Commissioner of Internal Revenue vs. William j. Suter and the Court of Tax Appeals G.R. No.

L-25532, February 28, 1969 Facts: A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with the Securities and Exchange Commission. In 1948, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission on 20 December 1948. The limited partnership had been filing its income tax returns as a corporation, without objection by the Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955. Partner-Spouses Suter protested the assessment. Issue: Whether or not the partnership was dissolved after the marriage of the partners, William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson? Ruling: William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but a particular one 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 the firm was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889 (now Article 1782 of the New Civil Code). Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose by law. 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) Charles F. Woodhouse vs. Fortunato F. Halili G.R. No. L-4811, July 31, 1953 Facts:

Woodhouse entered on a written agreement with Halili for the establishment of a partnership for bottling and distribution of Mision soft drinks. Woodhouse to act as industrial partner or manager while Halili as a capitalist partner. Before the partnership was actually established defendant required the plaintiff to secure an exclusive franchise for the said venture. It was agreed that plaintiff will receive 30% of the net profits of the partnership. Prior to entering into the agreement, plaintiff secured the exclusive franchise of Mission soft drinks but was only given a thirty-days option on exclusive bottling and distribution rights in the Philippines. When the bottling plant was already in operation, plaintiff demanded defendant to formally execute the partnership papers. While, defendant Halili would just give excuses and but would not execute said agreement, thus plaintiff filed a complaint. In his complaint, plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share thereof of 30 per cent, as well as damages in the amount of P200,000.00. In his answer defendant alleges by way of defense (1) that defendant's 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 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; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He also presented a counter-claim for P200,000.00 as damages. Issue: 1.) Whether plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages? 2.) Whether this false representation or fraud, if it existed, annuls the agreement to form the partnership? 3.) Whether the court may compel the defendant to execute the contract of partnership between the parties? Ruling: Issue no.1) Plaintiff did actually represent to defendant that he is a holder of the exclusive franchise which made the latter agree to form a partnership. Defendant would not perhaps have gone to California and incurred expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew if it were not with his representation that he is a holder of exclusive franchise, defendant would not be induced to a partnership. Issue no.2) No. Article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages. The Court held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.)

The record abounds that 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 defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same original draft, but the change is made not as to the said obligation but as to the grantee. In the corrected draft the word "capitalist"(grantee) is changed to "partnership." The contract in its final form retains the substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the contract was perfected. But while he had already lost his option thereto (when the contract was entered into), the principal obligation that he assumed or undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission Dry Corporation. The court declared, 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. Issue no. 3) The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act of violence to do so. Gregorio F. Ortega, Tomas O. Del Castillo, Jr., and Benjamin T. Bacorro, vs. Hon. Court of appeals, Securities and Exchange Commission and Joaquin L. Misa G.R. No. 109248 July 3, 1995 Facts: The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission (SEC) on 4 August 1948. SEC records show that there were several amendments to show the change in firms name until it became BITO, MISA & LOZADA. Partner JOAQUIN L. MISA withdrew and retired from the partnership. He filed with the Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership. He also prayed to enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and pleadings. Hearing officer rendered a decision ruling that the Petitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the partnership. However, such decision was reversed by SEC en banc and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada being a partnership at will regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. Parties sought reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. SEC denied the both motions of the parties. The parties filed with the appellate court separate appeals. During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the ad-

mission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership. The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision. The appellate court ruled, among others that the withdrawal was not in bad faith and the appointment of a receiver was unnecessary. Issue: 1.) Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will; 2.) Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith; and 3.) Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith; Ruling: Issue no.1) 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. 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 "purpose" of the partnership in the article of partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates is a specific undertaking or "project" which has a definite or definable period of completion. Issue no.2) 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. Issue no.3.) Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.