that the respondent actually rendered her services for the firm, without which they would not have carried out the business for which the company was organized.

Citing Article 1789 of the New Civil Code, which states that an industrial partner cannot engage in business for himself without the express permission of the partnership, said provision is not applicable to the case of the respondent, since being a judge can hardly be characterized as a business. The appellate court further observed that the petitioners only exercised their right of exclusion after the filing of the complaint, despite having always known respondent as a judge even before she joined the company.

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Article 1794

Josue Soncuya vs. Carmen De LunaNo. 45464April 28, 1939

FACTS:The parties were partners of Centro Escolar de Seoritas. Plaintiff filed a complaint for damages against the defendant, who was the managing partner, based on an alleged fraudulent management of the partnership. The trial court, upon a demurrer interposed by the defendant, dismissed the case on the grounds that the facts alleged were not sufficient to constitute a cause of action.

ISSUE:Whether a mere complaint based on fraudulent management of the partnership sufficient to adjudicate a claim for damages against a co-partner.

RULING:No. The Court opined that for a partner to be able to claim from another partner who manages the general co-partnership, damages suffered by him by reason of the fraudulent administration of the latter, a previous liquidation of said partnership is necessary. Liquidation is needed to determine the profits and losses, the causes of the latter, and the responsibility of the defendant as well as the damages which each partner may have suffered.

It was not alleged by the plaintiff in the complaint that such liquidation has been made nor was it prayed that it be made. Consequently, there was no reason or cause for plaintiff to institute the action for damages.

(The case also appear under Article 1831)

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Article 1796

Juan Agustin, et al. vs. Bartolome InocencioNo. 3745October 26, 1907

FACTS:The parties in the case were partners, each of whom contributed a sum out of the partnership profits for the construction of a casco for the use of their business. For the same purpose, an additional sum was borrowed from the wife of the defendant, who was also the managing partner. In the progress of the work, the defendant found the need for additional funds, for which he advanced another additional amount. All his acts in relation to the project were listed in the partnership book, open at all times for inspection.

Upon the subsequent death of the defendants family members, the debt of the partnership owed to his wife passed to him and as such became a creditor of the partnership. In relation thereof, the plaintiffs initiated a complaint to which the trial court ruled in favor of the defendant, but treated the various sums subject of the controversy as an addition to the latters capital in the firm.

ISSUE:Whether the defendant acted within the powers of a managing partner in relation to the acquisition of funds.

RULING:Yes. The court answered in the affirmative, stating that the work done on the casco is within the scope of the partnership and necessary to carry out its express object. As such, the borrowing and advancement of money needed for the completion of the work was not outside the powers of the managing partner.

In addition, the court upheld the decision rendered by the trial court for the reason that such sum of money, if considered as a loan, would place the defendant, as a creditor, in a stronger position as against his associates than if regarded as a mere contribution to the capital. Such will not be prejudicial to the other partners (plaintiffs), but will rather be beneficial to them.

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Pedro Martinez vs. Ong Pong Co and Ong LayNo. 5236January 10, 1910

FACTS:The plaintiff herein delivered P1,500 to the defendants and agreed to invest such amount in a store, the profits and losses of which will be divided among them in equal shares.

The plaintiff filed a complaint to compel the defendants to render an accounting of the partnership, or else to refund him the amount he had given for the said purpose. On the part of the defendants, it was alleged that nothing resulted from their undertaking save the loss of the subject amount, which is their capital. The trial court ruled in favor of the plaintiff, and ordered the defendants to return one-half of the amount plus an additional sum, which is one-half of the possible profits for the period that the store was supposed to have been open.

ISSUE:Whether the defendants were liable to pay a part of both the capital and the profits.

RULING:No. The defendants were liable only to refund the money they received for the purpose of their undertaking since the possible profit and its amount, as determined by the trial court, were not sufficiently proven.

Such liability to refund the subject amount was imposed by the Court on the basis that neither of the defendants rendered an accounting nor proven the losses of their business. The Court explained that in the absence of an agreement vesting in one person the management of the business, all partners are actual administrators thereof, and such, they are agents of the firm and incurred the liabilities peculiar to every agent, among which is that of rendering account to the principal of their transaction. Thus, for failure to fulfill an obligation on the part of a partner (the defendants) who acted as agent in receiving money for a given purpose, and for which he has rendered no accounting, such agent is responsible only for the losses.

The Court found no application for Article 1688 of the (old) Civil Code, which states that the partnership is liable to every partner for the amounts he may have disbursed on account of the same and for the proper interest, for the reason that no other money than that contributed as capital was involved

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Article 1797

Spouses Ishwar Jethmal Ramnani and Sonya Jethmal Ramnani vs. The Honorable Court of Appeals, et al.G. R. No. 85496May 7, 1991

FACTS:Ishwar Jethmal Ramnani (Ishwar) was based in New York. He appointed his brothers Navalrai and Choithram as attorneys-in-fact, empowering them to manage and conduct his business concern in the Philippines. As such, Choithram purchased on installments several parcels of land from Ortigas & Company, Ltd. (Ortigas) and made improvements thereon. When Ishwar asked Choithram to account for the income and expenses relative to these properties, the latter failed and refused to do so, to which the former revoke the general power of attorney. Choithram and Ortigas were duly notified of such revocation. Nevertheless, Choithram transferred all rights and interest of Ishwar in favor of his daughter-in-law (Nirmla), to which Ortigas executed the corresponding deeds of sale in favor of the same.

Ishwar filed a complaint against Choithram, Nirmla, and Ortigas for the payment of the value of the properties and damages. The trial court dismissed the complaint, mainly upon the following grounds: first, that Ishwar, in his claim that he remitted sum of money to Choithram for purposes of investing it in real estate, did not exhibit any document to support such claim; and second, that the placing of the real properties in the name of Ishwar was only a temporary arrangement, as alleged by Choithram.

Upon appeal, the Court of Appeals reversed the decision of the lower court in favor of Ishwar, but dismissed the case as against Ortigas. Hence the petition.

ISSUE:Whether Choithram is liable for damages, and if so, up to what extent and under what basis.

RULING:Yes. The Court upheld the findings made by the respondent Court of Appeals with regard to the defenses raised by Choithram. First, that the absence of documents to evidence the remittance claimed by Ishwar is not a strong basis to defeat such claim. According to the Court, it is not unusual among close family members to entrust money to each other without any formalities or receipt due to the special relationship of trust between them.

Second, on the temporary arrangement theory of Choithram, the Court said that if it is true, why would Ishwar included their other brother, Navalrai, as an attorney in fact. Furthermore, since Choithram raised this claim of his based on the fact that he is a British citizen while Ishwar is an American citizen, and as such, it was only through Ishwar that the former can acquire real properties in the country, (due to the then existing parity rights in favor of US citizens) the Court questioned the use of Ishwars name (contradictory to Choithrams claim that Ishwar is of low character, motivated by greed and ungratefulness) and why not Choithrams own son, who is also a US citizen of legal age at that time. The Court deemed such theory as an afterthought made only by Choithram when they filed their answer to the complaint.

In finding fault on the part of Choithram, the Court, nevertheless, treated the relationship between him and Ishwar as a partnership as such would be favorable for both parties and may pave the way towards their reconciliation. According to the Court, the two brothers were engaged in a business venture; one furnished the capital, the other contributed his industry and talent. Through the industry and genius of Choithram, Ishwars property was developed and improved into a valuable asset worth millions of pesos. Justice and equity dictate that the two share equally the fruit of their joint investment and efforts. Choithram must have been motivated only by a strong conviction that as the industrial partner in the acquisition of said assets he has as much claim to said properties as Ishwar, the capitalist partner in the joint venture.

Nevertheless, with the devious machinations and schemes employed by Choithram in attempting to dispose of the properties to deprive spouses Ishwar of any possible means to recover any award the Court may grant in their favor, and since he acted with evident bad faith and malice, he should pay moral and exemplary damages, jointly and severally with Nirmla and Ortigas.

The subject real properties, including the improvements thereon, were divided equally between Ishwar and Choithram. The latter, together with Nirmla and Ortigas, are solidarily liable to pay the value of said one-half share in the subject properties.

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Article 1800

Jose Fortis vs. Gutierrez HermanosNo. 2484April 11, 1906

FACTS:Plaintiff was an employee of the defendant. He brought this action to recover a balance due him as salary. He alleged that he was entitled to five per cent of the net profits of the business of the defendants, as a salary. The trial court ruled in favor of the plaintiff.

The defendants brought the case to the Supreme Court, raising, among others, question on the contract of employment with the plaintiff, and a claim that the latter was a co-partner of the defendants.

ISSUE:Whether a contract of employment made between the plaintiff and the defendant was duly authorized.

RULING:Yes. The Court sustained that there existed a contract of employment between the parties. The contract was made on the part of the defendants by Miguel Alonzo Gutierrez, one of the managers of the company under the articles of partnership, 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.

In addition, the Court answered in the negative the claim of respondent that the plaintiff is a co-partner, based on the following grounds: 1) the arrangement was a mere contract of employment; 2) the plaintiff had no voice nor vote in the management of the affairs of the company; 3) under the articles of partnership, the net profits of the business shall be divided among the partners only after all expenses had been paid. Part of such expenses to be paid was the salary of the plaintiff. The fact that the compensation received by the plaintiff was to be determined based on the profits did not in any case make him a partner.

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Jose Garcia Ron vs. La Compaia de Minas de BatanNo. 4597November 23, 1908

FACTS:The plaintiff instituted the action to recover from the respondent the salary due him for the services he rendered for the latter. His claim was based on the contract of employment entered into between him and Genaro Ansuategui, the local manager of certain mines of the defendant company. The defendant denied existence of such contract, alleging that the local manager was not authorized to enter into any such contract, such authority not having been granted to him under his letter of instructions.

ISSUE:Whether the local manager of the defendant company was actually authorized to enter into contracts of employment.

RULING: Yes. Contrary to what the defendant company alleged, the Court is of the opinion that the authority to contract for the employment of the plaintiff was clearly conferred upon Ansuategui, the local manager, by the terms of the letter of instructions. The contents of such document suggests that it was conferred upon him wide scope in the employment and discharge of labor, in order for him to successfully perform his duties, given the nature of the enterprise and the remoteness of the location of the mines. Other provisions of the letter of instructions expressly provide that the local manager is duly authorized to represent the company so far as this was necessary for their proper local management. There can be no doubt, therefore, that Genaro Ansuategui was fully and expressly authorized by the terms of this letter of instructions to enter into the alleged contract of employment with the plaintiff on behalf of the defendant company.

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Tai Tong Chuache & Co. vs. The Insurance Commission, et al.No. L-55397February 29, 1988

FACTS:Spouses Palomo (Palomo) executed a mortgage over its property to secure the payment of the loan it obtained from petitioner Tai Tong Chuache & Co. Arsenio Lopez Chua (Chua), as representative of the latter, insured the companys interest in the property with the private respondent, Travellers Multi-Indemnity Corporation (Travellers), while Palomo, on its part, insured its property with various insurance companies. Said property was totally razed by fire. Palomo demanded indemnity from the insurance companies, including Travellers, but the latter refused.

A complaint was instituted by Palomo against Travellers, to which petitioner intervened. The Insurance Commision dismissed the complaint. Specifically with regard to petitioner, the public respondent denied its intervention on the basis of a certification that in a certain civil case against Palomo, the complainant was Chua and not the petitioner company, inferring that the abovementioned loan must have been paid and as such, petitioner has no more interest as to the insured property as well as in the case related thereto.

ISSUE:Whether the petitioner company, being only represented by Chua, is entitled to enforce the liability of respondent insurance company.

RULING:Yes. Petitioner, being a partnership, may sue and be sued in its name or by its duly authorized representative. The fact that Arsenio Lopez Chua is the representative of petitioner is not questioned, even the respondent insurance company recognized him as the managing partner of the partnership. Thus, as managing partner, he may execute all acts of administration as provided in Article 1800, including the right to sue debtors of the company in case of their failure to pay their obligations. At the