TITLE IX

Partnership
CHAPTER 1

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

General Provisions

(c) As an annuity to a widow or representative of a deceased

partner;

ARTICLE 1767. By the contract of partnership two or more

persons bind themselves to contribute money, property, or industry (d) As interest on a loan, though the amount of payment vary with
to a common fund, with the intention of dividing the profits among
the profits of the business;
themselves.
(e) As the consideration for the sale of a goodwill of a business or
Two or more persons may also form a partnership for the exercise other property by installments or otherwise. (n)
of a profession. (1665a)
ARTICLE 1770. A partnership must have a lawful object or
ARTICLE 1768. The partnership has a juridical personality
purpose, and must be established for the common benefit or
separate and distinct from that of each of the partners, even in
interest of the partners.
case of failure to comply with the requirements of article 1772, first
paragraph. (n)
When an unlawful partnership is dissolved by a judicial decree, the
profits shall be confiscated in favor of the State, without prejudice
ARTICLE 1769. In determining whether a partnership exists, these to the provisions of the Penal Code governing the confiscation of
rules shall apply:
the instruments and effects of a crime. (1666a)
(1) Except as provided by article 1825, persons who are not
partners as to each other are not partners as to third persons;

ARTICLE 1771. A partnership may be constituted in any form,

except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.
(1667a)

(2) Co-ownership or co-possession does not of itself establish a

partnership, whether such-co-owners or co-possessors do or do
not share any profits made by the use of the property;

ARTICLE 1772. Every contract of partnership having a capital of

three thousand pesos or more, in money or property, shall appear
in a public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.

(3) The sharing of gross returns does not of itself establish a

partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns
are derived;

Failure to comply with the requirements of the preceding

paragraph shall not affect the liability of the partnership and the
members thereof to third persons. (n)

(4) The receipt by a person of a share of the profits of a business

is prima facie evidence that he is a partner in the business, but no
such inference shall be drawn if such profits were received in
payment:
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ARTICLE 1773. A contract of partnership is void, whenever

immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the
public instrument. (1668a)

ARTICLE 1780. A universal partnership of profits comprises all that

the partners may acquire by their industry or work during the
existence of the partnership.

Movable or immovable property which each of the partners may

ARTICLE 1774. Any immovable property or an interest therein may possess at the time of the celebration of the contract shall continue
be acquired in the partnership name. Title so acquired can be
to pertain exclusively to each, only the usufruct passing to the
conveyed only in the partnership name. (n)
partnership. (1675)
ARTICLE 1775. Associations and societies, whose articles are
kept secret among the members, and wherein any one of the
members may contract in his own name with third persons, shall
have no juridical personality, and shall be governed by the
provisions relating to co-ownership. (1669)

ARTICLE 1781. Articles of universal partnership, entered into

without specification of its nature, only constitute a universal
partnership of profits. (1676)
ARTICLE 1782. Persons who are prohibited from giving each other
any donation or advantage cannot enter into universal partnership.
(1677)

ARTICLE 1776. As to its object, a partnership is either universal or

particular.
As regards the liability of the partners, a partnership may be
general or limited. (1671a)

ARTICLE 1783. A particular partnership has for its object

determinate things, their use or fruits, or a specific undertaking, or
the exercise of a profession or vocation. (1678)

ARTICLE 1777. A universal partnership may refer to all the present

property or to all the profits. (1672)
ARTICLE 1778. A partnership of all present property is that in
which the partners contribute all the property which actually
belongs to them to a common fund, with the intention of dividing
the same among themselves, as well as all the profits which they
may acquire therewith. (1673)
ARTICLE 1779. In a universal partnership of all present property,
the property which belonged to each of the partners at the time of
the constitution of the partnership, becomes the common property
of all the partners, as well as all the profits which they may acquire
therewith.
A stipulation for the common enjoyment of any other profits may
also be made; but the property which the partners may acquire
subsequently by inheritance, legacy, or donation cannot be
included in such stipulation, except the fruits thereof. (1674a)
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EVANGELISTA, ET. AL. VS. COLLECTOR OF INTERNAL REVENUE, ET. AL.

Also, Article 1767 of the Civil Code provides: By the contract of

partnership, two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among
themselves. Pursuant to this article, the essential elements of a partnership
are two, namely: (1) an agreement to contribute money, property or industry to a
common fund; and (2) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar, for, admittedly, the
petitioners have agreed to, and did, contribute money and property to a common
fund. Also, it can be said that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among themselves
because: (1) 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 affairs relative to the said properties
appear to have been handled as if the same belonged to a corporation or
business enterprise operated for profit; and (5) the petitioners have not testified
or introduced any evidence, either on their purpose in creating the set up already
adverted to, or on the causes for its continued existence.

Facts: The petitioners borrowed from their father PhP59,140.00 which amount
together with their personal monies was used by them for the purpose of buying
and selling real properties. From 1943 to 1944, they bought 24 parcels of land
(including the improvements thereon) on four different occasions. In 1945, they
appointed their brother Simeon to manage their properties with full power to
lease; to collect and receive rents; to issue receipts therefore; in default of such
payment, to bring suits against the defaulting tenant; and to endorse and deposit
all notes and checks for them. In 1948, their net rental income amounted to
PhP12,615.35.
On September 1954, the respondent Collector of Internal Revenue demanded
the payment of (1) income tax on corporations, (2) real estate dealers fixed tax,
and (3) corporation residence tax for the years 1945-1949, computed according
to the assessments made on their properties.
Because of this, the petitioners filed a case against 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.

Hence, the petitioners herein constitute a partnership, and in so far as the

Issue: Whether the petitioners are subject to the tax on corporations, real estate
National Internal Revenue Code is concerned, they are subject to the income tax
dealers fixed tax, and corporation residence tax.
for corporations.
Court of Tax Appeals: The petitioners are liable. (No explanation for such in
I.
As regards to the residence tax for corporations provided Sec. 2 of
the case)
Commonwealth Act No. 4651, the terms corporation and partnership
are used in both statutes with substantially the same meaning.
Petitioners: They are mere co-owners, not co-partners, for, in consequence of
Consequently, petitioners are subject, also, to the residence tax for
the acts performed by them, a legal entity, with a personality independent of that
corporations.
of its members, did not come into existence, and some of the characteristics of
partnerships are lacking in the case at bar.
II.
Lastly, the records show that the petitioners have habitually engaged in
Held: The petitioners are liable to pay the tax on corporations provided for in Sec.
leasing the properties for a period of 12 years, and that the yearly gross
24 of the Commonwealth Act No. 466, otherwise known as the National Internal
rentals of the said properties from 1945 to 1948 ranged from
Revenue Code. According to Sec. 84 of the same statute, the term corporation
1 Entities liable to residence taxEvery corporation, no matter how created
includes partnerships, no matter how created or organized, joint-stock
or organized, whether domestic or resident foreign, engaged in or doing
companies, joint accounts, associations or insurance companies, but does not business in the Philippines shall pay an annual residence tax of five pesos and
include duly registered general co-partnerships.
an annual additional tax, which in no case, shall exceed one thousand pesos,
in accordance with the following schedule: * * *

PhP9,599.00 to PhP 17,453.00. Thus, they are subject to the tax

provided in Section 193 (q) of our National Internal Revenue Code, for
real estate dealers, inasmuch as, pursuant to Section 194 (s) thereof:

WON the plaintiff is within the coverage of the Social Security Act already? YES.
HELD:
Section 9 of the Social Security Act, in part, provides: SEC. 9 Compulsory
Coverage.

Real estate dealers include any person engaged in the business of buying,
selling, exchanging, leasing, or renting property of his own account as principal
and holding himself out as full ro part-time dealer in real estate or as an owner of
rental property or properties rented or offered to rent for an aggregate amount of
three thousand pesos or more a year. * * *

Coverage in the System shall be compulsory upon all employees between the
ages of sixteen and sixty years, inclusive, if they have been for at least six
months in the service of an employer who is a member of the System. Provided,
That the Commission may not compel any employer to become a member of the
System unless he shall have been in operation for at least two years . . . . (Italics
supplied.). The partnership Laguna Transportation Company commenced its
business as a common carrier in 1949.

LAGUNA TRANSPORTATION CO., INC. VS SSS

DOCTRINE:

When it filed to be formed as a corporation, it only added the word Inc to

indicate that it was now duly incorporated under existing laws. Since it continued
the same business like the unregistered partnership, there was only a change in
form. where a corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and transferred to the
corporation for the purpose of continuing its business, in payment for which
corporate capital stock was issued, such corporation is presumed to have
assumed partnership debts, and is prima facie liable therefor. The reason for the
rule is that the members of the partnership may be said to have simply put on a
new coat, or taken on a corporate cloak, and the corporation is a mere
continuation of the partnership. Hence, there was really no need to exempt them
for it has been operating already for more than six years by continuing with the
business of the partnership

Where a corporation was formed by, and consisted of members of a partnership

whose business and property was conveyed and transferred to the corporation
for the purpose of continuing its business, in payment for which corporate capital
stock was issued, such corporation is presumed to have assumed partnership
debts, and is prima facie liable therefor
FACTS:
Sometime in 1949 the Binan Transportation Co sold part of the lines and
equipment it operates to Gonzalo Mercado, Artemio Mercado, Florentino Mata
and Dominador Vera Cruz. After this sale, the vendees formed an unregistered
partnership under the name of Laguna Transportation Company which continued
to operate the lines and equipment bought from Binan Transpo Company. The
original partners with an additional two members, organized a corporation known
as the Laguna Transportation Company, Inc which was registered with the SEC.
the petitioner corporation filed this case praying that an order be issued by the
court declaring that it is not bound to register as a member of respondent SSS
and that they are not obliged to pay the latter the contributions required under the
Social Security Act. It is worthy to note that the corporation continued the same
transportation business of the unregistered partnership. The corporation was
claiming exemption from coverage for it only started its business on June 20,
1956 but Nov. 11 1957 the SSS notified it that it was within the coverage of the
Social Security Act.

JM TUAZON and CO v. BOLANOS

95 PHIL 106
Facts:
This is an action to recover possession of registered land
situated in Barrio Tatalon, Quezon City. The complaint of
plaintiff JM Tuason & Co Inc was amended 3 times with
respect to the extent and description of the land sough to be
recovered. Originally, the land sought to be recovered was
said to be more or less 13 hectares, but it was later amended to

ISSUE:
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6 hectares, after the defendant had indicated the plaintiff's

surveyors the portion of land claimed and occupied by him.
The second amendment is that the portion of the said land was
covered in another TCT and the 3rd amendment was made
after the defendant' surveyor and a witness, Quirino Feria
testified that the land occupied by the defendant was about 13
hectares.
Defendant raised the defense of prescription and title thru
"open, continuous, exclusive and public and notorious
possession of land in dispute. He also alleged that the
registration of the land was obtained by plaintiff's predecessor
through fraud or error.
The lower court rendered judgment in favor of the plaintiff
and ordered the defendant to restore possession of the land to
the plaintiff, as well as to pay corresponding rent from January
1940 until he vacates the land. On appeal defendant raised a
number of assignments or errors in the decision, one of which
is that the trial court erred in not dismissing the case on the
ground that the case was not brought by the real party in
interest.

Inc.", another corporation, but there is nothing against one

corporation being represented by another person, natural or
juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on
the theory that it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is that "though a
corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by
its charter."
WOODHOUSE VS. HALILI
Facts:
Defendant Halili informed Woodhouse, plaintiff, of his desire to invest half a
million dollars in the bottling and distribution of Mission Soft Drinks. Woodhouse
then relayed this message to Mission Dry Corporation of Los Angeles, USA.
Mission Dry Corporation then gave plaintiff a thirty day option on exclusive
bottling and distribution rights in the Philippines (Exhibit J).
Thereafter, plaintiff and defendant entered into a written agreement with
the ff. pertinent provisions: 1) they shall organize a partnership for the bottling
and distributing of Mission soft drinks, with plaintiff, Woodhouse, as industrial
partner or manager, and defendant, Halili, as capitalist; 2)defendant was to
decide matters of general policy regarding the business, while plaintiff was to
attend the operation and development of the bottling plant; 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
finalize the franchising agreement. Mission Dry Corporation then granted the
defendant the exclusive right, license, and authority to produce, bottle, distribute
and sell Mission beverages in the Philippines.

Issue:
Whether or not the lower court erred in not dismissing
the case on the ground that it was not brought by the real party
in interest? NO
Ratio:
What the Rules of Court require is that an action be broughtin
the name of, but not necessarily by, the real party in interest.
In fact the practice is for an attorney-at-law to bring the action,
that is to file the complaint, in the name of the plaintiff. That
practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" and commences with the statement
"comes now plaintiff, through its undersigned counsel." It is
true that the complaint also states that the plaintiff is
"represented herein by its Managing Partner Gregorio Araneta,

When both parties went back to the Philippines, the bottling plant began
its operation. At first, plaintiff was given advances, on account of the profits, and
allowances which however ceased after two months. Moreover, when plaintiff
demanded that the partnership papers be executed, defendant refused to do so
and instead suggested that they just enter into a settlement. As no settlement
was reached, the plaintiff filed a complaint in the CFI.
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In the CFI, plaintiff asks for execution of the contract of partnership,

accounting of the profits and a share thereof of 30 percent. Defendant on his
defense claims that plaintiff misrepresented himself that he was about to become
the owner of an exclusive bottling franchise when in fact franchise was
exclusively given to defendant, and that the plaintiff failed to contribute to the
exclusive franchise of the partnership. CFI ordered defendant to render an
accounting of the profits of the business and to pay plaintiff 15 percent thereof.
But it held that the execution of the contract could not be enforced and the
defense of fraud was not proved. Unsatisfied with this ruling, both parties
appealed to the SC.

EVANGELISTA & CO. VS. ABAD SANTOS

Facts: A co - partnership was formed under the name of Evangelista & Co. Its
articles of co-partnership was later on amended to include Estrella Abad Santos
(a judge in a City Court in Manila) as an industrial partner. She subsequently filed
a suit against the partnership to pay her the share of the profits owing to her. She
alleged that the partnership is paying dividends to the partners except her. The
partners denied that Abad Santos was an industrial partner and that the articles
of co partnership do not express the true agreement of the parties and that
Abad Santos was a mere profit sharer, not a partner.

Issue:

Issue: W/N Abad Santos is a partner.

a) W/N plaintiff falsely represented that he had an exclusive franchise to bottle

Mission beverages. Yes. b) W/N this false representation amounts to fraud and
may annul the agreement to form a partnership

Held: Yes, Abad Santos is a partner.

The partners are estopped from denying the articles of partnership because they
admitted its genuiness and due execution. Even if it were erroneous, they failed
to assail it for 8 years. Such failure shows their assent to the said articles.

Held:
a) As found by the SC, Exhibit J was used by plaintiff as an instrument with
which to bargain with the defendant and to close a deal with him, because if
plaintiff claimed that all he had was an option to exclusively bottle and distribute
Mission soft drinks in the Philippines, he would have probably lost the deal itself.
This is further supported by the fact that when defendant learned that plaintiff did
not have an exclusive franchise, he reduced plaintiffs participation in the profit to
15 percent, to which the plaintiff agreed.

In addition, the partners alleged that being a judge, she cannot be an

industrial partner since industrial partners are not allowed to engage in another
business or profession. The SC held that such allegation has no merit because
Abad Santos complied with her obligation to the partnership. The partners also
failed to exercise their right of exclusion for 9 years. This shows that the
argument of engaging in another profession is a mere afterthought and that the
partnership actually allowed Abad Santos to exercise her profession.

b) Article 1270 of the Spanish Civil Code distinguished two kinds of fraud, causal
fraud, which may be a ground for the annulment of a contract, and the incidental
fraud, which only renders the party who employs it liable for damages.

(Please take note of Art. 1789 of Civil Code: An industrial partner cannot
engage in business for himself, unless the partnership expressly permits him to
As founded by the SC the misrepresentation of plaintiff does not amount do so; and if he should do so, the capitalist partners may either exclude him from
to causal fraud because it was not the principal inducement that led the plaintiff to the firm or avail themselves of the benefits which he may have obtained in
violation of this provision, with a right to damages in either case.)
enter into the partnership agreement. As it was already noted, both parties
expressly agreed that they shall form a partnership.
Isabelo Moran Jr v CA
Lastly, the SC upheld the ruling of the trial court that the defendant may
not be compelled against his will to carry out the partnership. The law recognizes
Business Organization Partnership, Agency, Trust Profit and Loss Sharing
the individuals freedom or liberty to do an act he has promised to do or not to do
Speculative Damages
it as he pleases.
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In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership
agreement where they agreed to contribute P15k each for the purpose of printing
95k posters of the delegates to the then 1971 Constitutional Commission. Moran
shall be in charge in managing the printing of the posters. It was further agreed
that Pecson will receive a commission of P1k a month starting from April 1971 to
December 1971; that the partnership is to be liquidated on December 15, 1971.

have been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of the venture. Since
the venture was a failure, Pecson is not entitled to the P8k commission.

As for the P7k award as return for Pecsons investment, the CA erred in his ruling
too. Though the venture failed, it did took off the ground as evidenced by the
2,000 posters printed. Hence, return of investment is not proper in this case.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in There are risks in any business venture and the failure of the undertaking cannot
favor of the partnership. He gave the P10k to Moran as the managing partner. entirely be blamed on the managing partner alone, specially if the latter exercised
Moran however did not add anything and, instead, he only used P4k out of the his best business judgment, which seems to be true in this case.
P10k in printing 2,000 posters. He only printed 2,000 posters because he felt that
printing all 95k posters is a losing venture because of the delay by the COMELEC Moran must however return the unused P6k of Pecsons contribution to the
partnership plus P3k representing Pecsons profit share in the sale of the printed
in announcing the full delegates. All the posters were sold for a total of P10k.
posters. Computation of P3k profit share is as follows: (P10k profit from the sale
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The of the 2,000 posters printed) (P4k expense in printing the 2k posters) = (P6k
Court of Appeals affirmed the decision of the trial court but modified the same as profit); Profit 2 = P3k each.
it ordered Moran to pay P47.5k for unrealized profit; P8k for Pecsons monthly
commissions; P7k as return of investment because the venture never took off;
plus interest.
G.R. No. L-5963 May 20, 1953
ISSUE: Whether or not the CA judgment is correct.

THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, petitioners,

vs.SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance
HELD: No. The award of P47.5k for unrealized profit is speculative. There is no of Leyte and OLEGARIO LASTRILLA, respondents.
evidence whatsoever that the partnership between the Moran and Pecson would
have been a profitable venture (because base on the circumstances then i.e. the Facts:
delay of the COMELEC in proclaiming the candidates, profit is highly unlikely). In In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for
fact, it was a failure doomed from the start. There is therefore no basis for the damages by the Leyte-Samar Sales Co. (hereinafter called LESSCO)
award of speculative damages in favor of Pecson. Further, there is mutual breach andRaymond Tomassi against the Far Eastern Lumber & Commercial Co.
in this case, Pecson only gave P10k instead of P15k while Moran gave nothing at (unregistered commercial partnership hereinafter called FELCO), Arnold
Hall,Fred Brown and Jean Roxas, rendered judgment against defendants jointly
all.
and severally for the amount of P31,589 plus cost on october 29, 1948.The Court
of Appeals confirmed the award in November 1950, minus P2,000 representing
As for the P8k monthly commission, this is without basis. The agreement does attorney's fees mistakenly included. The decision havingbecome final, the sheriff
not state the basis of the commission. The payment of the commission could only sold at auction on June 9, 1951 to Robert Dorfe and Pepito Asturias "all the
7

rights, interests, titles and participation" of thedefendants in certain buildings and

properties described in the certificate, for a total price of eight thousand and one
hundred pesos.On June 4, 1951 Olegario Lastrilla filed in the case a motion,
wherein he claimed to be the owner by purchase on September 29, 1949, of all
the"shares and interests" of defendant Fred Brown in the FELCO. Over the
plaintiffs' objection the judge in his order of June 13, 1951, grantedLastrilla's
motion by requiring the sheriff to retain 17 per cent of the money And on motion
of Lastrilla, the court on August 14, 1951, modified itsorder of delivery and merely
declared that Lastrilla was entitled to 17 per cent of the properties sold.Hence,
this petition for "Certiorari and Prohibition with preliminary Injunction" praying for
the additional writ of mandamus.

cannot properly adjudicate matters involved in a suit whennecessary and

indispensable parties to the proceedings are not before it. In view of the
foregoing, it is our opinion, and we so hold, that all ordersof the respondents
judge requiring delivery of 17 per cent of the proceeds of the auction sale to
respondent Olegario Lastrilla are null and void.

COMMISSIONER OF INTERNAL REVENUE VS. SUTER

Facts: In 1947, A limited partnership, William J. Suter Morcoin Co., Ltd., was
formed with William Suter as general partner, Julia Spirig and Gustav Carlson as
limited partners, each contributing to the partnership. In 1948, Suter married
Spirig and thereafter, Carlson sold his share in the partnership to Suter and his
wife. The limited partnership had been filing its income tax returns (ITRs) as a
corporation w/o objection from the CIR. Later in an assessment, the CIR
consolidated the income of the firm and the individual incomes of partnerspouses resulting in a determination of a deficiency income tax against Suter.
Suter protested and requested cancellation and withdrawal but was denied by the
CIR. Suter appealed to the Court of Tax Appeals w/c reversed CIRs decision.

Issue:
(a) whether or not Lastrilla is a partner of FELCO, having purchased the share
and interest of defendant Fred Brown after CFI rendered anunfavorable
judgment, but prior to the auction sale, hence he can claim to the proceeds of the
sale?(b) whether or not there was grave abuse of discretion on the part of the
judge in granting lastrilla's motion and ordering the delivery to him of the17% of
the properties.
Ruling:

Issues:

(a) In the situation it we can conclude that on June 9, 1951 when the sale was
effected of the properties of FELCO to Roberto Dorfe and PepitoAsturias, Lastilla
was already a partner of FELCO. Now, does Lastrilla have any proper claim to
the proceeds of the sale? If he was a creditor of theFELCO, perhaps or maybe.
But he was not. The partner of a partnership is not a creditor of such partnership
for the amount of his shares. That istoo elementary to need elaboration.(c) On
this score the respondent judge's action on Lastrilla's motion should be declared
as in excess of jurisdiction, which even amounted to wantof jurisdiction,
considering specially that Dorfe and Austrias, and the defendants themselves,
had undoubtedly the right to be heard

(1) Should the corporate personality of the partnership be disregarded for income
tax purposes since partner-spouses form a single taxable unit?
(2)Was the partnership dissolved after the marriage of partner-spuses and
subsequent sale of Carlson of his participation in the partnership?

Held: CTA decision affirmed. The limited partnership was not a universal
partnership but a particular one. A universal partnership requires either that the

object of the association be all the present property of the partners, as

contributed by them to the common fund, or else all that the partners may
but theywere not notified.4Varied interest of necessity make Dorfe, Asturias and acquire by their industry or work during the existence of the partnership. In the
the defendants indispensable parties to the motion of Lastrilla.A valid judgment
cannot be rendered where there is a want of necessary parties, and a court instant case, all of the contributions were fixed sums of money and neither of
8

them were industrial partners. Thus it was not a partnership that spouses were
forbidden to enter under the 1889 Civil Code.

ISSUE: Whether or not SJP is correct.

HELD: No. The parity rights agreement is not applicable to SJP. The parity rights
are only granted to American business enterprises or enterprises directly or
indirectly controlled by US citizens. SJP is a Panamanian corporate citizen. The
other owners of SJO are Venezuelan corporations, not Americans. SJP was not
able to show contrary evidence. Further, the Supreme Court emphasized that the
stocks of these corporations are being traded in stocks exchanges abroad which
renders their foreign ownership subject to change from time to time. This fact
renders a practical impossibility to meet the requirements under the parity rights.
Hence, the tie up between SJP and SJO is illegal, SJP not being a domestic
corporation or an American business enterprise contemplated under the LaurelLangley Agreement.

The capital contributions of partner-spouses were separately owned and

contributed by them before their marriage; and after they were joined in wedlock,
such contributions remained their respective separate property under the Spanish
Civil Code. Thus, the individual interest of each did not become common property
of both after their marriage.
In this case the limited partnership is not a mere business conduit of the partnerspouses; it was organized for legitimate business purposes, The change in its
membership brought about by the marriage is not a ground for withdrawing the
partnership from coverage under 24 of the tax code requiring it to pay income
tax. What is taxable is the income of both spouses in their individual capacities.

Campos Rueda & Co v Pacific Commercial (44 Phil 916)

Palting v San Jose Petroleum

Facts:

FACTS:

Campos, Rueda & Co., a limited partnership, is indebted to the appellants: Pacific
Commercial Co. , Asiatic Petroleum Co, and International Banking Corporation
amounting to not less than P1,000.00 (which were not paid more than 30 days
prior to the date of the filing by petitioners of the application for voluntary
In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized under
insolvency).
the laws of Panama, was allowed by the Securities and Exchange Commission
(SEC) to sell its shares of stocks in the Philippines. Apparently, the proceeds of
The trial court denied their petition on the ground that it was not proven, nor
such sale shall be invested in San Jose Oil Company, Inc. (SJO), a domestic
alleged, that the members of the firm were insolvent at the time the application
mining corporation. Pedro Palting opposed the authorization granted to SJP
was filed. It also held that the partners are personally and solidarily liable for the
because said tie up between SJP and SJO is violative of the constitution; that
consequences of the transactions of the partnership.
SJO is 90% owned by SJP; that the other 10% is owned by another foreign
corporation; that a mining corporation cannot be interested in another mining Issue:
corporation. SJP on the other hand invoked that under the parity rights
agreement (Laurel-Langley Agreement), SJP, a foreign corporation, is allowed to Whether or not a limited partnership may be held to have committed an act of
invest in a domestic corporation.
insolvency.
18 SCRA 924 Business Organization Corporation Law Parity Rights
Nationality Nationalized Areas of Activity

Before the occurrence of the peril insured against the Palomos had already paid
their credit due the
Held:
July 31, 1975: building and the contents were totally razed by fire
Yes. A limited partnerships juridical personality is different from the personality of
its members. On general principle, the limited partnership must answer for and
suffer the consequence of its acts. Under our Insolvency Law, one of the acts of
bankruptcy upon w/c an adjudication of involuntary insolvency can be predicated
is the failure to pay obligations.

Palomo was able to claim P41,546.79 from Philippine British Assurance Co.,
P11,877.14 from Zenith Insurance Corporation and P5,936.57 from S.S.S. Group
of Accredited Insurers but Travellers Multi-Indemnity refused so it demanded the
balance from the other three but they refused so they filed against them

The failure of Campos, Rueda & Co., to pay its obligations constitutes an act w/c
is specifically provided for in the Insolvency Law for declaration of involuntary
insolvency. The petitioners have a right to a judicial decree declaring the
involuntary insolvency of said partnership

Insurance Commission, CFI: absolved Travellers on the basis that Arsenio Cua
was claiming and NOT Tai Tong Chuache

Tai Tong Chuache & Co. V. Insurance Commission (1988)

Travellers reasoned that the policy is endorsed to Arsenio Chua, mortgage

creditor

Palomo Appealed

FACTS:
Azucena Palomo bought a parcel of land and building from Rolando Gonzales
and assumed a mortgage of the building in favor of S.S.S. which was insured
with S.S.S. Accredited Group of Insurers
April 19, 1975: Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in
the amount of P100,000 and to secure it, the land and building was mortgaged

Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of
the fire Insurance Policy issued by travellers
affirmative defense of lack of insurable interest that before the occurrence of the
peril insured against the Palomos had already paid their credit due the petitioner
ISSUE:

June 11, 1975: Pedro Palomo secured a Fire Insurance Policy covering the
building for P50,000 with Zenith Insurance Corporation

W/N Tai Tong Chuache & Co. has insurable interest

HELD:

July 16, 1975: another Fire Insurance policy was procured from Philippine British
Assurance Company, covering the same building for P50,000 and the contents
thereof for P70,000

YES. Travellers Multi-Indemnity Corporation to pay Tai Tong Chuache & Co.

10

when the creditor is in possession of the document of credit, he need not prove
non-payment for it is presumed

However, in a letter of then Acting BIR Commissioner Efren

I. Plana, petitioners were assessed and required to pay a total
amount of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970. Petitioners
The validity of the insurance policy taken b petitioner was not assailed by private
protested the said assessment asserting that they had availed of
respondent. Moreover, petitioner's claim that the loan extended to the Palomos
tax amnesties way back in 1974.
has not yet been paid was corroborated by Azucena Palomo who testified that
Respondent Commissioner informed petitioners that in the
they are still indebted to herein petitioner
years 1968 and 1970, petitioners as co-owners in the real
estate transactions formed an unregistered partnership or joint
venture taxable as a corporation under the National Internal
Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of
the partnership. Being an agent, it is understood that he acted for and in behalf of Revenue Code.
the firm
Issue:
Upon its failure to prove the allegation of lack of insurable interest on the part of
the petitioner, Travellers must be held liable

Whether or not respondent is correct in its presumptive

determination that petitioners formed an unregistered
partnership thus subject to corporate income tax. NO
Ratio:

PASCUAL vs. COMMISSIONER OF INTERNAL

REVENUE
166 SCRA 560 (1988)
Facts:
On June 22, 1965, petitioners Mariano Pascual and Renato
Dragon bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another
three (3) parcels of land from Juan Roque.
The first two parcels of land were sold by petitioners in 1968
to Marenir Development Corporation, while the three parcels
of land were sold by petitioners to Erlinda Reyes and Maria
Samson on March 19, 1970.
Petitioners realized a net profit in the sale made in 1968 in the
amount of P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974
by availing of the tax amnesties granted in the said years.

There is no evidence that petitioners entered into an agreement

to contribute money, property or industry to a common fund,
and that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just
assumed these conditions to be present on the basis of the fact
that petitioners purchased certain parcels of land and became
co-owners thereof. In Evangelista, there was a series of
transactions where petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation
or preservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to
business transactions engaged in for the purpose of gain was
present. Reliance of the lower court to the case of Evangelista
v. Collector is untenable. In order to constitute a partnership
inter sese there must be: (a) An intent to form the same; (b)
generally participating in both profits and losses; (c) and such
a community of interest, as far as third persons are concerned
as enables each party to make contract, manage the business,
and dispose of the whole property.There is no adequate basis
to support the proposition that they thereby formed an
11

unregistered partnership. The two isolated transactions

whereby they purchased properties and sold the same a few
years thereafter did not thereby make them partners.
Fortis vs. Hermanos
Facts:
Plaintiff Fortis is an employee of defendant Gutierrez Hermanos. Theformer
brought an action to recover a balance due him as salary forthe year 1902. He
also alleged that he was entitled, as salary, to 5 percent of the net profits of the
business of the defendants for said year. The complaint also contained a cause of
action for the sum of 600pesos, money expended by plaintiff for the defendants
during the year1903. The lower court ruled in favor of the plaintiff. The total
judgmentrendered amounted to P13, 025.40, which was reduced to
Philippinecurrency. The defendants moved for new trial but were denied. They
brought the case in the SC thru bill of exceptions; the appellants(defendants)
alleged that that the contract made the plaintiff acopartner of the defendants in
the business, which they were carrying on.

In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of

swampy land, 178.76 hectares, in the then sitio of Malalag, municipality of
Padada, Davao for 3 consecutive times because the Bureau of Fisheries did not
act upon his previous applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat
poised upon his position by the other applicants who entered upon and spread
themselves within the area, Casteel realized the urgent necessity of expanding
his occupation thereof by constructing dikes and cultivating marketable fishes.
But lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed a protest. Consequently,
two administrative cases ensued involving the area in question.
However, despite the finding made in the investigation of the above
administrative cases, the Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to remove all the improvements
which he had introduced on the land, and ordered that the land be leased through
public auction

Issue: WON the plaintiff is a co-partner of the defendants in the business.

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the
first part, and Nicanor Casteel as party of the second part, executed a contract
Ruling:
denominated a "contract of service". On the same date the above contract was
entered into, Inocencia Deluao executed a special power of attorney in favor of
NO. It was a mere contract of employment. The plaintiff had neithervoice nor vote Jesus Donesa
in the management of the affairs of the company. Thefact that the compensation
received by him was to be determined withreference to the profits made by the On November 29, 1949 the Director of Fisheries rejected the application filed by
defendants in their business didnot in any sense make by a partner therein. The Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao
articles of partnershipbetween the defendants provided that the profits should be reiterated his claim over the same area in the two administrative cases and asked
dividedamong the partners named in a certain proportion. The contract for reinvestigation of the application of Nicanor Casteel over the subject fishpond.
madebetween the plaintiff and the then manager of the defendantpartnership did
The Secretary of Agriculture and Natural Resources rendered a decision ordering
not in any way vary or modify this provision of thearticles of partnership.
Casteel to be reinstated in the area and that he shall pay for the improvement
made thereupon.
DELUAO v. CASTEEL
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from
G.R. No. L-21906; December 24, 1968
further administering the fishpond, and ejected the latter's representative
Ponente: J. Castro
(encargado), Jesus Donesa, from the premises.
FACTS:
ISSUE:
12

Whether the reinstatement of Casteel over the subject land constitute a

dissolution of the partnership between him and Deluao
HELD:
Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

prayed the properties be delivered back to him. CFI ordered sheriff to take
possession of the properties and the delivery thereof to Lozano. Depakakibo
alleged properties have been contributed to the partnership and therefor he is not
unlawfully detaining them. In addition, Lozano sold his contribution to partnership
in violation of terms of their agreement. CFI declared Lozano owner of and
entitled to the equipment. Depakakibo appealed decision to the Supreme Court.

The Supreme Court ruled that the arrangement under the so-called "contract of
ISSUE:
service" continued until the decision both dated Sept. 15, 1950 were issued by
the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353- W/N partnership is void or the act of the partnership in furnishing electric current
B.
to the franchise holder without previous approval of Public Service Commission
render the partnership void? W/N disposal of contribution of parties is allowed.
This development, by itself, brought about the dissolution of the partnership.
Since the partnership had for its object the division into two equal parts of the
RULING:
fishpond between the appellees and the appellant after it shall have been
awarded to the latter, and therefore it envisaged the unauthorized transfer of one Validity of the PartnershipPartnership is valid. The fact of furnishing the current to
half thereof to parties other than the applicant Casteel, it was dissolved by the
the holder of the franchise alone, without the previous approval of the Public
approval of his application and the award to him of the fishpond.
Service Commission, does not per se make the contract of partnership null and
void from the beginning and render the partnership entered into by the parties for
The approval was an event which made it unlawful for the members to carry it on the purpose also void and non-existent
in partnership. Moreover, subsequent events likewise reveal the intent of both
Disposal of Contributed Property to the Partnership.
parties to terminate the partnership because each refused to share the fishpond
Facts show that parties entered into the contract of partnership, Lozana
with the other.
contributing the amount of P18, 000, and there has not been liquidation prior to
the sale of the contributed properties: Buda Diesel Engine and 70 posts. It
Lozana vs. Depakakibo
necessarily follows that the Buda diesel engine contributed by the plaintiff had
become the property of the partnership. As properties of the partnership, the
FACTS:
same could not be disposed of by the party contributing the same without the
Lozana and Depakakibo established a partnership for the purpose of maintaining, consent or approval of the partnership or of the other partner. (Clemente vs.
operating, and distributing electric light and power in the Municipality of
Galvan, 67 Phil., 565
Dumangas. The partnership is capitalized at the sum of P30, 000.00 where
Lozana agreed to furnish 60% while Depakakibo, 40%. However, the franchise
for venture in favor of Buenaflor was cancelled and revoked by the Public Service
Commission. Lozana thereafter sold Generator Buda [Lozanas contribution to the AGAD v. MABOLO and AGAD CO.
partnership; no liquidation made] to Decologon. When the decision was
23 SCRA 1223 (1968)
appealed, a temporary certificate of public convenience was issued in the name
of Decolongon. Depakakibo sold one Crossly Diesel Engine [Depakakibos
Facts:
contribution to the partnership] to Spouses Jimenea and Harder. Lozana brought
action against Depakakibo alleging the latter wrongfully detained the Generator
Petitioner Mauricio Agad claims that he and defendant
Buda and wooden posts to which he is entitled to the possession of. Lozano
Severino Mabato are partners in a fishpond business to which
13

they contributed P1000 each. As managing partner, Mabato

yearly rendered the accounts of the operations of the
partnership. However, for the years 1957-1963, defendant
failed to render the accounts despite repeated demands.
Petitioner filed a complaint against Mabato to which a copy of
the public instrument evidencing their partnership is attached.
Aside from the share of profits (P14,000) and attorneys fees
(P1000), petitioner prayed for the dissolution of the
partnership and winding up of its affairs.
Mabato denied the existence of the partnership alleging that
Agad failed to pay his P1000 contribution. He then filed a
motion to dismiss on the ground of lack of cause of action.
The lower court dismissed the complaint finding a failure to
state a cause of action predicated upon the theory that the
contract of partnership is null and void, pursuant to Art. 1773
of our Civil Code, because an inventory of the fishpond
referred in said instrument had not been attached thereto.
Art. 1771. A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be
necessary. Art. 1773. A contract of partnership is void,
whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties;
and attached to the public instrument.

was contributed to the partnership. Therefore, Article 1773 of

the Civil Code finds no application in the case at bar. Case
remanded to the lower court for further proceedings.

Issue:
Whether or not immovable property or real rights have
been contributed to the partnership. NO

H:

Aurbach vs. Sanitary Wares

(Partnership; Joint Venture; Foreign and Domestic Corp)
F: This consolidated petition assailed the decision of the CA directing a certain
MANNER OF ELECTION OF OFFICERS IN THE BOARD OF DIRECTORS
*There are two groups in this case, the Lagdameo group composed of Filipino
investors and the American Standard Inc. (ASI) composed of foreign investors.
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the
actual intention of the parties should be viewed strictly on the "Agreement" dated
August 15,1962 wherein it is clearly stated that the parties' intention was to form
a corporation and not a joint venture.
I: The main issue hinges on who were the duly elected directors of Saniwares for
the year 1983 during its annual stockholders' meeting held on March 8, 1983. To
answer this question the following factors should be determined:
*(1) the nature of the business established by the parties whether it was a joint
venture or a corporation and

Ratio:
Based on the copy of the public instrument attached in the
complaint, the partnership was established to operate a
fishpond", and not to "engage in a fishpond business. Thus,
Mabatos contention that it is really inconceivable how a
partnership engaged in the fishpond business could exist
without said fishpond property (being) contributed to the
partnership is without merit. Their contributions were limited
to P1000 each and neither a fishpond nor a real right thereto

14

While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer
is directed at third parties and is not inconsistent with, and does not
preclude, the existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into a joint venture enterprise
An examination of the Agreement shows that certain provisions were
inccuded to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate

acts. ASI is contractually entitled to designate a member of the Executive

Committee and the vote of this member is required for certain
transactions

The Agreement also requires a 75% super-majority vote for the

amendment of the articles and by-laws of Saniwares. ASI is also given
the right to designate the president and plant manager .The Agreement
further provides that the sales policy of Saniwares shall be that which is
normally followed by ASI and that Saniwares should not export
"Standard" products otherwise than through ASI's Export Marketing
Services. Under the Agreement, ASI agreed to provide technology and
know-how to Saniwares and the latter paid royalties for the same.

15

The legal concept of a joint venture is of common law origin. It has no

precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and
a mutual right of control.
The main distinction cited by most opinions in common law jurisdictions
is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature.