- Jarantilla, Jr.

vs Jarantilla, 636 SCRA 299 (2010)

FACTS:
The spouses Andres Jarantilla and FelisaJaleco were survived by eight
children: Federico Sr., Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and
Antonieta. Petitioner Federico Jarantilla, Jr. is the grandchild of the late
Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda Jamili.
Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.
The Jarantilla heirs extrajudicially partitioned amongst themselves the real
properties of their deceased parents. With the exception of the real property
adjudicated to PacitaJarantilla, the heirs also agreed to allot the produce of
the said real properties for the years 1947-1949 for the studies of Rafael and
AntonietaJarantilla.
Sps. Rosita Jarantilla and Vivencio Deocampo entered into an agreement with
the spouses Buenaventura Remotigue and ConchitaJarantilla to provide
mutual assistance to each other by way of financial support to any
commercial and agricultural activity on a joint business arrangement. This
proved to be successful as they were able to establish a manufacturing and
trading business, acquire real properties, and construct buildings, among
other things. The same ended in 1973 upon their voluntary dissolution.
The spouses Buenaventura and ConchitaRemotigue executed a document
Acknowledgement of Participating Capital stating the participating capital of
of their co-owners as of the year 1952, with AntonietaJarantillas stated as
eight thousand pesos (P8,000.00) and Federico Jarantilla, Jr.s as five
thousand pesos (P5,000.00).
The controversy started when Antonieta filed a complaint against
Buenaventura, Cynthia, Doroteo and Tomas, for the accounting of the assets
and income of the co-ownership, for its partition and the delivery of her
share corresponding to eight percent (8%), and for damages. She alleged
that the initial contribution of property and money came from the heirs
inheritance, and her subsequent annual investment of seven thousand five
hundred pesos (P7,500.00) as additional capital came from the proceeds of
her farm.
Respondents denied having formed a partnership. They did not deny the
existence and validity of the "Acknowledgement of Participating Capital" and
in fact used this as evidence to support their claim that Antonietas 8% share
was limited to the businesses enumerated therein. Petitioner Federico Jr
joined his aunt Antonieta and likewise asserted his share in the supposed
partnership.

The RTC rendered judgment in favor of Antonieta and Federico. On appeal,

the CA set the RTC Decision. Petitioner filed a petition for review to the SC.
ISSUE:
Whether or not the partnership subject of the Acknowledgement of
Participating Capital funded the subject real properties. (In other words, what
is the petitioners right over these real properties?)
HELD:
Under Article 1767 of the Civil Code, there are two essential elements
in a contract of partnership: (a) an agreement to contribute money, property
or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at
bar, for, admittedly, all the parties in this case have agreed to, and did,
contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as they did.39 It
is not denied that all the parties in this case have agreed to contribute
capital to a common fund to be able to later on share its profits. They have
admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement of
Participating Capital.
The Acknowledgement of Participating Capital is a duly notarized document
voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura
Remotigue in 1957. Petitioner does not dispute its contents and is actually
relying on it to prove his participation in the partnership. Article 1797 of the
Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses.
The petitioner himself claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However, petitioner fails to realize
that this document specifically enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City. Since there was a clear agreement that
the capital the partners contributed went to the three businesses, then there
is no reason to deviate from such agreement and go beyond the stipulations

in the document. Therefore, the Court of Appeals did not err in limiting
petitioners share to the assets of the businesses enumerated in the
Acknowledgement of Participating Capital.
In Villareal v. Ramirez, the Court held that since a partnership is a separate
juridical entity, the shares to be paid out to the partners is necessarily
limited only to its total resources.
CIVIL LAW- express and implied trust
The petitioner further asserts that he is entitled to respondents properties
based on the concept of trust. He claims that since the subject real
properties were purchased using funds of the partnership, wherein he has a
6% share, then "law and equity mandates that he should be considered as a
co-owner of those properties in such proportion."
As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily show
the existence of the trust and its elements. While implied trusts may be
proved by oral evidence, the evidence must be trustworthy and received by
the courts with extreme caution, and should not be made to rest on loose,
equivocal or indefinite declarations. Trustworthy evidence is required
because oral evidence can easily be fabricated.
The petitioner has failed to prove that there exists a trust over the subject
real properties. Aside from his bare allegations, he has failed to show that
the respondents used the partnerships money to purchase the said
properties. Even assuming arguendo that some partnership income was used
to acquire these properties, the petitioner should have successfully shown
that these funds came from his share in the partnership profits. After all, by
his own admission, and as stated in the Acknowledgement of Participating
Capital, he owned a mere 6% equity in the partnership.
DENIED.
- Heirs of Jose Lim vs. Juliet Villa Lim, 614 SCRA 141 (2010)
FACTS:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's
widow Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda,
Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito
Lim (Elenito). They filed a Complaint for Partition, Accounting and Damages
against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim
(Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in
Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends
Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to
engage in the trucking business. Initially, with a contribution of P50,000.00
each, they purchased a truck to be used in the hauling and transport of
lumber of the sawmill. Jose managed the operations of this trucking business
until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo,
and partners agreed to continue the business under the management of
Elfledo. The shares in the partnership profits and income that formed part of
the estate of Jose were held in trust by Elfledo, with petitioners' authority for
Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his fathers driver in the trucking business. He was never
a partner or an investor in the business and merely supervised the purchase
of additional trucks using the income from the trucking business of the
partners. By the time the partnership ceased, it had nine trucks, which were
all registered in Elfledo's name. Petitioners asseverated that it was also
through Elfledos management of the partnership that he was able to
purchase numerous real properties by using the profits derived therefrom, all
of which were registered in his name and that of respondent. In addition to
the nine trucks, Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir.
Petitioners claimed that respondent took over the administration of the
aforementioned properties, which belonged to the estate of Jose, without
their consent and approval. Claiming that they are co-owners of the
properties, petitioners required respondent to submit an accounting of all
income, profits and rentals received from the estate of Elfledo, and to
surrender the administration thereof. Respondent refused; thus, the filing of
this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was
himself a partner of Norberto and Jimmy. Respondent also claimed that per
testimony of Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as
the latter's capital in an informal partnership with Jimmy and Norberto. When
Elfledo and respondent got married in 1981, the partnership only had one
truck; but through the efforts of Elfledo, the business flourished. Other than
this trucking business, Elfledo, together with respondent, engaged in other
business ventures. Thus, they were able to buy real properties and to put up
their own car assembly and repair business. When Norberto was ambushed
and killed on July 16, 1993, the trucking business started to falter. When
Elfledo died on May 18, 1995 due to a heart attack, respondent talked to
Jimmy and to the heirs of Norberto, as she could no longer run the business.
Jimmy suggested that three out of the nine trucks be given to him as his
share, while the other three trucks be given to the heirs of Norberto.

However, Norberto's wife, Paquita Uy, was not interested in the vehicles.
Thus, she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon his
demise. Respondent also stressed that Jose left no properties that Elfledo
could have held in trust. Respondent maintained that all the properties
involved in this case were purchased and acquired through her and her
husbands joint efforts and hard work, and without any participation or
contribution from petitioners or from Jose. Respondent submitted that these
are conjugal partnership properties; and thus, she had the right to refuse to
render an accounting for the income or profits of their own business.
On April 12, 2004, the RTC rendered its decision in favor of petitioners.
On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted, petitioners
filed their Motion for Reconsideration, which the CA, however, denied in its
Resolution dated May 8, 2006. Hence, this petition.
ISSUE:
Whether or not Jose Lim or Elfledo is the partner in the trucking
business
HELD:
The partner is Elfledo Lim based on the evidence presented regardless
of Jimmy Yus testimony in court that Jose Lim was the partner. If Jose Lim
was the partner, then the partnership would have been dissolved upon his
death (in fact, though the SC did not say so, I believe it should have been
dissolved upon Norbertos death in 1993). A partnership is dissolved upon
the death of the partner. Further, no evidence was presented as to the
articles of partnership or contract of partnership between Jose, Norberto and
Jimmy. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized.
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses among them. A contract of partnership is defined by the Civil Code as
one where 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.
Undoubtedly, the best evidence would have been the contract of partnership

or the articles of partnership. Unfortunately, there is none in this case,

because the alleged partnership was never formally organized. Nonetheless,
we are asked to determine who between Jose and Elfledo was the partner in
the trucking business.
A careful review of the records persuades us to affirm the CA decision. The
evidence presented by petitioners falls short of the quantum of proof
required to establish that: (1) Jose was the partner and not Elfledo; and (2) all
the properties acquired by Elfledo and respondent form part of the estate of
Jose, having been derived from the alleged partnership.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals is
enlightening. Therein, we cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules
shall apply:
(1) Except as provided by Article 1825, persons who are not partners
as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived;
(4) The receipt by a person of a share of the profits of a business is a
prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of Jimmy
and Norberto:

1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the

partnership, on a date that coincided with the payment of the initial capital
in the partnership;
(2) Elfledo ran the affairs of the partnership, wielding absolute control, power
and authority, without any intervention or opposition whatsoever from any of
petitioners herein;
(3) all of the properties, particularly the nine trucks of the partnership, were
registered in the name of Elfledo;
(4) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the
profits of the business; and
(5) none of the petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As repeatedly stressed in
Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real
and personal properties acquired and registered in the names of Elfledo and
respondent formed part of the estate of Jose, having been derived from
Jose's alleged partnership with Jimmy and Norberto. They failed to refute
respondent's claim that Elfledo and respondent engaged in other businesses.
Edison even admitted that Elfledo also sold Interwood lumber as a sideline.
Petitioners could not offer any credible evidence other than their bare
assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight.
- Philex mining corp. vs. Comm. Of internal revenue, 551 SCRA 183
FACTS:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),
entered into an agreement4 with Baguio Gold Mining Company ("Baguio
Gold") for the former to manage and operate the latters mining claim,
known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province.
The parties agreement was denominated as "Power of Attorney" and
provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall
make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION
PESOS (P11,000,000.00), in such amounts as from time to time may be
required by the MANAGERS within the said 3-year period, for use in the

MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the
owners account in the Sto. Nino PROJECT. Any part of any income of the
PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NINO MINE, they may transfer
their own funds or property to the Sto. Nino PROJECT, in accordance with the
following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be
carried by the Sto. Nino PROJECT as a special fund to be known as the
MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00,
except with prior approval of the PRINCIPAL; provided, however, that if the
compensation of the MANAGERS as herein provided cannot be paid in cash
from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to
the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto.
Nino PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of
the PRINCIPAL to extend to the MANAGERS the benefit of subsequent
appreciation of property, upon a projected termination of this Agency, the
ratio which the MANAGERS account has to the owners account will be
determined, and the corresponding proportion of the entire assets of the
STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS,
except that such transferred assets shall not include mine development,
roads, buildings, and similar property which will be valueless, or of slight
value, to the MANAGERS. The MANAGERS can, on the other hand, require at
their option that property originally transferred by them to the Sto. Nino
PROJECT be re-transferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the
net profit of the Sto. Nino PROJECT before income tax. It is understood that
the MANAGERS shall pay income tax on their compensation, while the
PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT
after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor of the
MANAGERS. This Power of Attorney has been executed as security for the
payment and satisfaction of all such obligations of the PRINCIPAL in favor of
the MANAGERS and as a means to fulfill the same. Therefore, this Agency
shall be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been paid and
satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36month notice to the MANAGERS.

17. Notwithstanding any agreement or understanding between the PRINCIPAL

and the MANAGERS to the contrary, the MANAGERS may withdraw from this
Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not
in any manner be held liable to the PRINCIPAL by reason alone of such
withdrawal. Paragraph 5(d) hereof shall be operative in case of the
MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years
which resulted to petitioners withdrawal as manager of the mine on January
28, 1982 and in the eventual cessation of mine operations on February 20,
1982.6

Thereafter, on September 27, 1982, the parties executed a

"Compromise with Dation in Payment"7 wherein Baguio Gold admitted an
indebtedness to petitioner in the amount of P179,394,000.00 and agreed to
pay the same in three segments by first assigning Baguio Golds tangible
assets to petitioner, transferring to the latter Baguio Golds equitable title in
its Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to
Compromise with Dation in Payment"8 where the parties determined that
Baguio Golds indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of Baguio Gold to other
creditors that petitioner had assumed as guarantor. These liabilities
pertained to long-term loans amounting to US$11,000,000.00 contracted by
Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time,
Baguio Gold undertook to pay petitioner in two segments by first assigning
its tangible assets for P127,838,051.00 and then transferring its equitable
title in its Philodrill assets for P16,302,426.00. The parties then ascertained
that Baguio Gold had a remaining outstanding indebtedness to petitioner in
the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of receivables
from Baguio Gold against reserves and allowances." 9 However, the Bureau of
Internal Revenue (BIR) disallowed the amount as deduction for bad debt and
assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be

allowed since all requisites for a bad debt deduction were satisfied, to wit: (a)
there was a valid and existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year when it was
determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management
contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Golds "pecuniary obligations"
to petitioner. It also included payments made by petitioner as guarantor of
Baguio Golds long-term loans which legally entitled petitioner to be
subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it
became evident that it would not be able to recover the advances and
payments it had made in behalf of Baguio Gold. For a debt to be considered
worthless, petitioner claimed that it was neither required to institute a
judicial action for collection against the debtor nor to sell or dispose of
collateral assets in satisfaction of the debt. It is enough that a taxpayer
exerted diligent efforts to enforce collection and exhausted all reasonable
means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of
legal and factual basis. It held that the alleged debt was not ascertained to
be worthless since Baguio Gold remained existing and had not filed a petition
for bankruptcy; and that the deduction did not consist of a valid and
subsisting debt considering that, under the management contract, petitioner
was to be paid fifty percent (50%) of the projects net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered
judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
hereby DENIED for lack of merit. The assessment in question, viz: FAS-1-8288-003067 for deficiency income tax in the amount of P62,811,161.39 is
hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to
PAY respondent Commissioner of Internal Revenue the amount of
P62,811,161.39, plus, 20% delinquency interest due computed from
February 10, 1995, which is the date after the 20-day grace period given by
the respondent within which petitioner has to pay the deficiency amount x x
x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made for

the Sto. Nino mine were in the nature of a loan. It instead characterized the
advances as petitioners investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the
"Power of Attorney" executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount partook of the nature of
an investment, it could not be deducted as a bad debt from petitioners gross
income.
The CTA likewise held that the amount paid by petitioner for the longterm loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner did
was to pre-pay the loans as evidenced by the notice sent by Bank of America
showing that it was merely demanding payment of the installment and
interests due. Moreover, Citibank imposed and collected a "pre-termination
penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12
ISSUE:
Whether or not the Court of Appeals erred in ruling that the 50%-50%
sharing in the net profits of the Sto. Nino Mine indicates that Philex is a
partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex and
Baguio Gold to form a partnership.
HELD:
The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the business
relationship between petitioner and Baguio Gold. Before resort may be had
to the two compromise agreements, the parties contractual intent must first
be discovered from the expressed language of the primary contract under
which the parties business relations were founded. It should be noted that
the compromise agreements were mere collateral documents executed by
the parties pursuant to the termination of their business relationship created
under the "Power of Attorney". On the other hand, it is the latter which
established the juridical relation of the parties and defined the parameters of
their dealings with one another.
The execution of the two compromise agreements can hardly be considered
as a subsequent or contemporaneous act that is reflective of the parties true
intent. The compromise agreements were executed eleven years after the
"Power of Attorney" and merely laid out a plan or procedure by which

petitioner could recover the advances and payments it made under the
"Power of Attorney". The parties entered into the compromise agreements as
a consequence of the dissolution of their business relationship. It did not
define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint
venture was indeed intended by the parties. Under a 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.15 While a corporation, like petitioner, cannot generally enter into
a contract of partnership unless authorized by law or its charter, it has been
held that it may enter into a joint venture which is akin to a particular
partnership:
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. x x x 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. x x x 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. x x x
This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. x x x It would
seem therefore that under Philippine law, a joint venture is a form of
partnership and should be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with others. x
x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates
that the parties had intended to create a partnership and establish a
common fund for the purpose. They also had a joint interest in the profits of
the business as shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to
contribute money, property and industry to the common fund known as the
Sto. Nio mine.17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development
and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint venture
assets under their respective accounts. Baguio Gold would contribute P11M
under its owners account plus any of its income that is left in the project, in
addition to its actual mining claim. Meanwhile, petitioners contribution

would consist of its expertise in the management and operation of mines,

as well as the managers account which is comprised of P11M in funds and
property and petitioners "compensation" as manager that cannot be paid
in cash.
However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not "bind" itself to contribute
money or property to the project; that under paragraph 5 of the agreement,
it was only optional for petitioner to transfer funds or property to the Sto.
Nio project "(w)henever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NIO MINE." 18
The wording of the parties agreement as to petitioners contribution to the
common fund does not detract from the fact that petitioner transferred its
funds and property to the project as specified in paragraph 5, thus rendering
effective the other stipulations of the contract, particularly paragraph 5(c)
which prohibits petitioner from withdrawing the advances until termination of
the parties business relations. As can be seen, petitioner became bound by
its contributions once the transfers were made. The contributions acquired
an obligatory nature as soon as petitioner had chosen to exercise its option
under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c)
against withdrawal of advances should not be taken as an indication that it
had entered into a partnership with Baguio Gold; that the stipulation only
showed that what the parties entered into was actually a contract of agency
coupled with an interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked
or withdrawn by the principal due to an interest of a third party that
depends upon it, or the mutual interest of both principal and agent. 19 In this
case, the non-revocation or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly the agent and not the
principal under the contract. Thus, it cannot be inferred from the stipulation
that the parties relation under the agreement is one of agency coupled with
an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that
the relationship of the parties was one of agency and not a partnership.
Although the said provision states that "this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS account," it does not necessarily
follow that the parties entered into an agency contract coupled with an
interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not
to confer a power in favor of petitioner to contract with third persons on

behalf of Baguio Gold but to create a business relationship between

petitioner and Baguio Gold, in which the former was to manage and operate
the latters mine through the parties mutual contribution of material
resources and industry. The essence of an agency, even one that is coupled
with interest, is the agents ability to represent his principal and bring about
business relations between the latter and third persons. 20 Where
representation for and in behalf of the principal is merely incidental or
necessary for the proper discharge of ones paramount undertaking under a
contract, the latter may not necessarily be a contract of agency, but some
other agreement depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the
parties agreement indubitably lead to the conclusion that a partnership was
formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to
return the advances made by petitioner under the agreement. Paragraph 5
(d) thereof provides that upon termination of the parties business relations,
"the ratio which the MANAGERS account has to the owners account will be
determined, and the corresponding proportion of the entire assets of the
STO. NINO MINE, excluding the claims" shall be transferred to petitioner. 22 As
pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon dissolution of the parties
business relations. There was nothing in the agreement that would require
Baguio Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that
is more consistent with a partnership than a creditor-debtor relationship. It
should be pointed out that in a contract of loan, a person who receives a loan
or money or any fungible thing acquires ownership thereof and is bound to
pay the creditor an equal amount of the same kind and quality. 23 In this case,
however, there was no stipulation for Baguio Gold to actually repay
petitioner the cash and property that it had advanced, but only the return of
an amount pegged at a ratio which the managers account had to the
owners account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business
relations over the Sto. Nino mine. The "Power of Attorney" clearly provides
that petitioner would only be entitled to the return of a proportionate share
of the mine assets to be computed at a ratio that the managers account had
to the owners account. Except to provide a basis for claiming the advances
as a bad debt deduction, there is no reason for Baguio Gold to hold itself
liable to petitioner under the compromise agreements, for any amount over

and above the proportion agreed upon in the "Power of Attorney".

Next, the tax court correctly observed that it was unlikely for a business
corporation to lend hundreds of millions of pesos to another corporation with
neither security, or collateral, nor a specific deed evidencing the terms and
conditions of such loans. The parties also did not provide a specific maturity
date for the advances to become due and demandable, and the manner of
payment was unclear. All these point to the inevitable conclusion that the
advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is
the fact that it would receive 50% of the net profits as "compensation" under
paragraph 12 of the agreement. The entirety of the parties contractual
stipulations simply leads to no other conclusion than that petitioners
"compensation" is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a
person of a share in the profits of a business is prima facie evidence that he
is a partner in the business." Petitioner asserts, however, that no such
inference can be drawn against it since its share in the profits of the Sto Nio
project was in the nature of compensation or "wages of an employee", under
the exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid "wages" pursuant to an employeremployee relationship. To begin with, petitioner was the manager of the
project and had put substantial sums into the venture in order to ensure its
viability and profitability. By pegging its compensation to profits, petitioner
also stood not to be remunerated in case the mine had no income. It is hard
to believe that petitioner would take the risk of not being paid at all for its
services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12
of the agreement actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to an equal share in the
income of the mine if it were just an employee of Baguio Gold. 25 It is not
surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal
contribution of the parties to the St. Nino mine. The "compensation" agreed
upon only serves to reinforce the notion that the parties relations were
indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as
investments in a partnership known as the Sto. Nino mine. The advances
were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under the
"Power of Attorney". As for the amounts that petitioner paid as guarantor to

Baguio Golds creditors, we find no reason to depart from the tax courts
factual finding that Baguio Golds debts were not yet due and demandable at
the time that petitioner paid the same. Verily, petitioner pre-paid Baguio
Golds outstanding loans to its bank creditors and this conclusion is
supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from
its gross income. Deductions for income tax purposes partake of the nature
of tax exemptions and are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to the deduction claimed. 27
In this case, petitioner failed to substantiate its assertion that the advances
were subsisting debts of Baguio Gold that could be deducted from its gross
income. Consequently, it could not claim the advances as a valid bad debt
deduction.

- Santos vs Spouses Reyes, GR No. 135813, October 25, 2001

FACTS:
Sometime in June, 1986, [Petitioner] Fernando Santos and
[Respondent] Nieves Reyes were introduced to each other by one Meliton
Zabat regarding a lending business venture proposed by Nieves. It was
verbally agreed that [petitioner would] act as financier while [Nieves] and
Zabat [would] take charge of solicitation of members and collection of loan
payments. The venture was launched on June 13, 1986, with the
understanding that [petitioner] would receive 70% of the profits while x x x
Nieves and Zabat would earn 15% each.
In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner].
Gragera, as chairman of the Monte Maria Development Corporation (Monte
Maria, for brevity), sought short-term loans for members of the corporation.
[Petitioner] and Gragera executed an agreement providing funds for Monte
Marias members. Under the agreement, Monte Maria, represented by
Gragera, was entitled to P1.31 commission per thousand paid daily to
[petitioner] (Exh. A). x x x Nieves kept the books as representative of
[petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.
On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the
Article of Agreement which formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner Zabat
engaged in the same lending business in competition with their
partnership[.] Zabat was thereby expelled from the partnership. The
operations with Monte Maria continued.

On June 5, 1987, [petitioner] filed a complaint for recovery of sum of

money and damages. [Petitioner] charged [respondents], allegedly in their
capacities as employees of [petitioner], with having misappropriated funds
intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
Grageras complaint that his commissions were inadequately remitted,
[petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragera. x
x x Nieves allegedly failed to account for the amount. [Petitioner] asserted
that after examination of the records, he found that of the total amount of
P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was remitted
to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not
mere employees of [petitioner]. The complaint, they alleged, was filed to
preempt and prevent them from claiming their rightful share to the profits of
the partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of
Zabat after [petitioner] learned of Zabats activities. Arsenio resigned from his
job at the Asian Development Bank to join the partnership.
For her part, x x x Nieves claimed that she participated in the business
as a partner, as the lending activity with Monte Maria originated from her
initiative. Except for the limited period of July 8, 1986 through August 20,
1986, she did not handle sums intended for Gragera. Collections were turned
over to Gragera because he guaranteed 100% payment of all sums loaned
by Monte Maria. Entries she made on worksheets were based on this
assumptive 100% collection of all loans. The loan releases were made less
Grageras agreed commission. Because of this arrangement, she neither
received payments from borrowers nor remitted any amount to Gragera. Her
job was merely to make worksheets (Exhs. 15 to 15-DDDDDDDDDD) to
convey to [petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his
mere employees and not partners with respect to the agreement with
Gragera. He claimed that after he discovered Zabats activities, he ceased
infusing funds, thereby causing the extinguishment of the partnership. The
agreement with Gragera was a distinct partnership [from] that of
[respondent] and Zabat. [Petitioner] asserted that [respondents] were hired
as salaried employees with respect to the partnership between [petitioner]
and Gragera.
[Petitioner] further asserted that in Nieves capacity as bookkeeper, she
received all payments from which Nieves deducted Grageras commission.
The commission would then be remitted to Gragera. She likewise determined

loan releases.
During the pre-trial, the parties narrowed the issues to the following
points: whether [respondents] were employees or partners of [petitioner],
whether [petitioner] entrusted money to [respondents] for delivery to
Gragera, whether the P1,555,068.70 claimed under the complaint was
actually remitted to Gragera and whether [respondents] were entitled to
their counterclaim for share in the profits.
The trial court as well as the Court of Appeals ruled against Santos and
ordered the latter to pay the shares of the spouses
ISSUE:
Whether or not the parties relationship was one of partnership or of
employer-employee
HELD:
Partnership.
We agree with both courts on this point. 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. The Articles of Agreement stipulated that the signatories shall
share the profits of the business in a 70-15-15 manner, with petitioner
getting the lions share. stipulation clearly proved the establishment of a
partnership.
We find no cogent reason to disagree with the lower courts that the
partnership continued lending money to the members of the Monte Maria
Community Development Group, Inc., which later on changed its business
name to Private Association for Community Development, Inc. (PACDI).
Nieves was not merely petitioners employee. She discharged her
bookkeeping duties in accordance with paragraphs 2 and 3 of the
Agreement, which states as follows:
2. That the SECOND PARTY and THIRD PARTY shall handle the
solicitation and screening of prospective borrowers, and shall x x x
each be responsible in handling the collection of the loan payments of
the borrowers that they each solicited.
3. That the bookkeeping and daily balancing of account of the business
operation shall be handled by the SECOND PARTY.
The Second Party named in the Agreement was none other than Nieves

Reyes. On the other hand, Arsenios duties as credit investigator are

subsumed under the phrase screening of prospective borrowers. Because of
this Agreement and the disbursement of monthly allowances and profit
shares or dividends (Exh. 6) to Arsenio, we uphold the factual finding of both
courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending
business, despite the fact that it was formalized only after the Memorandum
of Agreement had been signed by petitioner and Gragera. Contrary to
petitioners contention, there is no evidence to show that a different business
venture is referred to in this Agreement, which was executed on August 6,
1986, or about a month after the Memorandum had been signed by
petitioner and Gragera on July 14, 1986. The Agreement itself attests to this
fact:
WHEREAS, the parties have decided to formalize the terms of their business
relationship in order that their respective interests may be properly defined
and established for their mutual benefit and understanding.
- Tocao vs CA, 365 SCRA 463 (2001) (MR)
FACTS:
Private respondent Nenita A. Anay met petitioner William T. Belo, then
the vice-president for operations of Ultra Clean Water Purifier, through her
former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cookwares
Under the joint venture, Belo acted as capitalist, Tocao as president
and general manager, and Anay as head of the marketing department and
later, vice-president for sales
The parties agreed that Belo's name should not appear in any
documents relating to their transactions with West Bend Company. Anay
having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's
name.
The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly
production;
(3) thirty percent (30%) of the sales she would make; and

(4) two percent (2%) for her demonstration services. The agreement was not
reduced to writing on the strength of Belo's assurances that he was sincere,
dependable and honest when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter addressed to the Cubao sales office to the effect that she was no
longer the vice-president of Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8, 1988 to February 5, 1988
and the audit of the company to determine her share in the net profits.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a
complaint for sum of money with damages against Marjorie D. Tocao and
William Belo before the Regional Trial Court of Makati, Branch 140

*** William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The
three agreed to form a joint venture for the sale of cooking wares. Belo was
to contribute P2.5 million; Tocao also contributed some cash and she shall
also act as president and general manager; and Anay shall be in charge of
marketing. Belo and Tocao specifically asked Anay because of her experience
and connections as a marketer. They agreed further that Anay shall receive
the following:
10% share of annual net profits
6% overriding commission for weekly sales
30% of sales Anay will make herself
2% share for her demo services
They operated under the name Geminesse Enterprise, this name was
however registered as a sole proprietorship with the Bureau of Domestic
Trade under Tocao. The joint venture agreement was not reduced to writing
because Anay trusted Belos assurances.
The venture succeeded under Anays marketing prowess. But then the
relationship between Anay and Tocao soured. One day, Tocao advised one of
the branch managers that Anay was no longer a part of the company. Anay
then demanded that the company be audited and her shares be given to her.
The trial court held that there was indeed an "oral partnership agreement
between the plaintiff and the defendants. The Court of Appeals affirmed the
lower courts decision.
ISSUE:
Whether or not a partnership exists

HELD:
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. It may be constituted in any
form; a public instrument is necessary only where immovable property or
real rights are contributed thereto. This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a
partnership. The fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on
the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct
from that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the
business of distributorship of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law, she was the industrial
or managing partner. It was through her reputation with the West Bend
Company that the partnership was able to open the business of
distributorship of that companys cookware products; it was through the same
efforts that the business was propelled to financial success. Petitioner Tocao
herself admitted private respondents indispensable role in putting up the
business when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no
one to sell yet, its only me there then her and then two (2) people, so about
four (4). Now, after that when she recruited already Oscar Abella and Lina
Torda-Cruz these two (2) people were given the designation of marketing
managers of which definitely Nita as superior to them would be the Vice
President.
By the set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of
West Bend Company to Roger Muencheberg of the same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance

the operations. Marge does not have cookware experience. Nita Anay has
started to gather former managers, Lina Torda and Dory Vista. She has also
gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu
Javier. They will continue to gather other key people and build up the
organization. All they need is the finance and the products to sell.
On the other hand, petitioner Belos denial that he financed the partnership
rings hollow in the face of the established fact that he presided over
meetings regarding matters affecting the operation of the business.
Moreover, his having authorized in writing on October 7, 1987, on a
stationery of his own business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the proceeds of her personal
sales, could not be interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a guarantor is belied
by that personal act of proprietorship in the business. Moreover, if he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of
the Civil Code, he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be
express, Article 1403, the Statute of Frauds, requires that a special promise
to answer for the debt, default or miscarriage of another be in writing.
Petitioner Tocao, a former ramp model, was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and
petitioner Belos roles as both capitalists to the partnership with private
respondent are buttressed by petitioner Tocaos admissions that petitioner
Belo was her boyfriend and that the partnership was not their only business
venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname, Jiji.
The special relationship between them dovetails with petitioner Belos claim
that he was acting in behalf of petitioner Tocao. Significantly, in the early
stage of the business operation, petitioners requested West Bend Company
to allow them to utilize their banking and trading facilities in Singapore in the
matter of importation and payment of the cookware products. The inevitable
conclusion, therefore, was that petitioners merged their respective capital
and infused the amount into the partnership of distributing cookware with
private respondent as the managing partner.
HELD (Digest):
Yes, even though it was not reduced to writing, for a partnership can be
instituted in any form. The fact that it was registered as a sole proprietorship
is of no moment for such registration was only for the companys trade
name.
Anay was not even an employee because when they ventured into the

agreement, they explicitly agreed to profit sharing this is even though Anay
was receiving commissions because this is only incidental to her efforts as a
head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully
from a partnership is an innocent partner. Hence, the guilty partner must
give him his due upon the dissolution of the partnership as well as damages
or share in the profits realized from the appropriation of the partnership
business and goodwill. An innocent partner thus possesses pecuniary
interest in every existing contract that was incomplete and in the trade name
of the co-partnership and assets at the time he was wrongfully expelled.
An unjustified dissolution by a partner can subject him to action for damages
because by the mutual agency that arises in a partnership, the doctrine
of delectus personaeallows the partners to have the power, although not
necessarily the right to dissolve the partnership.
Tocaos unilateral exclusion of Anay from the partnership is shown by her
memo to the Cubao office plainly stating that Anay was, as of October 9,
1987, no longer the vice-president for sales of Geminesse Enterprise. By that
memo, petitioner Tocao effected her own withdrawal from the partnership
and considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the partnership
was not terminated thereby; it continues until the winding up of the
business.
Motion for Reconsideration filed by Tocao and Belo decided by the SC on
September 20, 2001.
Belo is not a partner. Anay was not able to prove that Belo in fact received
profits from the company. Belo merely acted as a guarantor. His participation
in the business meetings was not as a partner but as a guarantor. He in fact
had only limited partnership. Tocao also testified that Belo received nothing
from the profits. The Supreme Court also noted that the partnership was yet
to be registered in the Securities and Exchange Commission. As such, it was
understandable that Belo, who was after all petitioner Tocaos good friend
and confidante, would occasionally participate in the affairs of the business,
although never in a formal or official capacity.
-AFISCO insurance corp. vs. CA, 302 SCRA 1 (1999)
FACTS:
The petitioners are 41 non-life insurance corporations, organized and
existing under the laws of the Philippines. Upon issuance by them of

Erection, Machinery Breakdown, Boiler Explosion and Contractors All Risk

insurance policies, the petitioners on August 1, 1965 entered into a Quota
Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the
Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a nonresident foreign insurance corporation. The reinsurance treaties required
petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners
was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial
statement and filed an Information Return of Organization Exempt from
Income Tax for the year ending in 1975, on the basis of which it was
assessed by the Commissioner of Internal Revenue deficiency corporate
taxes in the amount of P1,843,273.60, and withholding taxes in the amount
of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the
petitioners, respectively. These assessments were protested by the
petitioners through its auditors Sycip, Gorres, Velayo and Co.
On January 27, 1986, the Commissioner of Internal Revenue denied the
protest and ordered the petitioners, assessed as Pool of Machinery Insurers,
to pay deficiency income tax, interest, and with[h]olding tax.
The CA ruled in the main that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latters collection of
premiums on behalf of its members, the ceding companies, was taxable
income. It added that prescription did not bar the Bureau of Internal Revenue
(BIR) from collecting the taxes due, because the taxpayer cannot be located
at the address given in the information return filed. Hence, this Petition for
Review before us.
ISSUE:
1.Whether or not the Clearing House, acting as a mere agent and performing
strictly administrative functions, and which did not insure or assume any risk
in its own name, was a partnership or association subject to tax as a
corporation;
HELD:
The petition is devoid of merit. We sustain the ruling of the Court of
Appeals that the pool is taxable as a corporation, and that the governments
right to assess and collect the taxes had not prescribed.
This Court rules that the Court of Appeals, in affirming the CTA which
had previously sustained the internal revenue commissioner, committed no
reversible error. Section 24 of the NIRC, as worded in the year ending 1975,
provides:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A

tax is hereby imposed upon the taxable net income received during each
taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, no matter how created or organized, but
not including duly registered general co-partnership (compaias colectivas),
general professional partnerships, private educational institutions, and
building and loan associations xxx.
Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as unregistered
partnerships and associations. Parenthetically, the NLRCs inclusion of such
entities in the tax on corporations was made even clearer by the Tax Reform
Act of 1997, which amended the Tax Code. Pertinent provisions of the new
law read as follows:
SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this Code, an income tax of
thirty-five percent (35%) is hereby imposed upon the taxable income derived
during each taxable year from all sources within and without the Philippines
by every corporation, as defined in Section 22 (B) of this Code, and taxable
under this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships, no matter how created
or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include
general professional partnerships [or] a joint venture or consortium formed
for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract without the
Government. General professional partnerships are partnerships formed
by persons for the sole purpose of exercising their common profession, no
part of the income of which is derived from engaging in any trade or
business.
xxx xxx xxx."
Thus, the Court in Evangelista v. Collector of Internal held that Section
24 covered these unregistered partnerships and even associations or joint
accounts, which had no legal personalities apart from their individual
members. The Court of Appeals astutely applied Evangelista:
xxx Accordingly, a pool of individual real property owners dealing in real
estate business was considered a corporation for purposes of the tax in sec.
24 of the Tax Code in Evangelista v. Collector of Internal Revenue, supra. The

Supreme Court said:

The term partnership includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business,
financial operation, or venture is carried on. * * * (8 Mertens Law of Federal
Income Taxation, p. 562 Note 63)
Article 1767 of the Civil Code recognizes the creation of a contract of
partnership when 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. Its requisites are: (1) mutual contribution to a
common stock, and (2) a joint interest in the profits. In other words, a
partnership is formed when persons contract to devote to a common purpose
either money, property, or labor with the intention of dividing the profits
between themselves. Meanwhile, an association implies associates who
enter into a joint enterprise x x x for the transaction of business.
In the case before us, the ceding companies entered into a Pool
Agreement or an association that would handle all the insurance businesses
covered under their quota-share reinsurance treaty and surplus reinsurance
treaty with Munich. The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other
valuables that are deposited in the name and credit of the pool.
This common fund pays for the administration and operation
expenses of the pool.
(2) The pool functions through an executive board, which resembles the
board of directors of a corporation, composed of one
representative for each of the ceding companies.
(3) True, the pool itself is not a reinsurer and does not issue any
insurance policy; however, its work is indispensable, beneficial
and economically useful to the business of the ceding
companies and Munich, because without it they would not have
received their premiums. The ceding companies share in the
business ceded to the pool and in the expenses according to a
Rules of Distribution annexed to the Pool Agreement. Profit
motive or business is, therefore, the primordial reason for the
pools formation. As aptly found by the CTA:
xxx The fact that the pool does not retain any profit or income does not

obliterate an antecedent fact, that of the pool being used in the

transaction of business for profit. It is apparent, and petitioners
admit, that their association or coaction was indispensable [to] the
transaction of the business. x x x If together they have conducted
business, profit must have been the object as, indeed, profit was
earned. Though the profit was apportioned among the members,
this is only a matter of consequence, as it implies that profit
actually resulted.

The petitioners reliance on Pascual v. Commissioner is misplaced,

because the facts obtaining therein are not on all fours with the present
case. In Pascual, there was no unregistered partnership, but merely a coownership which took up only two isolated transactions. The Court of Appeals
did not err in applying Evangelista, which involved a partnership that
engaged in a series of transactions spanning more than ten years, as in the
case before us.
-Evangelista vs. Coll. Of internal revenue, 102 Phil. 140 (1957)
FACTS:
It appears from the stipulation submitted by the parties:
1. That the petitioners, EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
FRANCISCA EVANGELISTA, borrowed from their father the sum of
P59,1400.00 which amount together with their personal monies was used by
them for the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot
with an area of 3,713.40 sq. m. including improvements thereon from the
sum of P100,000.00; this property has an assessed value of P57,517.00 as of
1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of
land with an aggregate area of 3,718.40 sq. m. including improvements
thereon for P130,000.00; this property has an assessed value of P82,255.00
as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a
lot of 4,353 sq. m. including improvements thereon for P108,825.00. This
property has an assessed value of P4,983.00 as of 1948;

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of
8,371 sq. m. including improvements thereon for P237,234.34. This property
has an assessed value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother
Simeon Evangelista to 'manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefor; in default of such
payment, to bring suits against the defaulting tenants; to sign all letters,
contracts, etc., for and in their behalf, and to endorse and deposit all notes
and checks for them;
7. That after having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants;
8. That from the month of March, 1945 up to and including December, 1945,
the total amount collected as rents on their real properties was P9,599.00
while the expenses amounted to P3,650.00 thereby leaving them a net rental
income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of
P24,786.30, out of which amount was deducted in the sum of P16,288.27 for
expenses thereby leaving them a net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of
the which amount was deducted the sum of P4,837.65 as expenses, thereby
leaving them a net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of
Internal Revenue demanded the payment of income tax on corporations, real
estate dealer's fixed tax and corporation residence tax for the years 19451949, computed, according to assessment made by said officer, as follows:
INCOME TAXES
1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge and

P6,157.09

compromise
REAL ESTATE DEALER'S FIXED TAX
1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

RESIDENCE TAXES OF CORPORATION

1945

P38.75

1946

38.75

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.34.

Said letter of demand and corresponding assessments were delivered to

petitioners on December 3, 1954, whereupon they instituted the present
case in the Court of Tax Appeals, with a prayer that "the decision of the
respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the payment of the taxes in
question, with costs against the respondent.
ISSUE:
Whether petitioners are subject to the tax on corporations provided for
in section 24 of Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for
corporations and the real estate dealers fixed tax.
HELD:

With respect to the tax on corporations, the issue hinges on the meaning of
the terms "corporation" and "partnership," as used in section 24 and 84 of
said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships
(compaias colectivas), a tax upon such income equal to the sum of the
following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations or insurance companies, but does not include
duly registered general copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to
contribute money, properly, or industry to a common fund, with the intention
of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in
acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage
in real estate transactions for monetary gain and then divide the same
among themselves, because:
1. Said common fund was not something they fou
nd already in existence. It was not property inherited by them pro indiviso.
They created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one transaction, but in a
series of transactions. On February 2, 1943, they bought a lot for
P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This
was soon followed on April 23, 1944, by the acquisition of another real estate
for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transactions undertaken,

as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the aforementioned common
fund or even of the property acquired by the petitioners in February, 1943. In
other words, one cannot but perceive a character of habitually peculiar to
business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other
personal uses, of petitioners herein. The properties were leased separately to
several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of
one person, namely Simeon Evangelista, with full power to lease, to collect
rents, to issue receipts, to bring suits, to sign letters and contracts, and to
indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or
business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to
be exact, over fifteen (15) years, since the first property was acquired, and
over twelve (12) years, since Simeon Evangelista became the manager.
6. 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. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point.
NOTE: For purposes of the tax on corporations, our National Internal
Revenue Code, includes these partnerships with the exception only of duly
registered general copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are subject to
the income tax for corporations.
As regards the residence of tax for corporations, section 2 of
Commonwealth Act No. 465 provides in part:

Entities liable to residence tax.-Every corporation, no matter how created or

organized, whether domestic or resident foreign, engaged in or doing
business in the Philippines shall pay an annual residence tax of five pesos
and an annual additional tax which in no case, shall exceed one thousand
pesos, in accordance with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company,
partnership, joint account (cuentas en participacion), association or
insurance company, no matter how created or organized. (emphasis
supplied.)
Considering that the pertinent part of this provision is analogous to that of
section 24 and 84 (b) of our National Internal Revenue Code (commonwealth
Act No. 466), and that the latter was approved on June 15, 1939, the day
immediately after the approval of said Commonwealth Act No. 465 (June 14,
1939), it is apparent that the terms "corporation" and "partnership" are used
in both statutes with substantially the same meaning. Consequently,
petitioners are subject, also, to the residence tax for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing
the properties above mentioned for a period of over twelve years, and that
the yearly gross rentals of said properties from June 1945 to 1948 ranged
from P9,599 to P17,453. 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:
'Real estate dealer' includes any person engaged in the business of buying,
selling, exchanging, leasing, or renting property or his own account as
principal and holding himself out as a full or 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. . . (emphasis
supplied.)
* BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually contributed money to
a common fund with express purpose of engaging in real estate business for
profit. The series of transactions which they had undertaken attest to this.
-Yulo vs yanh chiao seng, 106 Phil. 111 (1959)
FACTS:
On June 17, 1945, defendant Yang Chiao Seng wrote a letter to the
palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership
between them to run and operate a theatre on the premises occupied by
former Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions of the

offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly
participation of P3,000 payable quarterly in advance within the first 15 days
of each quarter, (2) that the partnership shall be for a period of two years
and six months, starting from July 1, 1945 to December 31, 1947, with the
condition that if the land is expropriated or rendered impracticable for the
business, or if the owner constructs a permanent building thereon, or Mrs.
Yulo's right of lease is terminated by the owner, then the partnership shall be
terminated even if the period for which the partnership was agreed to be
established has not yet expired; (3) that Mrs. Yulo is authorized personally to
conduct such business in the lobby of the building as is ordinarily carried on
in lobbies of theatres in operation, provided the said business may not
obstruct the free ingress and agrees of patrons of the theatre; (4) that after
December 31, 1947, all improvements placed by the partnership shall belong
to Mrs. Yulo, but if the partnership agreement is terminated before the lapse
of one and a half years period under any of the causes mentioned in
paragraph (2), then Yang Chiao Seng shall have the right to remove and take
away all improvements that the partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the
parties executed a partnership agreement establishing the "Yang &
Company, Limited," which was to exist from July 1, 1945 to December 31,
1947. It states that it will conduct and carry on the business of operating a
theatre for the exhibition of motion and talking pictures. The capital is fixed
at P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and
P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the
partners in the same proportion as their capital contribution and the liability
of Mrs. Yulo, in case of loss, shall be limited to her capital contribution (Exh.
"B").
In June 1946, they executed a supplementary agreement, extending
the partnership for a period of three years beginning January 1, 1948 to
December 31, 1950. The benefits are to be divided between them at the rate
of 50-50 and after December 31, 1950, the showhouse building shall belong
exclusively to the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff
Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina.
In the contract of lease it was stipulated that the lease shall continue for an
indefinite period of time, but that after one year the lease may be cancelled
by either party by written notice to the other party at least 90 days before
the date of cancellation. The last contract was executed between the owners
and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for the
owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease
on July 31, 1949. In view of the above notice, Mrs. Yulo and her husband
brought a civil action to the Court of First Instance of Manila on July 3, 1949
to declare the lease of the premises. On February 9, 1950, the Municipal

Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and
Mr. Yang. The judgment was appealed. In the Court of First Instance, the two
cases were afterwards heard jointly, and judgment was rendered dismissing
the complaint of Mrs. Yulo and her husband, and declaring the contract of
lease of the premises terminated as of July 31, 1949, and fixing the
reasonable monthly rentals of said premises at P100. Both parties appealed
from said decision and the Court of Appeals, on April 30, 1955, affirmed the
judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her
share in the profits of the business. Yang answered the letter saying that
upon the advice of his counsel he had to suspend the payment (of the
rentals) because of the pendency of the ejectment suit by the owners of the
land against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals
from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs.
Yulo instituted this action on May 26, 1954, alleging the existence of a
partnership between them and that the defendant Yang Chiao Seng has
refused to pay her share from December, 1949 to December, 1950; that
after December 31, 1950 the partnership between Mrs. Yulo and Yang
terminated, as a result of which, plaintiff became the absolute owner of the
building occupied by the Cine Astor; that the reasonable rental that the
defendant should pay therefor from January, 1951 is P5,000; that the
defendant has acted maliciously and refuses to pay the participation of the
plaintiff in the profits of the business amounting to P35,000 from November,
1949 to October, 1950, and that as a result of such bad faith and malice on
the part of the defendant, Mrs. Yulo has suffered damages in the amount of
P160,000 and exemplary damages to the extent of P5,000. The prayer
includes a demand for the payment of the above sums plus the sum of
P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement
between the plaintiff and the defendant was one of lease and not of
partnership; that the partnership was adopted as a subterfuge to get around
the prohibition contained in the contract of lease between the owners and
the plaintiff against the sublease of the said property. As to the other claims,
he denies the same and alleges that the fair rental value of the land is only
P1,100. By way of counterclaim he alleges that by reason of an attachment
issued against the properties of the defendant the latter has suffered
damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff
appeared. The court heard evidence of the plaintiff in the absence of the

defendant and thereafter rendered judgment ordering the defendant to pay

to the plaintiff P41,000 for her participation in the business up to December,
1950; P5,000 as monthly rental for the use and occupation of the building
from January 1, 1951 until defendant vacates the same, and P3,000 for the
use and occupation of the lobby from July 1, 1945 until defendant vacates
the property. This decision, however, was set aside on a motion for
reconsideration. In said motion it is claimed that defendant failed to appear
at the hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable
settlement, would be granted; that in view of the decision of the Court of
Appeals in two previous cases between the owners of the land and the
plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged
participation in the profit of the business, etc. The court, finding the above
motion, well-founded, set aside its decision and a new trial was held. After
trial the court rendered the decision making the following findings: that it is
not true that a partnership was created between the plaintiff and the
defendant because defendant has not actually contributed the sum
mentioned in the Articles of Partnership, or any other amount; that the real
agreement between the plaintiff and the defendant is not of the partnership
but one of the lease for the reason that under the agreement the plaintiff did
not share either in the profits or in the losses of the business as required by
Article 1769 of the Civil Code; and that the fact that plaintiff was granted a
"guaranteed participation" in the profits also belies the supposed existence
of a partnership between them. It. therefore, denied plaintiff's claim for
damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use
of the supposed lobby of the theatre, the court after ocular inspection found
that the said lobby was very narrow space leading to the balcony of the
theatre which could not be used for business purposes under existing
ordinances of the City of Manila because it would constitute a hazard and
danger to the patrons of the theatre. The court, therefore, dismissed the
complaint; so did it dismiss the defendant's counterclaim, on the ground that
the defendant failed to present sufficient evidence to sustain the same. It is
against this decision that the appeal has been prosecuted by plaintiff to this
Court.
ISSUE:
Whether or not the lower court erred in holding that the written
contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one of
lease and not of partnership.
HELD:

We have gone over the evidence and we fully agree with the
conclusion of the trial court that the agreement was a sublease, not a
partnership. The following are the requisites of partnership: (1) two or more
persons who bind themselves to contribute money, property, or industry to a
common fund; (2) intention on the part of the partners to divide the profits
among themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital.
In the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she
has ever demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have
done; all that she did was to receive her share of P3,000 a month, which can
not be interpreted in any manner than a payment for the use of the premises
which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"),
which shows that both parties considered this offer as the real contract
between them.
Plaintiff claims the sum of P41,000 as representing her share or
participation in the business from December, 1949. But the original letter of
the defendant, Exh. "A", expressly states that the agreement between the
plaintiff and the defendant was to end upon the termination of the right of
the plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as
found by the Court of Appeals, the partnership agreement or the agreement
for her to receive a participation of P3,000 automatically ceased as of said
date.
a. Requires fulfillment of the essential requisites of contracts art.
1318
Art. 1318. There is no contract unless the following requisites concur:
(1)Consent of the contracting parties;
(2)Object certain which is the subject matter of the contract;
(3)Cause of the obligation which is established. (1261)
i. Consent and capacity of the contracting parties

Art. 1327
Art. 1327. The following cannot give consent to a contract:

(1)Unemancipated minors;
(2)Insane or demented persons, and deaf-mutes who do not know how
to write. (1263a)
-

Art. 1329

Art. 1329. The incapacity declared in Article 1327 is subject to the

modifications determined by law, and is understood to be without
prejudice to special disqualifications established in the laws. (1264)
-

Art. 1782
Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership. (1677)
Reason: Each of the partners virtually make a donation. To allow
persons who are prohibited to give each other any donation or
advantage to form a universal partnership will be like permitting them
to do indirectly what the law expressly prohibits.
A partnership formed in violation of this article is null and void.
Consequently, no legal personality is acquired.
A husband and wife, however, may enter into a particular partnership
or be members thereof.

Art. 87
Art. 87. Every donation or grant of gratuitous advantage, direct or
indirect, between the spouses during the marriage shall be void,
except moderate gifts which the spouses may give each other on the
occasion of any family rejoicing. The prohibition shall also apply to
persons living together as husband and wife without a valid marriage.
(133a)

Art. 73
Art. 73. Either spouse may exercise any legitimate profession,
occupation, business or activity without the consent of the other. The
latter may object only on valid, serious, and moral grounds.

In case of disagreement, the court shall decide whether or not:

(1) The objection is proper; and
1 (2) Benefit has occurred to the family prior to the

objection or thereafter. If the benefit accrued prior to

the objection, the resulting obligation shall be
enforced against the separate property of the spouse
who has not obtained consent.
The foregoing provisions shall not prejudice the rights of creditors who
acted in good faith. (117a)
-

Art 234: family code

Art. 234. Emancipation takes place by the attainment of majority.
Unless otherwise provided, majority commences at the age of twentyone years.
Emancipation also takes place:
(1)
(2)

By the marriage of the minor; or

By the recording in the Civil Register of an agreement in a public
instrument executed by the parent exercising parental authority
and the minor at least eighteen years of age. Such emancipation
shall be irrevocable. (397a, 398a, 400a, 401a)

Art. 34: revise penal code

Art. 34. Civil interdiction. Civil interdiction shall deprive the
offender during the time of his sentence of the rights of parental
authority, or guardianship, either as to the person or property of any
ward, of marital authority, of the right to manage his property and of
the right to dispose of such property by any act or any conveyance
inter vivos.

Rules 93-94 rules of court

RULE 93
Appointment of Guardians
Section 1. Who may petition for appointment of guardian for resident.
Any relative, friend, or other person on behalf of a resident minor or
incompetent who has no parent or lawful guardian, or the minor himself if
fourteen years of age or over, may petition the court having jurisdiction
for the appointment of a general guardian for the person or estate, or
both, of such minor or incompetent. An officer of the Federal
Administration of the United States in the Philippines may also file a
petition in favor of a ward thereof, and the Director of Health, in favor of
an insane person who should be hospitalized, or in favor of an isolated
leper.

Section 2. Contents of petition. A petition for the appointment of a

general guardian must show, so far as known to the petitioner:
(a) The jurisdiction facts;
(b) The minority or incompetency rendering the appointment necessary or
convenient;
(c) The names, ages, and residence of the relatives of the minor or
incompetent, and of the person having him in their care;
(d) The probable value and character of his estate;
(e) The name of the person for whom letters of guardianship.
The petition shall be verified; but no defect in the petition or verification
shall render void the issuance of letters of guardianship.
Section 3. Court to set time for hearing. Notice thereof. When a
petition for the appointment of a general guardian is filed, the court shall
fix a time and place for hearing the same, and shall cause reasonable
notice thereof to be given to the persons mentioned in the petition
residing in the province, including the minor if above 14 years of age or
the incompetent himself, and may direct other general or special notice
thereof to be given.
Section 4. Opposition to petition. Any interested person may, by filing
a written opposition, contest the petition on the ground of majority of the
alleged minor, competency of the alleged incompetent, or the insuitability
of the person for whom letters are prayed, and may pray that the petition
be dismissed, or that letters of guardianship issue to himself, or to any
suitable person named in the opposition.
Section 5. Hearing and order for letters to issue. At the hearing of the
petition the alleged in competent must be present if able to attend, and it
must be shown that the required notice has been given. Thereupon the
courts shall hear the evidence of the parties in support of their respective
allegations, and, if the person in question is a minor, or incompetent it
shall be appoint a suitable guardian of his person or estate, or both, with
the powers and duties hereinafter specified.
Section 6. When and how guardian for non-resident appointed. Notice.
When a person liable to be put under guardianship resides without the
Philippines but the estate therein, any relative or friend of such person, or
any one interested in his estate, in expectancy or otherwise, may petition
a court having jurisdiction for the appointment of a guardian for the
estate, and if, after notice given to such person and in such manner as
the court deems proper, by publication or otherwise, and hearing, the
court is satisfied that such non-resident is a minor or incompetent
rendering a guardian necessary or convenient, it may appoint a guardian
for such estate.

Section 7. Parents as guardians. When the property of the child under

parental authority is worth two thousand pesos or less, the father of the
mother, without the necessity of court appointment, shall be his legal
guardian. When the property of the child is worth more than two thousand
pesos, the father or the mother shall be considered guardian of the child's
property, with the duties and obligations of guardians under this rules,
and shall file the petition required by section 2 hereof. For good reasons
the court may, however, appoint another suitable person.
Section 8. Service of judgment. Final orders or judgments under this
rule shall be served upon the civil registrar of the municipality or city
where the minor or incompetent person resides or where his property or
part thereof is situated.
RULE 94
Bonds of Guardians
Section 1. Bond to be given before issuance of letters. Amount.
Condition. Before a guardian appointed enters upon the execution of
his trust, or letters of guardianship issue, he shall give a bond, in such
sum as the court directs, conditioned as follows:
(a) To make and return to the court, within three (3) months, a true and
complete inventory of all the estate, real and personal, of his ward which
shall come to his possession or knowledge of any other person for him;
(b) To faithfully execute the duties of his trust, to manage and dispose of
the estate according to these rules for the best interests of the ward, and
to provide for the proper care, custody, and education of the ward;
(c) To render a true and just account of all the estate of the ward in his
hands, and of all proceeds or interest derived therefrom, and of the
management and disposition of the same, at the time designated by
these rules and such other times as the courts directs, and at the
expiration of his trust to settle his accounts with the court and deliver and
pay over all the estate, effects, and moneys remaining in his hands, or
due from him on such settlement, to the person lawfully entitled thereto;
(d) To perform all orders of the court by him to be performed.
Section 2. When new bond may be required and old sureties discharged.
Whenever it is deemed necessary, the court may require a new bond to
be given by the guardian, and may discharge the sureties on the old bond
from further liability, after due notice to interested persons, when no
injury can result therefrom to those interested in the estate.
Section 3. Bonds to be filed. Actions thereon. Every bond given by a
guardian shall be filed in the office of the clerk of the court, and, in case of

the breach of a condition thereof, may be prosecuted in the same

proceeding or in a separate action for the use and benefit of the ward or
of any other person legally interested in the estate.
A corporation Is without capacity or power to enter into a contract
of partnership because but may enter into a joint venture