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No. L-25532. February 28, 1969.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM J. SUTER and THE COURT OF TAX
APPEALS, respondents.
Partnership; Where respondent company in the case at bar is considered a particular partnership and not
universal.—The respondent company was not a universal partnership, but a particular one. As appears from Articles
1674 and 1675 of the Spanish Civil Code of 1889 (law in force when firm organized in 1947), a universal partnership
requires either that the object of the association be all the present property of the partners, as contributed by them to
the common fund, or else “all that the partners may acquire by their industry or work during the existence of the
partnership.” Respondent company was not such a universal partnership, since the contributions of the partners were
fixed sums of money and neither one of them was an industrial partner. It follows that respondent company was not a
partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. Nor could the subsequent
marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose
either by the Spanish Civil Code or the Code of Commerce.

Same; Where marriage of partners does not make the company a single proprietorship.—The capital
contributions of respondents-partners were separately owned and contributed by them before their marriage; and after
they were joined in wedlock, such contributions remained their respective separate property under the Spanish Civil
Code.

Same; Partnership has distinct and separate personality from that of its partners; Section 24 of Internal Revenue
Code is exception to the rule.—The basic tenet of the Spanish and Philippine law is that the partnership has a juridical
personality of its own, distinct and separate from that of its partners, the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles
of our law. The limited partnership’s separate individuality makes it impossible to equate its income with that of the
component members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships with
the personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a
cardinal tenet of our partnership laws, and cannot be extended by mere implication to limited partnerships.

Same; Taxation; Change in membership does not remove partnership from coverage of section 24.—The limited
partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate business purposes;
it conducted its own- dealings with its customers prior to appellee’s marriage, and had been filing its own income tax
returns as such independent entity. The change in its membership, brought about by the marriage of the partners and
their subsequent acquisition of all interest therein. is no ground for withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into
matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the
partnership as a business conduit to dodge the to laws. Regularity, not otherwise, is presumed. The limited partnership
is taxable on its income and to require that income to be included in the individual tax return of respondent is to
overstretch the letter and intent of the law.

Same; Same; Members and not firm are taxable in case of compañias colectivas.—In fact, it would even conflict
with what it specifically provides in its Section 24: for the appellant’s stand results in equal treatment, taxwise, of a
general copartnership (compania colectiva) and a limited partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the former, because it is in the case of compañias colectivas that
the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived
from the duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris on the N.I.R.C., As Amended,
Vol. 1, pp. 88–89).

Same; Same; Income of limited partnership forming part of the conjugal partnership is not wholly correct.—That
the income of the limited partnership is actually or constructively the income of the spouses and forms part of the
conjugal partnership of gains is not wholly correct. The fruits of the wife’s paraphernal become conjugal only when no
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longer needed to defray ,the expenses for the administration and preservation of the paraphernal capital of the wife.
Then again, the appellant’s argument erroneously confines itself to the question of the legal personality of the limited
partnership since the law taxes the income of ‘even joint accounts that have no personality of their own.
(Agapito v. Molo, 59 Phil. 779; People’s Bank v. Register of Deeds of Manila, 60 Phil. 167; V. Evangelista v. Collector
of Internal Revenue, 102 Phil. 140; Collector v. Batangas Transportation Co., 102 Phil. 822.)

Same; Same; What is taxable is income of both spouses, not the conjugal partnership.—Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is
the “income of both spouses” (Section 45 [d]) in their individual capacities. Though the amount of income (income of
the conjugal partnership vis-à-vis the joint income of husband and wife) may be the same for a given taxable year, their
consequences would ,be different, as their contributions in the business partnership are not .the same.

Same; Same; Revenue code does not authorize consolidation of income of limited partnership and income of
spouses.—The difference in tax rates between the income of the limited partnership being consolidated with, and when
split from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it presently
stands, does not authorize it, and even bars it by requiring the limited partnership .to pay tax on its own income.

COMMISSIONER OF INTERNAL REVENUE vs.

WILLIAM J. SUTER and THE COURT OF TAX APPEALS
G.R. No. L-25532 February 28, 1969

FACTS:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on September 30, 1947 respondent
William J. Suter as the general partner with contribution of P20,000 and Julia Spirig with P18,000 and Gustav Carlson
P2,000 as the limited partners. On October 1, 1947, the limited partnership registered with the Securities and Exchange
Commission (SEC). The firm engaged in the importation, marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement machines, their parts and accessories. It had an office and held
itself out as a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its
trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation with the Central
Bank.

In 1948, general partner Suter and limited partner Spirig got married and, thereafter, on December 18, 1948, limited
partner Carlson sold his share in the partnership to Suter and his wife. The sale was recorded with the SEC on
December 20, 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection, Commissioner of
Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual
incomes of Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in the
amount of P2, 678.06 for 1954 and P4, 567.00 for 1955.

Suter protested the assessment, and requested its cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure reconsideration, he appealed to the Court of Tax Appeals, which rendered a
decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.

ISSUE:

Whether or not the partnership was dissolved after the marriage of the partners William J. Suter and Julia Spirig Suter.
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RULING:

The limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law because of the
marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year after the
partnership was organized.

A husband and a wife may not enter into a contract of general co-partnership, because under the Civil Code, which
applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to
each other are prohibited from entering into universal partnerships. It follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing partnership.
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IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME “SYCUP,
SALAZAR, ETC/ ORZAETA, ROMULO, ETC
92 SCRA 1

FACTS:

Two separate Petitions were filed before the Court 1) by the surviving partners of Atty. Alexander Sycip, who died on
May 5, 1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that
they be allowed to continue using, in the names of their firms, the names of partners who had passed away.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a firm name which includes the
name of a deceased partner; in fact, Article 1840 of the Civil Code explicitly sanctions the practice when it provides in
the last paragraph that:
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, such as accountancy and engineering, the legislature has authorized the adoption
of firm names without any restriction as to the use, in such firm name, of the name of a deceased partner.

3. No local custom prohibits the continued use of a deceased partner's name in a professional firm's name.

ISSUE:

Whether the law firm may be allowed to continue using, in the names of their firms, the names of partners who had
passed away.

RULING:

They shall not be allowed to continue using a deceased partner’s name in a professional firm name.

1. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and
Reyes" are partnerships, the use in their partnership names of the names of deceased partners will run counter to
Article 1815 of the Civil Code which provides:
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.

It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners
and in the case of nonpartners, should be living persons who can be subjected to liability. In fact, Article 1825 of the
Civil Code 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 nonlawyers.
Prescinding the law, there could be practical objections to allowing the use by law firms of the names of deceased
partners. 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.
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2. A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business.
For one thing, 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 for the purpose of carrying on trade or business or of holding
property."
Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law practice is improper.

3. It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or
former partner's name in the firm names of law partnerships. Firm names, under our custom, identify the more active
and/or more senior members or partners of the law firm. A glimpse at the history of the firms of petitioners and of other
law firms in this country would show how their firm names have evolved and changed from time to time as the
composition of the partnership changed:
There would seem to be a question, under the working of the Canon, as to the propriety of adding the name
of a new partner and at the same time retaining that of a deceased partner who was never a partner with the
new one.

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.