PAT OUTLINE 1 2ND BATCH CASES the scope and spirit of the provision of Article 1666 of the Civil
f the provision of Article 1666 of the Civil Code
1o. ARBES v POLISTICO
FACTS: This is an action to bring about liquidation of the funds
and property of the association called "Turnuhan Polistico & Co."
The plaintiffs were members or shareholders, and the defendants
were designated as president-treasurer, directors and secretary of
said association. By agreement of the parties, the court appointed a
commissioner to examine all the books, documents, and accounts of
"Turnuhan Polistico & Co. The commissioner rendered his report,
showing a balance of the cash on hand in the amount of
P24,607.80. The trial court in accepting the report, rendered
judgment, holding that the association "Turnuhan Polistico & Co."
is unlawful, and sentencing the defendants jointly and severally to
return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs
in this case, and to the rest of the members of the said association
represented by said plaintiffs. There is no question that "Turnuhan
Polistico & Co." is an unlawful partnership, but the appellants allege
that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be
included, as a party defendant. The appellants refer to article 1666
of the Civil Code, particularly the second paragraph, which
provides: When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable institutions of the
domicile of the partnership, or, in default of such, to those of the
province.
ISSUE: WHETHER OR NOT A CHARITABLE INSTITUTION IS A
NECESSARY PARTY IN THIS CASE.
RULING: NO, no charitable institution is a necessary party in the
present case of determination of the rights of the parties. The action
which may arise from said article, in the case of unlawful
partnership, is that for the recovery of the amounts paid by the
member from those in charge of the administration of said
partnership, and it is not necessary for the said parties to base their
action to the existence of the partnership, but on the fact that of
having contributed some money to the partnership capital. Hence,
the charitable institution of the domicile of the partnership, and in
the default thereof, those of the province are not necessary parties
in this case. In so ruling, the court had the occasion of explaining
(now Article 1770 of the New Civil Code). With regard to
Contributions of an Illegal Partnership: the court holds that
(1) The partner who limits himself to demanding only the amount
contributed by him need not resort to the partnership contract on
which to base his action since said contract does not exist in the
eyes of the law, the purpose from which the contribution was made
has not come into existence, and the administrator of the
partnership holding said contribution retains what belongs to
others, without any consideration; for which reason he is not bound
to return it and he who has paid in his share is entitled to recover it.
(2) Our Code does not state whether, upon the dissolution of the
unlawful partnership, the amounts contributed are to be returned
by the partners, because it only deals with the disposition of the
profits; but the fact that said contributions are not included in the
disposal prescribed profits, shows that in consequences of said
exclusion, the general law must be followed, and hence the partners
should reimburse the amount of their respective contributions.
(3) Any other solution is immoral, and the law will not consent to
the latter remaining in the possession of the manager or
administrator who has refused to return them, by denying to the
partners the action to demand them. With regard to Profits of an
Illegal Partnership: the court holds that:
(1) The article cited above permits no action for the purpose of
obtaining the earnings made by the unlawful partnership, during its
existence as result of the business in which it was engaged, because
for the purpose, the partner will have to base his action upon the
partnership contract, which is to annul and without legal existence
by reason of its unlawful object; and it is self evident that what does
not exist cannot be a cause of action.
(2) Profits earned in the course of the partnership, because they do
not constitute or represent the partner's contribution but are the
result of the industry, business or speculation which is the object of
the partnership, and therefor, in order to demand the proportional
part of the said profits, the partner would have to base his action on
the contract which is null and void, since this partition or
distribution of the profits is one of the juridical effects thereof.
(3) Furthermore, it would be immoral and unjust for the law to
permit a profit from an industry prohibited by it.
11. EVANGELITA v CIR

12. AGUILA v CA
Business Organization Partnership, Agency, Trust Identity
Separate and Distinct
In April 1991, the spouses Ruben and Felicidad Abrogar entered
into a loan agreement with a lending firm called A.C. Aguila & Sons,
Co., a partnership. The loan was for P200k. To secure the loan, the
spouses mortgaged their house and lot located in a subdivision. The
terms of the loan further stipulates that in case of non-payment, the
property shall be automatically appropriated to the partnership and
a deed of sale be readily executed in favor of the partnership. She
does have a 90 day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to
turn over the property and so the firm filed an ejectment case
against her (wherein she lost). She also failed to redeem the
property within the period stipulated. She then filed a civil case
against Alfredo Aguila, manager of the firm, seeking for the
declaration of nullity of the deed of sale. The RTC retained the
validity of the deed of sale. The Court of Appeals reversed the RTC.
The CA ruled that the sale is void for it is apactum commissorium
sale which is prohibited under Art. 2088 of the Civil Code (note the
disparity of the purchase price, which is the loan amount, with the
actual value of the property which is after all located in a
subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the
real party in interest. As pointed out by Aguila, he is not the real
party in interest but rather it was the partnership A.C. Aguila &
Sons, Co. The Rules of Court provide that every action must be
prosecuted and defended in the name of the real party in interest.
A real party in interest is one who would be benefited or injured by
the judgment, or who is entitled to the avails of the suit. Any
decision rendered against a person who is not a real party in
interest in the case cannot be executed. Hence, a complaint filed
against such a person should be dismissed for failure to state a
cause of action, as in the case at bar.
Under Art. 1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners.
The partners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair, or illegal
purposes. In this case, Felicidad has not shown that A.C. Aguila &
Sons, Co., as a separate juridical entity, is being used for fraudulent,
unfair, or illegal purposes. Moreover, the title to the subject
property is in the name of A.C. Aguila & Sons, Co. It is the
partnership, not its officers or agents, which should be impleaded
in any litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the complaint.
13. ONA v CIR
Facts:
Julia Buales died leaving as heirs her surviving spouse, Lorenzo
Oa and her five children. A civil case was instituted for the
settlement of her state, in which Oa was appointed administrator
and later on the guardian of the three heirs who were still minors
when the project for partition was approved. This shows that the
heirs have undivided interest in 10 parcels of land, 6 houses and
money from the War Damage Commission.
Although the project of partition was approved by the Court, no
attempt was made to divide the properties and they remained under
the management of Oa who used said properties in business by
leasing or selling them and investing the income derived therefrom
and the proceeds from the sales thereof in real properties and
securities. As a result, petitioners properties and investments
gradually increased. Petitioners returned for income tax purposes
their shares in the net income but they did not actually receive their
shares because this left with Oa who invested them.
Based on these facts, CIR decided that petitioners formed an
unregistered partnership and therefore, subject to the corporate
income tax, particularly for years 1955 and 1956. Petitioners asked
for reconsideration, which was denied hence this petition for review
from CTAs decision.
Issue:
W/N there was a co-ownership or an unregistered partnership
W/N the petitioners are liable for the deficiency corporate income
tax
Held:
Unregistered partnership. The Tax Court found that instead of
actually distributing the estate of the deceased among themselves
pursuant to the project of partition, the heirs allowed their
properties to remain under the management of Oa and let him use
their shares as part of the common fund for their ventures, even as
they paid corresponding income taxes on their respective shares.
Yes. For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the
moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits
for the heirs in proportion to their respective shares in the
inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in
the corresponding testate or intestate proceeding. The reason is
simple. From the moment of such partition, the heirs are entitled
already to their respective definite shares of the estate and the
incomes thereof, for each of them to manage and dispose of as
exclusively his own without the intervention of the other heirs, and,
accordingly, he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to
be held in common with his co-heirs under a single management to
be used with the intent of making profit thereby in proportion to his
share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at
least, an unregistered partnership is formed.
For purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships
The term partnership includes a syndicate, group, pool, joint
venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is
carried on (8 Mertens Law of Federal Income Taxation, p. 562
Note 63; emphasis ours.)
with the exception only of duly registered general copartnerships
within the purview of the term corporation. It is, therefore, As testified by Jose Obillos, Jr., they had no such intention. They
clear to our mind that petitioners herein constitute a partnership,
insofar as said Code is concerned, and are subject to the income tax
for corporations. Judgment affirmed.
14. OBILLOS v CIR
Facts: On March 2, 1973 Jose Obillos, Sr. bought two lots with
areas of 1,124 and 963 square meters of located at Greenhills, San
Juan, Rizal. The next day he transferred his rights to his four
children, the petitioners, to enable them to build their residences.
The Torrens titles issued to them showed that they were co-owners
of the two lots.
In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation
and Olga Cruz Canada for the total sum of P313,050. They derived
from the sale a total profit of P134, 341.88 or P33,584 for each of
them. They treated the profit as a capital gain and paid an income
tax on one-half thereof or of P16,792.
In April, 1980, the Commissioner of Internal Revenue required the
four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares
thereof. The petitioners are being held liable for deficiency income
taxes and penalties totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital gains already paid by
them.
The Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture The petitioners
contested the assessments. Two Judges of the Tax Court sustained
the same. Hence, the instant appeal.
Issue: Whether or not the petitioners had indeed formed a
partnership or joint venture and thus liable for corporate tax.
Held: The Supreme Court held that the petitioners should not be
considered to have formed a partnership just because they allegedly
contributed P178,708.12 to buy the two lots, resold the same and
divided the profit among themselves. To regard so would result in
oppressive taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be obviated.
were co-owners pure and simple. To consider them as partners
would obliterate the distinction between a co-ownership and a
partnership. The petitioners were not engaged in any joint venture
by reason of that isolated transaction.
*Article 1769(3) of the Civil Code provides that "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". There must be an
unmistakable intention to form a partnership or joint
venture.*
Their original purpose was to divide the lots for residential
purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction, then
they had no choice but to resell the same to dissolve the co-
ownership. The division of the profit was merely incidental to the
dissolution of the co-ownership which was in the nature of things a
temporary state. It had to be terminated sooner or later.
They did not contribute or invest additional ' capital to increase or
expand the properties, nor was there an unmistakable intention to
form partnership or joint venture.
WHEREFORE, the judgment of the Tax Court is reversed and set
aside. The assessments are cancelled. No costs.
All co-ownerships are not deemed unregistered
partnership.Co-Ownership who own properties which produce
income should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview of
the income tax law. To hold otherwise, would be to subject the
income of all
Co-ownerships of inherited properties to the tax on corporations,
inasmuch as if a property does not produce an income at all, it is
not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation.
As compared to other cases:
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45
SCRA 74, where after an extrajudicial settlement the co-heirs used
the inheritance or the incomes derived therefrom as a common
fund to produce profits for themselves, it was held that they were
taxable as an unregistered partnership.
This case is different from Reyes vs. Commissioner of Internal
Revenue, 24 SCRA 198, where father and son purchased a lot and
building, entrusted the administration of the building to an
administrator and divided equally the net income, and from
Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where
the three Evangelista sisters bought four pieces of real property
which they leased to various tenants and derived rentals therefrom.
Clearly, the petitioners in these two cases had formed an
unregistered partnership.
15. PASCUAL v CIR
FACTS: Petitioners bought two (2) parcels of land and a year after,
they bought another three (3) parcels of land. Petitioners
subsequently sold the said lots in 1968 and 1970, and realized net
profits. The corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax amnesties
granted in the said years. However, the Acting BIR Commissioner
assessed and required Petitioners to pay a total amount of
P107,101.70 as alleged deficiency corporate income taxes for the
years 1968 and 1970. Petitioners protested the said assessment
asserting that they had availed of tax amnesties way back in 1974.
In a reply, respondent Commissioner informed petitioners that in
the years 1968 and 1970, petitioners as co-owners in the real estate
transactions formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income was
subject to the taxes prescribed under Section 24, both of the
National Internal Revenue Code that the unregistered partnership
was subject to corporate income tax as distinguished from profits
derived from the partnership by them which is subject to individual
income tax; and that the availment of tax amnesty under P.D. No.
23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them from the
tax liability of the unregistered partnership. Hence, the petitioners
were required to pay the deficiency income tax assessed.
ISSUE: Whether the Petitioners should be treated as an
unregistered partnership or a co-ownership for the purposes of
income tax.
RULING: The Petitioners are simply under the regime of co-
ownership and not under unregistered partnership.
By the contract of partnership two or more persons bind themselves
to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves (Art. 1767,
Civil Code of the Philippines). In the present case, there is no
evidence that petitioners entered into an agreement to contribute
money, property or industry to a common fund, and that they
intended to divide the profits among themselves. The sharing of
returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in
the property. There must be a clear intent to form a partnership, the
existence of a juridical personality different from the individual
partners, and the freedom of each party to transfer or assign the
whole property. Hence, there is no adequate basis to support the
proposition that they thereby formed an unregistered partnership.
The two isolated transactions whereby they purchased properties
and sold the same a few years thereafter did not thereby make them
partners. They shared in the gross profits as co- owners and paid
their capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent
commissioner proposes.
16. HEIRS OF JOSE LIM AND JULIET LIM
Business Organization Partnership, Agency, Trust Partner
Periodic Accounting Profit Sharing
In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a
partnership agreement with Jimmy Yu and Norberto Uy. The three
contributed P50,000.00 each and used the funds to purchase a
truck to start their trucking business. A year later however, Jose
Lim died. The eldest son of Jose Lim, Elfledo Lim, took over the
trucking business and under his management, the trucking
business prospered. Elfledo was able to but real properties in his
name. From one truck, he increased it to 9 trucks, all trucks were in
his name however. He also acquired other motor vehicles in his
name.
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a
heart attack. Elfledos wife, Juliet Lim, took over the properties but
she intimated to Jimmy and the heirs of Norberto that she could
not go on with the business. So the properties in the partnership
were divided among them.
Now the other heirs of Jose Lim, represented by Elenito Lim,
required Juliet to do an accounting of all income, profits, and
properties from the estate of Elfledo Lim as they claimed that they
are co-owners thereof. Juliet refused hence they sued her.
The heirs of Jose Lim argued that Elfledo Lim acquired his
properties from the partnership that Jose Lim formed with
Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim
was the partner and not Elfledo Lim. The heirs testified that Elfledo
was merely the driver of Jose Lim.
ISSUE: Who is the partner between Jose Lim and Elfledo Lim?
HELD: It is Elfledo Lim based on the evidence presented
regardless of Jimmy 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.
But at any rate, the Supreme Court noted that based on the
functions performed by Elfledo, he is the actual partner.
The following circumstances tend to prove that Elfledo was himself
the partner of Jimmy and Norberto:
1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share
in the partnership, on a date that coincided with the payment of the
initial capital in the partnership;
2.) Elfledo ran the affairs of the partnership, wielding absolute
control, power and authority, without any intervention or
opposition whatsoever from any of petitioners herein;
3.) all of the properties, particularly the nine trucks of the
partnership, were registered in the name of Elfledo;
4.) Jimmy testified that Elfledo did not receive wages or salaries
from the partnership, indicating that what he actually received were
shares of the profits of the business; and
5.) none of the heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As repeatedly
stressed in the case of Heirs of Tan Eng Kee, a demand for periodic
accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that
the real and personal properties acquired and registered in the
names of Elfledo and Juliet formed part of the estate of Jose, having
been derived from Joses alleged partnership with Jimmy and
Norberto.
Elfledo was not just a hired help but one of the partners in the
trucking business, active and visible in the running of its affairs
from day one until this ceased operations upon his demise. The
extent of his control, administration and management of the
partnership and its business, the fact that its properties were placed
in his name, and that he was not paid salary or other compensation
by the partners, are indicative of the fact that Elfledo was a partner
and a controlling one at that. It is apparent that the other partners
only contributed in the initial capital but had no say thereafter on
how the business was ran. Evidently it was through Elfredos efforts
and hard work that the partnership was able to acquire more trucks
and otherwise prosper. Even the appellant participated in the
affairs of the partnership by acting as the bookkeeper sans salary.
17. LILIBETH SUNGA-CHAN
Business Organization Partnership, Agency, Trust
Prescription Demand for an accounting Oral Partnership
In 1977, Chua and Jacinto Sunga verbally agreed to form a
partnership for the sale and distribution of Shellane LPGs. Their
business was very profitable but in 1989 Jacinto died. Upon
Jacintos death, his daughter Lilibeth took over the business as well
as the business assets. Chua then demanded for an accounting but
Lilibeth kept on evading him. In 1992 however, Lilibeth gave Chua
P200k. She said that the same represents a partial payment; that
the rest will come after she finally made an accounting. She never
made an accounting so in 1992, Chua filed a complaint for
Winding Up of Partnership Affairs, Accounting, Appraisal and
Recovery of Shares and Damages with Writ of Preliminary
Attachment against Lilibeth.
Lilibeth in her defense argued among others that Chuas action has
prescribed.
ISSUE: Whether or not Chuas claim is barred by prescription.
HELD: No. The action for accounting filed by Chua three (3) years
after Jacintos death was well within the prescribed period. The
Civil Code provides that an action to enforce an oral contract
prescribes in six (6) years while the right to demand an accounting
for a partners interest as against the person continuing the
business accrues at the date of dissolution, in the absence of any
contrary agreement. Considering that the death of a partner results
in the dissolution of the partnership, in this case, it was after
Jacintos death that Chua as the surviving partner had the right to
an account of his interest as against Lilibeth. It bears stressing that
while Jacintos death dissolved the partnership, the dissolution did
not immediately terminate the partnership. The Civil
Code expressly provides that upon dissolution, the partnership
continues and its legal personality is retained until the complete
winding up of its business, culminating in its termination.
Facts: On June 22, 1992, respondent Lamberto T. Chua filed a
complaint against petitioners, Lilibeth Sunga Sunga Chan and
Cecilia Sunga, daughter and wife, respectively of the deceased
Jacinto L. Sunga, for winding up of Partnership Affairs, accounting,
appraisal and recovery of Shares and Damages with Writ of
Preliminary Attachment with the Regional Trial Court, Branch 11,
Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a
partnership with Jacinto in the distribution of Shellane Liquefied
Petroleum Gas (LPG) in Manila with initial capital contribution of
Php100,000.00 each, with the intention that the profits would be
equally divided between them. For business convenience,
respondent and Jacinto agreed to register the business name of
their partnership SHELLITE GAS APPLIANCE CENTER under the
name of Jacinto as sole proprietorship.
Petitioners question the correctness of the finding of the Trial Court
and the Court of Appeals that a partnership existed in the absence
of any written document to show partnership between respondent
and Jacinto from 1977 until Jacintos death.
Issue: Whether or not respondent Lamberto Chua and Jacinto L.
Sunga has entered into a partnership?
Held: Yes. The court ruled that a partnership may be constituted in
any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be
necessary. Also, Article 1772 of the Civil Code requires that
partnership with a capital of Php3,000.00 or more must register
with the Securities and Exchange Commission, however this
registration requirement is not mandatory. Article 1768 of the Civil
Code explicitly provides that the partnership retains its juridical
personality even if it fails register. The failure to register the
contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites,
because the main purpose of registration is to give notice to third
parties, and it can be assumed that the members themselves knew
of the contents of their contract.
18. TACAO v CA
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
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 the parties formed a partnership
HELD: Yes, the parties involved in this case formed a partnership
The Supreme Court held that 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.
In the case at hand, Belo acted as capitalist while Tocao as president
and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Furthermore, Anay
was entitled to a percentage of the net profits of the business.
Therefore, the parties formed a partnership.
19. AGAD v MOBATO
Facts: Petitioner Mauricio Agad claims that he and defendant
Severino Mabato are partners in a fishpond business to which they
contributed P1000 each. As managing partner, Mabato yearly
rendered the accounts of the operations of the partnership.
However, for the years 1957-1963, defendant failed to render the
accounts despite repeated demands. Petitioner filed a complaint
against Mabato to which a copy of the public instrument evidencing
their partnership is attached. Aside from the share of profits
(P14,000) and attorneys fees (P1000), petitioner prayed for the
dissolution of the partnership and winding up of its affairs.
Mabato denied the existence of the partnership alleging that Agad
failed to pay hisP1000 contribution. He then filed a motion to
dismiss on the ground of lack of cause of action. The lower court
dismissed the complaint finding a failure to state a cause of action
predicated upon the theory that the contract of partnership is null
and void, pursuant to Art. 1773 of our Civil Code, because an
inventory of the fishpond referred in said instrument had not been
attached thereto.
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if inventory of said property is not
made, signed by the parties; and attached to the public instrument.
Issue: Whether or not immovable property or real rights have been
contributed to the partnership.
Held: Based on the copy of the public instrument attached in the
complaint, the partnership was established to operate a fishpond",
and not to "engage in a fishpond business. Thus, Mabatos
contention that it is really inconceivable how a partnership
engaged in the fishpond business could exist without said fishpond
property (being) contributed to the partnership is without merit.
Their contributions were limited to P1000 each and neither a
fishpond nor a real right thereto was contributed to the partnership.
Therefore, Article 1773 of the Civil Code finds no application in the
case at bar. Case remanded to the lower court for further
proceedings.
20. TORRES v CA
FACTS: Sisters Antonia Torres and Emeteria Baring, herein
petitioners, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of land
into a subdivision. They executed a Deed of Sale covering the said
parcel of land in favor of Manuel, who then had it registered in his
name and obtained from Equitable Bank a loan of P40,000 which,
under the Joint Venture Agreement, was to be used for the
development of the subdivision through mortgage of said property.
All three of them also agreed to share the proceeds from the sale of
the subdivided lots. The project failed and the property was
foreclosed. Petitioner alleged that it was due to Manuels s lack of
funds or means and skills. And also alleged that the latter
misappropriate the amount loaned to his own company. On the
other hand, respondent alleged that he used the loan to implement
the Agreement, which incurred P85,000 expenses. And further
avers that failure of project was due to petitioners and their
relatives had separately caused the annotations of adverse claims
on the title to the land, which eventually scared away prospective
buyers, forcing him to give up on the project. Subsequently,
petitioners filed a criminal case for estafa against respondent and
his wife, but were acquitted. They filed a civil case, but was
dismissed by trial court and affirmed by Court of Appeals. Hence,
this petition.
ISSUE:
1. Whether the petitioners have formed partnership respondent and
if they do, whether or not it was void. with the
2. Whether or not respondent shall be held liable to the failure of
the project.
HELD:
1. A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 1767 of the
Civil Code, which provides: By the contract of partnership two or
more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves.Under the Agreement, petitioners would
contribute property to the partnership in the form of land which
was to be developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said
project would be divided according to the stipulated percentage.
There is manifestation of intent to form partnership. It should be
stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the subdivision
and entered into a contract to construct low-cost housing units on
the property. Respondents actions clearly belie petitioners
contention that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not only
money or property, but also industry. Further, under Art. 1773, A
contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made,
signed by the parties, and attached to the public instrument.This
was intended primarily to protect third persons the execution of a
public instrument would be useless if there is no inventory of the
property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons.
This will result in fraud to those who contract with the partnership
in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the
law when no such inventory is made. The case at bar does not
involve third parties who may be prejudiced.
2. The Court of Appeals held that petitioners acts were not the
cause of the failure of the project. But it also ruled that neither was
respondent responsible therefor. In imputing the blame solely to
him, petitioners failed to give any reason why we should disregard
the factual findings of the appellate court relieving him of fault.
Verily, factual issues cannot be resolved in a petition for review
under Rule 45, as in this case. Petitioners have not alleged, not to
say shown, that their Petition constitutes one of the exceptions to
this doctrine. Accordingly, we find no reversible error in the CA's
ruling that petitioners are not entitled to damages.
21. PHILEX MINING CORP v CIR
Facts: Petitioner Philex entered into an agreement with Baguio
Gold Mining Corporation for the former to manage the latters
mining claim know as the Sto. Mine. The parties agreement was
denominated as Power of Attorney. The mine suffered continuing
losses over the years, which resulted in petitioners withdrawal as
manager of the mine. The parties executed a Compromise Dation
in Payment, wherein the debt of Baguio amounted to Php.
112,136,000.00. Petitioner deducted said amount from its gross
income in its annual tax income return as loss on the settlement of
receivables from Baguio Gold against reserves and allowances. BIR
disallowed the amount as deduction for bad debt. Petitioner claims
that it entered a contract of agency evidenced by the power of
attorney executed by them and the advances made by petitioners is
in the nature of a loan and thus can be deducted from its gross
income. Court of Tax Appeals (CTA) rejected the claim and held
that it is a partnership rather than an agency. CA affirmed CTA
Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the Power of
Attorney (PA) is the instrument material that is material in
determining the true nature of the business relationship between
petitioner and Baguio. An examination of the said PA reveals that a
partnership or joint venture was indeed intended by the parties.
While a corporation like the 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 PA indicates that the parties had
intended to create a PAT and establish a common fund for the
purpose. They also had a joint interest in the profits of the business
as shown by the 50-50 sharing of income of the mine.
Moreover, 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. In this case the non-revocation or non-
withdrawal under the PA applies to the advances made by the
petitioner who is the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that it is an agency.
22. IN RE: SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO
1979 / Melencio-Herrera / Obligations of partners with regard to third persons >
Partnership name
Two firms ask that they be allowed to continue using the names of their firms despite
the fact that Attys. Sycip and Ozaeta died.
PETITIONERS ARGUMENTS
1. Under the law, a partnership is not prohibited from continuing its
business under a firm name that includes the name of a deceased partner.
NCC 1840 explicitly sanctions the practice.
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as
 part thereof, shall not of itself make the individual property of
the deceased partner liable for any debts contracted by such
person or partnership.
2. In regulating other professions (accountancy and engineering), the
legislature has authorized the adoption of firm names without any
restriction as to the use of the name of a deceased partner. There
is no fundamental policy that is offended by the continued use by
a firm of professionals of a firm name, which includes the name of a
deceased partner, at least where such firm name has acquired the
characteristics of a "trade name."
3. The Canons of Professional Ethics are not transgressed by the
continued use of the name of a deceased partner because Canon 33 of the
Canons of Professional Ethics adopted by the American Bar Association
declares that:
The continued use of the name of a deceased or former partner
when permissible by local custom, is not unethical but care
should be taken that no imposition or deception is practiced
through this use.
4. There is no possibility of imposition or deception because the deaths of
their respective deceased partners were well-publicized in all
newspapers of general circulation for several days. The
stationeries now being used by them carry new letterheads indicating
the years when their respective deceased partners were
connected with the firm. Petitioners will notify all leading national and
international law directories of the fact of their deceased partners' deaths.
5. No local custom prohibits the continued use of a deceased partner's
name in a professional firm's name. There is no Philippine custom or
usage that recognizes that the name of a law firm identifies the
firms individual members.
6. The continued use of a deceased partner's name in the firm name of law
partnerships has been consistently allowed by U.S. Courts and is an
accepted practice in the legal profession of most countries.
ISSUE & HOLDING
WON they may be allowed to continue using the current names of their firms. NO.
Petitioners advised to drop the names SYCIP and OZAETA from their respective
firm names. Names may be included in the listing of individuals who have been
partners, indicating the years during which they served.
RATIO
JURISPRUDENCE
The Deen case [1953] Court advised the firm to desist from including
in their firm designation the name of C. D. Johnston, who has long been
dead
Register of Deeds of Manila v. China Banking Corporation [1958]
In this case, the law firm of Perkins & Ponce Enrile moved to intervene
as amicus curiae. The Court in a Resolution stated that it "would like to be
informed why the name of Perkins is still being used although Atty. E. A.
Perkins is already dead." The Court advised the firm to drop the name of
E. A. Perkins from the firm name, and ruled that no practice should be
allowed which even in a remote degree could give rise to the possibility of
deception. Deen case cited in the ruling.
Judicial decisions applying or interpreting the laws form part of the legal
system. The Supreme Court in the Deen and Perkins cases laid down a legal rule
against which no custom or practice to the contrary, even if proven, can prevail. This
is not to speak of our civil law which clearly ordains that a partnership is dissolved
by the death of any partner. Custom which are contrary to law, public order or public
policy shall not be countenanced.
The use in their partnership names of the names of deceased partners
will run counter to NCC 1815.
Art. 1815. Every partnership shall operate under a firm name, which may
or may not include the name of one or more of the partners. Those who,
not being members of the partnership, include their names in the firm
name shall be subject to the liability of a partner.
Names in a firm name of a partnership must either be those of living partners and
in the case of non-partners, should be living persons who can be
subjected to liability. NCC 1825 prohibits a third person from including his name
in the firm name under pain of assuming the liability of a partner.
The heirs of a deceased partner in a law firm cannot be held liable as the
old members to the creditors of a firm particularly where they are non-lawyers.
Canon 34 of the Canons of Professional Ethics prohibits an agreement for
the payment to the widow and heirs of a deceased lawyer of a percentage, either
gross or net, of the fees received from the future business of the deceased lawyer's
clients, both because the recipients of such division are not lawyers and because such
payments will not represent service or responsibility on the part of the recipient.
Neither the widow nor the heirs can be held liable for transactions entered into after
the death of their lawyer-predecessor. There being no benefits accruing, there can be
no corresponding liability.
The public relations value of the use of an old firm name can
tend to create undue advantages and disadvantages in the practice of the
profession. An able lawyer without connections will have to make a name for
himself starting from scratch. Another able lawyer, who can join an old firm, can
initially ride on that old firm's reputation established by deceased partners.
ON ARGUMENT #1
NCC 1840 is within Chapter 3 of Title IX entitled "Dissolution and
Winding Up." It primarily deals with the exemption from liability in cases of a
dissolved partnership, of the individual property of the deceased partner for debts
contracted by the person or partnership, which continues the business using the
partnership name or the name of the deceased partner as part thereof. What the law
contemplates therein is a hold-over situation preparatory to formal reorganization.
Secondly, NCC 1840 treats more of a commercial partnership
with a good will to protect rather than of a professional partnership [with
no saleable goodwill but whose reputation depends on the personal qualifications of
its individual members]. A saleable goodwill can exist only in a commercial
partnership, not in a professional partnership consisting of lawyers.
ON ARGUMENT #2
A partnership for the practice of law cannot be likened to partnerships
formed by other professionals or for business. The law on accountancy
specifically allows the use of a trade name in connection with the practice of
accountancy.
A partnership for the practice of law is not a legal entity. It is a mere
relationship or association for a particular purpose. It is not a partnership formed to
carry on trade or business or of holding property. The use of a nom de plume,
assumed or trade name in law practice is improper.
Primary characteristics which distinguish the legal profession from
business
1. A duty of public service, of which the emolument is a byproduct, and in which
one may attain the highest eminence without making much money
2. A relation as an "officer of court" to the administration of justice involving
thorough sincerity, integrity, and reliability
3. A relation to clients in the highest degree fiduciary
4. A relation to colleagues at the bar characterized by candor, fairness, and
unwillingness to resort to current business methods of advertising and
encroachment on their practice, or dealing directly with their clients
The right to practice law does not only presuppose in its possessor integrity, legal
standing and attainment, but also the exercise of a special privilege, highly personal
and partaking of the nature of a public trust.
ON ARGUMENT #3
Canon 33 does not consider as unethical the continued use of the name of a
deceased or former partner when such a practice is permissible by local custom, but
the Canon warns that care should be taken that no imposition or deception is
practiced.
In the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name. Firm names,
under our custom, identify the more active and/or more senior
members or partners of the law firm.
The possibility of deception upon the public, real or consequential, where
the name of a deceased partner continues to be used cannot be ruled out. A person in
search of legal counsel might be guided by the familiar ring of a distinguished name
appearing in a firm title.
ON ARGUMENT #6
U.S. Courts have allowed the continued use of a deceased partner's name
because it is sanctioned by custom. Not so in this jurisdiction where
there is no local custom that sanctions the practice.
Custom has been defined as a rule of conduct formed by repetition of acts,
uniformly observed (practiced) as a social rule, legally binding and obligatory. Courts
take no judicial notice of custom. A custom must be proved as a fact, according to the
rules of evidence. A local custom as a source of right cannot be considered by a court
of justice unless such custom is properly established by competent evidence like any
other fact. Merely because something is done as a matter of practice does not mean
that Courts can rely on the same for purposes of adjudication as a juridical custom.
Juridical custom must be differentiated from social custom. The former can
supplement statutory law or be applied in the absence of such statute. Not so with
the latter.
The practice of law is related to the administration of justice and should not be
considered like an ordinary "money-making trade." Petitioners' desire to
preserve the identity of their firms in the eyes of the public must bow to
legal and ethical impediment.
Petitions DENIED
CONCURRENCE OF J. FERNANDO
It is out of delicadeza that the undersigned did not participate in the disposition of
these petitions. Sycip Salazar started with partnership of Quisumbing, Sycip, and
Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-
law of the undersigned, and the most junior partner then, Norberto J. Quisumbing,
being his brother- in-law.
DISSENT OF J. AQUINO
The petition may be granted with the condition that it be indicated in the letterheads
of the two firms (as the case may be) that A. Sycip, former J. Ozaeta and H. Ozaeta
are dead or the period when they served as partners should be stated therein.
The purpose of the two firms in continuing the use of the names of their
deceased founders is to retain the clients who had customarily sought the legal
services of Attys. Sycip and Ozaeta and to benefit from the goodwill attached to the
names of those respected and esteemed law practitioners. That is a legitimate
motivation. The retention of their names is not illegal per se.
23. ANGELES v SEC OF JUSTICE
Oscar Angeles and Emerita Angeles, petitioners, v. The Hon. Secretary of
Justice and Felino Mercado, respondents
DOCTRINE: The purpose of registration of the contract of partnership
with the SEC is to give notice to third parties. Failure to register the
contract of partnership does not affect the liability of the partnership and of
the partners to third persons, nor does it affect the partnerships juridical
personality. A parnership may exist even if the partners do not use the
words partner or partnership.
NATURE: Special civil action. Certiorari.
FACTS:
Angeles spouses filed a criminal complaint for estafa against Mercado,
their brother-in-law
 o Claimed that Mercado convinced them to enter into a contract of
antichresis, to last for 5 years, covering 8 parcels of land planted
with fruit-bearing lanzones trees in Nagcarlan, Laguna and owned
by Juan Sanzo
o The parties agreed that Mercado would administer the ands and
complete the necessary paperwork
o After 3 years, the Angeles spouses asked for an accounting from
Mercado, and they claim that only after this demand for an
accounting did thy discover that Mercado had put the contract of
antichresis over the subject land under Mercado and his spouses
names
Mercado denied the Angeles spouses allegations
o Claimed that there exists an industrial partnership, colloquially
known as sosyo industrial, between him and his spouse as
industrial partners and the Angeles spouses as financiers, and that
this had existed since 1991, before the contract of antichresis over
the subject land
o Mercado used his and his spouses earnings as part of the capital in
the business transactions which he entered into in behalf of the
Angeles spouses. It was their practice to enter into business
transactions with other people under the name of Mercado because
the Angeles spouses did not want to be identified as the financiers
o Attached bank receipts showing deposits in behalf of Emerita
Angeles and contracts under his name for the Angeles spouses
During the barangay conciliation proceedings, Oscar Angeles stated
that there was a written sosyo industrial agreement: capital would
come from the Angeles spouses while the profit would be divided evenly
between Mercado and the Angeles spouses
Provincial Prosecution Office: first recommended the filing of a
criminal information for estafa, but after Mercado filed his counter-
affidavit and moved for reconsideration, issued an amended resolution
dismissing the complaint
Angeles spouses appealed to Sec. of Justice, saying that the document
evidencing the contract of antichresis executed in the name of the
Mercado spouses, instead of the Angeles spouses, and that such
document alone proves Mercados misappropriation of their P210, 000
Sec. of Justice: dismissed the appeal
o Angeles spouses failed to show sufficient proof that Mercado
deliberately deceived them in the transaction
o Mercado satisfactorily explained that the Angeles spouses do not
want to be revealed as the financiers
o Under the circumstances, it was more likely that the Angeles
spouses knew from the very start that the questioned document was
not really in their names
oA partnership truly existed between the Angeles spouses and
Mercado, which was clear from the fact that they contributed money
to a common fund and divided the profits among themselves.
o Angeles spouses acknowledged their joint business venture in the
barangay conciliation proceedings although they assailed the
manner the business was conducted
o Although the legal formalities for the formation were not adhered
to, the partnership relationship was evident.
o There is no estafa where money is delivered by a partner to his co-
partner on the latters representation that the amount shall be
applied to the business of their partnership. In case of the money
received, the co-partners liability is civil in nature
ISSUES/HELD:
1.
W/N the Sec. of Justice committed grave abuse of discretion in
dismissing the appeal - No
2. W/N a partnership existed between Mercado and the Angeles
spouses - Yes
3. W/N there was misappropriation by Mercado No
RATIO/RULING:
1. Angeles spouses fail to convince that the Secretary of Justice committed
grave abuse of discretion when he dismissed their appeal. Moreover, they
committed a procedural error when they failed to file a motion for
reconsideration of the Sec. of Justices resolution, which is already enough
reason to dismiss the case.
2. Angeles spouses allege that they had no partnership with Mercado,
relying on Arts. 1771 to 1773 of the Civil Code.
The Angeles spouses position that there is no partnership because of
the lack of a public instrument indicating the same and a lack of
registration with the SEC holds no water
o The Angeles spouses contributed money to the partnership and not
immovable property
o Mere failure to register the contract of partnership with the SEC
does not invalidate a contract that has the essential requisites of a
partnership. The purpose of registration is to give notice to third
parties.
Failure to register does not affect the liability of the partnership and of
the partners to third persons, nor does it affect the partnerships
juridical personality
The Angeles spouses admit to facts that prove the existence of a
partnership
o A contract showing a sosyo industrial or industrial partnership
o Contribution of money & industry to a common fund
 o Division of profits between the Angeles spouses and Mercado Accounting of the proceeds is not a proper subject for the present case.

3. Mercado satisfactorily explained that the Angeles spouses do not want to DISPOSITION: Petition for certiorari dismissed. Decision of Sec. of
be revealed as the financiers, thus the document which was in the name of Justice affirmed.
Mercado and his spouse fail to convince that there was deceit or false
representation that induced the Angeles spouses to part with their money

Even the RTC of Sta. Cruz, Laguna, which handled the civil case filed by VOTE: 1st Division, all concur.
the Angeles spouses against Mercado and Leo Cerayban stated that it
was the practice to have the contracts secured in Mercados name as the
Angeles spouses fear being kidnapped by the NPA or being questioned
by the BIR as Oscar Angeles was working with the government.