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PARTNERSHIP Digests  Atty.

TAN SEN GUAN & CO. VS. PHILIPPINE TRUST (2) Exhibit D (the certificate of sale to Roman
CO. Catholic Archbishop) shows that all properties to
Phil Trust as Trustee were included in the sale.
Facts: Plaintiff Tan Sen Guan & Co. secured a The only thing reserved from the sale was the
judgment for a sum of P21,426 against the Mindoro standing crops, and it is reasonable to presume
Sugar Co. of which the Philippine Trust is the trustee. that they had also been sold between the date
The plaintiff entered into an agreement with the of the sale and the institution of this action.
defendant Philippine Trust Co. wherein the former Where the real estate, the personal property
assigned, transferred, and sold to the latter the full including animals, and all the bills receivable are
amount of said judgment against Mindoro Sugar Co. sold, it would be a forced construction of the
together with all its rights thereto and the latter contract of agreement to hold that the assets of
offered satisfactory consideration thereto. The the Mindoro Sugar Company had not been sold.
agreement further stipulated that upon signing of the
agreement, Phil Trust shall pay Tan Sen the sum of
P5000; should the Mindoro Sugar be sold or its
ownership be transferred, an additional P10,000 PHIL. AIR LINES, INC. VS. HEALD LUMBER CO.
pesos will be paid to Tan Sen upon perfection of the
sale; in case any other creditor of Mindoro Sugar Facts: Lepanto Consolidated Mines chartered a
obtains in the payment of his credit a greater helicopter belonging to plaintiff Phil. Air Lines to
proportion than the price paid to Tan Sen, the Phil make a flight from its base at Nichols Field Airport to
Trust shall pay to the latter whatever sum may be the former’s camp at Manyakan Mountain Province.
necessary to be proportioned the claim of the The helicopter, with Capt. Gabriel Hernandez and Lt.
creditor. However, if the Mindoro Sugar is sold to any Rex Imperial on board, failed to reach the destination
person who does not pay anything to the creditors or as it collided with defendant’s tramway steel cables
pay them equal or less than 70 percent of their resulting in its destruction and death of the officers.
claim, or should the creditors obtain from other Plaintiff insured the helicopters and the officers who
sources the payment of their claim equal to or less piloted the same for P80,000 and P20,000
than 70 percent, the Phil Trust will only pay to Tan respectively and as a result of the crash, the
Senthe additional sum of P10,000 upon the sale or insurance companies paid to the plaintiff the total
transfer of the Mindoro Sugar as above stated. The indemnity of P120,000. Plaintiff sustained additional
properties of Mindoro Sugar were later on sold at damages totaling P103,347.82 which were not
public auction to the Roman Catholic Archbishop of recovered by insurance. The plaintiff instituted this
Manila and base on the agreement plaintiff Tan Sen action against defendant Heald Lumber Company to
brought suit against defendant Phil Trust for the sum recover the sum paid by the insurance company to
of P10,000. the plaintiff and the additional damages which was
not recovered from the insurance.
Defendant’s argument: Only a portion of the
Mindoro Sugar’s properties were sold. Defendant’s argument: Plaintiff has no cause of
action against defendant for if anyone should due
CFI: Absolved the defendant on two grounds: (a) in defendant for its recovery, it will only be the
the contract, it was only bound as a trustee and not insurance companies.
as an individual; (b) that it has not been proved that
all the properties of the Mindoro Sugar had been Plaintiff’s argument: It asserts that the claim of
sold. the said amount of P120,000 is on behalf and for the
benefit of the insurers and shall be held by plaintiff in
Issues: trust for the insurers. It is appellant’s theory that,
inasmuch as the loss it has sustained exceeds the
(1) W/N the defendant is not personally amount of the insurance paid to it by the insurers,
responsible for the claim of the plaintiff the right to recover the entire loss from the
based on the deed of assignment because wrongdoer remains with the insured and so the
of having executed the same in its capacity action must be brought in its own name as real party
as trustee of the properties of the Mindoro in interest. To the extent of the amount received by
Sugar. it as indemnity from the insurers, plaintiff would then
(2) W/N all the properties of the Mindoro Sugar be acting as a trustee for them. To support this
were sold at public auction to the Roman contention, appellant cites American authorities.
Catholic Archbishop of Manila.
RTC’s Ruling: The court ordered the plaintiff to
amend its complaint to delete the first allegation that
Held: SC reversed CFI’s ruling. insurance companies have paid a portion of the
plaintiff’s damages, since the Court believes that the
(1) The Phil Trust Company in its individual capacity real parties in interest are the insurance companies
is responsible for the contract as there was no concerned or bring in the insurance companies as
express stipulation that the trust estate and not parties plaintiff. And having manifested plaintiff’s
the trustee should be held liable on the contract decision not to amend the complaint, such move of
in question. Not only is there no express plaintiff amounts to a deletion of the portion objected
stipulation that the trustee should not be held to and so the complaint should be deemed limited to
responsible but the ‘Wherefore’ clause of the the additional damages.
contract states the judgment was expressly
assigned in favor of Phil Trust Company and not Issue:
Phil Trust Company, the trustee. It therefore
follows that appellant had a right to proceed (1) W/N the plaintiff is not the real party in
directly against the Phil Trust on its contract and interest respecting the claim for P120,000.
has no claim against either Mindoro Sugar or the
trust estate.
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
Held: SC affirmed the appealed judgment. parcels. The widow, Paulina Cristobal, and the
children of Epifanio Gomez instituted an action for
(1) In this jurisdiction, we have our own legal the recovery of the three parcels of land from
provision which in substance differs from the Marcelino Gomez.
American law. Art. 2207 of the NCC provides
that if a property is insured and the owner Defendant’s argument: Defendant answered with
receives the indemnity from the insurer the a general denial and claimed to be the owner in his
same is deemed subrogated to the rights of own right of all the property which is the subject of
the insured against the wrongdoer and if the the action. He further claimed that the trust
amount paid by the insurer does not fully agreement was kept secret from Epifanio Gomez,
cover the loss, then the aggrieved party is the and that, having no knowledge of it, he could not
one entitled to recover the deficiency. Under have accepted it before the stipulation was revoked.
this legal provision, the real party in interest And that he has the benefit of prescription in his
with regard to the portion of the indemnity favor, having been in possession of more than 10
paid is the insurer and not the insured. years under the deed which he acquired the sole
(2) Before a person can sue for the benefit of right from his sister.
another under a trusteeship, he must be ‘a
trustee of an express trust.’ The right does not RTC’s ruling: ruled in favor of plaintiffs and found
exist in cases of implied trust, that is, a trust that the property in question belongs to the plaintiffs,
which may be inferred merely from the acts of as co-owners, and ordered the defendant to
the parties or from other circumstances. Also, surrender the property to them and execute an
to adopt a contrary rule to what is authorized appropriate deed of transfer as well as to pay the
by the American statues would be splitting a cost of the proceeding.
cause of action or promoting multiplicity of
suits which should be avoided. Under our Issue: (1) W/N the dissolution of partnership
rules, both the insurer and the insured may between Marcelino and Telesfora destroyed the
join as plaintiffs to press their claims against beneficial right of Epifanio Gomez in the property.
the wrongdoer when the same arise out of the
same transaction or event. This is authorized (2) W/N the partnership agreement of Marcelino
by section 6, rule 3, of the Rules of Court. and Telesfora was a donation in favor of
Epifanio or an express trust.
(3) W/N Marcelino Gomez acquired the property
through prescription.
CRISTOBAL VS. GOMEZ Held: SC declared ownership in favor of plaintiffs.

Facts: Epifanio Gomez owned a property which was (1) The fact that one of the two individuals who
sold in a pacto de retro sale to Luis Yangco have constituted themselves trustees for
redeemable in 5 years, although the period passed the purpose above indicated conveys his
without redemption, the vendee conceded the interest in the property to his cotrustee does
vendor the privilege of repurchase. Gomez apply to a not relieve the latter from the obligation to
kinsman, Bibiano Bañas, for assistance on a comply with the trust.
condition that he will let him have the money if his (2) A trust constituted between two contracting
brother Marcelino Gomez and his sister Telesfora parties for the benefit of a third person is
Gomez would make themselves responsible for the not subject to the rules governing donations
loan. The siblings agreed and Bañas advance the of real property. The beneficiary of the trust
sum of P7000 which was used to repurchase the may demand performance of the obligation
property in the names of Marcelino and Telesfora.. A without having formally accepted the
‘private partnership in participation’ was created benefit of the trust in a public document,
between Marcelino and Telesfora and therein agreed upon mere acquiescence in the formation of
that the capital of the partnership should consist of the trusts and acceptance under the second
P7000 of which Marcelino was to supply the amount par. of article 1257 of the CC. Much energy
of P1500 and Telesora the sume of P5500. It was has been expanded by the attorneys for the
further agreed that the all the property to be appellant in attempting to demonstrate
redeemed shall be named to the two, that Marcelino that, if Epifanio at any time had any right in
should be its manager, that all the income, rent, the property by virtue of the partnership
produce of the property shall be applied exclusively agreement between Marcelino and Telesfora
to the amortization of the capital employed by the such right could be derived as a donation
two parties with its corresponding interest and other and that, inasmuch as the donation was
incidental expenses and as soon as the capital never accepted by Epifanio in a public
employed, with its interest and other incidental document, his supposed interest therein is
expenses, shall have been covered, said properties unenforceable. The partnership should not
shall be returned to Epifanio Gomez or his legitimate be viewed in light of an intended donation,
children. A year after Epifanio’s death, Telesfora but as an express trust.
wanted to free herself from the responsibility which (3) As against the beneficiary, prescription is
she had assumed to Bañas and conveyed to not effective in favor of a person who is
Marcelino her interest and share in the three acting as a trustee of a continuing and
properties previously redeemed from Yangco and subsisting trust. Therefore, Marcelino cannot
both declared dissolved the partnership they acquire ownership over the property
created. With Marcelino as the sole debtor, Bañas through prescription.
required him to execute a contract of sale of the
three parcels with pacto de retro for the purpose of
securing the indebtedness. Marcelino later on paid SALAO VS. SALAO
the sum in full satisfaction of the entire claim and
received from Bañas a reconveyance of the three
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
Facts: After the death of Valentina Ignacio, her estate documentary evidence. There was no
was administered by her daughter Ambrosia. It was resulting trust in this case because there
partitioned extrajudically and the deed was signed by never was any intention on the part of Juan,
her four legal heirs namely her 3 children (Alejandra, Ambrosia and Valentin to create any trust.
Juan, and Ambrosia) and Valentin Salao, in There was no constructive trust because the
representation of his deceased father, Patricio. The registration of the 2 fishponds in the names
Calunuran fishpond is the property in contention in of Juan and Ambrosia was not vitiated by
this case. Prior to the death of Valentina Ignacio, her fraud or mistake. This is not a case where to
children Juan and Ambrosia secured a torrens title in satisfy the demands of justice it is
their names a 47 ha. fishpond located at Sitio necessary to consider the Calunuran
Calunuran, Lubao, Pampanga. A decree was also fishpond as being held in trust by the heirs
issued in the names of Juan and Ambrosia for the of Juan Salao Sr. for the heirs of Valentin
Pinanganacan fishpond which adjoins the Calunuran Salao. And even assuming that there was an
fishpond. A year before Ambrosia’s death, she implied trust, plaintiffs’ action is clearly
donated her one-half share in the two fishponds in barred by prescription when it filed an
question to her nephew, Juan Salo Jr. He was already action in 1952 or after the lapse of more
the owner of the other half of the fishponds having than 40 years from the date of registration.
inherited it from his father, Juan Salao Sr. After
Ambrosia died, the heirs of Valentin Salao, Benita
Salao and the children of Victorina Salao, filed a CARANTES VS. CA
complaint against Juan Salao Jr. for the
reconveyance to them of the Canluran fishpond as Facts: A proceeding for expropriation was
Valentin Salao’s supposed one – third share in the commenced by the government for the construction
145 ha. of fishpond registered in the names of Juan of the Loakan Airport and a portion of Lot 44, which
Salao Sr. and Ambrosia Salao. was originally owned by Mateo Carantes, was needed
for the landing field. The lot was subdivided into Lots
Defendant’s argument: Valentin Salao did not Nos. 44-a (the portion which the government sought
have any interest in the two fishponds and that the to expropriate), 44-b, 44-c, 44-d and 44-e.
sole owners thereof were his father and his aunt Negotiations were also under way for the purchase
Ambrosia, as shown in the Torrens titles and that he by the government of lots 44-b and 44-c. When
was the donee of Ambrosia’s one-half share. Mateo Carantes died, his son Maximino Carantes was
appointed administrator of the estate and filed a
Plaintiff’s argument: Their action is to enforce a project of partition of the remaining portion of Lot 44
trust which defendant Juan Salao Jr. allegedly wherein he listed as the heirs of Mateo Carantes who
violated. The existence of trust was not definitely were entitled to inherit the estate, himself and his
alleged in the plaintiff’s complaint but in their brothers and sisters. An ‘Assignment of Right to
appellant’s brief. Inheritance’ was executed by the children of Mateo
and the heirs of Apung Carantes in favor of Maximino
RTC’s Ruling: There was no community of property Carantes for a consideration of P1. Maximino sold to
among Juan, Ambrosia and Valentin when the the government lots nos. 44-b and 44-c and divided
Calunuran and the Pinanganacan lands were the proceeds of the sale among himself and the
acquired; that co – ownership over the real other heirs of Mateo. The assignment of right to
properties of Valentina Ignacio existed among her inheritance was registered by Maximino and the TCT
heirs after her death in 1914; that the co – ownership in the names of the heirs was cancelled and a new
was administered by Ambrosia and that it subsisted one was issued in the name of Maximino Carantes as
up to 1918 when her estate was partitioned among the sole owner of the remaining portions of lot 44. A
her three children and her grandson, Valentin Salao. complaint was instituted by the three children of
It rationalized that Valentin’s omission during his Mateo and the heirs of Apung Carantes against
lifetime to assail the Torrens titles of Juan and Maximino praying that the deed of assignment be
Ambrosia signified that he was not a co-owner of the declared null and void and that the remaining
fishponds. It did not give credence to the testimonies portions of lot 44 be ordered partitioned into six
of plaintiffs’ witnesses because their memories could equal shares and Maximino be accordingly ordered
not be trusted and because no strong evidence to execute the necessary deed of conveyance in
supported the declarations. Moreover, the parties favor of the other heirs.
involved in the alleged trust were already dead.
Plaintiffs’ argument: They executed the deed of
Judgment appealed to CA but the amounts involved assignment only because they were made to believe
exceeded two hundred thousand pesos, the CA by Maximino that the said instrument embodied the
elevated the case to the SC. understanding among parties that it merely
authorized the defendant Maximino to convey
Issue: portions of lot 44 to the government in their behalf to
minimize expenses and facilitate the transaction and
(1) W/N plaintiffs’ massive oral evidence it was only when they secured a copy of the deed
sufficient to prove an implied trust, resulting that they came to know that the same purported to
or constructive, regarding the two assign in favor of Maximino their rights to inheritance
fishponds. from Mateo Carantes.
Held: SC affirmed lower court’s decision.
Defendant’s argument: Filed a motion to dismiss.
(1) Plaintiff’s pleading and evidence cannot be The plaintiffs’ cause of action is barred by the statute
relied upon to prove an implied trust. The of limitations because the deed of assignment was
trial court’s firm conclusion that there was recorded in the Registry of Property and that
no community of property during the ownership over the property became vested in him
lifetime of Valentina Ignacio or before 1914 by acquisitive prescription ten years from its
is substantiated by defendant’s registration in his name of Feb. 21, 1947.
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
RTC’s ruling: Ruled in favor of defendant Maximino September 4, 1958, the same in barred by
Carantes stating that since an action based on fraud extinctive prescription.
prescribes in four years from the discovery of the
fraud, and in this case the fraud allegedly
perpetrated by defendant must deemed to have
been discovered on march 16, 1940 when the deed MUNICIPALITY OF VICTORIAS VS. CA
of assignment was registered, the plaintiff’s right of
action had already prescribed when they filed the Facts: Norma Leuenberger, respondent, inherited a
action in 1958. And even assuming co-ownership parcel of land from her grandmother, Simeona Vda.
existed, the same was completely repudiated by the de Ditching in 1941. In 1963, she discovered that a
said defendant by performance pf several acts such part of the parcel of land was being used by
as the execution of deed of sale in favor of the petitioner Municipality of Victorias as a cemetery. By
government in 1939, hence ownership had vested in reason of the discovery, respondent wrote a letter to
the defendant by acquisitive prescription. the Mayor of Victorias demanding payment of past
rentals over the land used a cemetery and
CA reversed. requesting delivery of the illegally occupied land by
the petitioner. The Mayor replied that the
Issue: municipality bought the land but however refused to
show the papers concerning the sale. Apparently, the
(1) W/N the deed of assignment is void ab initio municipality failed to register the Deed of Sale of the
on the ground of fraud and the action to lot in dispute.
annul it has prescribed.
(2) W/N a constructive trust exist making an Respondent filed a complaint in the Court of
action for reconveyance based on First Instance of Negros Occidental for recovery of
constructive trust imprescriptable. possession of the parcel of land occupied by the
municipal cemetery. In its answer, petitioner
Municipality alleged ownership of the lot having
Held: SC dismissed the complaint and set aside CA’s bought it from Simeona Vda. de Ditching sometime
decision. in 1934. The lower court decided in favor of the
petitioner municipality.
(1) When the consent to a contract was
fraudulently obtained, the contract is On appeal, petitioner presented an entry in
voidable. Fraud or deceit does not render a the notarial register form the Bureau of Records
contract void ab initio, and can only be a Management in Manila of a notary public of a sale
ground for rendering the contract voidable purporting to be that of the disputed parcel of land.
or annullable pursuant to article 1390 of the Included within it are the parties to the sale, Vda. de
NCC by a proper action in court. The present Ditching, as the vendor and the Municipal Mayor of
action being one to annul a contract on the Victorias in 1934, as vendee. The Court of Appeals
ground of fraud, its prescriptive period is 4 however claimed that this evidence is not a sufficient
years from the time of discovery of fraud. Deed of Sale. It therefore reversed the ruling of the
The weight og authorities is the effect that CFI and ordered the petitioner to deliver the
the registration of an instrument in the possession of the land in question to respondents.
Office of the Register of Deeds constitutes a
constructive notice to the whole world, and, Issue: W/N the notary public of sale is sufficient to
therefore, discovery of fraud is deemed to substantiate the municipality’s claim that it acquired
have taken place at the time of the the disputed land by means of a Deed of Sale. Yes.
registration. In this case, the deed of
assignment was registered on March 16, Held: The fact that the notary public of sale showed
1940. The 4 years period within which the the nature of the instrument, the subject of the sale,
private respondents could have filed the the parties of the contract, the consideration and the
present action consequently commenced on date of sale, the Court held that it was a sufficient
march 16, 1940, and since they filed it only evidence of the Deed of Sale.
in September 4, 1958, it follows that the
same is barred by the statute of limitations. Thus, when Norma inherited the land from
(2) No express trust was created in favor of the her grandmother, a portion of it has already been
private respondents. If trust there was, it sold by the latter to the Municipality of Victorias in
could only be a constructive trust, which is 1934. Her registration of the parcel of land did not
imposed by law. In constructive trusts there therefore transfer ownership but merely confirmed it.
is neither promise nor fiduciary relation; the As the civil code provides, where the land is decreed
so called trustee does not recognize any in the name of a person through fraud or mistake,
trust and has no intent to hold the property such person is by operation of law considered a
for the beneficiary. An action for trustee of an implied trust for the benefit of the
reconveyance based on implied or persons from whom the property comes.
constructive trust is prescriptable and Consequently, she only held the land in dispute in
prescribes in 10 years. In this case, the ten – trust for the petitioner hence private respondent is in
year prescriptive period began on march 16, equity bound to reconvey the subject land to the
1940, when the petitioner registered the cestui que trust, the Municipality of Victorias.
deed of assignment and secured the
cancellation of the certificate of title in the
joint names of the heirs of Mateo Carantes
and, in lieu thereof, the issuance of a new
title exclusively in his name. Since the MARIANO VS. DE VEGA
present action was commenced only on

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
Facts: Spouses Urbano and Panganiban owned as Held: Where the grantee takes the property under
conjugal property 29 unregistered parcels of land an agreement to convey to another on certain
during their lifetime. When Urbano died, his conditions, a trust results for the benefit of such
compulsory heirs were the children of Gaudencia, his other or his heirs. It is also the rule that there is an
child with Panganiban, who are petitioners in this implied trust when a person purchases land with his
case, and two other legitimate children, his children own money and takes conveyance thereof in the
with his second wife, who are the private name of another. In such a case, the property is held
respondents in this case. on a resulting trust in favor of the one furnishing the
consideration for the transfer. This kind of trust is
Petitioners filed a civil case in the CFI for from equity and arises by implication or operation of
partition and delivery of possession of certain shares law.
in the conjugal assets. They contended that private
respondents have excluded them from taking In the present case, it is apparent that
possession of the whole conjugal property and that Emilio furnished the consideration intending to obtain
the latter appropriated to themselves the products a beneficial interest in the property in question.
coming from the parcels of land. The court ruled in Having supplied the money, it is presumed that he
favor of the private respondents claiming that the intended to purchase the lot for his own benefit.
action of the petitioners has already prescribed for Moreover, by entering into an agreement with Emilio
the reason that an implied or constructive trust that “the necessary documents of transfer will be
prescribes in ten years. made later,” Lucas acknowledged the he merely held
the property in trust for his brother with the
Issue: W/N there is an implied or constructive trust understanding that it will eventually be conveyed to
granted by the petitioners in favor of the the plaintiff’s predecessor in interest. Lastly, by
respondents. No. acknowledging the presence of trust, the plaintiff’s
action cannot be said to have been barred by lapse
Held: The Court ruled that the present case does not of time. The case is therefore remanded for further
fall under the rules of implied trust. Considering the proceedings.
fact that the parties in this case inherited the land
from the same ancestor, Urbano, both parties are
clearly co-owners of the disputed properties. This
case is therefore governed by the rules on co- LAUREANO VS. STEVENSON
ownership. Under the civil code, prescription does
not run against a co-owner or a co-heir so long as he Facts: In 1912, Felix Laureano sold to Eugenio
expressly or impliedly recognizes the co-ownership. Kilayco a piece of property situated in the City of
Iloilo, and such land was then registered in the
In view of their lack of a clear repudiation of latter’s name. Adjoining such property was another
the co-ownership, private respondents cannot property belonging to Laureano.
acquire the share of the petitioners by prescription.
When the cadastral survey was initiated in Iloilo in
1914, Kilayco made proper representations to
confirm the title to his property. Thereafter, title was
HEIRS OF CANDELARIA VS. ROMERO issued to him, but later, for some unknown reason,
the certificate was ordered cancelled and a new one
Facts: Parties to this case are the heirs of Emilio was issued. Then, presumably by mistake, the title
Candelaria as plaintiff and Luisa Romero, and the was made to include not only Kilayco’s property but
heirs of Lucas as defendants. property belonging to his neighbor, Laureano. The
final decree to his effect was issued in 1916.
Emilio and Lucas Candelaria bought a lot on
an installment basis. Lucas paid the first two Creditors of Kilayco, becoming aware of the
installments but because of sickness which caused existence of the title to the property, instituted
him to be bedridden, he sold his share to his brother actions and obtained writs of execution in May 1922.
Emilio who continued to pay the purchase price until The sale of the property was set for October 1922. All
the obligation to pay had been fully satisfied. The the while, Laureano had done nothing to protect his
TCT was however issued under the name of Lucas. interests in the property. However, he claims to
Nevertheless, Lucas acknowledges that he merely have been absent in Spain at the time of the hearing
held the title in trust for his brother with the in the cadastral case and to have known nothing of
understanding that “the necessary documents of it.
transfer will be made later” and this fact was known
not only to him but also to the defendants. However On June 1922, Laureano filed a case against Kilayco
upon his death, his heirs refused to reconvey the lot to obtain a judgment, declaring him to be the owner
to plaintiff despite repeated demands. of the parcels of land mistakenly included in the
latter’s title, and ordering the cancellation of the
Plaintiff brought an action in the CFI for a certificate of title theretofore issued in the name of
complaint for reconveyance of real property. The Kilayco.
lower court however dismissed the case on the
ground that an express trust, and not an implied Issue: When property is acquired through mistake,
trust, was created and that the action had already can the real owner recover such property by virtue of
prescribed. implied trust?

Issue: What kind of trust was created? Express or Trial Court: Since the creditors were not parties to
implied trust? Implied trust. the action, the cancellation of the annotations on the
certificate of title in favor of the creditors of Kilayco
cannot be sustained.

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
Held: It is proper to issue the injunction sought by improvements petitioners had introduced
the petitioners to stop the sale of the property at (apartment, residential house and piggery). Trial
public auction, to annul the levies made on the court allowed petitioners to intervene as
property, to obtain the cancellation in the registry of indispensable parties, vacating its previous judgment
property of the annotations made, and to secure a and granting a new trial.
new title for the petitioner without these
encumbrances. Trial Court: There is no proof to show that
petitioners are co-owners of the property in question
It is important to note that: because the land has long been covered by an OCT
since 1932 in the name of their predecessor in
1. Kilayco never laid a claim to the property; interest, Fausto Soy.

2. The two lots covered by the certificate were CA: Resolved in favor of respondents, declaring that
mistakenly registered in the name of the sale to intervenor-petitioners did not terminate
Kilayco; and the trust relationship between the appellants and the
appellees. The sale in favor of petitioners shall be
3. The court did not have jurisdiction to enforced against the ¼ share of respondents as heirs
confirm the title of the two lots for the of Fausto.
reason that no petition for title was filed, no
trial was held, no evidence was presented, Issue: Was the disputed land held in trust by Fausto
and no judgment was rendered regarding Soy for his sisters, Emilia, Cornelia and Anastacia
these two lots in the land registration (mothers of herein respondents)?
Ruling: CA decision reversed, order for partition
Kilayco was, in effect, merely holding the title of the dismissed.
property in trust of Laureano. The creditors of
Kilayco could acquire no higher or better right than Fausto, being predecessor-in-interest, had appeared
Kilayco had in the property, which, in this case, was to be the registered owner of the lot for more than
nothing. Hence, Laureano can rightfully recover the 30 years and his dominical rights can no longer be
two parcels of land included in the title of Kilayco challenged. Any insinuation as to the existence of an
through mistake. implied or constructive trust should not be allowed.

Even assuming there was an implied trust,

respondents attempt at reconveyance is barred by
GONZALES v. IAC prescription, which in this case is 10 years, the
period reckoned from the issuance of the adverse
title to the property which operates as a constructive
Facts: The land in dispute is registered in the name notice.
of Fausto Soy. In 1941, Fausto sold 253 sq. m. to
Francisco Landingin. In 1954, pursuant to a Deed of The assertion of adverse title, which was an explicit
Donation executed by Fausto, Antonio Soy (son of indication of repudiation of the trust for the purpose
Fausto) and Gregoria Miranda (wife) sold 240 sq. m. of the statute of limitations, took place when the OCT
to Juanito Gonzales and Coronacion Ganaden. In was issued in the name of Fausto Soy in 1932, to the
January 1960, Fausto sold another 240 sq. m. to exclusion of his 3 sisters.
Gonzales and Ganaden and two days later, a TCT was
issued in favor of Gonzales, indicating his share as Even if there were no repudiation, the rule is that an
co-owner of 480 sq. m. and Fausto Soy, 240 sq. m. In action to enforce an implied trust may be
1965, Fausto sold another 140 sq. m. to the Gonzales circumscribed not only by prescription but also by
and Ganaden. laches—in which case, repudiation is not required.

April 1965, Respondents Rosita Lopez, Gavino Respondents had literally slept on their rights
Cayabyab, Agueda and Felipa Ubando, Pedro presuming they had any and can no longer dispute
Soriano, Teosidia Lopez and Federico Ballesteros the conclusive and incontrovertible character of
(nieces and nephews of Fausto) filed the instant Fausto’s title as they are deemed to have acquiesced
complaint for partition against Fausto Soy. On the therein.
same day they filed a notice of lis pendens and had it
annotated on the OCT. Fausto answered and
contested plaintiffs claims, asserting exclusive title in
his name. Fausto countered that the questioned land ADAZA V. CA
was never registered in the names of his parents
Eugenio and Ambrosia, and that he had been the Facts: In 1953, Victor Adaza Sr. executed a Deed of
registered owner of the premises since 1932. Donation, covering the disputed land in this case,
located in Sinonok, Zamboanga del Norte in favor of
On the basis of evidence adduced ex-parte, the Trial Respondent Violeta. The land being disposable public
Court held that respondents and Fausto were co- land had been held and cultivated by Victor, Sr. With
owners of the lot and ordered the partition thereof. the help of her brother, Horacio, Violeta filed a
Parties were enjoined to partition amongst homestead application over the land and a free
themselves and were to submit the same to the patent was issued in 1956. An OCT was issued in
lower court for confirmation. Upon execution, the 1960. In 1962, Violeta and husband, Lino obtained a
sheriff was unable to effect apportionment due to a loan from PNB by executing a mortgage on the land,
3rd party claim of Juanito and Coronacion Gonzales, while Homero Adaza, brother of Violeta remained
stating that they were registered owners of 480 sq. administrator of the same.
m. of the disputed land. The sheriff noted the various

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
In 1971, Horacio invited his brothers and sisters for a Facts: This case involves an action for reconveyance
family gathering where he asked Violeta to sign a or for the declaration of an implied trust on Lot No.
Deed of Waiver with respect to the property in 974 and for damages.
Sinonok. The Deed stated that the land was owned in
common by Violeta and Horacio even though the The disputed land was the subject of 2 Patent
OCT was in her name only. The Deed also provided Applications: (1) Free patent filed by Defendant on
for the waiver, transfer and conveyance of Violeta to Aug 1 1958, issued Jul 1961, OCT issued Feb 1962
Horacio of ½ of the property and its improvements. and (2) Homestead Patent filed by Plaintiff on Jul 7
Violeta and Horacio signed the Deed with Homero as 1959, approved Jan 1964.
a witness.
Plaintiff Armamento alleges that he is the possessor-
A few months later, Violeta and husband Lino filed a actual occupant of and Homestead applicant over the
complaint for annulment of the Deed of waiver and disputed lot. Upon following up his application, he
for damages against Horacio and wife Felisa. The was shocked to discover that Defendant Guerrero,
complaint alleged that (1) she was absolute owner of through fraud and misrepresentation obtained a Free
the land by virtue of an unconditional donation Patent over the same land, by falsely stating that he
executed by her father in her favor; (2) she was had continuously possessed the lot since July 1945 or
registered owner; (3) she signed the Deed of waiver prior thereto, when in truth defendant was never in
because of fraud, misrepresentation and undue possession.
influence; and (4) because of such malicious acts,
she is entitled to damages from Horacio. In his Answer, Guerrero denies that he was not in
possession claiming that he had been in occupation
Trial Court: Declared Deed of Waiver as valid and of said lot and even authorized a certain Macario
binding upon Violeta, that Horacio was co-owner of Caangay to administer the same while he was
½ of the land, and odering Violeta to pay Horacion termporarily away for missionary work in Cagayan de
the proceeds of his share. Oro.

CA: Reversed Trial court decision, declaring that Trial Court: Dismissed the case on the following
though the deed was signed voluntarily, such Deed grounds: (a) Plaintiff has no personality to file the
was without consideration or cause because the land action for reconveyance—the proper party being the
had been unconditionally donated to Violeta alone. Republic of the Philippines; (b) Plaintiff has no
cause of action in the absence of privity of contract
Issue: Who owns the disputed parcel of land? between parties; (c) defendant’s title has become
Ruling: Petition granted. indefeasible and cannot be cancelled; and (d) even
if based on fraud, the action has prescribed.
Deed of donation had a crossed-out provision: That
the donee shall share ½ of the entire property with Issues: Is plaintiff’s action for reconveyance
one of her brothers and sisters after the death of the justified? Was there a trust created?
Ruling: After the lapse of one year, a decree of
The record is bereft of any indication of any evil registration is no longer open to review or attack,
intent or malice on the part of Homero, Victor, Jr. and although its issuance is attended with fraud.
Teresita (siblings of Violeta) that would suggest However, an action for reconveyance is still available
deliberate collusion against Violeta. Their father had for the aggrieved party if the property has not yet
executed the Deed of Donation with the passed to an innocent purchaser for value. This is
understanding that the same would be divided exactly what plaintiff has done.
between Horacio and Violeta and that Violeta had
signed the Deed of Waiver freely and voluntarily. Plaintiff has not been able to prove fraud and
misrepresentation because of the trial court
Victor Adaza, Sr. left 4 parcels of land divided among dismissal. While plaintiff is not the “owner” of the
the 6 children through the practice of having the land, so that, strictly speaking, he has no personality
lands acquired by him titled to the name of one of his to file this application, he pleads for equity and
children. invokes the doctrine of implied trust under Art.
1456 of the Civil Code: If property is acquired
The property involved in the instant case is owned in through mistake or fraud, the person obtaining it is,
common by Violeta and brother, Horacio even by force of law, considered a trustee of an implied
though the OCT was only in her name. She held half trust for the benefit of the person from whom the
of the land in trust for petitioner Horacio—implied property comes.
trust based on Article 1449 of the Civil Code:
The doctrine of implied trust may be made to
There is also an implied trust when a donation is operate in plaintiff’s favor, assuming that he can
made to person but It appears that although the prove his allegation that defendant had acquired
legal estate is transmitted to the donee, he legal title by fraud.
nevertheless is either to have no beneficial interest
of only a part thereof. A constructive trust is a trust raised by construction
of law or arising by operation of law. If a person
The doctrine of laces is not to be applied obtains legal title to property by fraud or
mechanically as between near relatives. concealment, courts of equity will impress upon the
title a so-called constructive trust in favor of the
defrauded part.


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PARTNERSHIP Digests  Atty. Cochingyan
Action for reconveyance has not prescribed—the Plaintiff’s appealed saying that they were grievously
prescriptive period being 10 years. (Title obtained prejudiced by the partition and thus res judicata
1962, Suit commenced 1967) should not bar their action.

Case is remanded to CFI Cotobato. SC: The plaintiffs have not proven any express trusts
neither have they specified the kind of implied trust
contemplated in their action. Either way, such action
may be barred by laches.
In the cadastral proceedings, Jose and wife claimed
Facts: Spouses Martin Ramos and Candida were the 8 lots of the plaintiffs. After the death of Jose, the
survived by three legitimate children: Jose, Agustin said lots were adjudicated to his widow and
and Granada. Martin was also survived by 7 natural daughter. In 1932 Gregoria leased the said lots to
children. A special proceeding was instituted for the Yulo, who in 1934 transferred his lease rights over
settlement of the estate of said spouses. Rafael, Hacienda Calazato to Bonin and Olmedo, husband of
brother of Martin was appointed administrator. A plaintiff Atanacia. Bonin and Olmedo in 1935 sold
project of partition was submitted and the conjugal their lease rights over Hacienda Calaza to Consing.
hereditary estate was appraised at P74,984.93. It
consisted of 18 parcels of land, some head cattle and Those transactions prove that the heirs of Jose had
advances to the legitimate children. It was agreed in repudiated any trust which was supposedly
the project of partition that Jose and Agustin would constituted over Hacienda Calaza in favor of the
pay the cash adjudications to their natural siblings. plaintiffs.
Only the sum of P 37, 492.46 of the P74k
represented the estate of Martin. 1/3 thereof was the The period of extinctive prescription is 10 years.
free portion out of which the shares of the natural Atanacia, Modesto and Manuel, could have brought
children were to be taken: each would get P1,785.35. the action to annul the partition. Maria and Emiliano
The project of partition as well as the intervention of were both born in 1896. They reached the age of 21
Timoteo as guardian of the five minor heirs was in 1917 and could have brought the action from that
approved by the court. Later on, Judge Nepomuceno year.
asked the administrator to submit a report showing
that the shares have been delivered to the heirs as The instant action was filed only in 1957. As to
required which the siblings acknowledged in a Atanacia, Modesto and Manuel, the action was filed
manifestation. The Himalayan cadastre (8 lots) 43 years after it accrued and, as to Maria and
involved in this case were registed in equal shares in Emiliano, the action was filed 40 years after it
the names of Jose’s widow, Gregoria and her accrued. The delay was inexcusable. The instant
daughter Granada. action is unquestionably barred by prescription and
res judicata.
The Plaintiff’s (natural children) contend that while
they were growing up, they had been well supported It was anomalous that the manifestation should
by Jose and Agustin as they had been receiving their recite that they received their shares from their
shares from the produce of the Haciendas in varied administrator, when in the project of partition it was
amounts over the years. Even after the death of Jose, indicated that said shares shall be received in cash
Gregoria had continued giving them money but had from brothers Jose and Agustin. Thus due to this
stopped in 1951 by reason that lessee Lacson was irregularities as well as those of the intestate
not able to pay the lease rental. No accounting had proceedings, the plaintiffs contend that the partition
ever been made to them by Jose nor Gregoria. Upon was not binding on them (except for Timoteo who
the survey of the land, they did not intervene, as Jose considered himself bound by the partition). They ask
and Agustin promised that said lands shall be that the case be remanded to the lower court for the
registered in the names of the heirs. They did not determination and adjudication of their rightful
know that the intestate proceedings were instituted shares.
for the distribution of the estate of their father.
Neither did they have any knowledge that a guardian However, due to the fact that the plaintiffs slept on
was assigned to represent their minor siblings, their rights, the courts can no longer afford them
considering that Modesto and Miguel who were relief
claimed to be such were no longer minors at the time
of the partition. They never received their share in
the estate of their father. Plaintiffs later on
discovered that the property had a Torrens title in VARSITY HILLS, INC v NAVARRO
the name of Gregoria and her daughter when
Modesto’s children had inquired from the Register of Facts: The present action began from a previous
Deeds. Petitioners now bring the present suit for the civil case wherein a petition was filed by herein
reconveyance of the subject parcels of land in their respondents Mejia as heirs of Quintin Mejia and by
favor. Elpidio Tiburcio as assignee of a portion of the estate
left by the latter as plaintiff against petitioners
Petitioners claim that in effect, Gregoria and Tuason et. al. The complaint alleged that Quintin
daughter are holding their shares in trust which was Mejia had obtained a Spanish title to the land and
denied by defendants. Defendants alledge res that he and his successors in interest had occupied
judicata and prescription. the land without interruption until they were forcibly
rejected therefrom and their houses demolished in
LOWER COURT: Dismissed the complaint on the 1934 through a writ of execution. In 1914, the
basis of res judicata as their shares were already defendants Tuason had obtained a decree of
settled in the intestate proceedings. No deed of trust registration covering 35,403 hectares and that they
was alledged and proven. had fraudulently and insidiously included plaintiff’s

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
land in the area covered by the Certificate of Placida was a legitimate daughter of Marcelo de
Transfer by inserting fake and false technical Guzman and his first wife Teodora de la Cruz. After
descriptions. UP et al. as subsequent acquirers the death of Teodora, Marcelo married Camila
whose titles are derived from the original fraudulent Ramos. Their children are herein respondents de
certificates should likewise be annulled. Guzman heirs. Marcelo died some time in
Septermber 1945 and respondents executed a deed
Herein Petitioners contend that the decision in a civil of extra-judicial settlement of his estate. They
case wherein the Respondents were declared as fraudulently stipulated therein that they were the
without title to the land and ejected by a writ of only surviving heirs of Marcelo although knowing that
execution was affirmed by the Supreme Court. The petitioners were also his forced heirs. They were able
Petitioners contend in the present case that the to cause the transfer the certificates of 7 parcels of
causes of action averred by the Respondents were land each in their names. The petitioners discovered
barred by the LRA and the statute of limitations over the fraud only the year before the institution of the
51 years having elapsed since the decree of case. Petitioners seek to annul the extra-judicial
registration was issued, barred by laches as 32 years settlement as well as have their shares in the said
have elapsed since the ejectment and that the court properties reconveyed to them.
had no jurisdiction to review and revise the decree of
registration. They also maintain as affirmative Contentions: Defendants argue that Placida de
defenses that they had in possession for over 30 Guzman was not entitled to share in the estate of
years of the land thus acquiring title by acquisitive Marcelo as she was an illegitimate child and that the
prescription and that claims for ownership were action of the Petitioners is barred by the statute of
extinguished by the decree and that they are limitations.
purchasers for value and in good faith of the lands
standing in their names. A motion to dismiss was Rulings:
filed yet was denied by the lower court. The
Petitioners resorted to the SC for a special TRIAL COURT: The trial court dismissed the case
proceeding for writs of certiorari and prohibition thus after finding that Placida was a legitimate child of
the trial court was enjoined from proceeding with the Marcelo and that the properties described herein
trial until further orders. belonged to the conjugal partnership of Marcelo and
Camila. It also ruled that Petitioners action had
Mejia and Tiburcio claim that appeal in due time was already prescribed.
the proper remedy.
CA: affirmed ruling of the trial court
Issue: Can the present action prosper based on
claims of implied/constructive trust? Contentions: Petitioners assert that since they are
co-heirs of Marcelo, the action for partition is not
SC: The court below gravely abused its discretion in subject to the statue of limitations; that if affected,
denying petitioners motion to dismiss based on their the period of 4 years did not begin to run until
affirmative defenses. The action by Tiburcio and discovery of the fraud. They claim that the fraud
Mejias was already barred by res judicata and done by respondents took place in 1956 or 1957 and
extinctive prescription. A previous case was decided that it had not prescribed when the present action
wherein Quintin Mejia had been found without title was commenced.
and thus ejected. The action in the court below was
definitely barred as while the present respondents SC: The rule holds true only when the defendants do
were not parties to the cause which Quintin Mejia not hold the property in question under an adverse
was such a party, the final judgment against him title. The statute of limitations operates from the
concludes and bars his predecessors and privies as time the adverse title is asserted by the possessor of
well. Since the respondents failed to file a petition for the property.
review of the decree within one year after the entry
thereof despite claims that there was fraud in the The defendants excluded the petitioners from the
inclusion of their land in the title, they are barred by estate of Marcelo when they executed the deed of
the LRA. However if the fraud had been committed extra-judicial settlement claiming that they are the
after the issuance of the decree, they should have sole heirs thus setting up an adverse title to the
pleaded when Quintin was made a defendant in Civil estate.
Case 4420. Nevertheless, their cause of action is
barred by res judicata. With or without judgment An action for reconveyance of real property based
against Quintin, their action had been upon a constructive or implied trust, resulting from
extinguished by the lapse of 30 years from the fraud may be barred by the statute of limitations and
time he was ejected from the land in question. the action may only be filed within 4 years from the
An action to recover is also foreclosed by the discovery of the fraud. In the case at bar, the
statute of limitations. Actions on implied trusts discovery was made on June 25, 1948 when the deed
are extinguished by laches or prescription of was filed with the Register of Deeds and new
10 years. Respondents have presented no cause of certificates of title were issued in the names of the
action. The lower court by denying the motion to respondents exclusively. Plaintiff’s complaint was not
dismiss constituted GADLEJ since they prolonged a filed until November 4, 1958 or more than 10 years
litigation that was unmeritorious on its face. after.

Ignacio Gerona as well as Maria Concepcion attained

the age of majortity in 1948 thus had 4 years from
GERONA v DE GUZMAN date of discovery within which to file an action.

Facts: Petitioner Gerona heirs are the legitimate Francisco and Delfin attained the age of majority in
children of Domingo Gerona and Placida de Guzman. 1952 and 1954, thus had 2 years after removal of

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
“legal incapacity” within which to commence their reconveyance of property wrongfully registered are
action. of this category.

The possession of the property has been with Blas

and his successors since the sale thus, their action
CALADIAO v VDA DE BLAS cannot be deemed extinguished by prescription as
under the old civil procedure, an action by the
FACTS: Prudencio Limpin sold, ceded, and transferred vendee of real property in possession thereof to
to Simeon Blas an unregistered fishpond for the obtain the conveyance of it is not subject to
P4440 with the right to repurchase the property prescription.
within one year from Sept. 30, 1932 and with the
express stipulation that the sale would automatically
become absolute and irrevocable if no repurchase
was made within the agreed period. Maxima Santos, DIAZ, ET.AL. VS. GORRICHO AND AGUADO
(Blas’ wife) took over upon the death of Blas and
paid taxes until 1955. The fishpond together with the Facts: Spouses Francisco Diaz and Maria Sevilla
other properties was adjudicated to her by the court owned two parcels of lots (Lots Nos. 1941 and 3073)
in an estate proceeding. Despite such, Limpin in Cabanatuan. Sometime later, Francisco died, and
obtained a judicial registration of the fishpond in the properties were left in the hands of her wife and
favor of his conjugal partnership with Caladiao and three children.
secured a new title in their names. A TCT was issued
in the name of Caladiao when Limpin died. Unaware Sometime in 1935, the appellee Carmen Gorricho
of such, Santos Vda de Blas applied for the filed an action against Maria Sevilla and in
registration of the fishpond which was adjudicated to connection therewith, a writ of attachment was
her as it was proven that Limpin sold the property to issued upon the shares of the latter in the two
Blas and had failed to repurchase the same. While parcels of land. Since Maria Sevilla failed to redeem
this registration case was pending, Caladiao filed a it within one year, a final deed of sale in favor of
complaint for the return of the fishpond and the Carmen Gorricho was issued. In the said deed,
annulment of the sale a retro executed by Limpin. however, the sheriff conveyed to Gorricho the whole
This was however, dismissed. The court ordered an of the two parcels instead of only the half-interest of
issuance of decree in favor of Vda de Blas but Maria Sevilla therein. Pursuant to the said deed,
subsequently dismissed the proceedings in finding Carmen Gorricho obtained the titles of the two
that the said fishpond was registered previously in parcels of land in her name in the year 1937, and has
favor of Limpin. Rosalina Santos substituted Maxima been possessing the said lands as owner ever since.
upon death.
In 1952, the children of Maria Sevilla (who died a
CFI: in favor of Santos, ordered reconveyance and year before) filed an action against the respondents
was awarded P3000. to compel the latter to execute in their favor a deed
of reconveyance over an undivided one-half interest
CA: affirmed. of the lots in question, which the respondents were
allegedly holding in trust for them. The respondents
Defendants claim that the action for reconveyance raised the defense that the petitioners’ action has
had prescribed as it was filed more than 20 years long prescribed.
since Limpin had acquired a CTC in their name over
the fishpond. Issue: Do implied trust prescribe or may they be
defeated by laches?
SC: The existence of a decree of registration in favor
of one party is no bar to an action to compel Ruling of the CFI of Nueva Ecija: While a
reconveyance of the property to the true owner, constructive trust in plaintiff’s favor arose when
which is an action in personam, even if such action Gorricho took advantage of the error of the provincial
be instituted after the year fixed by Section 38 of the yepquestion and obtained title in herself, the action
LRA as a limit to the review of the registration of the plaintiff was, however, barred by laches and
decree, provided it is shown that the registration is prescription.
wrongful and the property sought to be reconveyed
has not passed to an innocent third party holder for Petitioners: The disputed property was acquired by
value. Gorricho through an error of the provincial sheriff;
that having been acquired through error, it was
Limpin obtained the decree of registration subject to an implied trust, as provided by Article
fraudulently and in utter bad faith thus he and his 1456 of the New Civil Code; and therefore, since the
heirs may be compelled to reconvey it to the true trust is continuing and subsisting, the appellants may
owner. The registration of the property did not annul compel reconveyance of the property despite the
the conveyance in favor of Blas and after the lapse of time, specially because prescription does not
registration, the Limpins held the property in trust for run against titles registered under Article 496.
the true owners.
Held: The petitioners are in error in believing that
The application for registration was in bad faith, with like express trusts, such constructive trusts may not
the result that the certificate of title issued to Limpin be barred by lapse of time. The American law on
in 1934 was in law issued to and held by him in trusts has always maintained a distinction between
behalf and in trust for the benefit of Blas. Under the express trusts created by intention of parties, and
old code of civil procedure, prescription does not the implied/constructive trusts that are exclusively
apply to “continuing and subsisting trusts”; so that created by law, the later not being trusts in their
actions against a trustee to recover trust property technical sense. The express trusts disable the
held by him are imprescriptible. Actions for the trustee from acquiring for his own benefit the

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
property committed to his management or Petitioners: They are mere co-owners, not co-
custody, at least while he does not openly partners, for, in consequence of the acts performed
repudiate the trust, and makes such by them, a legal entity, with a personality
repudiation known to the beneficiary or cestui independent of that of its members, did not come
que trust. into existence, and some of the characteristics of
partnerships are lacking in the case at bar.
Also, in express trusts, the delay of the
beneficiary is directly attributable to the Held: The petitioners are liable to pay the tax on
trustee who undertakes to hold the property corporations provided for in Sec. 24 of the
for the former, or who is linked to the Commonwealth Act No. 466, otherwise known as the
beneficiary by confidential or fiduciary National Internal Revenue Code. According to Sec.
relations. The trustee’s possession is, therefore, 84 of the same statute, “the term ‘corporation’
not adverse to the beneficiary, until and unless the includes partnerships, no matter how created or
latter is made aware that the trust has been organized, joint-stock companies, joint accounts,
repudiated. associations or insurance companies, but does not
include duly registered general co-partnerships.”
But in constructive trusts, there is neither promise
nor fiduciary relation. The so-called trustee does Also, Article 1767 of the Civil Code provides:
not recognize any trust and has no intent to “By the contract of partnership, two or more persons
hold for the beneficiary; therefore, the latter is bind themselves to contribute money, property, or
not justified in delaying action to recover his industry to a common fund, with the intention of
property. It is his fault if he delays; hence, he dividing the profits among themselves.” Pursuant to
may be estopped by his own laches. this article, the essential elements of a
partnership are two, namely: (1) an agreement to
Thus, the judgment of dismissal (of the CFI) should contribute money, property or industry to a common
be upheld, because the petitioners’ cause of action fund; and (2) intent to divide the profits among the
to attack the deed and cancel the transfer contracting parties. The first element is undoubtedly
certificates of title issued to the respondents accrued present in the case at bar, for, admittedly, the
from the year of issuance and recording, 1937, and petitioners have agreed to, and did, contribute
the petitioners have allowed 15 years to elapse money and property to a common fund. Also, it can
before taking remedial action in 1952. Under the old be said that their purpose was to engage in real
Code of Civil Procedure, in force at the time, the estate transactions for monetary gain and then
longest period of extinctive prescription was only 10 divide the same among themselves because: (1)
years. they created the common fund purposely; (2) they
invested the same, not merely in one transaction,
but in a series of transactions; (3) the parcels of land
that they bought were not devoted to residential
purposes, or to other personal uses of the petitioners
but were leased separately to several persons; (4)
the properties have been under the management of
one person, namely Simeon Evangelista, making the
Facts: The petitioners borrowed from their father
affairs relative to the said properties appear to have
PhP59,140.00 which amount together with their
been handled as if the same belonged to a
personal monies was used by them for the purpose
corporation or business enterprise operated for
of buying and selling real properties. From 1943 to
profit; and (5) the petitioners have not testified or
1944, they bought 24 parcels of land (including the
introduced any evidence, either on their purpose in
improvements thereon) on four different occasions.
creating the set up already adverted to, or on the
In 1945, they appointed their brother Simeon to
causes for its continued existence.
manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefore;
Hence, the petitioners herein constitute a
in default of such payment, to bring suits against the
partnership, and in so far as the National Internal
defaulting tenant; and to endorse and deposit all
Revenue Code is concerned, they are subject to the
notes and checks for them. In 1948, their net rental
income tax for corporations.
income amounted to PhP12,615.35.

On September 1954, the respondent Collector of I. As regards to the residence tax for
Internal Revenue demanded the payment of (1) corporations provided Sec. 2 of
income tax on corporations, (2) real estate dealer’s Commonwealth Act No. 4651, the terms
fixed tax, and (3) corporation residence tax for the “corporation” and “partnership” are used in
years 1945-1949, computed according to the both statutes with substantially the same
assessments made on their properties. meaning. Consequently, petitioners are
subject, also, to the residence tax for
Because of this, the petitioners filed a case against corporations.
the respondents in the Court of Tax Appeals, praying
that the decision of the respondent contained in its
letter of demand be reversed and that they be
absolved from the payment of the taxes in question. Entities liable to residence tax—Every
corporation, no matter how created or
Issue: Whether the petitioners are subject to the organized, whether domestic or resident
tax on corporations, real estate dealer’s fixed tax, foreign, engaged in or doing business in the
and corporation residence tax. Philippines shall pay an annual residence tax of
five pesos and an annual additional tax, which
Court of Tax Appeals: The petitioners are liable.
(No explanation for such in the case) in no case, shall exceed one thousand pesos,
in accordance with the following schedule: * * *
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
II. Lastly, the records show that the petitioners Defendant’s Position: The real agreement
have habitually engaged in leasing the between plaintiff and defendant was one of lease and
properties for a period of 12 years, and that not of partnership; that the partnership was adopted
the yearly gross rentals of the said as a subterfuge to get around the prohibition
properties from 1945 to 1948 ranged from contained in the contract of lease between the
PhP9,599.00 to PhP 17,453.00. Thus, they owners and the plaintiff against the sublease of the
are subject to the tax provided in Section property.
193 (q) of our National Internal Revenue
Code, for “real estate dealers,” inasmuch Trial Court: Dismissal. It is not true that a
as, pursuant to Section 194 (s) thereof: partnership was created between them because
defendant has not actually contributed the sum
“Real estate dealers include any person engaged mentioned in the Articles of Partnership or any other
in the business of buying, selling, exchanging, amount. The agreement is a lease because plaintiff
leasing, or renting property of his own account as didn’t share either in the profits or in the losses of
principal and holding himself out as full ro part-time the business as required by Art 1769 (CC) and
dealer in real estate or as an owner of rental because plaintiff was granted a “guaranteed
property or properties rented or offered to rent for an participation” in the profits belies the supposed
aggregate amount of three thousand pesos or more existence of a partnership.
a year. * * *”
Issue: Was the agreement a contract a lease or a

YULO V. YANG CHIAO SENG Ruling: Dismissal. The agreement was a sublease not
a partnership. The following are the requisites of
Facts: Yang Chiao Seng proposed to form a partnership: (1) two or more persons who bind
partnership with Rosario Yulo to run and operate a themselves to contribute money, property or
theatre on the premises occupied by Cine Oro, Plaza industry to a common fund; (2) the intention on
Sta. Cruz, Manila, the principal conditions of the offer the part of the partners to divide the profits among
being (1) Yang guarantees Yulo a monthly themselves (Article 1761, CC)
participation of P3,000 (2) partnership shall be for a
period of 2 years and 6 months with the condition Plaintiff did not furnish the supposed P20,000 capital
that if the land is expropriated, rendered nor did she furnish any help or intervention in the
impracticable for business, owner constructs a management of the theatre. Neither has she
permanent building, then Yulo’s right to lease and demanded from defendant any accounting of the
partnership even if period agreed upon has not yet expenses and earnings of the business. She was
expired; (3) Yulo is authorized to personally conduct absolutely silent with respect to any of the acts that
business in the lobby of the building; and (4) after a partner should have done; all she did was to
Dec 31, 1947, all improvements placed by receive her share of P3,000 a month which cannot be
partnership shall belong to Yulo but if partnership is interpreted in any manner than a payment for the
terminated before lapse of 1 and ½ years, Yang shall use of premises which she had leased from the
have right to remove improvements. Parties owners.
established, “Yang and Co. Ltd.”, to exist from July 1,
1945 – Dec 31, 1947.

In June 1946, they executed a supplementary ESTANISLAO, JR. VS. COURT OF APPEALS
agreement extending the partnership for 3 years
beginning Jan 1, 1948 to Dec 31, 1950. Facts: The petitioner and private respondents are
brothers and sisters who are co-owners of certain
The land on which the theater was constructed was lots at the in Quezon City which were then being
leased by Yulo from owners, Emilia Carrion and Maria leased to SHELL. They agreed to open and operate a
Carrion Santa Marina for an indefinite period but that gas station thereat to be known as Estanislao Shell
after 1 year, such lease may be cancelled by either Service Station with an initial investment of
party upon 90-day notice. In Apr 1949, the owners PhP15,000.00 to be taken from the advance rentals
notified Yulo of their desire to cancel the lease due to them from SHELL for the occupancy of the
contract come July. Yulo and husband brought a civil said lots owned in common by them. A joint affidavit
action to declare the lease for a indefinite period. was executed by them on April 11, 1966. The
Owners brought their own civil action for ejectment respondents agreed to help their brother, petitioner
upon Yulo and Yang. therein, by allowing him to operate and manage the
gasoline service station of the family. In order not to
CFI: Two cases were heard jointly; Complaint of Yulo run counter to the company’s policy of appointing
and Yang dismissed declaring contract of lease only one dealer, it was agreed that petitioner would
terminated. apply for the dealership. Respondent Remedios
helped in co-managing the business with petitioner
CA: Affirmed the judgment. from May 1966 up to February 1967.

In 1950, Yulo demanded from Yang her share in the On May 1966, the parties entered into an Additional
profits of the business. Yang answered saying he had Cash Pledge Agreement with SHELL wherein it was
to suspend payment because of pending ejectment reiterated that the P15,000.00 advance rental shall
suit. be deposited with SHELL to cover advances of fuel to
petitioner as dealer with a proviso that said
Yulo filed present action in 1954, alleging the agreement “cancels and supersedes the Joint
existence of a partnership between them and that Affidavit.”
Yang has refused to pay her shares.

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PARTNERSHIP Digests  Atty. Cochingyan
For sometime, the petitioner submitted financial Furthermore, there are other evidences in the record
statement regarding the operation of the business to which show that there was in fact such partnership
the private respondents, but thereafter petitioner agreement between parties. The petitioner
failed to render subsequent accounting. Hence , the submitted to the private respondents periodic
private respondents filed a complaint against the accounting of the business and gave a written
petitioner praying among others that the latter be authority to the private respondent Remedios
ordered: Estanislao to examine and audit the books of their
“common business” (aming negosyo). The
(1) To execute a public document embodying respondent Remedios, on the other hand, assisted in
all the provisions of the partnership the running of the business. Indeed, the parties
agreement they entered into; hereto formed a partnership when they bound
themselves to contribute money in a common fund
(2) To render a formal accounting of the with the intention of dividing the profits among
business operation veering the period from themselves.
May 6, 1966 up to December 21, 1968, and
from January 1, 1969 up to the time the
order is issued and that the same be subject
to proper audit;

(3) To pay the plaintiffs their lawful shares and IN THE MATTER OF THE PETITION FOR
participation in the net profits of the AUTHORITY TO CONTINUE USE OF THE FIRM
business; and NAME ‘OZAETA, ROMULO, ETC.

(4) To pay the plaintiffs attorney’s fees and Facts: Two petitions were filed, one by the surviving
costs of the suit. partners of Atty. Herminio Ozaeta and the other by
the surviving partners of Atty. Alexander Sycip
Issue: Can a partnership exist between members of praying that they be allowed to continue using the
the same family arising from their joint ownership of names of partners who had passed away in their firm
certain properties? names. Both petitions were consolidated.

Trial Court: The complaint (of the respondents) was Petitioners Arguments:
dismissed. But upon a motion for reconsideration of
the decision, another decision was rendered in favor • Under the law, a partnership is not prohibited
of the respondents. from continuing its business under a firm name
which includes the name of a deceased
CA: Affirmed in toto partner. In fact, art. 1840 of the civil code
explicitly sanctions the practice.
Petitioner: The CA erred in interpreting the legal • In regulating other professions, such as
import of the Joint Affidavit vis-à-vis the Additional accountancy and engineering, the legislature
Cash Pledge Agreement. Because of the stipulation has authorized the adoption of firm names
cancelling and superseding the Joint Affidavit, without any restriction as to the use, in such
whatever partnership agreement there was in said firm name, of the name of the deceased
previous agreement had thereby been abrogated. partner, the legislative authorization given to
Also, the CA erred in declaring that a partnership was those engaged in the practice of accountancy –
established by and among the petitioner and the a profession requiring the same degree of trust
private respondents as regards the ownership and /or and confidence in respect of clients as that
operation of the gasoline service station business. implicit in the relationship of attorney and
client – to acquire and use a trade name,
Held: There is no merit in the petitioner’s contention strongly indicates that there us no fundamental
that because of the stipulation cancelling and policy that is offended by the continued use by
superseding the previous joint affidavit, whatever a firm of professionals of a firm name which
partnership agreement there was in said previous included the name of a deceased partner, at
agreement had thereby been abrogated. Said least where such firm name has acquired the
cancelling provision was necessary for the Joint characteristics of a ‘trade name’
Affidavit speaks of P15,000.00 advance rental • The Canon of Professional Ethics are not
starting May 25, 1966 while the latter agreement transgressed by the continued use of the name
also refers to advance rentals of the same amount of a deceased partner in the firm name of a law
starting May 24, 1966. There is therefore a partnership as declared by Canon 33 adopted
duplication of reference to the P15,000.00 hence the by American Bar Association declaring that
need to provide in the subsequent document that it ‘The continued use of the name of a deceased
“cancels and supercedes” the previous none. or former partner when permissible by local
Indeed, it is true that the latter document is silent as custom, is not unethical, but care should be
to the statement in the Join Affidavit that the value taken that no imposition or deception is
represents the “capital investment” of the parties in practiced through this use.’
the business and it speaks of the petitioner as the • There is no possibility of imposition or
sole dealer, but this is as it should be for in the latter deception because the deaths of their
document, SHELL was a signatory and it would be respective deceased partners were well –
against their policy if in the agreement it should be publicized in all newspapers of general
stated that the business is a partnership with private circulation for several days.
respondents and not a sole proprietorship of the • No local custom prohibits the continued use of
petitioner. a deceased partner’s name in a professional
firm name; and

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PARTNERSHIP Digests  Atty. Cochingyan
• The continued use of a deceased partner’s custom is properly established by competent
name in the firm name of law partnerships has evidence like any other fact. Merely because
been consistently allowed by U.S. Courts and is something is done as a matter of practice does
an accepted practice in legal profession of not mean that Courts can rely on the same for
most countries in the world. purposes of adjudication as a juridical custom.
Juridical custom must be differentiated from
social custom. The former can supplement
Issue: Whether or not a firm name engaged in the statutory law or be applied in the absence of
legal profession should continue using the name of such statute. Not so with the latter.
partners who had passed away.


• The use in partnership names of the names of Facts: Menzi Co. was organized in 1921 for the
deceased partners will run counter to Article purpose of importing and selling general
1825 of the CC which provides that names in a merchandise, including fertilizers and fertilizer
firm name of a partnership must either be those ingredients. Sometime in November of that year, the
of living partners and, in the case of non – plaintiff, who had had some experience in mixing and
partners, should be living persons who can be selling fertilizer, went to see Toehl, the manager of
subjected to liability. In fact, art. 1825 prohibits the sundries department of Menzi & Co. (through
a third person from including his name in the which the fertilizer business was carried out) and told
firm name under pain of assuming the liability of him that he had a written contract with the Philippine
a partner. The heirs of a deceased partner in a Sugar Centrals Agency for 1,250 tons of mixed
law firm cannot be held liable as the old fertilizers, and that he could obtain other contracts,
members to the creditors of a firm particularly including one from Calamba Sugar Estates for 450
where they are non-lawyers. With regard to art. tons, but that he did not have the money to buy the
1840, it treats more of a commercial partnership ingredients to fill the order and carry on the
with a good will to protect rather than a business. He offered to assign to Menzi & Co. his
professional partnership, with no saleable good contract with Phil Sugar Centrals Agency and to
will but whose reputation depends on the supervise the mixing of the fertilizer and to obtain
personal qualifications of its individual members. other orders for 50 % of the net profit that Menzi &
Thus, it has been held that a saleable goodwill Co., Inc., might derive therefrom. J. M. Menzi (gen.
can exist only in a commercial partnership and manager of Menzi & Co.) accepted the offer. The
cannot arise in a professional partnership agreement between the parties was verbal and was
consisting of lawyers. confirmed by the letter of Menzi to the plaintiff on
• A partnership for the practice of law cannot be January 10, 1922.
likened to partnerships formed by other
professionals or for business. For one thing, the Menzi & Co. continued to carry on its fertilizer
law on accountancy specifically allows the use of business under this arrangement with the plaintiff. It
a trade name in connection with the practice of ordered ingredients from the US and other countries,
accountancy. ‘A partnership for the practice of and the interest on the drafts for the purchase of
law is not a legal entity. It is a mere relationship these materials was charged to the business as a
or association for a particular purpose.’ It is not a part of the cost of the materials. The mixed
partnership formed for the purpose of carrying in fertilizers were sold by Menzi & Co. between January
a trade or business or of holding property. Thus, 19 and April 1, 1922 under its “Corona” brand.
it has been stated that the used of an assumed
or trade name in law practice is improper. Pursuant to the verbal agreement, the defendant
• The right to practice law is not a natural or corporation on April 27, 1922 entered into a written
constitutional right but is in the nature of a contract with the plaintiff, marked Exhibit A, which is
the basis of the present action. Still, the fertilizer
privilege or franchise. It is limited to persons of
business as carried on in the same manner as it was
good moral character with special qualifications
prior to the written contract, but the net profit that
duly ascertained and certified. The right does
the plaintiff herein shall get would only be 35%. The
not only presuppose in its possessor integrity,
intervention of the plaintiff was limited to supervising
legal standing and attainment but also the
the mixing of the fertilizers in the bodegas of Menzi.
exercise of a special privilege, highly personal
The trademarks used in the sale of the fertilizer were
and partaking of the nature of a public trust.
registered in the Bureau of Commerce & Industry in
• The continued use of a deceased or former
the name of Menzi & Co., Inc. and the fees were paid
partner’s name in the firm names of law
by that company.
partnerships not sanctioned by local custom due
to the possibility of deception upon the public
Prior to the expiration of the contract (April 27,
where the name of a deceased partner continues
1927), the manager of Menzi notified the plaintiff
to be used. The possibility of deception upon the
that the contract for his services would not be
public, real or consequential, where the name of
renewed. Subsequently, when the contract expired,
a deceased partner continues to be used cannot
Menzi proceeded to liquidate the fertilizer business in
be ruled out. A person in search of legal counsel
question. The plaintiff refused to agree to this. It
might be guided by the familiar ring of a
argued, among others, that the written contract
distinguished name appearing in a firm title. In
entered into by the parties is a contract of general
addition, there’s no local custom within our
regular commercial partnership, wherein Menzi was
jurisdiction that sanctions the practice of
the capitalist and the plaintiff the industrial partner.
continued use of a deceased partner’s name.
Courts take no judicial notice of custom. A local
custom as a source of right cannot be Issue: Is the relationship between the petitioner and
considered by a court of justice unless such Menzi that of partners?

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PARTNERSHIP Digests  Atty. Cochingyan
Held: The relationship established between the Issue: W/N petitioners are deemed to have formed
parties was not that of partners, but that of employer an unregistered partnership subject to tax under
and employee, whereby the plaintiff was to receive sections 24 and 84(b) of the National Internal
35% of the net profits of the fertilizer business of Revenue code.
Menzi in compensation for his services for
supervising the mixing of the fertilizers. Neither the Ruling: YES
provisions of the contract nor the conduct of the
parties prior or subsequent to its execution justified • For tax purposes, the co – ownership of
the finding that it was a contract of co-partnership. inherited properties is automatically converted
The written contract was, in fact, a continuation of into unregistered partnership the moment the
the verbal agreement between the parties, whereby said common properties and/or incomes
the plaintiff worked for the defendant corporation for derived therefrom are use as a common fund
one-half of the net profits derived by the corporation with the intent to produce profits for the heirs
form certain fertilizer contracts. in proportion to their respective shares in the
inheritance as determined in a project
According to Art. 116 of the Code of Commerce, partition. This is because from the moment of
articles of association by which two or more persons such partition, the heirs are entitled already to
obligate themselves to place in a common fund any their respective definite shares of estate and
property, industry, or any of these things, in order to the incomes thereof, for each of them to
obtain profit, shall be commercial, no matter what it manage and dispose of as exclusively his own
class may be, provided it has been established in without the intervention of the other heirs and
accordance with the provisions of the Code. accordingly he becomes liable individually for
However in this case, there was no common fund. all taxes in connection therewith. If after such
The business belonged to Menzi & Co. The plaintiff partition, he allows his share to be held in
was working for Menzi, and instead of receiving a common with his co – heirs under a single
fixed salary, he was to receive 35% of the net profits management to be used with the intent of
as compensation for his services. The phrase in the making profit thereby in proportion to his
written contract “en sociedad con”, which is used as share, there can be no doubt that even if no
a basis of the plaintiff to prove partnership in this document or instrument were executed for the
case, merely means “en reunion con” or in purpose, for tax purposes at least, an
association with. unregistered partnership is formed.
• The income derived from inherited properties
It is also important to note that although Menzi may be considered as individual income of the
agreed to furnish the necessary financial aid for the respective heirs only so long as the inheritance
fertilizer business, it did not obligate itself to or estate is not distributed or, at least,
contribute any fixed sum as capital or to defray at its partitioned, but the moment their respective
own expense the cost of securing the necessary know shares are used as part of the common
credit. assets of the heirs to be used in making profits,
it is but proper that the income of such shares
should be considered as part of the taxable
income of an unregistered partnership.
OÑA VS. COMMSSIONER OF INTERNAL REVENUE • For purposes of the tax on corporations, the
National Internal Revenue Code, includes
Facts: Lorenzo Oña and his five children are the partnerships with the exception only of duly
surviving heirs of Julia Buñales. Lorenzo, the registered general co-partnerships within the
surviving spouse was appointed administrator of purview of the term ‘corporation.’
Julia’s estate. He submitted the project of partition
which was approved by the court and since 3 of the 5
children were still minors, he was appointed by the LYONS VS. ROSENSTOCK
court as guardian of said minors. Despite the
approval of the project of partition, no attempt was Facts: During his lifetime, Henry Elser got engaged
made to divide the properties therein listed and in the real estate business. Petitioner Lyons, on the
remained under the management of Lorenzo who other hand, joined Elser in some of his ventures and
used said properties in business by leasing or selling they equally divided profits gained from these. In
them and investing the income derived therefrom 1919, Lyons needed to go back to the United States
and proceeds form the sales thereof in real for a year and a half and by reason of which he
properties and securities. Respondent CIR decided executed a general power of attorney in favor of
that petitioners formed an ‘unregistered partnership’ Elser, empowering the latter to manage and dispose
and therefore subject to corporate tax pursuant to the properties owned by them.
Sec. 24 of the Tax Code. Accordingly he assessed
against the petitioners the amounts of P8,092.00 and In 1920, Elser was drawn to a piece of land,
P13.899.00 as corporate income taxes for 1955 and the San Juan Estate, and he perceived an opportunity
1956 respectively. Petitioners protested against the to develop it into a suburban community. The Estate
assessment and asked for reconsideration which was was offered by its owners for P570,000 with an initial
denied. payment of P150,000. In May 1920, Elser wrote a
letter to Lyons inducing the latter to join him in this
Petitioners’ Argument: Petitioners are considered venture and to likewise supply the means necessary
as co – owners of the properties inherited by them for the fulfillment of this project. In the meantime,
from the deceased Julia Buñales and the profits Elser raised P120,000 from his own funds and loaned
derived from transactions involving the same, they P50,000 from Uy Siolong to pay for the initial
cannot be considered as an unregistered partnership payment. However in order to obtain the loan he had
and cannot be subject to corporate tax. to give a personal note signed by himself, by his
other associates and by the Fidelity and Surety

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
Company. Then again, in order to obtain the by plaintiff for casco No. 1515, but claims that he
signature of the Fidelity and Surety Company Elser merely borrowed the P300 on his individual account
had to execute a mortgage on one of the properties from the bakery business in which plaintiff was a co-
owned by him and Lyons on Carriedo Street. partner. And as for the P825 furnished by the
plaintiff, the defendant claims that it was actually for
Lyons replied to the letter of Elser only in casco No. 1515 and not for casco No. 2089. He also
July 1920 and he expressed in it his unwillingness to added that the repairs made on the two cascoes
join the latter in this venture. Because of this Elser were exclusively borne by him, and that he returned
relieved the Carriedo property of the encumbrance a sum of P1,125 to plaintiff with an express
which he had placed upon it and requested the reservation on his part of all his rights as a partner.
Fidelity and Surety Company to allow him to
substitute another property for it. However the Issue: a) W/N a partnership existed between the
release of the old mortgage and the recording of the parties. Yes.
new were never registered because in September b) W/N the partnership was terminated when the
1920, when Lyons returned to Manila, he allowed the defendant returned the P1,125 to plaintiff. No.
mortgage to remain on the Carriedo property. But in
January 1921, Elser was able to pay the note Held: a) The essential points upon which the minds
executed by him to Uy Siolong which enabled the of the parties must meet in a contract of partnership
release of the Carriedo Property. are 1) mutual contribution and 2) joint interest in the
Issue: W/N Lyons, as half owner of the Carriedo
property, involuntarily became the owner or a co- The fact that the defendant received money
partner of an undivided interest in the San Juan furnished by the plaintiff for the purpose of using it to
Estate, which was acquired partly by the money purchase the cascoes establishes the first element of
obtained through an encumbrance placed on the the partnership, mutual contribution to a common
Carriedo property. No. stock. For the second element, the fact that the
formation of partnership had been a subject of
Held: Under our law, a trust does not necessarily negotiation between them, even before the purchase
attach with respect to property acquired by a person of the first casco, and that both parties intended to
who uses money belonging to another. In the case at purchase the cascoes in common satisfies the
bar, there was clearly no general relation of requirement that there should be an intention on the
partnership between Lyons and Elser and the most part of both parties to share the profits. With these, a
that can be said is that they had been co-participants complete and perfect contract of partnership was
in various transactions involving real estate. It is entered into by the parties.
clear the Elser, in buying the San Juan Estate, was
not acting for any partnership composed for himself It must be noted however that this
and Lyons, especially that the latter expressly partnership was subject to a suspensive condition
communicated his desire not to participate in this which is the execution of a written agreement
venture. Lastly, it should be noted that no money regarding the distribution of profits, character of
belonging to Lyons or any partnership composed by partnership, etc. But since the defendant actually
Lyons and Elser was in fact used by the latter in the purchased the cascoes, it would seem that the
purchase of the San Juan Estate. partnership already existed. And as furthermore
provided by the Civil Code, a written agreement was
not necessary in order to give efficacy to the verbal
agreement of the partnership because the
FERNANDEZ VS. DE LA ROSA contributions of the partners to the partnership were
not in the form of immovables.
Facts: On the part of plaintiff Fernandez, he claims
that he entered into a verbal agreement with b) During trial, the court was able to prove that
defendant De la Rosa to form a partnership for the plaintiff actually furnished some amount for the
purchase of cascoes with the undertaking that the repair of the cascoes and that it was presumed that a
defendant will buy the cascoes and that each partner profit has been obtained by the defendant prior to
will furnish such amount as he could, while the the return of the money. With these, the return of the
profits will be divided proportionately. Plaintiff P1,125 fell short of the amount which the plaintiff
furnished P300 for casco No. 1515 and P825 for has actually contributed to the partnership. For these
casco No. 2089, both of which were placed under the reasons, the acceptance by the plaintiff of the
name of the defendant only. In April 1900, the amount returned by the defendant did not have the
parties undertook to draw up articles of their effect of terminating the legal existence of the
partnership for the purpose of embodying it in an partnership by converting it into a societas leonina.
authentic document. The agreement however did not
materialize because defendant proposed articles The court also proved that there was no
which were materially different from their verbal intention on the part of the plaintiff, in accepting the
agreement, and he was also unwilling to include money, to relinquish his rights as a partner. On the
casco No. 2089 in the partnership. Because the contrary he notified defendant that he waived none
cascoes were under the management of the of his rights in the partnership. Also the lack of
defendant, the plaintiff demanded an accounting recognition on the part of the defendant of the
over it to which the defendant refused claiming that plaintiff’s right in the partnership property and in the
no partnership existed between them. profits does not give the former the right to force a
dissolution upon the later upon the terms which the
De la Rosa, on the other hand, admits that plaintiff is unwilling to accept. A partnership
he desired to form a partnership with the plaintiff but therefore existed between the two and cascoes No.
denies that any agreement was ever consummated. 1515 and 2089 are partnership properties.
Moreover, he denied receiving any money furnished

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PARTNERSHIP Digests  Atty. Cochingyan
WOODHOUSE VS. HALILI b) Article 1270 of the Spanish Civil Code
distinguished two kinds of fraud, causal fraud, which
Facts: Defendant Halili informed Woodhouse, may be a ground for the annulment of a contract,
plaintiff, of his desire to invest half a million dollars in and the incidental fraud, which only renders the
the bottling and distribution of Mission Soft Drinks. party who employs it liable for damages.
Woodhouse then relayed this message to Mission Dry
Corporation of Los Angeles, USA. Mission Dry As founded by the SC the
Corporation then gave plaintiff a thirty day option on misrepresentation of plaintiff does not amount to
exclusive bottling and distribution rights in the causal fraud because it was not the principal
Philippines (Exhibit J). inducement that led the plaintiff to enter into the
partnership agreement. As it was already noted, both
Thereafter, plaintiff and defendant entered parties expressly agreed that they shall form a
into a written agreement with the ff. pertinent partnership.
provisions: 1) they shall organize a partnership for
the bottling and distributing of Mission soft drinks, Lastly, the SC upheld the ruling of the trial
with plaintiff, Woodhouse, as industrial partner or court that the defendant may not be compelled
manager, and defendant, Halili, as capitalist; against his will to carry out the partnership. The law
2)defendant was to decide matters of general policy recognizes the individual’s freedom or liberty to do
regarding the business, while plaintiff was to attend an act he has promised to do or not to do it as he
the operation and development of the bottling plant; pleases.
3) plaintiff was to secure Mission soft drinks franchise
for and in behalf of the proposed partnership; and 4)
plaintiff was to receive 30 percent of the net profits
of the business. This contract was signed and the
parties to this case then went to the United States to ROJAS VS. MAGLANA
finalize the franchising agreement. Mission Dry
Corporation then granted the defendant the FACTS: Maglana and Rojas executed their Articles of
exclusive right, license, and authority to produce, Co-partnership called “Eastcoast Development
bottle, distribute and sell Mission beverages in the Enterpises” which had an indefinite term of existence
Philippines. and was registered with the SEC and had a Timber
License. One of the EDE’s purposes was to apply or
When both parties went back to the secure timber and/or private forest lands and to
Philippines, the bottling plant began its operation. At operate, develop and promote such forests rights
first, plaintiff was given advances, on account of the and concessions. M shall manage the business affairs
profits, and allowances which however ceased after while R shall be the logging superintendent. All
two months. Moreover, when plaintiff demanded that profits and losses shall be divided share and share
the partnership papers be executed, defendant alike between them.
refused to do so and instead suggested that they just
enter into a settlement. As no settlement was Later on, the two availed the services of Pahamotang
reached, the plaintiff filed a complaint in the CFI. as industrial partner and executed another articles of
co-partnership with the latter. The purpose of this
In the CFI, plaintiff asks for execution of the second partnership was to hold and secure renewal
contract of partnership, accounting of the profits and of timber license and the term of which was fixed to
a share thereof of 30 percent. Defendant on his 30 years.
defense claims that plaintiff misrepresented himself
that he was about to become the owner of an Still later on, the three executed a conditional sale of
exclusive bottling franchise when in fact franchise interest in the partnership wherein M and R shall
was exclusively given to defendant, and that the purchase the interest, share and participation in the
plaintiff failed to contribute to the exclusive franchise partnership of P. It was also agreed that after
of the partnership. CFI ordered defendant to render payment of such including amount of loan secured
an accounting of the profits of the business and to by P in favor of the partnership, the two shall become
pay plaintiff 15 percent thereof. But it held that the owners of all equipment contributed by P. After this,
execution of the contract could not be enforced and the two continued the partnership without any
the defense of fraud was not proved. Unsatisfied with written agreement or reconstitution of their articles
this ruling, both parties appealed to the SC. of partnership.

Issue: a) W/N plaintiff falsely represented that he had Subsequently, R entered into a management
an exclusive franchise to bottle Mission beverages. contract with CMS Estate Inc. M wrote him re: his
Yes. b) W/N this false representation amounts to contribution to the capital investments as well as his
fraud and may annul the agreement to form a duties as logging superintendent. R replied that he
partnership will not be able to comply with both. M then told R
that the latter’s share will just be 20% of the net
Held: a) As found by the SC, Exhibit J was used by profits. Such was the sharing from 1957 to 1959
plaintiff as an instrument with which to bargain with without complaint or dispute. R took funds from the
the defendant and to close a deal with him, because partnership more than his contribution. M notified R
if plaintiff claimed that all he had was an option to that he dissolved the partnership. R filed an action
exclusively bottle and distribute Mission soft drinks in against M for the recovery of properties and
the Philippines, he would have probably lost the deal accounting of the partnership and damages.
itself. This is further supported by the fact that when
defendant learned that plaintiff did not have an CFI: the partnership of M and R is after P retired is
exclusive franchise, he reduced plaintiff’s one of de facto and at will; the sharing of profits and
participation in the profit to 15 percent, to which the losses is on the basis of actual contributions; there is
plaintiff agreed. no evidence these properties were acquired by the

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PARTNERSHIP Digests  Atty. Cochingyan
partnership funds thus it should not belong to it; of good faith or bad faith. Remanded the case to the
neither is entitled to damages; the letter of M in HO to determine rights and obligations of parties.
effect dissolved the partnership; sale of forest
concession is valid and binding and should be CA: affirmed in toto the SEC decision and that there
considered as M’s contribution; R must pay or turn is no need for the appointment of a receiver as no
over to the partnership the profits he received from sufficient proof had been shown to indicate that the
CMS and pay his personal account to the partnership; partnership assets were in any such danger of being
M must be paid 85k which he should’ve received but lost, removed or materially impaired.
was not paid to him and must be considered as his
contribution. ISSUES: whether it was a partnership at will;
whether M’s withdrawal dissolved the partnership;
ISSUE: what is the nature of the partnership and whether such withdrawal was made in bad faith.
legal relationship of M-R after P retired from the
second partnership? May M unilaterally dissolve the SC: It was a partnership at will as it had not fixed a
partnership? specified period for its undertaking.

SC: There was no intention to dissolve the first It may be dissolved at will by any of the partners but
partnership upon the constitution of the second as if it was done in bad faith, such partner shall be liable
everything else was the same except for the fact that for damages. Upon dissolution, the partnership
they took in an industrial partner: they pursued the continues and its legal personality is retained until
same purposes, the capital contributions call for the the complete winding up of its business culminating
same amounts, all subsequent renewals of Timber in its termination. The liquidation of assets is
License were secured in favor of the first partnership, governed by the CC but an agreement between
all businesses were carried out under the registered parties is binding upon them.
It was not done out of bad faith as it was spurred by
M and R agreed to purchase the interest, share and an interpersonal conflict among the partners.
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
Facts: Angeles spouses filed a criminal complaint of
may be done by expressly withdrawing even before
estafa against Mercado as they claim that M
expiration of the period with or without justifiable
convinced them to enter into a contract of
cause. As to the liquidation of the partnership it shall
antichresis covering 8 parcels of land. Said contract
be divided “share and share alike” after an
was to last for 5 years with PHP210k as
accounting has been made.
consideration. It was agreed that M was to administer
the lands and complete the paperwork. After 3 years,
R is not entitled to any profits as he failed to give the
the A spouses asked for an accounting. M explained
amount he had undertaken to contribute thus, had
that the land earned PHP46k + in 1993, trees bore
become a debtor of the partnership.
no fruit in 1994 and had not given and accounting in
1995. Only after this demand had they discovered
M cannot be liable for damages as R abandoned the that M had put the contract of antichresis over the
partnership thru his acts and also took funds in an land under his and his spouse’s names.
amount more than his contribution.
M insists that there exists an industrial partnership
between him and his spouse as industrial partners
and the A spouses as financiers. This had existed
ORTEGA VS CA since 1991 before the contract of antichresis over the
land. M used his earnings as part of the business
FACTS: The law firm of R,L,S and C was duly capital which he entered into, under his name, in
registered in the Mercantile Registry and behalf of the A spouses. M attached bank receipts
reconstituted with the SEC. There were several showing deposits in behalf of E. Angeles and
amendments to its articles of partnership. contracts under his name for the A spouses. O.
Respondent-Appellees senior and junior partners Angeles stated that there was a written industrial
associated themselves together. Ortega informed partnership agreement wherein capital would come
them through a letter that he is retiring from the firm from A spouses while profit would be divided evenly
of Bito, Misa and Lozada regarding the liquidation of between M and the A spouses.
his participation in it. He later on filed with the SICD a
petition for dissolution and liquidation of partnership. PROVINCIAL PROSECUTION: dismissed estafa
Hearing Officer: said withdrawal of O did not
dissolve the law partnership and both parties to the On appeal to the SOJ, the A spouses insist that the
case are enjoined to abide by the provisions of the document evidencing the contract of antichresis was
Agreement re: the liquidation of the shares of any executed in the name of the M spouses instead of
retiring or withdrawing partner. the A spouses. This document alone proves M’s
misappropriation of their PHP210k.
SEC: reversed the decision ruling that the withdrawal
had in fact dissolved the partnership of BML as a SOJ: Dismissed appeal. A spouses failed to show
partnership at will, the law firm can be dissolved by sufficient proof that M deliberately deceived them in
any partner at anytime by his withdrawal regardless the antichresis transaction. The document alone in
the name of the M spouses failed to convince the SOJ

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PARTNERSHIP Digests  Atty. Cochingyan
that there was deceit of false representation on the the contract (Art. 1797). In the absence of stipulation
part of M to induce the A spouses to part with their the share of each partner in profits and losses shall
money. [A partnership truly existed and it is clear be in proportion to what he may have contributed
from the fact that they contributed money to a BUT the industrial partner shall not be liable for
common fund and divided the profits among losses. As for profits, the industrial partner shall
themselves. M was able to make deposits for the receive such share as may be just and equitable. If
account of A spouses, these represented their share besides his services he contributed capital, he shall
in the profits of their business venture. During the also receive a share in the profits proportionate to
barangay conciliation A spouses acknowledged their his capital.
joint business ventures with M.] There is no estafa
when money is delivered by a partner to his co- Petitioners: JVA and partnership is void under
partner on the representation that such shall be Art 1773, because the parties didn’t make, sign or
applied to the business of their partnership. attach to the public instrument and inventory of the
real property. JVA is void under Art 1422 because
ISSUES: whether a partnership existed even without it is the direct result of an earlier illegal contract
documentary proof; whether there was a which was for the sale of the land without valid
misappropriation by M of the proceeds; whether a consideration. Respondent is liable for failure to
filing information of estafa should be ordered. implement the project.

SC: The A spouses contributed money to the ISSUE: Should the partnership be declared void?
partnership and not to the land. Mere failure to
register the contract of partnership with SEC does SC: Petition Denied. CA Affirmed.
not invalidate it as long as it has the essential
requisites of a contract. Registration is mere notice The Agreement indubitably shows the existence of a
to third parties. A spouses admit to facts that prove partnership pursuant to Art. 1767. Petitioners would
existence of a partnership: a contract showing an contribute land, respondents would provide the
industrial partnership, contribution of money and industry and expenses and the income would be
industry to a common fund, and division of profits divided.
between A spouses and M.
Contracts bind the parties to the stipulations and
M satisfactorily explained that the documents were in necessary consequences. Courts are not authorized
his name as the A spouses do not want to be the extricate parties from the consequences of their
revealed as financiers. A spouses were not able to acts should the stipulations turn out to be financially
prove that there was deceit or false representation disadvantageous.
on his part for them to part with their money.
Art 1773 was intended primarily to protect 3rd
Accounting of proceeds not proper subject in this persons who may be defrauded when contracting
case. SOJ did not abuse his discretion in dismissing with the partnership. The case at bar does not
the appeal of the A spouses. involve 3rd parties who may be prejudiced.

Petitioners invoke the allegedly void contract to

claim for 60% of the value of the property thus they
TORRES VS. COURT OF APPEALS can’t deny the contract in one breath and in another
recognize it. The courts may consider the JVA as an
Facts: Petitioners Antonia Torres and Emeteria ordinary contract from which the parties’ rights and
Baring entered into a Joint Venture Agreement (JVA) obligations may be inferred and enforced.
with respondent Manuel Torres for the development
of a parcel of land into a subdivision. The executed a JVA is not void under Art 1422. The consideration for
Deed of Sale in favor of respondent, who had it the sale was the expectation of profits from the
registered in his name. Respondent mortgaged the project—60% of which would go to petitioners.
property to Equitable and obtained a P40,000 loan to
be used for the subdivision dev’t. Petitioners and
Respondent agreed to share the proceeds form the
sale of the subdivided lots. The project did not push
through and the land was foreclosed. Petioners filed
a criminal case of estafa against respondent and his PIONEER INSURANCE & SURETY CORP VS. CA
wife, alleging that the project failed because of
respondent’s lack of funds or means and skills and
Facts: Petitioner Jacob Lim, owner-operator of
because respondent used the loan to fund his
Southern Airlines (SAL) entered in to a contract with
company, Universal Umbrella Co. Respondent
Japan Domestic Airlines (JDA) for the sale and
alleged that that he used the loan to effect a survey
purchase of 2 aircrafts and 1 set of spare parts for
over the lots, secure city council approval, construct
$109k to be paid in installments. Pioneer Insurance
curbs, roads and gutters and enter in to a contract
as surety executed and issued its surety bond in
with an engineering firm to build houses all at an
favor of JDA on behalf of its principal Lim for the
expense of P85,000. Respondents were acquitted
balance. Border Machinery and Heavy Equip. Co.
from the criminal case and petitioners filed the
(BorMaHeCo), Francisco and Modesto Cervantes and
present civil case. The trial court dismissed the case,
Maglana gave some funds used in the purchase or
but the same, on appeal, was remanded for further
aircrafts and spare parts as contribution to new
corporation proposed by Lim to expand his airline
business. They executed 2 indemnity agreements
CA: Petitioners and Respondents had formed a stipulating that the indemnitors principally agree and
partnership for the subdivision dev’t. They must bear bind themselves solidarily to indemnify, hold and
the loss suffered by the partnership in the same save Pioneer from damages, losses, costs, taxes,
proportion as their share in the profits stipulated in
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
penalties, etc. which Pioneer may incur from filed a Manifestation admitting liability and
becoming surety. Lim, (acting under SAL), executed requesting reasonable time to pay. Yao filed an
in favor of pioneer a deed of chattel mortgage as answer waiving his right to cross-ex and present
security, stipulating that Lim was to transfer and evidence. Lim filed an answer with counterclaim and
convey to the surety the 2 aircrafts. Lim defaulted on crossclaim. Trial Court ordered sale of nets at auction
installment payments and JDA asked Pioneer to pay, which were bought by PFGI. Trial Court ruled that a
which Pioneer did in the amount of P298k. Pioneer partnership existed between Lim, Chua and Yao
filed for extrajudicial foreclosure of chattel mortgage based on testimonies, Compromise Agreement,
(to which Cervanteses and Maglana filed a 3rd party declaration of ownership of fishing boats.
claim alleging co-ownership over aircrafts) and
judicial foreclosure with writ of prelim attachment CA: Lim was a partner of Chua and Yao in a fishing
against Lim, Cervanteses, Bormaheco and Maglana. business and may be liable for the fishing nets and
Trial Court held that Lim was liable and dismissed floats purchased for partnership’s use.
Pioneer’s claim against all other defendants.
ISSUE: Whether by their acts, Lim Chua and Yao
CA: Pioneer reinsured its risk of liability under the could be deemed to have entered into a partnership
surety bond in favor of JDA and collected proceeds of
such reinsurance. Pioneer is no longer real party in SC: Petition denied. CA affirmed.
interest to institute action as it does not stand to be
benefited. There existed a partnership between Chua, Yao and
Lim pursuant to Art 1767 based on factual findings of
ISSUES: IS Pioneer a real party in interest? the lower courts which established that they had
decided to engage in a fishing business for which
Was there a de facto partnership created among they bought boats worth P3.35M financed by a loan
Cervantes, Maglana and Lim as a result of their from Jesus Lim, Lim’s brother. In the Compromise
failure to incorporate? Agreement, they were to pay the loan with the
proceeds of the sales of the boats and losses or
SC: Petitioner is not the real party in interest and has excess were to be divided equally. The boats,
no cause of action against respondents. Pioneer, purchase and repair financed by borrowed money fell
having foreclosed the chattel mortgage on the planes under “common fund”. Contribution to such fund
and spare parts no longer has any further action need not be cash or fixed assets—it could be
against defendants as indemnitors to recover any an intangible like credit or industry. The
unpaid balance of the price. partnership extended not only to purchase of the
boat but also to the nets and floats.
Persons who attempt but fail to form a corporation
and who carry on business under the corporate name The Compomise Agreement was not the sole basis of
occupy the position of partners inter se. HOWEVER, the partnership. It was but an embodiment of the
such relation does not necessarily exist, for relationship extant among the parties prior to
ordinarily, persons cannot be made to assume the execution. Petitioner was a partner and not merely a
relation of partners as between themselves when lessor as he entered into a business agreement with
their purpose is that no partnership shall exist. In the Chua and Yao in which debts were undertaken to
instant case, it is clear that Lim never intended to finance the acquisition and upgrading of vessels to
form a corporation with respondents despite his be used in their fishing business. The boat, F/B
representations to them, giving credence to the Lourdes, though registered in Lim’s name was an
cross-claims of respondents saying that they were asset of the of the partnership.
induced and lured to make contributions to a
proposed corporation which was never formed Petitioner benefited from the use of the nets found
because petitioner reneged on their agreement. inside the boat. Those acting on behalf of a
corporation and those benefited by it, knowing it to
No de facto partnership was created among the be without valid existence are held liable as general
parties which would entitle the petitioner to a partners. Technically, Lim did not act on behalf of a
reimbursement of the supposed losses of the corporation. However, having reaped the benefits of
proposed corporation. Petitioner was acting on his the contract entered into by persons whom he
own and not in behalf of his other would be previously had an existing relationship, he is
incorporators in transacting the sale of aircrafts and deemed part of the association and covered by the
spare parts. scope of the doctrine of corporation by estoppel.

A 3rd party who knowing an association to be

uinincorporated, nonetheless treated it as a
corporation and received benefits from it, may be
barred from denying its corporate existence in a suit
LIM TONG LIM VS. PHILIPPINE FISHING GEAR brought against the corporation.

FACTS: On behalf of “Ocean Quest Fishing Corp”

Antonio Chua and Peter Yao entered into a contract CAMPOS RUEDA & CO. VS. PACIFIC
with Phil. Fishing Gear (PFGI) for the purchase of COMMERCIAL CO. ET. AL.
fishing nets. They claimed they were engaged in a
business venture with petitioner Lim who was not a Facts: This case involves the application by the
signatory to the agreement. Chua and Yao failed to petitioner for a judicial decree adjudging itself
pay for the nets and floats. PFGI filed a collection suit insolvent. The limited partnership of Campos Rueda
against Chua, Yao and Lim as general partners & Co. was, and is, indebted to Pacific Commercial
alleging that Ocean Quest was nonexistent. Chua Co., the Asiatic Petroleum Co. and the International

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
Banking Corporation in various sums amounting to caused the cancellation of the transfer certificate of
not less than Php1000.00, payable in the Philippines, title under the private respondent’s name and the
which were not paid more than thirty days prior to issuance of a new certificate of title in the name of
the date of their filing of the application for A.C. Aguila & Sons, Co. Subsequently, the private
involuntary insolvency. The lower court denied the respondent was asked to vacate the premises,
petition because it was not proven, nor alleged, that however she refused. Because of this refusal, A.C.
the members of the aforesaid firm were insolvent at Aguila & Sons, Co. filed an ejectment case against
the time of the application was filed; and that as said her.
partners are personally and solidarily liable for the
consequences of the transaction of partnership, it The MTC ruled in favor of A.C. Aguila & Sons, Co., on
cannot be adjudged insolvent so long as the partners the ground that the private respondent did not
are not alleged and proven to be insolvent. From redeem the subject property before the expiration of
this judgment, the petitioners appeal to the Supreme the 90-day period provided in the MOA. She filed an
Court. appeal before the RTC, but failed again. Then, she
filed a petition for declaration of nullity of a deed of
Issue: Whether or not a limited partnership, such as sale with the RTC. She alleged that the signature of
the petitioner, which has failed to pay its obligations her husband on the deed of sale was a forgery
with three creditors for more than thirty days, may because he was already to be dead when the deed
be held to have committed an act of insolvency, and was supposed to have been executed. It appears
thereby be adjudged insolvent against its will. however that the she filed a criminal complaint for
falsification against the petitioner.
Held: In the Philippines, a limited partnership duly
organized in accordance with law has a personality RTC: DENIED. The plaintiff never questioned
distinct from that of its members. If it commits an receiving from A.C. Aguila & Sons, Co. the sum of
act of bankruptcy, such as that of failing for more P200,000.00 representing her loan from the
than 30 days to pay debts amounting to defendant. Common sense dictates that an
PhP1000.000 or more, it may be adjudged insolvent established lending and realty firm like Aguila would
on the petition of three of its creditors although its not part with Php200,000.00 to the spouses, who are
members may not be insolvent. Under our virtual strangers to it, without simultaneous
Insolvency Law, one of the acts of bankruptcy upon accomplishment and signing of all the required
which an adjudication of involuntary insolvency is documents, more particularly the Deed of Absolute
predicated is the failure of a partnership to pay its Salem to protect its interest.
obligations with three creditors for a period of more
than 30 days. CA: REVERSED. The transaction between the parties
is indubitably an equitable mortgage. Considering
On the contrary, some courts of the United States that the private respondent (vendor) was paid the
have held that a partnership may not be adjudged price which is unusually inadequate (240 sq. m.
insolvent in an involuntary insolvency proceeding subdivision lot for only Php200,000.00 in the year
unless all of its members are insolvent, while others 1991), has retained possession of the property and
have maintained a contrary view. Nevertheless, it has continued paying real taxes over the subject
must be borne in mind that under American common property.
law, partnerships have no juridical personality
independent from that of its members. Petitioner:

Therefore, it having been proven that the partnership 1. He is not the real party in interest but A.C.
Campos Rueda & Co. failed for more than 30 days to Aguila & Sons, Co.;
pay its obligations to the herein respondents, the
partnership have the right to a judicial decree 2. The judgment in the ejectment case is a bar
declaring the involuntary insolvency of said to the filing of the complaint for declaration
partnership. of nullity of a deed of sale in this case; and

3. The contract between the parties is a pacto

de retro sale and not an equitable
AGUILA, JR. VS. CA mortgage.

Facts: The petitioner herein is the manager of A.C. Held: The petition is meritorious. A real party in
Aguila & Sons, Co., a partnership engaged in lending interest is one who would be benefited or injured by
activities, while the private respondent and her late the judgment, or who is entitled to the avails of the
husband were the registered owners of a house and suit. Moreover, under Article 1768 of the New Civil
lot, covered by a transfer certificate of title. Code, a partnership “has a juridical personality
Sometime in 1991, the private respondent and A.C. separate and distinct from that of each of the
Aguila & Sons, Co., represented by the petitioner, partners.” The partners cannot be held liable for the
entered into a Memorandum of Agreement. In this obligations of the partnership unless it is shown that
agreement, a deed of absolute sale shall be executed the legal fiction of a different juridical personality is
by the private respondent in favor of A.C. Aguila & being used for fraudulent, unfair, or illegal purposes.
Sons, Co., giving the former an option to repurchase
and obliging the same to deliver peacefully the In this case, the private respondent ahs not shown
possession of the property to A.C. Aguila & Sons, Co., that A.C. Aguila & Sons, Co., as a separate juridical
within 15 days after the expiration of the said 90 entity, is being used for fraudulent, unfair or illegal
days grace period. purposes. Moreover, the title to the subject property
is in the name of A.C. Aguila & Sons, Co. and the
When the private respondent failed to redeem the MOA was executed between the private respondent,
property within the grace period, the petitioner with the consent of her husband, and A.C. Aguila &
Sons, Co., represented by the petitioner. Hence, it is
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
the partnership, not its officers or agents, which
should be impleaded in any litigation involving
property registered in its name. Villareal vs. Ramirez

We cannot understand why both the RTC and the CA

sidestepped this issue when it was squarely raised
before them by the petitioner. The court’s Facts: Petitioners Luzviminda Villareal, Carmelito
conclusion is that the petitioner is not the real party Jose and Jesus Jose formed a partnership for the
in interest against whom this action should be operation of a restaurant and catering business
prosecuted. It is unnecessary to discuss the other under the name Aquarius Food House and Catering
issues raised by him in his appeal. Services. Villareal was appointed general manager
while Carmelito Jose was the operations manager.
Respondent Donaldo Ramirez joined as partner later
on, his capital contribution of P250,000 was paid by
his parents, respondents Cesar and Carmelita
Ramirez. Jesus Jose decided to withdrew from the
United States vs. Clarin partnership and his capital contribution of P250,000
was refunded to him in cash by agreement of the
partners. Without prior knowledge of respondents,
petitioners closed down the restaurant due to
Facts: Pedro Larin had an agreement to form a increased rental and deposited the restaurant’s
partnership and the divide the profits equally to furniture and equipments to respondents’ house for
Pedro Tarug, Eusebia Clarin, and Carlos De Guzman. storage. The respondent spouses wrote the
Larin delivered to Tarug P172, as his contribution to petitioners that they no longer want to continue their
the partnership, to buy and sell mangoes. Tarug, partnership or in reopening the restaurant and that
Clarin, and De Guzman were able to obtain P203 they were accepting the latter’s offer to return their
from the business of buying and selling mangoes but capital contribution. Several demand letters were
the three did not comply with the terms of the sent but the same were left unheeded. The spouses
contract of delivering to Larin his half of the profits Ramirez’ filed a complaint for a collection of sum of
neither did they render him any account of the money from petitioners.
capital. Larin charged them with the crime of estafa
but the provincial fiscal filed an information only
against Eusebio Clarin in which the trial court
sentenced the defendant to six months arresto RTC’s Ruling: Ruled that parties had voluntarily
mayor and return Pedro Larin P172 and P30.50 which entered into a partnership which could be dissolved
is his share of the profits. The defendant appealed. at any time. Petitioners clearly intended to dissolve it
when they stopped operating the restaurant and held
them liable to pay respondent his capital contribution
of P250,000, attorney’s fee and cost of suit.
Issue: W/N a partner in a partnership may be
charged with estafa. – NO.

CA Ruling: Although respondents had no right to

demand the return of their capital contribution, the
Held: The failure on the part of the industrial partnership was nonetheless dissolved when
partners to return to the capitalist partner the capital petitioners lost interest in continuing the restaurant
brought into the partnership by the latter is not an business with them. Because petitioners never gave
act constituting the crime of estafa as defined in the a proper accounting of the partnership accounts for
RPC. liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the
When Larin put the P172 into the CA computed their liabilities, petitioners were made
partnership which her formed with Tarug et. al., he liable to respondents in the amount of P253,114.00.
invested his capital in the risks or benefits of the
business of the purchase and sale of mangoes, and,
even though he had reserved the capital and
conveyed only the usufruct of his money, it would Issue: W/N petitioners are liable to respondents for
not devolve upon one of his three partners to return the latter’s share in the partnership and W/N the CA’s
the his capital to him, but upon the partnership of computation as to the respondents’ share is correct.
which he himself formed part, or if it were to be done
by one of the three specifically, it would be Tarug,
who according to the evidence was the person who
received the money directly from Larin. Held: We hold that respondents have no right to
demand from petitioners the return of their equity
The P172 having been received by the share. Except as managers of the partnership,
partnership, the business commenced and profits petitioners did not personally hold its equity or
accrued, the action that lies with the partner who assets. ‘The partnership has a juridical personality
furnishes the capital for the recovery of his money is separate and distinct from that of each of the
not a criminal action for estafa, but a civil one arising partners.’ Since the capital was contributed to the
from the partnership contract for a liquidation of the partnership, not the petitioners, it is the partnership
partnership and a levy on its assets if there should that must refund the equity of the retiring partners.
be any.
And since it is the partnership, as a separate
and distinct entity, that must refund the shares of

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
the partners, the amount to be refunded is Facts: Litton sold to Ceron, a partner in a
necessarily limited to its total resources. In other partnership called ‘Hill & Ceron,’ lumber mining
words, it can only pay out what it has which consists claims for P1870 less half percent proliferage. Litton
of all its assets. However, before the partners can be received only P720 leaving a balance of P1150. He
paid their shares, the creditors of the partnership then sued the partnership. The partnership now
must first be compensated. After all the creditors contends that it is not bound by Ceron’s acts
have been paid, whatever is left of the partnership because the other partners did not consent to such
assets becomes available for the payment of the sale. It was stated in the articles of co – partnership
partners’ shares. that a contract can be signed by only one partner,
provided that other partners consented to it.
CA’s computation of the amount to be
refunded to respondents as their share was Issue: W/N the partnership is bound by Ceron’s acts?
erroneous as the exact amount of refund equivalent
to respondents’ share in the partnership cannot be Held: Yes. It is true that Ceron needs consent of the
determined until all the partnership assets will have partners to bind the partnership. But such agreement
been liquidated, sold and converted to cash, and all between partners does not affect third persons who,
partnership creditors, if any, paid. No liquidation of acting in good faith, had no knowledge of it. The SC
assets is made. held that a third person has no duty to inquire the
authority of a person held out in public to be a
partner by a partnership. A contrary interpretation to
the contrary will cause hindrance in transactions.
(Note Art. 1818 [par.1]: Every partner is an agent
Facts: A co - partnership was formed under the of the partnership for the purpose of its business,
name of ‘Evangelista & Co.’ Its articles of co- and the act of every partner, including the execution
partnership was later on amended to include Estrella in the partnership name of any instrument, for
Abad Santos (a judge in a City Court in Manila) as an apparently carrying on in the usual way the business
industrial partner. She subsequently filed a suit of the partnership of which he is a member binds the
against the partnership to pay her the share of the partnership, unless the partner so acting has in fact
profits owing to her. She alleged that the partnership no authority to act for the partnership in the
is paying dividends to the partners except her. The particular matter, and the person with whom he is
partners denied that Abad Santos was an industrial dealing has knowledge of the fact that he has no
partner and that the articles of co – partnership do such authority.)
not express the true agreement of the parties and
that Abad Santos was a mere profit sharer, not a
Issue: W/N Abad Santos is a partner.
Facts: Tan Sin An and Antonio Goquiolay entered
Held: Yes, Abad Santos is a partner. into a general commercial partnership which was to
last for 10 years for the purpose of dealing in real
The partners are estopped from denying the estate. The agreement lodged upon Tan Sin An the
articles of partnership because they admitted its sole management of the partnership affairs and his
genuiness and due execution. Even if it were co – partner, Goquiolay, has no voice or participation
erroneous, they failed to assail it for 8 years. Such in the management of the affairs of the co –
failure shows their assent to the said articles. partnership. They further agreed upon that in the
event of the death of any of the partners at any time
In addition, the partners alleged that being before the expiration of the term, the co –
a judge, she cannot be an industrial partner since partnership shall not be dissolved but will have to be
industrial partners are not allowed to engage in continued and the deceased partner shall be
another business or profession. The SC held that represented by his heirs or assigns in the said co –
such allegation has no merit because Abad Santos partnership. A general power of attorney (GPA) was
complied with her obligation to the partnership. The executed by Goquiolay in favor of Tan Sin An which
partners also failed to exercise their right of included buy, sell, alienate and convey properties of
exclusion for 9 years. This shows that the argument the partnership as well as obtain loans as he may
of engaging in another profession is a mere deem advisable for the best interest of the co –
afterthought and that the partnership actually partnership. With the authority of the GPA, the
allowed Abad Santos to exercise her profession. partnership through Tan Sin An purchased 3 parcels
of land which was mortgaged to La Urbana Sociedad
(Please take note of Art. 1789 of Civil Code: An and another 46 parcels of land which which were
industrial partner cannot engage in business for purchased by Tan Sin An in his individual capacity,
himself, unless the partnership expressly permits him and assumed mortgaged debt thereon. The
to do so; and if he should do so, the capitalist downpayment for the 46 parcels of land was
partners may either exclude him from the firm or advanced by Yutivo and Co. The two separate
avail themselves of the benefits which he may have obligations were consolidated in an instrument
obtained in violation of this provision, with a right to executed by the partnership and Tan Sin An,
damages in either case.) whereby the entire 49 lots were mortgaged in favor
of the Banco Hipotecario de Filipinas (as successor to
La Urbana). When Tan Sin An died, his wife Kong
Chia Pin was appointed administratix of the intestate
estate of her deceased husband. Repeated demands
LITTON VS. HILL for payment were made by Banco Hipotecario on the
partnership and on Tan Sin An which was initially
paid by Yutivo and Co. and Sing Yee Cuan and Co. (at
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
the request of Yutivo and Co.) The mortgage was IDOS VS. CA
eventually cancelled. Now Yutivo and Sing Yee Cuan
Company filed their claims in the intestate Facts:
proceedings of Tan Sin An. Kong Chai Pin filed a
petition with the probate court for authority to sell all Irma Idos, petitioner, formed a short-lived
the 49 parcels of land to Washington Sycip and Betty partnership with Eddie Alarilla, respondent, for a
Lee for the purpose primarily of settling the aforesaid leather tanning business. Upon the business’
debts of her husband and the partnership. The court liquidation, it had receivables and stocks worth
ordered the execution of deed of sale in favor of P1,800,000. For the share of Alarilla, Idos issued four
Sycip and Lee in consideration of P37,000.00 and post-dated checks of which only three out of four
assuming payment of the claims filed by Yutivo & Co. checks were encashed. This impelled Alarilla to file
and Sing Yee Co. Later, Sycip and Lee executed in for a BP 22 case against Idos when the latter refused
favor of the Insular Dev’t. Co. a deed of transfer to pay the value of the check after the former has
covering said 49 parcels of land. demanded for it.

Upon learning the sale, the surviving On her defense, Idos claimed that the check
partner Goquiolay filed a petition to set aside the served only as an “assurance” of Alarilla’s share in
decision of the probate court and annul the sale of the partnership and that it was not supposed to be
the parcels of land by Kong Chai Pin in favor of Sycip deposited until the stocks have been sold. This was
and Lee and their subsequent conveyance in favor of refuted by Alarilla and subsequently Idos was
Insular Devt. Co. in so far as the 3 lots owned by the convicted by the trial court of the offense charged.
partnership is concerned. Kong Chai Pin averred the The CA affirmed the decision of the trial court.
validity of the sale as successor partner, in lieu of the
late Tan Sin An. The complaint was dismissed by the
lower court and appeal was directly taken to the SC
by Goquiolay. Issue: W/N Idos violated BP 22? No

Issue: 1. W/N Kong Chai Pin acquired the managerial Held: One of the elements of the offense penalized
rights of her late husband Tan Sin An – NO. under BP 22 is “the making, drawing and issuance of
2. W/N there was a valid sale of property to Sycip any check to apply for any account or for value.” In
and Lee – YES. this case Idos showed enough evidence that the
3. W/N the consent of the other partner was check was to be funded from receivables to be
necessary to perfect the sale of the partnership collected and goods to be sold by the partnership.
properties to Sycip and Betty – NO. First, only one of the fours check were not encashed
and second, even Alarilla himself admitted that there
Held: 1. The right of exclusive management was no consideration for the issuance of the check.
conferred upon Tan Sin An, being premised upon Hence the check in question was not issued for any
trust and confidence, was a mere personal right that debt of or any account due and payable by the
terminated upon Tan’s demise. The provision in the petitioner.
articles of partnership stating that the deceased
partner shall be represented by his heirs could not Moreover, Idos and Alarilla were still in the
have referred to the managerial rights given to Tan “winding up” of the affairs of the partnership hen the
Sin An but it more appropriately relates to the check was issued as evidenced by the fact that they
succession in the propriety interest of each partner still had to sell the goods on hand and collect the
(heir becomes limited partner only). receivables from debtors. As provided by the Civil
Code: winding-up is the process of settling business
2. However, consonant with the articles of co – affairs after dissolution, i.e. collecting of assets
partnership providing for the continuation of the firm previously demandable; termination is the point in
notwithstanding the death of one of the partners, the time after all the partnership affairs have been
heir of the deceased, by never repudiating or wound up. Thus, since that partnership has not been
refusing to be bound under said provision, became terminated, the petitioner and private complainant
individual partner with Goquiolay upon Tan’s demise. remained as co-partners. The check was thus issued
By allowing Kong Chai Pin to retain control of the by the petitioner to complainant as would a partner
partnership properties from 1942 to 1949, Goquiolay to another and not as payment from a debtor to a
is estopped from denying her legal representation of creditor. Idos did not violate BP 22.
the partnership, with the power to bind it with proper
contracts. By authorizing the widow of the managing
partner to manage partnership property (which a
limited partner could not be authorized to do), the
other general partner recognized her as a general VILLAREAL VS. RAMIREZ
partner, and is now in estoppel to deny her position
as a general partner, with authority to administer Facts:
and alienate partnership property.
In 1984, Villareal, Carmelito Jose and Jesus
3. Strangers dealing with a partnership have the Jose formed a partnership with a capital of P750,000
right to assume, in the absence of restrictive clauses for the operation of a restaurant and catering
in the co – partnership agreement, that every business. Respondent Ramirez joined as a partner in
general partner has the power to bind the the business with the capital contribution of
partnership and has the requisite authority from his P250,000. In 1987, Jesus Jose withdrew from the
co – partners. partnership and within the same time, Villareal and
Carmelito Jose, petitioners closed the business
without prior knowledge of respondents.

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
In March 1987, respondents wrote a letter to Issue: Whether or not Judge Zandueta exceeded his
petitioners stating that they were no longer jurisdiction and abused his discretion when he
interested in continuing the partnership and that appointed the receiver in civil case 51510? No.
they were accepting the latter’s offer to return their
capital contribution. This was left unheeded by the Held: In order that a receiver may be appointed in a
petitioners, and by reason of which respondents filed case, an application under oath must be filed,
a complaint in the RTC. alleging all the facts necessary to convince the court
to grant the same, for the purpose of preserving the
RTC ruled that the parties had voluntarily property which is the subject of litigation and
entered into a partnership, which could be dissolved protecting thereby the rights of all the parties
at any time, and this dissoution was showed by the interested therein. Moreover the consequences or
fact that petitioners stopped operating the effects of such appointment should be considered in
restaurant. order to avoid causing irreparable injustice or injury.

On appeal, CA upheld RTC’s decision that In the complaint for the application of the
the partnership was dissolved and it added that appointment of the receiver, it was evident that the
respondents had no right to demand the return of plaintiff did not include the 279 members of the
their capital contribution. However since petitioners Association nor did they show that they were acting
did not give the proper accounting for the liquidation on behalf of the interest of the Association. Therefore
of the partnership, the CA took it upon itself to the judge exceeded his jurisdiction and abused his
compute their liabilities and the amount that is discretion because he should have required the
proper to the respondent. The computation of which inclusion therein of the necessary members of the
was: Association. Moreover, he should have also
considered the fact that in the respondents’
(capital of the partnership – outstanding pleadings, they did not bring the action for
obligation) / remaining partners = themselves and in the name of the Association, or for
the benefit of the other members, or for the persons
amount due to private respondent who might be affected by the remedy applied for.

Issue: W/N petitioners are liable to respondents for

the latter’s share in the partnership? Nope.
Held: Respondents have no right to demand from
petitioner the return of their equity share. As found Facts: Defendants Garibay, Margarita Saldajeno and
by the court petitioners did not personally hold its Tubungbanua entered into a contract of partnership
equity or assets. “The partnership has a juridical under the firm name ‘Isabela Sawmill’. Said
personality separate and distinct from that of each of partnership owed unpaid balances to plaintiffs.
the partners.” Since the capital was contributed to
the partnership, not to petitioners, it is the A civil case for the dissolution was filed by the
partnership that must refund the equity of the spouses Saldajeno against Isabela Sawmill, Garibay
retiring partners. However, before the partners can and Tubungbanua. Later on said parties entered into
be paid their shares, the creditors of the partnership a memorandum agreement wherein Garibay and
must first be compensated. Therefore, the exact Tubungbanua have bound themselves to answer for
amount of refund equivalent to respondents’ one- any and all obligations of the defunct partnership to
third share in the partnership cannot be determined its creditors and third persons. Defendants Garibay
until all the partnership assets will have been and Tubungbanua did not divide the assets and
liquidated and all partnership creditors have been properties of the “Isabella Sawmill” between them,
paid. but they continued the business of said partnership
under the same firm name.
CA’s computation of the amount to be
refunded to respondents as their share was thus The remaining partners executed an “Assignment of
erroneous. Rights with Chattel Mortgage” in favor of Saldajeno
in order to secure the performance of their
obligations. However, since they defaulted in their
payment a judgment was rendered in favor of
CLAUDIO VS. ZANDUETA Saldejano which caused the foreclosure of the CM.
The Provincial Sheriff published notices that he would
Facts: Petitioners Claudio, Goyena and Flores sell at a public auction certain properties (of the
organized the “Cotabato & Cagayan Mining partnership) mortgaged by Garibay and
Association” (Association) together with the Tubungbanua in favor of Saldejano and later on
respondents Neuffer, Meyer, Skiles, Araneta and executed a sale in the latter’s favor, selling for 38K
Cowper. The respondents in this case filed in CFI a the assets of the partnership. Saldejano in turn sold
civil case no. 51510 for the dissolution of the to Pan Oriental lumber company for 45K part of the
Association. One of their prayers was for the court to said properties she had bought at the public auction.
appoint a receiver to take charge of the properties of
the association after its dissolution. The court thrugh The plaintiffs, in a civil action, sought to restrain the
Judge Zandueta granted the prayer of the Sheriff from proceeding with the sales and to have
respondents in civil case 51510 and appointed J.C. the chattel mortgage declared null and void in fraud
Cowper as a receiver even if the latter was not made of creditors. Defendant M. Saldajeno claims that all
a party to the case. the plaintiffs save for Oppan are creditors of Garibay
and Tubungbanua and not of the defunct partnership
and that said creditors had knowledge and notice
that the former partnership had been dissolved.

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
The trial court ruled in favor of the plaintiffs thus, the partners sold and transferred their interests in the
herein defendants appealed. The court ruled that partnership to respondents Co and Zapanta.
there was no CM over the properties as such were Respondents continued to use the old firm name but
owned by the partnership and that the plaintiffs have moved the firm’s main office. A supplement to the
a preferred right over it as against Saldejano. As memorandum agreement relating to the operation of
such, the latter must pay the plaintiffs the respective the marble quarry was entered into with the Cruz
amounts for which the partnership is indebted to spouses. The actual operations of the business
them. Garibay and Tubungbanua are also liable to continued as before. All the employees continued
pay to the plaintiffs whatever amount that they may working in the business. Yu, however, was informed
not collect from Saldajeno. The defendants appealed by Co that he had bought the business from the
to the CA but the latter transferred the records of the original partners and that it was up to him to decide
case to the SC. whether or not he was responsible for the obligations
of the old partnership including Yu’s salary. Yu was
SC: The remaining partners did not terminate the no longer allowed to work for the business and his
business of the partnership. It is expressly stipulated salary remained unpaid.
in the memorandum agreement that the remaining
partners had constituted themselves as the Yu filed a complaint for illegal dismissal and recovery
partnership entity, the “Isabella Sawmill”. There was of unpaid salary against the partnership, Co and
no liquidation of the assets of the partnership. The other partners. Defendants contended that the new
remaining partners continued doing business of the partnership never hired Yu as an employee. The
partnership in the name of “Isabella Sawmill”. They labor arbiter found in favor of Yu and decreed his
used the properties of the partnership. The reinstatement and payment of unpaid salaries as
properties mortgaged to M. Saldajeno by the well as backwages. The NLRC reversed the decision,
remaining partners belonged to the partnership. It ruling that the new partnership had not retained Yu
does not appear that the withdrawal of M. Saldajeno in his original position and there was no law requiring
was published in the newspapers. The appellees and the new partnership to absorb the employees of the
the public in general had a right to expect that old partnership. The claim for unpaid wages must be
whatever credit they extended to the remaining asserted against the old partners but they have not
partners doing business in the name of “Isabela been served with summons.
sawmill” could be enforced against the properties of
said partnership. The judicial foreclosure executed in Issues: Whether the old partnership had been
favor of Saldajeno did not relieve her from liability to extinguished and replaced by a new partnership. If a
the creditors of the partnership. Technically speaking new partnership was created could Yu assert his
the partnership was dissolved by the withdrawal of rights under his employment contract as against it?
Saldajeno but not terminated and it continued doing
business through the two remaining partners. SC: The acquisition by the new partners of 82% of
the partnership interest was enough to constitute a
The plaintiffs were prejudiced in their rights by the new partnership. However, dissolution does not
execution of the chattel mortgage over the automatically result in the termination of the legal
properties of the partnership in favor of Saldajeno by personality of the old partnership. The legal
the remaining partners and they had a right to file personality of the expiring partnership persists for
the action to nullify the chattel mortgage in question. the limited purpose of winding up and closing of the
The spouses Saldejano have a right to be reimbursed affairs of the partnership. The new partnership
whatever amounts they shall pay the appellees by simply took over the business enterprise owned by
their Garibay and Tubungbanua as in the the preceding partnership and continued using the
memorandum agreement, they undertook to release old name without winding up the business affairs of
Saldejano from any obligation of the partnership to the latter, paying off its debts, liquidating and
third persons. distributing its assets and the re-assembling the
assets and opening a new business enterprise.
Therefore, not only the retiring partners but also the
new partnership itself which continued the business
YU VS. NLRC of the old, dissolved one are liable for the debts of
the preceding partnership. The creditors of the old
Facts: Yu was formerly the Assistant General partnership are also the creditors of the new. Yu is
Manager of a registered partnership, Jade Mountain. entitled to enforce his claim for unpaid salaries, as
The partnership was originally composed of Bendal well as other claims relating to his employment with
siblings as general partners and others who were the previous partnership, against the new one.
limited partners. The partnership business consisted
of exploiting marble deposit found on the land of the The non-retention of Yu did not constitute unlawful or
Cruz spouses by virtue of a memorandum unjust termination as the new partnership is entitled
agreement. Yu was hired by virtue of a Partnership to hire new managers. The new partnership had Co
Resolution as Assistant General Manager with a as its own new manager and the basis for Yu’s
monthly salary. He, however, only received half of his termination was redundancy.
monthly salary since he had accepted the promise of
the partners that the balance would be paid when Yu is entitled to his unpaid wages and separation
the firm shall have secured additional operating pay.
funds from abroad. Yu managed the operations and
finances of the business, had overall supervision of
the workers at the marble quarry and took charge of
the preparation of papers relation to the exportation AMES V. DOWNING (N.Y. Surr. Cit.)
of the firm’s products.

Without knowledge of Yu, the general partners [TAKEN FROM CLV BLOG] Bautista quoted from
transferred their interests while some of the limited the New York decision in Ames v. Downing, 1 Brad.
Partnership & Agency | 2B 2008-2009
PARTNERSHIP Digests  Atty. Cochingyan
(N.Y. Surr. Cit.) 321,[4] to describe the origin and a partnership has always been held to be dissolved
development of limited partnerships, thus -- by the death of the special partner. *** The
The system of limited partnership, which was partnership remains under the dominion of the
introduced by statute into this state, and common law. It has created between the special and
subsequently very generally adopted in many other general partner a tie, which is not subjected to the
states of the Union, was borrowed from the French caprice of unforseen changes; it has produced
Code. (3 Kent. 36; Code de Commerce, 12, 23, 24.) mutual relations of confidence, which the general
Under the name of la societe en commandite, it has partner cannot be forced to extend to strangers.
existed in France from most authentic commercial
records, and in the early mercantile regulations of
Maseilles and Montpelier. In the vulgar latinity of the
middle ages it was styled commanda, and in Italy COMMISSIONER OF INTERNAL REVENUE VS.
accomenda. In the states of Pisa and Florence, it is SUTER
recognized so far back as the year 1166; also in the
ordinance of Louise-le Hutin, of 1315; the statutes of
Marseilles, 1253; of Geneva, of 1588. In the middle Facts: In 1947, A limited partnership, “William J.
ages it was one of the most frequent combinations of Suter ‘Morcoin’ Co., Ltd.”, was formed with William
trade, and was the basis of the active and widely Suter as general partner, Julia Spirig and Gustav
extended commerce of the opulent maritime cities of Carlson as limited partners, each contributing to the
Italy. It contributed largely to the support of the great partnership. In 1948, Suter married Spirig and
and prosperous trade carried on along the shores of thereafter, Carlson sold his share in the partnership
the Mediterranean, was known in Laguedoc, to Suter and his wife. The limited partnership had
Provence, and Lombardy, entered into most of the been filing its income tax returns (ITRs) as a
industrial occupations and pursuits of the age, and corporation w/o objection from the CIR. Later in an
even traveled under the protection of the arms of the assessment, the CIR consolidated the income of the
Crusaders to the city of Jerusalem. At a period when firm and the individual incomes of partner-spouses
capital was in the hands of nobles and clergy, who, resulting in a determination of a deficiency income
from pride of caste, or cannonical regulations, could tax against Suter. Suter protested and requested
not engage directly in trade, it afforded the means of cancellation and withdrawal but was denied by the
secretly embarking in commercial enterprises, and CIR. Suter appealed to the Court of Tax Appeals w/c
reaping the profits of such lucrative pursuits, without reversed CIR’s decision.
personal risk; and thus the vast wealth, which
otherwise could have lain dormant in the coffers of Issues:
the rich, became the foundation, by means of this
ingenious idea, of the great commerce which made
princes of the merchants, elevated to the trading (1) Should the corporate personality of the
class, and brought the Commons into position as an partnership be disregarded for income tax purposes
influential estate in the Commonwealth. Independent since partner-spouses form a single taxable unit?
of the interest naturally attaching to the history of a
mercantile contract, of such ancient origin, but so (2)Was the partnership dissolved after the marriage
recently introduced where the general partnership, of partner-spuses and subsequent sale of Carlson of
known to the common law has hitherto existed alone, his participation in the partnership?
I have been led to refer to the facts just stated, for
the purpose of showing that the special partnership
is, in fact, no novelty, but an institution of Held: CTA decision affirmed. The limited partnership
considerable antiquity, well known, understood and was not a universal partnership but a particular one.
regulated. Ducange defines it to be: "Societas A universal partnership requires either that the
mercatorem qua uni sociorum tota negotiationis cura object of the association be all the present property
commendatur, certis conditionibus." It was always of the partners, as contributed by them to the
considered a proper partnership, societas, with common fund, or else “all that the partners may
certain reserves and restrictions; and in the acquire by their industry or work during the
ordinance of Louis XIV., of 1793, it is ranked as a existence of the partnership”. In the instant case, all
regular partnership. In the Code of Commerce it is of the contributions were fixed sums of money and
classed in the same manner. I may add, as an neither of them were industrial partners. Thus it was
important fact, for the explanation of the distinction not a partnership that spouses were forbidden to
to which I shall shortly advert, that the French Code enter under the 1889 Civil Code.
permits a special partnership, of which the capital
may be divided into shares, or stock, transmissible The capital contributions of partner-spouses were
from hand to hand. In such a case, the death of the separately owned and contributed by them before
special partner does not dissolve the firm, the their marriage; and after they were joined in
creation of transmissible shares being a proof that wedlock, such contributions remained their
the association is formed respectu negotii, and not respective separate property under the Spanish Civil
respectu peronsarum; but even in such a partnership Code. Thus, the individual interest of each did not
the death of the general partner effects a dissolution, become common property of both after their
unless it is expressly stipulated otherwise. But, says marriage.
M. Troplong, in would be wrong to extend the rule
that a partnership, of which the capital is divided into
transmissible shares, is not dissolved by the death of In this case the limited partnership is not a mere
a stockholder, to a special partnership, the capital of business conduit of the partner-spouses; it was
which is not so divided. The statute of New York organized for legitimate business purposes, The
recognizes only the latter kind of partnership, the change in its membership brought about by the
names of the parties being required to be registered, marriage is not a ground for withdrawing the
and any change in the name working a dissolution, partnership from coverage under §24 of the tax code
and turning the firm into a general partnership. Such

Partnership & Agency | 2B 2008-2009

PARTNERSHIP Digests  Atty. Cochingyan
requiring it to pay income tax. What is taxable is the
income of both spouses in their individual capacities.


Facts: In an insolvency proceedings of petitioner-

establishment, “Sociedad Mercantil, Teck Seing &
Co., Ltd.”, creditors, Pacific Commercial and others
filed a motion with the Court to declare the individual
partners parties to the proceeding, for each to file an
inventory, and for each to be adjudicated as
insolvent debtors.

Issue: What is the nature of the mercantile

establishment, Teck Seing & Co., Ltd.?

Held: The contract of partnership established a

general partnership.

By process of elimination, Teck Seing & Co., Ltd. Is

not a corporation nor an accidental partnership (joint
account association).

To establish a limited partnership, there must be, at

least, one general partner and the name of at least
one of the general partners must appear in the firm
name. This requirement has not been fulfilled. Those
who seek to avail themselves of the protection of
laws permitting the creation of limited partnerships
must the show a substantially full compliance with
such laws. It must be noted that all the requirements
of the Code have been met w/ the sole exception of
that relating to the composition of the firm name.

The legal intention deducible from the acts of the

parties controls in determining the existence of a
partnership. If they intend to do a thing w/c in law
constitutes a partnership, they are partners although
their very purpose was to avoid the creation of such
relation. Here the intention of the persons making
up, Teck Seing & Co., Ltd. Was to establish
partnership w/c they erroneously denominated as a
limited partnership.

Partnership & Agency | 2B 2008-2009