Business Organization 1 (September 5)

1. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM

J. SUTER and THE COURT OF TAX APPEALS, respondents.
REYES, J.B.L., J.:
FACTS
A limited partnership named "William J. Suter 'Morcoin' Co., Ltd was formed
by William Suter as the general partner, and Julia Spirig and Gustav Carlson,
as the limited partners and thereafter registered with the SEC. General
Partner Suter and limited partner Spirig got married and limited partner
Carlson sold his share in the partnership to Suter and his wife which as
registered with the SEC. The limited partnership had been filing its income
tax returns as corporation, without objection by herein petitioner
Commissioner of Internal Revenue. An assessment was done, and found out
that there was a deficiency income tax against Suter.
The CIR argued that the marriage of Suter and Spirig and their subsequent
acquisition of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of juridical
personality of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the business.
Suter protested the assessment but was denied. So he filed an appeal to the
Court of Tax Appeals contending that marriage with limited partner Spirig
and their acquisition of Carlson's interests in the partnership in 1948 is not a
ground for dissolution of the partnership and that since its juridical
personality had not been affected and since, as a limited partnership, as
contra distinguished from a duly registered general partnership, it is taxable
on its income similarly with corporations. CTA reversed the decision of
Commissioner of Internal Revenue.
ISSUE
Whether or not the partnership was dissolved after the marriage of the
partners.
RULING
No. The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but
a particular one. As appears from Articles 1674 and 1675 of the Spanish
1

Civil Code, of 1889 (which was the law in force when the subject firm was
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". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money, P20,000.00 by
William Suter and P18,000.00 by Julia Spirig and neither one of them was an
industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was
not a partnership that spouses were forbidden to enter by Article 1677
of the Civil Code of 1889.
The appellant's view, that by the marriage of both partners the company
became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig 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 (Article 1396). It being a basic tenet
of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners
(unlike American and English law that does not recognize such separate
juridical personality), 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.
Other Ruling: Tax LAW
2. PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME
"SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO."
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE
USE OF THE FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA &
REYES."
MELENCIO-HERRERA, J.:
FACTS
Two petitions were consolidated involving the partners of two law firms:
SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO and OZAETA,
ROMULO, DE LEON, MABANTA & REYES.
They based their petitions on Article 1840 which provides that the use by the
person or partneship continuing the business of the partnership name, or the
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name of a deceased partner as part thereof, shall not itself make the
individual property of the deceased partner liable for any debts contracted
by such person or partnership. Also, 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, at least where such firm name has acquired the
characteristics of a "trade name." They also based on the absence of
prohibition by local customs and the practice in American law.
The Supreme Court has ruled in the Deen case in Cebu as well as the
continued use of the name "Perkins & Ponce Enrile", that The Court believes
that, in view of the personal and confidential nature of the relations between
attorney and client, and the high standards demanded in the canons of
professional ethics, no practice should be allowed which even in a remote
degree could give rise to the possibility of deception.
ISSUE
Whether or not it is proper to use the name of the deceased partner in the
firm's name.
RULING
No.
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. 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. Thus, 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. " Accordingly, neither

the widow nor the heirs can be held liable for transactions entered into after
the death of their lawyer-predecessor.
Article 1840 treats more of a commercial partnership with a good will to
protect rather than of a professional partnership, with no saleable
good will but whose reputation depends on the personal qualifications of its
individual members. Thus, it has been held that a saleable goodwill can
exist only in a commercial partnership and cannot arise in a professional
partnership consisting of lawyers. As a general rule, upon the dissolution of a
commercial partnership the succeeding partners or parties have the right to
carry on the business under the old name, in the absence of a stipulation
forbidding it, since the name of a commercial partnership is a partnership
asset inseparable from the good will of the firm. On the other hand, a
professional partnership the reputation of which depends on the
individual skill of the members, such as partnerships of attorneys or
physicians, has no good will to be distributed as a firm asset on its
dissolution, however intrinsically valuable such skill and reputation may be,
especially where there is no provision in the partnership agreement
relating to good will as an asset.
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. Profession as "a group of men pursuing a learned art as a common
calling in the spirit of public service, no less a public service because it
may incidentally be a means of livelihood."

Other Ruling not involving Partnership

When the Supreme Court in the Deen and Perkins cases issued its
Resolutions directing lawyers to desist from including the names of deceased
partners in their firm designation, it 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.
3. CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F.
HALILI, defendant-appellant.
LABRADOR, J.:

FACTS
On November 29, 1947, plaintiff Woodhouse entered into a written
agreement with defendant Halili stating among others that: 1) that they
shall organize a partnership for the bottling and distribution of Mission soft
drinks, plaintiff to act as industrial partner or manager, and the defendant as
a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was
to secure the Mission Soft Drinks franchise for and in behalf of the proposed
partnership and 3) that the plaintiff was to receive 30 per cent of the net
profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry
Corporation of Los Angeles, California, that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a
million dollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to
bottle and distribute be granted him for a limited time under the condition
that it will finally be transferred to the corporation. Pursuant to this request,
plaintiff was given a thirty days option on exclusive bottling and distribution
rights for the Philippines. The contract was finally signed by plaintiff on
December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of
defendant that the partnership papers be executed. Defendant Halili gave
excuses and would not execute said agreement, thus the complaint by the
plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2)
accounting of profits and 3)share thereof of 30 percent with 4) damages in
the amount of P200,000. The Defendant on the other hand claims that: 1)
the defendants consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become
owner of an exclusive bottling franchise, which representation was false, and
that plaintiff did not secure the franchise but was given to defendant himself
2) that defendant did not fail to carry out his undertakings, but that it was
plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a 4)
counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the
profits and that the 2) execution of contract cannot be enforced upon
parties. Lastly, the 3) fraud wasnt proved.
ISSUE 1
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WON false representation, if it existed, annuls the agreement to form the

partnership.
RULING
No. In consequence, article 1270 of the Spanish Civil Code distinguishes two
kinds of (civil) fraud, the causal fraud, which may be ground for the
annulment of a contract, and the incidental deceit, which only renders the
party who employs it liable for damages only. The Supreme Court has held
that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente) inducement to the
making of the contract.
The record abounds with circumstances indicative of the fact that the
principal consideration, the main cause that induced defendant to enter into
the partnership agreement with plaintiff, was the ability of plaintiff to get
the exclusive franchise to bottle and distribute for the defendant or
for the partnership. The original draft prepared by defendants counsel
was to the effect that plaintiff obligated himself to secure a franchise for the
defendant. But if plaintiff was guilty of a false representation, this was not
the causal consideration, or the principal inducement, that led plaintiff
to enter into the partnership agreement. On the other hand, this supposed
ownership of an exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 per cent granted him in the net
profits of the partnership business. Defendant agreed to give plaintiff 30 per
cent share in the net profits because he was transferring his exclusive
franchise to the partnership.
We declare, therefore, that if he was guilty of a false representation, this
was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement.
Having arrived at the conclusion that the contract cannot be declared null
and void, may the agreement be carried out or executed? The SC finds no
merit in the claim of plaintiff that the partnership was already a fait accompli
from the time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended that the execution
of the agreement to form a partnership was to be carried out at a
later date. , The defendant may not be compelled against his will to carry
out the agreement nor execute the partnership papers. The law recognizes
the individuals freedom or liberty to do an act he has promised to do, or not
to do it, as he pleases.
ISSUE 2
6

WON plaintiff falsely represented that he had an exclusive franchise to bottle

Mission beverage
RULING
Yes. Plaintiff did make false representations and this can be seen through his
letters to Mission Dry Corporation asking for the latter to grant him
temporary franchise so that he could settle the agreement with defendant.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff
only undertook in the agreement to secure the Mission Dry franchise for
and in behalf of the proposed partnership. The existence of this provision in
the final agreement does not militate against plaintiff having represented
that he had the exclusive franchise; it rather strengthens belief that he did
actually make the representation. The defendant believed, or was made to
believe, that plaintiff was the grantee of an exclusive franchise. Thus it is
that it was also agreed upon that the franchise was to be transferred to the
name of the partnership, and that, upon its dissolution or termination, the
same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned
that plaintiff did not have the exclusive franchise, was to reduce, as he
himself testified, plaintiffs participation in the net profits to one half of that
agreed upon. He could not have had such a feeling had not plaintiff actually
made him believe that he(plaintiff) was the exclusive grantee of the
franchise.
4. GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and
BENJAMIN T. BACORRO, petitioners,
vs.
HON.
COURT
OF
APPEALS,
SECURITIES
AND
COMMISSION and JOAQUIN L. MISA,respondents.

EXCHANGE

VITUG, J.:
FACTS
Ortega, then a senior partner in the law firm Bito, Misa, and Lozada
withdrew from the said firm. He filed with SEC a petition for dissolution and
liquidation of the partnership. The SEC en banc ruled that withdrawal of Misa
from the firm had dissolved the partnership. Since it is partnership at will,
the law firm could be dissolved by any partner at anytime, such as by

withdrawal therefrom, regardless of good faith or bad faith, since no partner

can be forced to continue in the partnership against his will.
ISSUE
WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo)is a partnership at will WON the withdrawal of Misa dissolved the
partnership regardlessof his good or bad faith.
RULING
A partnership that does not fix its term is a partnership at will. That the law
firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is
indeed such a partnership need not be unduly belabored.
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause simply
states:
"5. DURATION. The partnership shall continue so long as mutually
satisfactory and upon the death or legal incapacity of one of the partners,
shall be continued by the surviving partners."
The birth and life of a partnership at will is predicated on the mutual desire
and consent of the partners. The right to choose with whom a person
wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy
of that mutual resolve, along with each partner's capability to give it, and
the absence of a cause for dissolution provided by the law itself. Verily, any
one of the partners may, at his sole pleasure, dictate a dissolution of
the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but
that it can result in a liability for damages.
In passing, neither would the presence of a period for its specific duration or
the statement of a particular purpose for its creation prevent the dissolution
of any partnership by an act or will of a partner. Among partners, mutual
agency arises and the doctrine of delectus personae allows them to have the
power, although not necessarily the right, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a possible action for
damages.
The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code; however, an agreement of
8

the partners, like any other contract, is binding among them and normally
takes precedence to the extent applicable over the Code's general
provisions.
5. MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT
OF APPEALS and NENITA A. ANAY, respondents.
YNARES-SANTIAGO, J.:
FACTS
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.
ISSUE
Whether or not there is a partnership.
RULING
9

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 personae allows 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.
6. MENDIOLA v. COURT OF APPEALS (2006)
DOCTRINE: In a partnership, the members become co-owners of
what is contributed to the firm capital and of all property that may
be acquired thereby and through the efforts of the members. The
property or stock of the partnership forms a community of goods, a
common fund, in which each party has a proprietary interest. In
fact, the New Civil Code regards a partner as a co-owner of specific
partnership property. Each partner possesses a joint interest in the
whole of partnership property. If the relation does not have this
feature, it is not one of partnership. This essential element, the
community of interest, or co-ownership of, or joint interest in
10

partnership property is absent in the relations between petitioner

and private respondent Pacfor. xxx the parties in this case, merely
shared profits. This alone does not make a partnership. Besides, a
corporation cannot become a member of a partnership in the
absence of express authorization by statute or charter. This doctrine
is based on the following considerations: (1) that the mutual agency
between the partners, whereby the corporation would be bound by
the acts of persons who are not its duly appointed and authorized
agents and officers, would be inconsistent with the policy of the law
that the corporation shall manage its own affairs separately and
exclusively; and, (2) that such an arrangement would improperly
allow corporate property to become subject to risks not
contemplated by the stockholders when they originally invested in
the corporation.
FACTS: Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a
corporation organized and existing under the laws of California, USA. It is a
subsidiary of Cellulose Marketing International (organized in Sweden) Private
respondent Pacfor entered into a "Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc." with petitioner Arsenio T.
Mendiola (ATM). The Side Agreement outlines the business relationship of
the parties with regard to the Philippine operations of Pacfor. Private
respondent will establish a Pacfor representative office in the Philippines, to
be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner's
base salary and the overhead expenditures of the company shall be borne by
the representative office and funded by Pacfor/ATM, since Pacfor Phils. is
equally owned on a 50-50 equity by ATM and Pacfor-usa. In its application
(to the SEC), private respondent Pacfor proposed to establish its
representative office in the Philippines. It also designated petitioner as its
resident agent in the Philippines, authorized to accept summons and
processes in all legal proceedings, and all notices affecting the corporation.
The Side Agreement was amended through a "Revised Operating and Profit
Sharing Agreement for the Representative Office Known as Pacific Forest
Resources (Philippines)," where the salary of petitioner was increased to
$78,000 per annum. Both agreements show that the operational expenses
will be borne by the representative office and funded by all parties "as equal
partners," while the profits and commissions will be shared among them. In
July 2000, petitioner wrote the Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils. Private respondent Pacfor,
through its President, replied that petitioner is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's representative office and not
an entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical
company' with the purpose of dividing the income 50-50."11 Petitioner
presumably knew of this arrangement from the start, having been the one to
11

propose to private respondent Pacfor the setting up of a representative

office, and "not a branch office" in the Philippines to save on taxes. Petitioner
claimed that he was all along made to believe that he was in a joint venture
with them; that he would have been better off remaining as an independent
agent or representative of Pacfor-USA as ATM Marketing Corp. Petitioner
raised other issues, such as the rentals of office furniture, salary of the
employees, company car, as well as commissions allegedly due him. The
issues were not resolved, hence, in October 2000, petitioner wrote PacforUSA demanding payment of unpaid commissions and office furniture and
equipment rentals. Privatre respondent Pacfor through counsel ordered
petitioner to turn over to it all papers, documents, files, records, and other
materials in his or ATM Marketing Corporation's possession that belong to
Pacfor or Pacfor Phils then to remit more than 300k xmas giveaway fund for
clients of Pacfor Phil and finally Pacfor withdraw all its offers of settlement
and ordered petitioner to transfer title and turn over to it possession of the
service car. Private respondent Pacfor likewise sent letters to its clients in the
Philippines, advising them not to deal with Pacfor Phils. Petitioner construed
these directives as a severance of the "unregistered partnership" between
him and Pacfor, and the termination of his employment as resident manager
of Pacfor Phils. On the basis of the "Side Agreement," petitioner insisted that
he and Pacfor equally own Pacfor Phils. Thus, it follows that he and Pacfor
likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and equipment
and the service car. He also reiterated his demand for unpaid commissions,
and proposed to offset these with the remaining Christmas giveaway fund in
his possession. Furthermore, he did not renew the lease contract with Pulp
and Paper, Inc., the lessor of the office premises of Pacfor Phils., wherein he
was the signatory to the lease agreement. Private respondent Pacfor placed
petitioner on preventive suspension and ordered him to show cause why no
disciplinary action should be taken against him. Private respondent Pacfor
charged petitioner with willful disobedience and serious misconduct for his
refusal to turn over the service car and the Christmas giveaway fund which
he applied to his alleged unpaid commissions. Private respondent also
alleged loss of confidence and gross neglect of duty on the part of petitioner
for allegedly allowing another corporation owned by petitioner's relatives,
High End Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business of
private respondent. Petitioner denied the charges. He reiterated that he
considered the import of Pacfor Presidents letters as a "cessation of his
position and of the existence of Pacfor Phils." He likewise informed private
respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.'
office premises, and demanded payment of his separation pay. Petitioner
filed his complaint for illegal dismissal, recovery of separation pay, and
payment of attorney's fees with the NLRC. Private respondent directed
petitioner to explain why he should not be disciplined for serious misconduct
12

and conflict of interest; charged petitioner anew with serious misconduct for
the latter's alleged act of fraud and misrepresentation in authorizing the
release of an additional peso salary for himself, besides the dollar salary
agreed upon by the parties. Private respondent also accused petitioner of
disloyalty and representation of conflicting interests for having continued
using the Pacfor Phils.' office for operations of HEPI
CA: Affirmed holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or independent
contractorship." Hence, the Labor Code cannot apply.
Issues: Was there an employer-employee
partnership? Can both exist at the same time?

relationship

or

RULING: There was an employer employee relationship but no partnership

Petitioner argues that he is an industrial partner of the partnership he
formed with private respondent Pacfor, and also an employee of the
partnership. Petitioner insists that an industrial partner may at the same
time be an employee of the partnership, provided there is such an
agreement, which, in this case, is the "Side Agreement" and the "Revised
Operating and Profit Sharing Agreement." We hold that petitioner is an
employee of private respondent Pacfor and that no partnership or coownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to
the firm capital and of all property that may be acquired thereby and
through the efforts of the members. The property or stock of the partnership
forms a community of goods, a common fund, in which each party has a
proprietary interest. In fact, the New Civil Code regards a partner as a coowner of specific partnership property. Each partner possesses a joint
interest in the whole of partnership property. If the relation does not have
this feature, it is not one of partnership. This essential element, the
community of interest, or co-ownership of, or joint interest in partnership
property is absent in the relations between petitioner and private respondent
Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason, private
respondent Pacfor's President established this fact when he said that Pacfor
Phils. is simply a "theoretical company" for the purpose of dividing the
income 50-50. He stressed that petitioner knew of this arrangement from
the very start, having been the one to propose to private respondent Pacfor
the setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes. Thus, the parties in this case, merely shared
profits. This alone does not make a partnership. Besides, a corporation
cannot become a member of a partnership in the absence of express
13

authorization by statute or charter. This doctrine is based on the following

considerations: (1) that the mutual agency between the partners, whereby
the corporation would be bound by the acts of persons who are not its duly
appointed and authorized agents and officers, would be inconsistent with the
policy of the law that the corporation shall manage its own affairs separately
and exclusively; and, (2) that such an arrangement would improperly allow
corporate property to become subject to risks not contemplated by the
stockholders when they originally invested in the corporation. No such
authorization has been proved in the case at bar.
7. JM TUAZON and CO v. BOLANOS 95 PHIL 106
Facts: This is an action to recover possession of registered land situated in
Barrio Tatalon, Quezon City. The complaint of plaintiff JM Tuason & Co Inc
was amended 3 times with respect to the extent and description of the land
sough to be recovered. Originally, the land sought to be recovered was said
to be more or less 13 hectares, but it was later amended to 6 hectares, after
the defendant had indicated the plaintiff's surveyors the portion of land
claimed and occupied by him. The second amendment is that the portion of
the said land was covered in another TCT and the 3rd amendment was made
after the defendant' surveyor and a witness, Quirino Feria testified that the
land occupied by the defendant was about 13 hectares. Defendant raised the
defense of prescription and title thru "open, continuous, exclusive and public
and notorious possession of land in dispute. He also alleged that the
registration of the land was obtained by plaintiff's predecessor through fraud
or error. The lower court rendered judgment in favor of the plaintiff and
ordered the defendant to restore possession of the land to the plaintiff, as
well as to pay corresponding rent from January 1940 until he vacates the
land. On appeal defendant raised a number of assignments or errors in the
decision, one of which is that the trial court erred in not dismissing the case
on the ground that the case was not brought by the real party in interest.
Issue: Whether or not the lower court erred in not dismissing the case on
the ground that it was not brought by the real party in interest?
RULING: NO. What the Rules of Court require is that an action be brought in
the name of, but not necessarily by, the real party in interest. In fact the
practice is for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff. That practice appears to have been
followed in this case, since the complaint is signed by the law firm of Araneta
and Araneta, "counsel for plaintiff" and commences with the statement
"comes now plaintiff, through its undersigned counsel." It is true that the
complaint also states that the plaintiff is "represented herein by its Managing
Partner Gregorio Araneta, Inc.", another corporation, but there is nothing
14

against one corporation being represented by another person, natural or

juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it is illegal for
two corporations to enter into a partnership is without merit, for the true
rule is that "though a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its charter."
8. AURBACH v. SANITARY WARES (December 15, 1989)
DOCTRINE: The rule is that whether the parties to a particular
contract have thereby established among themselves a joint venture
or some other relation depends upon their actual intention which is
determined in accordance with the rules governing the
interpretation and construction of contracts.
FACTS: Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the
incorporators, Mr. Baldwin Young went abroad to look for foreign partners,
European or American who could help in its expansion plans. On August 15,
1962, ASI, a foreign corporation domiciled in Delaware, United States
entered into an Agreement with Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed to participate in the ownership
of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china
and sanitary wares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise and that the
name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation."
The agreement contained provisions designed to protect it as a minority
group, including the grant of veto powers over a number of corporate acts
and the right to designate certain officers, such as a member of the
Executive Committee whose vote was required for important corporate
transactions. - The joint enterprise thus entered into by the Filipino investors
and the American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious relations
between the two groups. According to the Filipino group, a basic
disagreement was due to their desire to expand the export operations of the
company to which ASI objected as it apparently had other subsidiaries of
joint venture groups in the countries where Philippine exports were
contemplated.

15

On March 8, 1983, the annual stockholders' meeting was held. - The ASI
group nominated three persons namely; Wolfgang Aurbach, John Griffin and
David P. Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F.
Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano
E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman,
Baldwin Young ruled the last two nominations out of order on the basis of
section 5 (a) of the Agreement, the consistent practice of the parties during
the past annual stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of
Saniwares' legal counsel. - There were protests against the action of the
Chairman and heated arguments ensued. An appeal was made by the ASI
representative to the body of stockholders present that a vote be taken on
the ruling of the Chairman. A series of events then ensued that culminated
in the eventual adjournment of the meeting and where the ASI Group,
Luciano E. Salazar and other stockholders, allegedly representing 53 or 54%
of the shares of Saniwares, decided to continue the meeting at the elevator
lobby of the American Standard Building. The continued meeting was
presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary.
On the basis of the cumulative votes cast earlier in the meeting, the ASI
Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself,
thus the said five directors were certified as elected directors by the Acting
Secretary, Andres Gatmaitan, with the explanation that there was a tie
among the other six (6) nominees for the four (4) remaining positions of
directors and that the body decided not to break the tie. - These incidents
triggered off the filing of separate petitions by the parties with the Securities
and Exchange Commission (SEC). The two petitions were consolidated and
tried jointly by a hearing officer who rendered a decision upholding the
election of the Lagdameo Group and dismissing the quo warranto petition of
Salazar and Chamsay. The ASI Group and Salazar appealed the decision to
the SEC en banc which affirmed the hearing officer's decision. - The SEC
decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and
Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E.
Salazar (docketed as AC-G.R. SP No. 05617). The petitions were
consolidated and the appellate court in its decision ordered the remand of
the case to the Securities and Exchange Commission with the directive that
a new stockholders' meeting of Saniwares be ordered convoked as soon as
possible, under the supervision of the Commission.
ISSUES: The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting held on
March 8, 1983. To answer this question the following factors should be
16

determined: (1) the nature of the business established by the parties

whether it was a joint venture or a corporation and (2) whether or not the
ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
RULING: In the instant cases, our examination of important provisions of the
Agreement as well as the testimonial evidence presented by the Lagdameo
and Young Group shows that the parties agreed to establish a joint venture
and not a corporation.
In the instant cases, examination of important provisions of the Agreement
as well as the testimonial evidence presented by the Lagdameo and Young
Group shows that the parties agreed to establish a joint venture and not a
corporation.
An examination of the Agreement shows that certain provisions were
included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate acts.
ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions.
The Agreement also requires a 75% super-majority vote for the amendment
of the articles and by-laws of Saniwares. ASI is also given the right to
designate the president and plant manager. The Agreement further provides
that the sales policy of Saniwares shall be that which is normally followed by
ASI and that Saniwares should not export "Standard" products otherwise
than through ASI's Export Marketing Services. Under the Agreement, ASI
agreed to provide technology and know-how to Saniwares and the latter paid
royalties for the same.
It is pertinent to note that the provisions of the Agreement requiring a 7 out
of 9 votes of the board of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements for amendments of the
articles and by-laws; and most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 directors and the other
stockholders shall designate the other 6, clearly indicate that there are two
distinct groups in Saniwares, namely ASI, which owns 40% of the capital
stock and the Philippine National stockholders who own the balance of 60%,
and that 2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two
groups of stockholders who established a corporation with provisions for a
special contractual relationship between the parties, i.e., ASI and the other
17

stockholders. (pp. 4-5) - Section 5 (a) of the agreement uses the word
"designated" and not "nominated" or "elected" in the selection of the nine
directors on a six to three ratio. Each group is assured of a fixed number of
directors in the board. - Moreover, ASI in its communications referred to the
enterprise as joint venture. Baldwin Young also testified that Section 16(c) of
the Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in respect of
any transaction hereunder" was merely to obviate the possibility of the
enterprise being treated as partnership for tax purposes and liabilities to
third parties.
As correctly held by the SEC Hearing Officer: - It is said that participants in a
joint venture, in organizing the joint venture deviate from the traditional
pattern of corporation management. A noted authority has pointed out that
just as in close corporations, shareholders' agreements in joint venture
corporations often contain provisions which do one or more of the following:
(1) require greater than majority vote for shareholder and director action;
(2) give certain shareholders or groups of shareholders power to select a
specified number of directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration. - Thirdly paragraph 2 of Sec. 100 of
the Corporation Code does not necessarily imply that agreements regarding
the exercise of voting rights are allowed only in close corporations. As
Campos and Lopez-Campos explain: - Paragraph 2 refers to pooling and
voting agreements in particular. It is submitted that there is no reason for
denying stockholders of corporations other than close ones the right to enter
into not voting or pooling agreements to protect their interests, as long as
they do not intend to commit any wrong, or fraud on the other stockholders
not parties to the agreement. Of course, voting or pooling agreements are
perhaps more useful and more often resorted to in close corporations. But
they may also be found necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning of close corporations to
those which comply with the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close corporation will not come
within the definition. In such case, its stockholders should not be precluded
from entering into contracts like voting agreements if these are otherwise
valid. In short, even assuming that sec. 5(a) of the Agreement relating to
the designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual provision, as
correctly held by the SEC, is valid and binding upon the signatories thereto,
which include appellants.
9. THE CITY OF MANILA, vs.FRANCISCO GAMBE, ET AL.,

18

The property contributed may be real or personal, corporeal or

incorporeal. Hence, credit such as promissory note or other evidence
of obligation or even a mere goodwill may be contributed, as they
are considered property.
FACTS: The plaintiff commenced an action against the defendants, Francisco
Gambe, Manuel Perez, Antonio Herranz, and Florencio Garriz, who constitute
the commercial firm of Herranz & Garriz, for the purpose of recovering the
sum of five thousand dollars ($5,000), United States currency, for certain
damages occasioned by the steamship Alfred to the "Spanish Bridge" in the
city of Manila.
Gambe, a pilot and member of the Pilots Association of the port of Manila,
while in charge of a certain steamship as such pilot, by negligence caused an
injury to the "Spanish Bridge," property belonging to the city of Manila. The
city brought an action against Gambe . and secured a judgment for the
amount of damages. An execution was issued against Gambe. and returned
unsatisfied. Gambe, when he became a member of the Pilots Association, as
all of the members did, paid into the funds of said association the sum of
P800. This fund, according to the rules and regulations of the association,
was held by the association for the purpose of answering for damages
caused by its members to ships. The city of Manila attempted, under the
provisions of section 431 of the Code of Procedure in Civil Actions, to attach
the funds of the association for the payment of its claim against Gambe.
RULING: That the funds of the association did not constitute a debt, credit,
or personal property, belonging to G., subject to be attached under said
section 431.
Debt" as used in section 431, Code of Civil Procedure, means some definite
amount of money, ascertained or capable of being ascertained, which may
be paid over to the sheriff or to the court under an order, while "credits" and
"personal property" are something belonging to the defendant, but in
possession and under the control of the person attached. The debt, credit, or
personal property which is attempted to be subjected to the payment of the
obligation of the defendant and which is alleged to be in the possession of
the person attached, must exist in some definite and ascertainable form at
the time of the attachment.
The question whether the city of Manila could maintain a special action
against the association for the purpose of recovering damages for the injury
complained of is not decided.

19

10. LIM TONG LIM v. PHILIPPINE FISHING GEAR INDUSTRIES G.R.

No. 136448. November 3, 1999
Facts: Antonio Chua and Peter Yao entered into a contract for the purchase
of fishing nets from the Philippine Fishing Gear Industries. They claimed that
they were engaged in a business venture with petitioner Lim Tong Lim. The
buyers however failed to pay for the nets and the floats. Private respondent
filed a collection suit against Yao, Chua an Lim Tong Lim with preliminary
attachment. Trial court rendered its decision in favor of Phil. Fishing Gear
and that Chua, Yao and Lim, as general partners were jointly liable to pay
respondents. It based its decision on a compromise agreement wherein joint
liability was presumed from the equal distribution of the profit and loss. The
Court of Appeals affirmed. Hence, this petition.
Issue: Whether or not, by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership.
RULING: YES. There is a partnership between Lim, Chua and Yao. Petitioner
Lim requested Yao who was engaged in commercial fishing to join him, while
Antonio Chua was already Yaos partner. The three verbally agreed to acquire
two fishing boats, FB Lourdes and FB Nelson for the sum of 3.35 million.
They also borrowed 3.25 million from Jesus Lim, brother of petitioner Lim
Tong Lim. They purchased the boats and later the nets and floats, which
constituted the main assets of the partnership and they agreed to divide the
proceeds form the sale and operation thereof. The sale of the boats as well
as the division among the three of the balance remaining after the payment
of their loans prove that F/B Lourdes was not his own property but an asset
of the partnership. Although the corporation was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three
as contracting parties in representation of it. Under the law on estoppel,
those acting on behalf of a corporation and those benefited by it, knowing it
to be without valid existence, are held liable as general partners. Having
reaped the benefits of the contract entered into by persons with whom he
previously had an existing relationship he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by
estoppel.
11. EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA
B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, Petitioners,
vs. ESTRELLA ABAD SANTOS,Respondent.
[G.R. No. L-31684 June 28, 1973]
MAKALINTAL, J.:
20

Facts: The original capitalist partners, Domingo C. Evangelista, Jr., Leonardo

Atienza Abad Santos and Conchita P. Navarro, formed a co-partnership under
the name of "Evangelista & Co, wherein its articles was amended as to
include Estrella Abad Santos as industrial partner. The share in the profits
and losses shall be divided and distributed among the partners in the
proportion of 70% for the first three original partners, to be divided among
them equally, and 30% for the fourth partner Estrella Abad Santos.
Santos filed suit against the three other partners alleging that
partnership had been paying dividends to the partners except to her
that notwithstanding her demands the defendants had refused to let
examine the partnership books or to give her information regarding
partnership affairs to pay her any share in the dividends declared by
partnership.

the
and
her
the
the

The defendants denied ever having declared dividends or distributed profits

of the partnership and denied likewise that the plaintiff ever demanded that
she be allowed to examine the partnership books. By way of affirmative
defense, they alleged that the amended Articles of Co-partnership did not
express the true agreement of the parties, which was that the plaintiff was
not an industrial partner; that she did not in fact contribute industry to the
partnership; and that her share of 30% was to be based on the profits which
might be realized by the partnership only until full payment of the loan which
it had obtained from the Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promissory note as co-maker
and mortgaged her property as security. CFI ruled in favor of Santos which
was affirmed by the CA. Hence, this petition.
Issue: Whether or not the respondent was an industrial partner?
Ruling: Yes.
It is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did not hold that the
Articles of Co-partnership, identified in the record as Exhibit "A", was
conclusive evidence that the respondent was an industrial partner of the said
company, but considered it together with other factors, consisting of both

21

testimonial and documentary evidences, in arriving at the factual conclusion

expressed in the decision.
Even as she was and still is a Judge of the City Court of Manila, she has
rendered services for appellants without which they would not have had the
wherewithal to operate the business for which appellant company was
organized. Article 1767 of the New Civil Code which provides that "By
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, it does not specify the kind of
industry that a partner may thus contribute, hence the said services
may legitimately be considered as appellee's contribution to the
common fund.
Article 1789 of the NCC provides that An industrial partner cannot engage
in business for himself, unless the partnership expressly permits him to do
so; and if he should do so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either
case. It is not disputed that the provision against the industrial partner
engaging in business for himself seeks to prevent any conflict of interest
between the industrial partner and the partnership, and to insure faithful
compliance by said partner with this prestation. Appellee has faithfully
complied with her prestation with respect to appellants is clearly
shown by the fact that it was only after filing of the complaint in this
case (or after 9 years) defendants reached an agreement to exclude
appellee from the defendant partnership on the ground plaintiff has
never contributed her industry to the partnership.
'ART. 1899. Any partner shall have the right to a formal account as
to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;

22

(4) Whenever other circumstance render it just and reasonable.

Dispositive: Judgment appealed affirmed.
12. ELIGIO ESTANISLAO, JR., Petitioner, v. THE HONORABLE COURT
OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, Respondents.
[G.R. No. L-49982. April 27, 1988.]
Facts: Petitioner and private respondents are brothers and sisters who are
co-owners of certain lots at the corner of Annapolis and Aurora Blvd.,
Quezon City which were then being leased to the Shell Company of the
Philippines Limited (SHELL). A joint affidavit was executed wherein they
agreed to open and operate a gas station thereat to be known as Estanislao
Shell Service Station with an initial investment of P15,000.00 to be taken
from the advance rentals due to them from SHELL for the occupancy of the
said lots owned in common by them. They agreed to help their brother,
petitioner herein, by allowing him to operate and manage the gasoline
service station of the family. They negotiated with SHELL. For practical
purposes and in order not to run counter to the companys policy of
appointing only one dealer, it was agreed that petitioner would apply for the
dealership. Respondent Remedios helped in co-managing the business with
petitioner. The parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P15,000.00
advance rental shall be deposited with SHELL to cover advances of fuel to
petitioner as dealer with a proviso that said agreement cancels and
supersedes the previous Joint Affidavit executed by the co-owners.
The financial report showed that the business was able to make a profit of
P87,293.79 and that by the year ending 1969, a profit of P150,000.00 was
realized. Thus,private respondents filed a complaint in the against petitioner
saying among others that the latter be ordered: (1) to execute a public
document embodying all the provisions of the partnership agreement
entered into between them; (2) to render a formal accounting of the
business operation and that the same be subject to proper audit; (3) to pay
the plaintiffs their lawful shares and participation in the net profits of the
business. The trial court dismissed the case but subsequently rendered a
decision in favor of respondents, upon MR. The CA affirmed the same.
23

Hence, this petition. Petitioner contended that because of the said stipulation
cancelling and superseding that previous Joint Affidavit, whatever
partnership agreement there was in said previous agreement had thereby
been abrogated.
Issue: Whether a partnership was established by and among the petitioner
and the private respondents as regards the ownership and/or operation of
the gasoline service station business?
Ruling: Yes.
We find no merit in this argument. Said cancelling provision was
necessary for the Joint Affidavit speaks of P15,000.00 advance rentals
starting May 25, 1966 while the latter agreement also refers to advance
rentals of the same amount starting May 24, 1966. There is, therefore, a
duplication of reference to the P15,000.00 hence the need to provide in the
subsequent document that it "cancels and supersedes" the previous one.
True it is that in the latter document, it is silent as to the statement in the
Joint Affidavit that the P15,000.00 represents the "capital investment" of the
parties in the gasoline station business and it speaks of petitioner as the sole
dealer, but this is as it should be for in the latter document SHELL was a
signatory and it would be against its policy if in the agreement it should be
stated that the business is a partnership with private respondents and not a
sole proprietorship of petitioner.
The Joint Affidavit of April 11, 1966 (Exhibit A), clearly stipulated by the
members of the same family that the P15,000.00 advance rental due to
them from SHELL shall augment their "capital investment" in the operation
of the gasoline station. Moreover other evidence in the record shows that
there was in fact such partnership agreement between the
parties. This is attested by the testimonies of private respondent Remedios
Estanislao and Atty. Angeles. Petitioner submitted to private respondents
periodic accounting of the business. Petitioner gave a written authority to
private respondent Remedios Estanislao, his sister, to examine and audit the
books of their "common business" (aming negosyo). Respondent Remedios
assisted in the running of the business. There is no doubt that the
parties hereto formed a partnership when they bound themselves to
contribute money to a common fund with the intention of dividing
the profits among themselves. The sole dealership by the petitioner and
24

the issuance of all government permits and licenses in the name of petitioner
was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL
products.

Dispositive: Judgment appealed affirmed.

Syllabus:
REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF
APPEALS, GENERALLY CONCLUSIVE ON APPEAL. The findings of facts
of the respondent court are conclusive in this proceeding, and its conclusion
based on the said facts are in accordance with the applicable law.
13. JOSE FERNANDEZ, Plaintiff-Appellant,
ROSA, Defendant-Appellee

v.

FRANCISCO

DE

LA

[G.R. No. 413. February 2, 1903. ]

Facts: Fernandez alleged that in January, 1900, he entered into a verbal

agreement with Dela Rosa to form a partnership for the purchase of cascoes
and the carrying on of the business of letting the same for hire in Manila.
Dela Rosa is to buy the cascoes and each partner to furnish for that purpose
such amount of money as he could, the profits to be divided proportionately.
Fernandez furnished, on different dates, Dela Rosa sums to purchase and
repair cascoes, the latter taking the titles in his own name. In April the
parties undertook to draw up articles of partnership for the purpose of
embodying the same in an authentic document, but that the defendant
having proposed a draft of such articles which differed materially from the
terms of the earlier verbal agreement, and being unwillingly to include the
2nd casco in the partnership, they were unable to come to any
understanding and no written agreement was executed. The defendant
having in the meantime had the control and management of the two
cascoes, the plaintiff made a demand for an accounting upon him, which the
25

defendant refused to render, denying the existence of the partnership

altogether. At some time subsequently to the failure of the attempt to agree
upon partnership articles and after the defendant had been operating the
cascoes for some time, the defendant returned to the plaintiff, 1,125 pesos,
in two different sums, one of 300 and one of 825 pesos.
An action was filed to obtain from the court a declaration (1) that a
partnership exists between the parties, (2) that the plaintiff has a
consequent interest in certain cascoes which are alleged to be partnership
property, and (3) that the defendant is bound to render an account of his
administration of the cascoes and the business carried on with them.
Issues:
(1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a result of the act of the
defendant in receiving back the 1,125 pesos?
Ruling:
1.

Where the fact is established that parties have mutually

contributed to the purchase of a common stock, under circumstances
which afford no different explanation of their object, it must be
deduced that they intended a joint interest in the profits therefrom.
Since the general provisions of article 1280 of the Civil Code are
controlled by the special provisions of article 1667 idem, written
articles of copartnership are only necessary in the cases mentioned
in the latter.
"Partnership is a contract by which 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." (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a
contract of partnership are, therefore, (1) mutual contribution to a common
stock, and (2) a joint interest in the profits. If the contract contains these
two elements the partnership relation results, and the law itself fixes the
incidents of this relation if the parties fail to do so. (Civil Code, secs. 1689,
26

1695.)
We have found as a fact that money was furnished by the plaintiff and
received by the defendant with the understanding that it was to be used for
the purchase of the cascoes in question. This establishes the first element of
the contract, namely, mutual contribution to a common stock. The second
element, namely, the intention to share profits, appears to be an
unavoidable deduction from the fact of the purchase of the cascoes in
common, in the absence of any other explanation of the object of the parties
in making the purchase in that form, and, it may be added, in view of the
admitted fact that prior to the purchase of the first casco the formation of a
partnership had been a subject of negotiation between them.
The execution of a written agreement was not necessary in order to give
efficacy to the verbal contract of partnership as a civil contract, the
contributions of the partners not having been in the form of immovables or
rights in immovables. (Civil Code, art. 1667.) The special provision cited,
requiring the execution of a public writing in the single case mentioned and
dispensing with all formal requirements in other cases, renders inapplicable
to this species of contract the general provisions of article 1280 of the Civil
Code.
(2) Where the parties fail to agree upon articles of copartnership and
some of the contributions of one partner, less than all, are returned
to him and accepted with an express reservation of his rights as
partner, the partnership is not dissolved nor does he waive his right
to an accounting of the profits.
There was no intention on the part of the plaintiff in accepting the money to
relinguish his rights as a partner, nor is there any evidence that by anything
that he said or by anything that he omitted to say he gave the defendant
any ground whatever to believe that he intended to relinquish them. On the
contrary he notified the defendant that he waived none of his rights in the
partnership. Nor was the acceptance of the money an act which was in itself
inconsistent with the continuance of the partnership relation, as would have
been the case had the plaintiff withdrawn his entire interest in the
partnership. There is, therefore, nothing upon which a waiver, either express
or implied, can be predicated. The defendant might have himself terminated
the partnership relation at any time, if he had chosen to do so, by
27

recognizing the plaintiffs right in the partnership property and in the profits.
Having failed to do this he can not be permitted to force a dissolution upon
his copartner upon terms which the latter is unwilling to accept. We see
nothing in the case which can give the transaction in question any other
aspect than that of the withdrawal by one partner with the consent of the
other of a portion of the common capital.

Dispositive: Judgment reversed.

14. INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en
C., Appellee, v. PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO.,
and
INTERNATIONAL
BANKING
CORPORATION,PetitionersAppellants.
[G.R. No. 18703. August 28, 1922. ]
Facts: Campos Rueda & Co., a limited partnership, was indebted to the
appellants ( Pacific Commercial Co. , Asiatic Petroleum Co, and International
Banking Corporation )in various sums amounting to not less than P1,000,
payable in the Philippines, which were not paid more than thirty days prior to
the date of the filing by the petitioners of the application for involuntary
insolvency.
The trial court denied the petition on the ground that it was not proven, nor
alleged, that the members of the aforesaid firm were insolvent at the time
the application was filed; and that as said partners are personally and
solidarily liable for the consequences of the transactions of the partnership,
it cannot be adjudged insolvent so long as the partners are not alleged and
proven to be insolvent. From this judgment the petitioners appeal to this
court, on the ground that this finding of the lower court is erroneous.
Issue: Whether or not a limited partnership, such as the appellee, which has
failed to pay its obligations with three creditors for more than thirty days,
may be held to have committed an act of insolvency, and thereby be
adjudged insolvent against its will?
Ruling: Yes.

28

In the Philippines a limited partnership duly organized in accordance

with law has a personality distinct from that of its members; and if it
commits an act of bankruptcy, such as that of failing for more than
thirty days to pay debts amounting to P1,000 or more, it may be
adjudged insolvent on the petition of three of its creditors although
its members may not be insolvent.
If, as in the instant case, the limited partnership of Campos Rueda & Co.
failed to pay its obligations with three creditors for a period of more than
thirty days, which failure constitutes, under our Insolvency Law, one of the
acts of bankrupt upon which an adjudication of involuntary insolvency can be
predicated, this partnership must suffer the consequences of such a failure,
and must be adjudged insolvent.
Dispositive: Judgment appealed reversed.
15. VARGAS & COMPANY, Plaintiff-Appellee, v. CHAN HANG CHIU ET
AL., Defendants-Appellants.
[G.R. No. 8576. February 11, 1915. ]
Facts: An action was begun by Chan Hang Chiu against Vargas & Company,
a mercantile association duly organized under the laws of the Philippine
Island, in this case to recover a sum of money. The sheriff served the
summons on Vargas & Co. by delivering to and leaving with one Jose
Macapinlac personally tr.ue copies thereof, he being the managing agent of
said Vargas & Co. Justices court rendered judgment against Vargas.
Execution was duly issued and property of Vargas were levied on for the
payment. Vargas paid the amount under protest. An action was filed against
defendant wherein the latter contented that Vargas & Co., being a
partnership, it is necessary, in bringing an action against it, to serve the
summons on all of the partners, delivering to each one of them personally a
copy. Trial court sustained plaintiffs contention. Hence, this petition.
Issue: Whether it is necessary to serve the summons on all partners?
Ruling: No.
Article 35 of the Civil Code provides:
29

"The following are judicial persons:

"1. The corporations, associations, and institutions of public interest
recognized
by
law.
"2. The associations of private interest, be they civil, commercial, or
industrial, to which the law grants proper personality, independent of that of
each member thereof."
ralaw
virtua1aw
library
Article 38 provides: "Judicial persons may acquire and possess property of
all kinds, as well as contract obligations and institute civil or criminal actions
in accordance with the laws and rules of their establishment." virtua1aw
library
Article 116 of the Code of Commerce provides in part:

"After a commercial association has been established, it shall have legal

representation in all its acts and contracts."cralaw virtua1aw library
These provisions have been the foundation of the practice followed without
interruption for many years that associations of the class to which
plaintiff belongs have an independent and separate legal entity
sufficient to permit them to sue and be sued in the company name
and to be served with process through the chief officer or managing
agent thereof or any other official of the company specified by law.
Dispositive: Judgment appealed reveresed. Complaint dismissed.
Syllabus:

1. PARTNERSHIP; ACTIONS BY OR AGAINST. A partnership, duly

organized and registered under the laws of the Philippine Islands, is a legal
entity capable of suing and of being sued in the company name.
2. ID.; ID.; PARTIES. In bringing an action against such a company it is
not necessary to make the partners composing said company parties
30

defendant.
3. ID.; ID.; SERVICE OF PROCESS. The service of summons on such a
company is made in pursuance of paragraph 1, section. 396 of the Code of
Civil Procedure by delivering a copy thereof to the president or other head of
the corporation, secretary cashier, or managing agent thereof.
4. ID.; ID.; ID.; RETURN OF SHERIFF AS EVIDENCE. The certificate of
service by the sheriff is prima facie evidence of the facts set out in such
certificate; and where such certificate shows that service of summons in an
action against a partnership duly organized and registered under the laws of
the Philippine Islands was made by serving a copy thereof on a person
therein named and described as the managing agent of the company, it is
prima facie evidence of the fact that the person on whom the summons was
served
was
in
fact
the
managing
agent
of
the
company.
5. ID.; ID.; ID.; ID. To overcome the presumption arising from the
sheriffs certificate the evidence must be clear and convincing.
6. JUSTICE OF THE PEACE; JUDGMENT; PRESUMPTION OF VALIDITY.
A judgment rendered by a justices court is presumed to be a valid and
enforceable judgment where the record discloses that all of the steps
necessary to confer jurisdiction on the court have been taken and that the
court had jurisdiction of the subject matter.
16.) Ngo Tian Tek vs. Phil. Educate Co. G.R. No. L-48113, April 7,
1947.
Facts:
The case stemmed when Phil. Educate Co filed a complaint for
collection of money against the petitioner together with Vicente Tan alias
Chan Sy, wherein the CA affirmed the decision of the CFI holding that the
petitioners are jointly and severally liable to Phil. Educate Co. for the unpaid
cost of merchandise purchased by Lee Guan Box Factory from the plaintiff
and five other corporate entities. The CA found that Modern Box Factory was
at first owned by Ngo Hay, who later was joined by Ngo Tian Tek as a junior
partner. The modern Box Factory dealt in pare and similar merchandise and
purchased goods from the Phil Educate Co. and its assignors in the names of
the Modern Box Factory, Ngo Hay and Co., Go Hay Box Factory, or Go Hay.
When Lee Guan Box Factory was established a few meters from the Modern
31

Box Factory, under the management of Vicente Tan. Through Vicente Tan,
sought credit with the plaintiff and its assignors, Ngo Hay, in conversations
and interviews with their officers and employees, represented that he was
the principal owner of such factory, that the Lee Guan Box Factory and the
Modern Box Factory belonged to the same owner, and that the Lee Guan Box
Factory was a subsidiary of the Modern Box Factory. Moreover, Tan declared
that Lee Guan Box Factory was previously owned by the partnership of Ngo
Hay and Ngo Tian Tek.
Issue:
Whether or not the case should be dismissed because during its
pendency, Ngo Hay died?
Held: No. The case should not be dismissed because of the death of Ngo
Hay, it is sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is
sued as a partnership possessing a personality distinct from any of the
partners.
17.) Tai Tong Chuache and Co. vs. Insurance Commission, G.R. No. L55397 February 29, 1988.
Facts:
Azucena Palomo obtained a loan from Tai Tong Chuache Inc.
(P100,000.00). To secure the payment of the loan, a mortgage was executed
over the land and the building in favor of Tai Tong Chuache & Co. Arsenio
Chua, representative of Thai Tong Chuache & Co. insured the latter's interest
with Travellers Multi-Indemnity Corporation for P100,000.00 (P70,000.00 for
the building and P30,000.00 for the contents thereof).
Pedro Palomo secured a Fire Insurance Policy No. F- 02500, covering
the building for P50,000.00 with respondent Zenith Insurance Corporation.
Thereafter, another Fire Insurance Policy No. 8459 was procured from
respondent Philippine British Assurance Company, covering the same
building for P50,000.00 and the contents thereof for P70,000.00. On July 31,
1975, the building and the contents were totally razed by fire.
Based on the computation of the loss, including the Travellers MultiIndemnity, respondents, Zenith Insurance, Phil. British Assurance and S.S.S.
Accredited Group of Insurers, paid their corresponding shares of the loss.
Demand was made from respondent Travellers Multi-Indemnity for its share
in the loss but the same was refused. Hence, complainants demanded from
the other three (3) respondents the balance of each share in the loss based
32

on the computation of the Adjustment Standards Report excluding Travellers

Multi-Indemnity but the same was refused, hence, this action.
On May 31,
1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming the
proceeds of the fire Insurance Policy No. F-559 DV, issued by respondent
Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention,
alleged that the Intervenor is not entitled to indemnity under its Fire
Insurance Policy for lack of insurable interest before the loss of the insured
premises and that the complainants, spouses Pedro and Azucena Palomo,
had already paid in full their mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed
spouses Palomos' complaint on the ground that the insurance policy subject
of the complaint was taken out by Tai Tong Chuache & Company, petitioner
herein, for its own interest only as mortgagee of the insured property and
thus complainant as mortgagors of the insured property have no right of
action against herein respondent. It likewise dismissed petitioner's complaint
in intervention. From that decision, only intervenor Tai Tong Chuache filed a
motion for reconsideration but it was likewise denied hence, the present
petition.
Issue: Whether or not Tai Tong has insurable interest?
Held: Respondent advanced an affirmative defense of lack of insurable
interest on the part of the petitioner that before the occurrence of the peril
insured against, the Palomos had already paid their credit due the petitioner.
However, they were never able to prove that Tai had a lack of insurable
interest. Hence, the decision must be adverse against them. However
respondent Insurance Commission absolved respondent insurance company
from liability on the basis of the certification issued by the then CFI of
Davao, Branch II, that in a certain civil action against thePalomos, Arsenio
Lopez Chua stands as the complainant and not Tai Tong Chuache. From said
evidence respondent commission inferred that the credit extended by
petitioner to the Palomos secured by the insured property must have been
paid. These findings were based upon a mere inference. The record of the
case shows that the petitioner to support its claim for the insurance
proceeds offered as evidence the contract of mortgage which has not been
cancelled nor released. It has been held in a long line of cases that when the
creditor is in possession of the document of credit, he need not prove non33

payment for it is presumed. The validity of the insurance policy taken by

petitioner was not assailed by private respondent. Moreover, petitioner's
claim that the loan extended to the Palomos has not yet been paid was
corroborated by Azucena Palomo who testified that they are still indebted to
herein petitioner. Public respondent argues however, that if the civil case
really stemmed from the loan granted to Azucena Palomo by petitioner the
same should have been brought by Tai Tong Chuache or by its representative
in its own behalf. From the above premise, respondent concluded that the
obligation secured by the insured property must have been paid. However, it
should be borne in mind that petitioner being a partnership may sue and be
sued in its name or by its duly authorized representative. Petitioner's
declaration that Arsenio Lopez Chua acts as the managing partner of the
partnership was corroborated by respondent insurance company. Thus Chua
as the managing partner of the partnership may execute all acts of
administration including the right to sue debtors of the partnership in case of
their failure to pay their obligations when it became due and demandable.
Public respondent's allegation that the civil case filed by Arsenio Chua was in
his capacity as personal creditor of spouses Palomo has no basis. The policy,
then had legal force and effect.
18.) AGUILA, JR. v. COURT OF APPEALS & FELICIDAD S. VDA. DE
ABROGAR, G.R. No. 127347 November 25, 1999.
Facts:
Petitioner is the manager of A.C. Aguila & Sons, Co., a
partnership engaged in lending activities. Private respondent and A.C. Aguila
entered into a Memorandum of Agreement, regarding the conveyance of the
subject property of the private respondents for the security of the loan.
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special
power of attorney mentioned above, petitioner caused the cancellation of
TCT No. 195101 and the issuance of a new certificate of title in the name of
A.C. Aguila and Sons, Co.
Upon the refusal of private respondent to vacate the subject premises,
A.C. Aguila & Sons, Co. filed an ejectment case against her. The inferior and
lower courts ruled in favor of A.C. Aguila, hence, she filed for a petition for
declaration of nullity of the Deed of Sale alleging that the signature was
forged in the documents because he was already dead when the documents
were executed. The petition was dismissed but the CA reversed the decision
34

and held, among others, that the transaction was an equitable mortgage
which is in the nature of pactum commissorium, hence invalid. Petitioner
now contends, among others, that he is not the real party in interest but
A.C. Aguila & Co., against which this case should have been brought.
Issue:

Whether or not petitioner should be held liable in this case?

Held: No. 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. 10 In this case, private respondent
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. and the
Memorandum of Agreement was executed between private respondent, with
the consent of her late husband, and A.C. Aguila & Sons, Co., represented by
petitioner. Hence, 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.
19.) HEIRS OF TAN ENG KEE v. CA & BENGUET LUMBER COMPANY
(Pres. TAN ENG LAY), G.R. No. 126881, October 3, 2000.
Facts:
Heirs of Tan Eng Kee filed a suit against his brother Tan Eng Lay
and Benguet Lumber Company. The complaint alleged that that after the
second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and
industry together, entered into a partnership engaged in the business of
selling lumber and hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's
death. The claimed that Tan Eng Lay and his children caused the conversion
of the partnership "Benguet Lumber" into a corporation called "Benguet
Lumber Company." The incorporation was purportedly a ruse to deprive Tan
Eng Kee and his heirs of their rightful participation in the profits of the
business. Petitioners prayed for accounting of the partnership assets, and
the dissolution, winding up and liquidation thereof, and the equal division of
the net assets of Benguet Lumber.
The RTC ruled in favor of the petitioners and held that the partnership
is a joint venture. Hence, the respondent sought for recourse before the CA,
35

which reversed the decision of the RTC. They filed for a Motion for
Reconsideration but it was denied, hence this petition.
Issue:
Whether or not there was a partnership between Tan Eng Kee
and Tan Eng Lay in Benguet Lumber?
Held: Court held in the negative. In order to constitute a partnership, it must
be established that (1) two or more persons bound themselves to contribute
money, property, or industry to a common fund, and (2) they intend to
divide the profits among themselves. The agreement need not be in writing,
since the statute allows the oral constitution of a partnership, save in two
instances: (1) whe immovable property or real rights are contributed, and
(2) when the partnership has a capital of three thousand pesos or more. In
both cases, a public instrument is required. An inventory to be signed by the
parties and attached to the public instrument is also indispensable to the
validity of the partnership whenever immovable property is contributed to
the partnership.
The trial court determined that Tan Eng Kee and Tan Eng Lay had
entered into a joint venture, which it said is akin to a particular partnership.
A particular partnership is distinguished from a joint adventure, to wit: (a) a
joint venture is sort of informal partnership, with no firmame and no legal
personality. In a joint account, the participating merchants can transact
business under their own name, and can be individually liable therefor, (b)
usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain kind.
A co-ownership or co-possession is not an indicium of the existence of
partnership. None of the petitioners witnesses could suitably account for the
beginnings of Benguet Lumber Company. Moreover, the essence of
partnership is that partners share profits and loses, and a demand for
periodic accounting is evidence of a partnership. Tan Eng Kee during his
lifetime appeared never to have made any demand or asked for the an
accounting from his brother Tan Eng Lay.
20.) MARIANO P. PASCUAL & RENATO P. DRAGON v. CIR & CTA, G.R.
No. 78133 October 18, 1988.
36

Facts:
Petitioners bought 5 parcels of lot and sold it thereafter. They
gained realized a net profit in the sale made in both transactions. 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, then
Acting BIR Commissioner Plana, assessed the petitioners and required them
to pay a total amount of the 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.
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 1 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.
In the said case, petitioners borrowed a sum of money from their
father which together with their own personal funds they used in buying
several real properties. They appointed their brother to manage their
properties with full power to lease, collect, rent, issue receipts, etc. They had
the real properties rented or leased to various tenants for several years and
they gained net profits from the rental income. Thus, the Collector of
Internal Revenue demanded the payment of income tax on a corporation,
among others, from them.
Issue:
Whether or not there was an unregistered partnership which
made them liable for corporate income tax under the Tax Code?
Held: In order to constitute a partnership inter sese, there must be: (a) an
intent to form the same; (b) generally participating in both profits and
losses; and (c) such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business,
and dispose of the whole property.
37

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.
In the present case, there is clear evidence of co-ownership between the
petitioners. 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 coowners 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.
And even assuming for the sake of argument that such unregistered
partnership appears to have been formed, since there is no such existing
unregistered partnership with a distinct personality nor with assets that can
be held liable for said deficiency corporate income tax, then petitioners can
be held individually liable as partners for this unpaid obligation of the
partnership . However, as petitioners have availed of the benefits of tax
amnesty as individual taxpayers in these transactions, they are thereby
relieved of any further tax liability arising therefrom.
21.
ONA
VS.
COMMISION
G.R. NO. L-19342 MAY 25, 1972

OF

INTRNAL

REVENUE

FACTS: Julia Bunales died on March 23, 1944 leaving as heirs her surviving
spouse Lorenzo T. Oa and her five children. A civil case was instituted in the
CFI of Manila for the settlement of her estate. Lorenzo was appointed
administrator of his wife-deceaseds estate. A project of partition shows that
the heirs have undivided interest in 10 parcels of land, 6 houses and an
undetermined amount to be collected from the War Damage Commission.
Although the court approved the project of partition, no attempt was made
to divide the properties listed therein. Instead, the properties remained
under the management of Lorenzo who used the said properties in business
by leasing or telling 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 investment gradually increased from P
105,405.00 in 1949 to P 480,000. 20 in 1956.
38

Respondent CIR decided that petitioners formed an unregistered partnership

and therefore, subject to the corporate income tax pursuant to Section 24,
in relation to Section 84(b) of the Tax Code. Petitioners protested against the
assessment and asked for reconsideration of the ruling that they have
formed
an
unregistered
partnership.
Respondent denied the motion for reconsideration. Hence this appeal.
ISSUE: Whether or not constitute an unregistered partnership?
RULING: YES.
As already indicated, 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.
From the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties
themselves to be used by Lorenzo T. Oa as a common fund in undertaking
several transactions or in business, with the intention of deriving profit to be
shared by them proportionately, such act was tantamount to actually
contributing such incomes to a common fund and, in effect, they thereby
formed an unregistered partnership within the purview of the provisions of
the Tax Code.
22. GATCHALIAN VS. COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 45425 APRIL 29, 1939
FACTS: On December 15, 1934, the plaintiffs, all 15 of them, each
contributed in order to buy a sweepstakes ticket worth Php 2.00. That
immediately thereafter but prior to December 16, 1934, plaintiffs purchased,
in the ordinary course of business, from one of the duly authorized agents of
the National Charity Sweepstakes Office one ticket bearing No. 178637 for
the sum of two pesos (P2) and that the said ticket was registered in the
name of Jose Gatchalian and Company.
The above-mentioned ticket bearing No. 178637 won one of the third prizes
in the amount of P50,000 and that the corresponding check covering the
above-mentioned prize of P50,000 was drawn by the National Charity
Sweepstakes Office in favor of Jose Gatchalian & Company against the
Philippine National Bank, which check was cashed during the latter part of
December, 1934 by Jose Gatchalian & Company

39

Thereafter, Jose Gatchalian was required by income tax examiner Alfredo

David to file the corresponding income tax return covering the prize won by
Jose Gatchalian & Company and that on December 29, 1934
The defendant made an assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the deputy provincial
treasurer of Pulilan, Bulacan. Tthe plaintiffs requested exemption from the
payment of the income tax but it was rejected. The plaintiffs paid in protest
the tax assessment given to them.
ISSUE: Whether the plaintiffs formed a partnership, thus not exempted from
paying income tax?
RULING: YES.
The Supreme Court held that according to the stipulated facts the plaintiffs
organized a partnership of a civil nature because each of them put up money
to buy a sweepstakes ticket for the sole purpose of dividing equally the prize
which they may win, as they did in fact in the amount of P50,000. The
partnership was not only formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally appeared in the office of the
Philippine Charity Sweepstakes, in his capacity as co-partner, as such
collected the prize, the office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner. in the same capacity,
collected the said check. Having organized and constituted a partnership of a
civil nature, the said entity is the one bound to pay the income tax which the
defendant collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761.

23. REYES VS. COMMISSIONER OF INTERNAL REVENUE

G.R. NOS. L-24020-21

JULY 29, 1968

FACTS: Petitioners Florencio and Angel Reyes, father and son, purchased a
lot and building for P 835,000.00. The amount of P 375,000.00 was paid.
The balance of P 460,000.00 was left, which represents the mortgage
obligation of the vendors with the China Banking Corporation, which
mortgage obligations were assumed by the vendees. The initial payment of P
375,000.00 was shared equally by the petitioners. At the time of the
purchase, the building was leased to various tenants, whose rights under the
lease contracts with the original owners, the purchaser, petitioners herein,
agreed to respect. Petitioners divided equally the income of operation and
40

maintenance. The gross income from rentals of the building amounted to

about P 90,000.00 annually. An assessment was made against petitioners by
the CIR. The assessment sought to be reconsidered was futile. On appeal to
the Court of Tax Appeals, the CTA ruled that petitioners are liable for the
income tax due from the partnership formed by petitioners.
ISSUE: Whether or not petitioners subject to the tax on corporations
provided for in the National Internal Revenue Code?
RULING: YES.
After referring to another section of the NIRC, which explicitly provides that
the term corporations includes partnerships and then to Article 1767 of the
Civil Code of the Philippines, defining what a contract of partnership is, the
opinion goes on to state that 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, 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, it was determined that their purpose was to engage in real estate
transaction for monetary gain and then divide the same among themselves,
hence taxable.
24. EVANGELISTA, ET AL. V. CIR
GR NO. L-9996, OCTOBER 15, 1957
FACTS: Herein petitioners seek a review of CTAs decision holding them
liable for income tax, real estate dealers tax and residence tax. As
stipulated, petitioners borrowed from their father a certain sum for the
purpose of buying real properties. Within February 1943 to April 1994, they
have bought parcels of land from different persons, the management of said
properties was charged to their brother Simeon evidenced by a document.
These properties were then leased or rented to various tenants.
On September 1954, CIR demanded the payment of income tax on
corporations, real estate dealers fixed tax, and corporation residence tax to
which the petitioners seek to be absolved from such payment.
ISSUE: Whether or not petitioners are subject to the tax on corporations.

41

RULING: YES.
Petitioners are subject to the income tax and residence tax for corporation.
As defined in section 84 (b) of the Internal Revenue Code, "the term
corporation includes partnerships, no matter how created or organized." This
qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Partnership, as has been
defined in the civil code refers to two or more persons who bind themselves
to contribute money, properly, or industry to a common fund, with the
intention of dividing the profits among themselves. Thus, petitioners, being
engaged in the real estate transactions for monetary gain and dividing the
same among themselves constitute a partnership so far as the Code is
concerned and are subject to income tax for corporation.
Since Sec 2 of the Code in defining corporations also includes joint-stock
company, partnership, joint account, association or insurance company, no
matter how created or organized, it follows that petitioners, regardless of
how their partnership was created is also subject to the residence tax for
corporations.

25. KIEL VS. ESTATE OF P. S. SABERT

G.R. NO. 21639

SEPTEMBER 25, 1924

FACTS: In 1907, Albert F. Kiel along with William Milfeil commenced to work
on certain public lands situated in the municipality of Parang, Province of
Cotabato, known as Parang Plantation Company. Kiel subsequently took over
the interest of Milfeil. In 1910, Kiel and P. S. Sabert entered into an
agreement to develop the Parang Plantation Company. Sabert was to furnish
the capital to run the plantation and Kiel was to manage it. They were to
share and share alike in the property. It seems that this partnership was
formed so that the land could be acquired in the name of Sabert, Kiel being
a German citizen and not deemed eligible to acquire public lands in the
Philippines.
By virtue of the agreement, from 1910 to 1917, Kiel worked upon and
developed the plantation. During the World War, he was deported from the
Philippines.
42

On August 16, 1919, five persons, including P. S. Sabert, organized the

Nituan Plantation Company, with a subscribed capital of P40,000. On April
10, 1922, P. S. Sabert transferred all of his rights in two parcels of land
situated in the municipality of Parang, Province of Cotabato, embraced within
his homestead application No. 21045 and his purchase application No. 1048,
in consideration of the sum of P1, to the Nituan Plantation Company.
In this same period, Kiel appears to have tried to secure a settlement from
Sabert. At least in a letter dated June 6, 1918, Sabert wrote Kiel that he had
offered "to sell all property that I have for P40,000 or take in a partner who
is willing to develop the plantation, to take up the K. & S. debt no matter
which way I will straiten out with you." But Sabert's death came before any
amicable arrangement could be reached and before an action by Kiel against
Sabert could be decided. So these proceedings against the estate of Sabert.

ISSUE: Whether or not there

relationship between them?

had

been

created

Partnership

RULING: YES.
No partnership agreement in writing was entered into by Kiel and Sabert.
The question consequently is whether or not the alleged verbal
copartnership formed by Kiel and Sabert has been proved, if we eliminate
the testimony of Kiel and only consider the relevant testimony of other
witnesses. In performing this task, we are not unaware of the rule of
partnership that the declarations of one partner, not made in the presence of
his copartner, are not competent to prove the existence of a partnership
between them as against such other partner, and that the existence of a
partnership cannot be established by general reputation, rumor, or hearsay.
(Mechem on Partnership, sec. 65; 20 R. C. L., sec. 53; Owensboro Wagon
Company vs. Bliss [1901], 132 Ala., 253.)
The testimony of the plaintiff's witnesses, together with the documentary
evidence, leaves the firm impression with us that Kiel and Sabert did enter
into a partnership, and that they were to share equally. Applying the tests as
to the existence of partnership, we feel that competent evidence exists
establishing the partnership. Even more primary than any of the rules of
partnership above announced, is the injunction to seek out the intention of
the parties, as gathered from the facts and as ascertained from their
43

language and conduct, and then to give this intention effect. (Giles vs. Vette
[1924], 263 U. S., 553.)
26. June 28, 1968
G.R.
No.
L-24193
MAURICIO
AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendantsappellees.
Facts: Alleging that Mauricio Agad and Severino Mabato are partners in a
fishpond business, to the capital of which Agad contributed P1,000, with the
right to receive 50% of the profits; Mabato who handled the partnership
funds, had yearly rendered accounts of the operations of the partnership;
despite repeated demands, Mabato failed and refused to render accounts for
the years 1957 to 1963, Agad prayed in his complaint against Mabato and
Mabato & Agad Company.
Mabato denied the existence of said partnership, upon the ground that the
contract had not been perfected, despite the execution because Agad had
allegedly failed to give his P1,000 contribution to the partnership capital.
Mabato prayed, therefore, that the complaint be dismissed; and the contract
be declared void ab initio. Subsequently, Mabato filed a motion to dismiss,
upon the ground that the complaint states no cause of action and that the
lower court had no jurisdiction over the subject matter of the case, because
it involves principally the determination of rights over public lands. The lower
court declared that the contract is null and void because the inventory of the
fish pond was not attached to the contract.
Issue: Whether "immovable property or real rights" have been contributed to
the partnership under consideration.
Held: The partnership was established "to operate a fishpond", not to
"engage in a fishpond business". Moreover, none of the partners contributed
either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each.
The operation of the fishpond mentioned in Annex "A" was the purpose of
the partnership. Neither said fishpond nor a real right thereto was
contributed to the partnership or became part of the capital thereof, even if
a fishpond or a real right thereto could become part of its assets.

44

27. G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and
EMETERIA
BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
Facts: Sisters Antonia Torres and Emeteria Baring entered into a "joint
venture agreement" with 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 and obtained from Equitable Bank a loan of
P40,000 which, under the Joint Venture Agreement to be used for the
development of the subdivision. 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 Manuels Lack of funds or means and skills. Petitioner also allege that
Manuel misappropriate the amount loaned.
On the other hand, respondent alleged that he incurred additional expenses
to implement the Agreement. He further alleged that the failure of the
Venture was due to the adverse claim on the title of the land by the relative
of the petitioner which eventually scared away prospective buyers.
Petitioner filed a criminal action for estafa against respondent and his wife,
but was acquitted. They filed a civil case but was dismissed by the trial court
and affirmed by the CA. Hence, this petition.
Issue: Whether the parties formed a partnership and if they do, whether or
not it was valid
Held: Yes. The terms embodied in the agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
Art. 1767. 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;
45

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. Clearly, the
contract manifested the intention of the parties to form a partnership. Under
Article 1767 of the Civil Code, a partner may contribute not only money or
property, but also industry.
Valid contract of partnership.
First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which
is a complement of Article 1771, 12 "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.
Second, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 60 percent of the value of
the property. 13 They cannot in one breath deny the contract and in another
recogn.ize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will
not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which
the parties' rights and obligations to each other may be inferred and
enforced
28. G.R. No. 148187

April 16, 2008

PHILEX
MINING
CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Facts:
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.
46

Nino mine, located in Atok and Tublay, Benguet Province. The parties
agreement was denominated as "Power of Attorney".
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with the agreement. However,
the mine suffered continuing losses over the years which resulted to
petitioners withdrawal as manager of the mine and the eventual cessation of
mine operations.
The parties executed a Compromise with Dation in Payment where the
parties determined the indebtedness of Baguio Gold. Further executed a
Amendment to Compromise with Dation in Payment assigning Baguios
tangible assets and transferring its equitable title in one of its segment.
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.
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. Petitioner appealed before the CTA.
However the Court denied for lack of merit and affirmed the lower court
decision.
47

Issue: Whether or not the Power of Attorney partook of the nature of

investment rather than a loan.
Held: Investment
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.
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
48

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.
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.
29. G.R. NOS. 166299-300 December 13, 2005
AURELIO
K.
LITONJUA,
JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS.
MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K.
LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING
CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L INTL
SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC.,
49

BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY

TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC.,
ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC.
(formerly General Theatrical & Film Exchange, INC.), AVENUE
REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),Respondents.
Facts: Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that
Eduardo entered into a contract of partnership with him. Aurelio showed as
evidence a letter sent to him by Eduardo that the latter is allowing Aurelio to
manage their family business (if Eduardos away) and in exchange thereof he
will be giving Aurelio P1 million or 10% equity, whichever is higher. A
memorandum was subsequently made for the said partnership agreement.
The memorandum this time stated that in exchange of Aurelio, who just got
married, retaining his share in the family business (movie theatres, shipping
and land development) and some other immovable properties, he will be
given P1 Million or 10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater.
In 1992 however, the relationship between the brothers went sour. And so
Aurelio demanded an accounting and the liquidation of his share in the
partnership. Eduardo did not heed and so Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: No.
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. 1772. Every contract of partnership having a capital of three thousand
pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.

50

Failure to comply with the requirement of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third
persons.
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.
The partnership is void and legally nonexistent. The documentary evidence
presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did
not prove partnership.
The 1973 letter from Eduardo on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an unsigned document,
there can be no quibbling that said letter does not meet the public
instrumentation requirements exacted under Article 1771 (how partnership
is constituted) of the Civil Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or
property, said letter cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as called for
under the Article 1772 (capitalization of a partnership) of the Code. And
inasmuch as the inventory requirement under the succeeding Article 1773
goes into the matter of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns on the nature of
Aurelios contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not a
public instrument and again, no inventory was made of the immovable
property and no inventory was attached to the Memorandum. Article 1773 of
the Civil Code requires that if immovable property is contributed to the
partnership an inventory shall be had and attached to the contract.
Petitioner, in an obvious bid to evade the application of Article 1773, argues
that the immovables in question were not contributed, but were acquired
after the formation of the supposed partnership. Needless to stress, the
Court cannot accord cogency to this specious argument. For, as earlier
stated, petitioner himself admitted contributing his share in the supposed
shipping, movie theatres and realty development family businesses which

51

already owned
executed.

immovables

even

before

Annex "A-1" was

allegedly

Considering thus the value and nature of petitioners alleged contribution to

the purported partnership, the Court, even if so disposed, cannot plausibly
extend Annex "A-1" the legal effects that petitioner so desires and pleads to
be given. Annex "A-1", in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A partnership may be constituted
in any form, save when immovable property or real rights are contributed
thereto or when the partnership has a capital of at least P3,000.00, in which
case a public instrument shall be necessary.25 And if only to stress what has
repeatedly been articulated, an inventory to be signed by the parties and
attached to the public instrument is alsoindispensable to the validity of the
partnership whenever immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its
assailed Decision26 about the probative value and legal effect of Annex "A1" commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner]
contributed immovable properties to the alleged partnership, the
"Memorandum" (Annex "A" of the complaint) which purports to establish the
said "partnership/joint venture" is NOT a public instrument and there was
NO inventory of the immovable property duly signed by the parties. As such,
the said "Memorandum" is null and void for purposes of establishing the
existence of a valid contract of partnership. Indeed, because of the failure to
comply with the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally inexistent contract cannot be the
source of any contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual or legal right which
could be violated by the [individual respondents] herein. As a consequence,
[petitioners] complaint does NOT state a valid cause of action because NOT
all the essential elements of a cause of action are present. (Underscoring
and words in bracket added.)

52