AgPart 925 - Partnership and JV Digest

PARTNERSHIP/JOINT VENTURE DIGESTS
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ATTY. COCHINGYAN
Evangelista vs. CIR (1957) (habitually peculiar to business)

Doctrines:
Art. 1767: By the contract of partnership two or more persons bind themselves to contribute money, properly, or
industry to a common fund, with the intention of dividing the profits among themselves.
Essential elements of a partnership:
An agreement to contribute money, property, or industry to a common fund
Intent to divide the profit among the contracting parties.
A partnership is established when one cannot but perceive a character of habitually peculiar to business
transactions engaged in purpose of gain.
Facts:
(This case heavily had elements of Taxation which I filtered out to focus on our topic of Partnership.)
Eufemia, Manuela, and Francisca Evangelista are sisters who borrowed a sum of money (P591,400) from their
father in February 1943 which, together with their own personal monies, they used to consummate four (4) transactions of
purchasing parcels of land. Subsequently, they appointed their brother Simeon to manage these properties with full power
to lease, collect and receive rents, and to take proper action in cases of non-payment. These real properties earned
income by being rented out to various tenants.
In 1954, the Collector of Internal Revenue (CIR) demanded payment of income tax for the period of 1945 to
1949. A letter of demand corresponding to this was sent to the petitioners and they instituted a case in the Court of Tax
Appeals in which their petition was subsequently denied.
Upon review of the SC, the petitioners averred that they are mere co-owners, not copartners, for, in consequence
of the acts performed by them, a legal entity, with a personality independent of that of its members, did not come into
existence, and some of the characteristics of partnerships are lacking in the case at bar.
Issues:
1. MAIN ISSUE: W/N There was a partnership formed by the petitioners.
2. On Tax: W/N The petitioners are liable for the taxes demanded by the CIR (esp. Residence Tax on Corporations)
Held/Ratio:
1. YES. A partnership was formed due to the following reasons:
a) The common fund was not something they found already in existence. It was not property inherited by
them. They created it purposely. They jointly borrowed a substantial portion thereof in order to
establish said common fund.
b) They invested such fund, not merely in one transaction, but in a series of transactions. The number of lots
(24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property acquired by
the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually
peculiar to business transactions engaged in the purpose of gain.
c) The aforesaid lots were not devoted to residential purposes, or to other personal uses. The properties
were leased separately to several persons
d) The affairs relative to said properties have been handled as if the same belonged to a corporation or
business and enterprise operated for profit. Since it was managed in such a way by Simeon.
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e) The foregoing conditions have existed for over fifteen (15) years, since the first property was acquired,
and over twelve (12) years, since Simeon Evangelista became the manager.
f) Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.
2. YES. They are liable for taxes INCLUDING Residence Taxes on Corporations (RToC)
Basically, since they were engaged in business and even earning income, they ought to be liable for taxes. Their
contention was they are not a corporation, yet they are made liable for RToC. The court held that our National
Internal Revenue Code along with the Commonwealth Act. 465 used the terms Corporations and Partnership
with substantially the same meaning.
Yulo vs. Yang Chiao Seng (1959) (lessor-lessee; theater)

Doctrine:
If a person is really a partner, her first concern should have been to find out how the business was progressing,
whether the expenses were legitimate, whether the earnings were correct, etc. If she is absolutely silent with
respect to any of the acts that a partner should have done all she did was receive a certain sum, which cannot be
interpreted in any manner than a payment for the use of the premises, then it is a lessor-lessee relationship under a
contract of lease.
The requisites of partnership: (1) two or more persons who bind themselves to contribute money, property, or
industry to a common fund; (2) intention on the part of the partners to divide the profits among themselves.
Facts:
On June 17, 1945, Yang Chiao Send wrote a letter to Rosario Yulo and proposed to form a partnership between
them to run an operate a theater on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila.
The principal conditions of the offer are:
(1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in
advance within the first 15 days of each quarter
(2) that the partnership shall be for a period of two years and six months, starting from July 1, 1945 to
December 31, 1947, with the condition that if the land is expropriated or rendered impracticable for the
business, or if the owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is
terminated by the owner, then the partnership shall be terminated even if the period for which the
partnership was agreed to be established has not yet expired
(3) that Mrs. Yulo is authorized personally to conduct such business in the lobby of the building as is
ordinarily carried on in lobbies of theatres in operation, provided the said business may not obstruct the
free ingress and agrees of patrons of the theatre
(4) that after December 31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but
if the partnership agreement is terminated before the lapse of one and a half years period under any of
the causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take
away all improvements that the partnership may place in the premises.
Yulo accepted the offer and they executed a partnership agreement establishing the Yang and Company, Ltd. The
agreement further states that it will conduct the business of operating a theater for the exhibition of motion and talking
pictures. The capital is fixed at P100,000 (Yang Chiao Seng P80,000 and Yulo P20,000). All gains and profits will
be distributed in the same proportion as their capital contribution.
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In June 1946, they entered into a supplementary agreement. This extended the partnership for three more years.
The benefits were to be divided on a 50-50 basis. After December 31, 1950, the building shall exclusively belong to
Yulo.
Yulo leased the land where the theater was constructer from the Santa Marinas. The lease contract stated that the
lease shall continue for an indefinite time but may be cancelled after one year by either party. The party must inform the
other by written notice at least 90 days before the cancellation. After a year, the lawyers of the Santa Marinas informed
Yulo of their desire to cancel the contract. Yulo filed an action in the CFI of Manila to declare the lease of the premises.
However, the court ordered the ejectment of Yulo and Yang. Yang and Yulo appealed. The CA affirmed the judgment.
Yulo demanded from Yang her share in the profits of the business (P35,000). Yang said that he had to suspend
payment of the rentals because of the pendency of the ejectment suit. Yang claims that he is a mere sublessee and
inasmuch as Yulo has not paid the Santa Marinas the rentals for the land, he was retaining the rentals to make good to the
landowners the rentals due from Yulo in arrears.
Yulo filed a suit against Yang on the ground that Yang failed to pay her the share. Moreover, as a result of the
termination of the partnership (December 31, 1959), Yulo became the sole owner of the building and claimed that
reasonable rental (P5000) should be paid by Yang. Yang, on the other hand, claims that they entered into a contract of
lease and not of partnership. He alleged that a partnership was adopted in order to get around the prohibition contained
in the contract of lease between the owners and the plaintiff against the sublease of the property.
Issues:
1. W/N the parties entered into contract of partnership
Held:
1. NO.
The agreement is one of lease and not of partnership. The requisites of partnership are as follows: (1) two or more
persons who bind themselves to contribute money, property, or industry to a common fund; (2) intention on the part
of the partners to divide the profits among themselves.
In this case, Yulo never furnished the supposed P20,000 capital. Also, she did not provide any help or intervention
in the management of the theater and it does not appear that she ever demanded any accounting of the expenses and
earnings of the business. If she were really a partner, her first concern should have been to find out how the
business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. All she did
was to receive her share of P3,000 per month.
Pursuant to the letter drafted by Yang, the agreement between the parties was to end upon the termination of the
right of Yulo to the lease. Her right terminated in July 1949. Therefore, she may not receive the monthly amount
of P3,000 after this date.
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Eligio Estanislao, Jr. vs. CA (1988) (Cash Pledge Agreement, siblings-partners, Shell)
Doctrine
The registered dealer can be compelled to execute the covering articles of partnership, for accounting and
distribution of the shares in profits of other partners.
Art 1770 1st paragraph A partnership must have a lawful object or purpose, and must be established for the
common benefit or interest of the partners.
Art 1771 A partnership may be constituted in any form, except where immovable real property or real rights are
contributed thereto, in which case a public instrument shall be necessary.
Facts
Petitioners and private respondents are brothers and sisters who are co-owners of lots in Annapolis and Aurora
Blvd., Quezon City. These two parcels of lands were being leased by Shell. The Estanislaos executed an affidavit on
April 11, 1966, where they agreed to help their brother (petitioner) by allowing him to negotiate and manage the gasoline
station of the family. They negotiated with Shell, which had a policy of one station, one dealer; it was agreed that
petitioner would apply for the dealership. On May 26, 1966, petitioner and respondents entered into an Additional
Cash Pledge Agreement with Shell. For some time, petitioner had been diligent in submitting financial statements
regarding the business operations, but subsequently failed to render accounting. Respondents, through counsel, wrote to
petitioner a formal demand for accounting of profits.
When demand was unheeded, respondents filed a complaint in the CFI of Rizal, asking among others, that
petitioner be ordered to 1.) execute the articles of partnership as provided in Art 1771 of the Civil Code, 2.) to render a
formal accounting of the business, 3.) to pay the respondents their lawful share in the profits and 4.) to pay the
respondents damages and attorneys fees.
The CFI decided in favor of petitioner, but subsequently, the newly appointed presiding judge reversed and
rendered judgment in favor of respondents. On appeal, the CA affirmed. Hence, the present action.
Issue
1. W/N a partnership exists between petitioner and respondents arising from their joint ownership of the parcels of
land leased by Shell.
Held
1. YES.
In arguing for the contrary, petitioner relies on the Additional Cash Pledge Agreement of May 20, 1966.
The joint affidavit of April 11, 1966 states:
a. That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos. 45071
and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF
THE PHILIPPINES LIMITED a corporation duly licensed to do business in the Philippines;
b. That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced rentals
in the total amount of FIFTEEN THOUSAND PESOS (Pl5,000.00) Philippine Currency, so that we can
use the said amount to augment our capital investment in the operation of that gasoline station constructed
,by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement we have
entered into with the said company;
c. That the SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire to help
us in augmenting our capital investment in the operation of the said gasoline station, has agreed to give us
the said amount of P15,000.00, which amount will partake the nature of ADVANCED RENTALS;
d. That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (Pl5,000.00) from the SHELL COMPANY OF THE PHILIPPINES
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LIMITED, the said sum as ADVANCED RENTALS to us be applied as monthly rentals for the said
two lots under our Lease Agreement starting on the 25th of May, 1966 until such time that the said of
P15,000.00 be applicable, which time to our estimate and one-half months from May 25, 1966 or until the
10th of October, 1966 more or less;
e. That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES
LIMITED execute an instrument for us to sign embodying our conformity that the said amount that it will
generously grant us as requested be applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
While the Additional Cash Pledge Agreements states:
xxx
b. The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER to
SHELL, thereby in increasing his credit limit from P10,000 to P25,000. This agreement, therefore,
cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.
xxx
Petitioner is saying that by virtue of the lone paragraph in the Additional Cash Pledge Agreement, whatever
partnership there was in the joint affidavit was also cancelled. However, the SC rejected this because the
cancelling proviso in the Cash Pledge Agreement was for the P15,000 mentioned in the joint affidavit
regarding the advance rentals starting on May 25. The cash pledge agreement also mentioned this, and it
was a repetition that had to be stricken out.
Other evidence on the record also support the partnership agreement between petitioner and respondents.
Petitioner had also rendered accounting initially of the business to his siblings. 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 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.
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Isabelo Moran Jr. vs. CA and Mariano Pecson (1984) (ConCon Poster + Voice of the Veteran Magazine)
Doctrine:
The essence of partnership is the sharing of profits and losses.
Facts:
Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose
of printing 95,000 posters featuring the delegates of the 1971 Constitutional Convention. Moran would act as a
managing partner. According to the agreement, Pecson would receive a commission of P1000 a month from April to
December (8 months). Pecson gave Moran P10,000 as part of his share. Only 2,000 posters were printed. The printing
cost P4,000. Pecson gave another P7000 for the printing of The Voice of the Veteran Magazine which they also
agreed upon. Moran gave Pecson a promissory note amounting to P20,000 in consideration of Pecsons contributions and
commission for three months.
Pecson filed a case for an action of recovery of sum of money based on the alleged partnership agreement,
whereby he seeks the return of his 10K contribution, and based on the promissory note.
The CFI held that, there is indeed a partnership agreement, and that based on this Pecson gave 10K, and gave
another 7K for the Voice of the Veteran Magazine. The CFI ruled that because Pecson also failed to give the full
amount of 15 thousand for the posters, both Moran and Pecson is entitled to rescind the contract. Moran was asked to
return to Pecson the 17K received by him. Both parties appealed to the CA. The CA ruled against Moran. He was
ordered to pay:
P 47,500 the amount which, according to the CA, would have accrued in favor of Pecson if the agreement was
honored;
P 8000 , as commission from April to December;
P 7000, as return of Pecsons investment for the Voice of the Veterans because the project never took off.
From this judgment, Moran appealed to the Supreme Court.
Issue:
1. W/N the CA erred in ordering Moran to pay the abovementioned amounts.
2. W/N Moran is liable to pay the promissory note executed by him
Held:
1. YES. (As to the P47,500 and the P8000) - When partner who has undertaken to contribute a sum of money
fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute and
for interests and damages from the time he should have complied with his obligation. In the case at bar, there
was no evidence that the partnership would have been a profitable venture, in fact it was a failure doomed
from the start. Therefore there is no basis for the award of speculative damages. Moreover, both parties
were in breach of their duties as Pecson also failed to pay in full his obligation to the partnership.
Art 1797 provides that the shares and losses shall be governed by the agreement, in the absence of an
agreement regarding the losses, it shall be borne proportionately. Being a contract of partnership, each
partner must bear the losses and profits of the venture that is the essence of partnership. Even under
the assurance of the other party that the venture would become successful, in the absence of fraud, the other
party has no right to claim highly speculative profits. Hidden risks such as the failure of the COMELEC to
proclaim the candidates in the ConCon on time, etc. should be considered.
(As to the P 7000) The fact that respondent presented in Court as evidence the book Voice of the Veterans
is sufficient proof that the project took off and therefore, the assertion of the CA in awarding the P7000 in
favor of Pecson is baseless.
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2. NO. Because of the circumstances mentioned above, Moran should only pay Pecson 6K representing the
unused balance of his 10K share (4k was for the printing), and another 3K representing of the profits
earned from the sale of the printed posters.
(NOTE THAT THE 20K WAS FOR: P10,000 CONTRIBUTION OF PECSON FOR THE POSTERS, P7000
CONTRIBUTION FOR THE VETERANS MAGAZINE, P3000 FOR 3 MONTHS WORTH OF
COMMISSION)
Pascual vs CIR (1998)

Doctrines:
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.
Facts:
On 1965, Pascual and Dragon bought two parcels of land from Santiago Bernardino, et al. On the following year,
they bought another three parcels of land from Juan Roque. All the five lots were subsequently sold in 1968 and 1970
respectively. They realized substantial profit for their transactions (165 k and 60 k). The corresponding capital gains tax
was paid in 1973 and 1974.
In 1979, Acting BIR Commissioner Plana assessed and required the petitioners to pay for alleged deficiency
corporate taxes. According to him, in the land transactions that the petitioners engaged, they formed an unregistered
partnership or joint venture, taxable as a corporation which is subject to individual tax income.
The Court of Tax Appeals affirmed the decision and action of the CIR on the basis of the principle enunciated by
the Evangelista case.
Issues:
1. W/N the petitioners formed a partnership in their transactions as to make them liable for the corporate income tax,
similar to Evangelista
Held/Ratio:
1. In contrast to the Evangelista case, there is no evidence that petitioners entered into an agreement to contribute
money, property or industry to a common fund, and that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of
the fact that petitioners purchased certain parcels of land and became co-owners thereof.
In the Evangelista case, 24 lands were sold which makes the purpose of gain evident. In this case, there were only
five isolated transactions. 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. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners.
They shared in the gross profits as co-owners and paid their capital gains taxes on their net profits and availed of
the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.
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Mendoza vs. Paule (2009) (Partnership with SPA)

Doctrine:
Every partner is an agent of the partnership for the purpose of its business; each one may separately execute all
acts of administration, unless a specification of their respective duties has been agreed upon, or else it is stipulated
that any one of them shall not act without the consent of all the others.
When the principal and the agent have entered into a power of attorney covering a construction project, with the
principal contributing thereto his contractors license and expertise, while the agent would provide and secure the
needed funds for labor, materials, and services; deal with the suppliers and sub-contractors; and in general and
together with the principal, oversee the effective implementation of the project, ... the parties have in effect
entered into a partnership, and the revocation of the powers of management of the agent is deemed a breach of
contract.
Facts:
Engineer Eduardo Paule (Paule) is the proprietor of EM Paule Construction and Trading (EMPCT). Paule
executed an SPA authorizing Zenaida Mendoza (Mendoza) to participate in the pre-qualification and bidding of National
Irrigation Administration (NIA) project and to represent him in all transactions related thereto.
Hence, EMPCT through Mendoza participated and was awarded in the bidding of the NIA-Casecnan MultiPurpose Irrigation and Power Project (NIA-CMIPP) and was awarded Packages A-10 and B-11 (road system, canal
structures and drainage box culverts with a project cost of P5,613,591.69). Mendoza received the Notice of Award which
was signed by Engineer Coloma (Acting Project Manager).
When Cruz learned that Mendoza is in need of heavy material equipment for the use of NIA project, he met up
with Mendoza in an apartment where the latter was holding office under an EMPTC signboard. A series of meetings
followed. Later on Mendoza and Cruz signed 2 Job Orders/Assignments for the lease of the latters heavy equipment to
EMPCT.
After such transactions, Paule revoked the SPA he previously issued in favor of Mendoza. Hence NIA refused to
make payment to Mendoza on her billings. As such, Cruz could not be paid for the rental of the heavy equipment. Upon
the advice of Mendoza, Cruz addressed his demands for payment of lease rentals directly to NIA but the latter informed
Cruz that it would only be remitting the payment to EMPCT as the winning contactor for the project.
Cruz demanded from Mendoza and/or EMPCT payment for the outstanding rentals amounting to P726,000.00. A
suit was filed of the RTC of Nueva Ecija, for collection of sum of money plus damages and prayer for writ of preliminary
injunction against Paule, Coloma and the NIA.
Paule then filed a third-party complaint against Mendoza, who filed her answers with a cross-claim against Paule.
In holding PAULE liable, the trial court found that MENDOZA was duly constituted as EMPCTs agent for
purposes of the NIA project and that MENDOZA validly contracted with CRUZ for the rental of heavy equipment that
was to be used therefor.
PAULE and MENDOZA both appealed the trial courts decision to the Court of Appeals.
The Court of Appeals rendered the assailed Decision which dismissed CRUZs complaint, as well as
MENDOZAs appeal.
The appellate court held that the SPAs issued in MENDOZAs favor did not grant the latter the authority to enter
into contract with CRUZ for hauling services; the SPAs limit MENDOZAs authority to only represent EMPCT in its
business transactions with NIA, to participate in the bidding of the project, to receive and collect payment in behalf of
EMPCT, and to perform such acts as may be necessary and/or required to make the said authority effective. Thus, the
engagement of CRUZs hauling services was done beyond the scope of MENDOZAs authority.
As for CRUZ, the Court of Appeals held that he knew the limits of MENDOZAs authority under the SPAs yet he
still transacted with her, hence he has no right of action against Paule.
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CRUZ and MENDOZAs motions for reconsideration were denied; hence, these consolidated petitions:
Issues:
1. W/N Cruz has a right of action against Paule and Mendoza?
2. W/N a partnership or agency relation existed between Paule (EMPCT) and Mendoza?
Held/Ratio:
1. YES, Cruz has a cause of action against Paule and Mendoza. The Court of Appeals erred in dismissing Cruz
complaint on a finding of exceeded agency. Besides, PAULE could be held liable under the SPAs for transactions
entered into by MENDOZA with laborers, suppliers of materials and services for use in the NIA project, has been
settled with finality in another case.
Wherefore, the petitions are GRANTED and the trial court is ORDERED to receive evidence on the counterclaim
of petitioner Zenaida G. Mendoza.
2. YES, records show that Paule (or, more appropriately, EMPCT) and Mendoza had entered into a
partnership in regard to the NIA project. Paules contribution thereto is his contractors license and expertise,
while Mendoza would provide and secure the needed funds for labor, materials and services; deal with the
suppliers and sub- contractors; and in general and together with Paule, oversee the effective implementation of the
project. For this, Paule would receive as his share three per cent (3%) of the project cost while the rest of the
profits shall go to Mendoza. Paule admits to this arrangement in all his pleadings.
Although the SPAs limit MENDOZAs authority the evidence shows that when MENDOZA and CRUZ met and
discussed (at the EMPCT office in Bayuga, Muoz, Nueva Ecija) the lease of the latters heavy equipment for use
in the project, PAULE was present and interposed no objection to MENDOZAs actuations.
Under the Civil Code, every partner is an agent of the partnership for the purpose of its business; each one may
separately execute all acts of administration, unless a specification of their respective duties has been agreed upon,
or else it is stipulated that any one of them shall not act without the consent of all the others.
Further, there was no valid reason for Paule to revoke Mendozas SPAs. Since Mendoza took care of the funding
and sourcing of labor, materials and equipment for the project, it is only logical that she controls the finances,
which means that the SPAs issued to her were necessary for the proper performance of her role in the partnership,
and to discharge the obligations she had already contracted prior to revocation. Without the SPAs, she could not
collect from NIA, because as far as it is concerned, EMPCT and not the Paule-Mendoza partnership is the
entity it had contracted with. Without these payments from NIA, there would be no source of funds to complete
the project and to pay off obligations incurred. As Mendoza correctly argues, an agency cannot be revoked if a
bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner
is appointed manager of a partnership in the contract of partnership and his removal from the management is
unjustifiable.
PAULEs revocation of the SPAs was done in evident bad faith. From the way he conducted himself, PAULE
committed a willful and deliberate breach of his contractual duty to his partner and those with whom the
partnership had contracted. Thus, PAULE should be made liable for moral damages.
Moreover, PAULE should be made civilly liable for abandoning the partnership, leaving MENDOZA to fend for
her own, and for unduly revoking her authority to collect payments from NIA, payments which were necessary
for the settlement of obligations contracted for and already owing to laborers and suppliers of materials and
equipment like CRUZ, not to mention the agreed profits to be derived from the venture that are owing to
MENDOZA by reason of their partnership agreement.
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Ortega v. CA (1995) (law firm)

Doctrine:
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.
Facts:
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was registered in the Mercantile Registry and
reconstituted with the SEC in 1948. There were several subsequent amendments to the articles of partnership, and several
changes in its name. In 1977 it was named BITO, MISA & LOZADA; on 1980, the firm composed of Joaquin Misa
(private respondent) Bito and Lozada associated themselves together, as senior partners with, "petitioners Ortega, del
Castillo, Jr., and Bacorro", as junior partners.
In 1988, Misa, wrote 3 letters to the petitioners. The 1st letter stated, that Misa was withdrawing and retiring from
the firm, trusting to have a proper liquidation of his participation in the firm. the 2nd letter requested for a meeting. The
third letter stated that, the partnership has ceased to be mutually satisfactory because of the working conditions of our
employees. and Misas efforts to improve the below subsistence pay of employees have been thwarted by the other
partners. and employees even attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their
self-respect. That the result of such policies is a formation of a union.
Later, Misa filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for
dissolution and liquidation of partnership.
Misa, lost to the hearing officer but won, in the SEC en banc and in CA.
The firm is now called Bito, Lozada, Ortega and Castillo. During the pendency of the case in the CA, Senior
partners Bito and Lozada died.
Issues:
1. W/N the partnership of Bito, Lozada, Ortega & Castillo is a partnership at will?
2. W/N the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith?
3. W/N private respondent's demand for the dissolution of the partnership so that he can get a physical partition of
partnership was made in bad faith?
Held:
1. YES, a partnership that does not fix its term is a partnership at will. The partnership agreement does not provide
for a specified period or undertaking. The "DURATION" clause simply states, the partnership shall continue so
long as mutually satisfactory. Altough there is a clause called "Purpose" which states: "The purpose for which the
partnership is formed, is to act as legal adviser and representative." The "purpose" of the 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
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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.
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.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be
associated in the carrying on. Upon its dissolution, the partnership continues and its legal personality is retained
until the complete winding up of its business culminating in its termination.
The term "retirement" used in the articles, means the dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
2. YES, as said in the argument above, in a partnership at will, any partner may, at his sole pleasure, dictate a
dissolution of the partnership at will, and bad faith cannot prevent its dissolution, but can result in damages.
3. NO, it was made in good faith, as held by the CA and SEC, Attorney Misa did not act in bad faith because 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 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.
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Lyons v. Rosenstock (1932) (San Juan Estate)

Doctrine:
A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the
exercise of a profession or vocation.
Facts:
Prior to his death, Henry Elser resided in the City of Manila, where he engaged in the real estate business. Lyons
joined Elser in the latters business of buying and selling property. The two shared the profits in equal shares.
Lyons was a missionary of the Methodist Episcopal Church. To fulfill his duties, he had to leave for the United
States and stay there for nearly a year and a half. Prior to his departure, Elser executed statements attesting that he and
Lyons owned 3 pieces of real property in common. Lyons then executed a general power of attorney, empowering Elser
to manage and dispose of the properties at will. This GPA facilitated the disposal of 2 out of 3 of the properties by sale
during the Lyons absence. Thus, only a single piece of real estate was left a property situated along Carriedo street.
Meanwhile, Elser came to know of the sale of the San Juan Estate. He wanted to buy it and develop it into a
suburban community. Because he did not have enough funds at that time, he paid P5,000 for an option to buy, and an
additional P15,000 for the extension of the option period, to be applied to the purchase price upon exercise of the option.
To raise enough money to pay the first installment of P150,000, Elser obtained a loan from Uy, a Chinese
merchant. As security, Elser had to exercise a personal note, co-signed by his two associates in the projected enterprise
and Fidelity and Surety Co. Fidelity, prior to signing, insisted on being given a security for the liability it was to assume.
To meet this requirement, Elser mortgaged the Carriedo property he owned with Lyons believing that Lyons would
eventually join him in the venture.
Elser was then able to purchase the Estate. For the purpose of the development of the Estate, Elser formed a
limited partnership with three associates under the name of J.K. Pickering and Company.
Meanwhile, in concluding the purchase of the San Juan Estate, Elser discovered that he was indebted to Lyons to
the extent of about P11,668.72 as earnings derived from other properties. Because of this, Elser indorsed to Lyons 200 of
the shares allocated to himself, believing that Lyons would be one of his associates in the venture. The shares were
worth P8,000 more than what Elser owed Lyons. (The total value of the shares would be approximately P19,669.72)
However, Lyons did not join Elser in the venture. Lyons refused primarily because the board of mission and
missionary associates of his church criticized his commercial activities. Thus, Elser moved to relieve the Carriedo
property of the encumbrance he placed upon it. He substituted the old mortgage with a new mortgage over another
property in Manila, together with 1,000 J.K Pickering shares. While the old mortgage was cancelled, the new mortgage
was never registered.
Later on, Elser returned the cancelled mortgage to Fidelity, and took back the new mortgage. The court found that
the reason behind this was the fact that Lyons, at this point in time, returned to Manila and gave Elser verbal
permission to let the mortgage remain on the Carriedo property. The trial court found that the P8,000 excess
mentioned above was the consideration for this concession that Lyons extended to Elser.
Eventually, Elser was able to satisfy the loan extended to him by Uy. No liability fell on Fidelity. In turn,
the Carriedo property was released.
Upon the death of Elser, Lyons instituted this action against Rosenstock, executor of Elsers estate. Lyons claims
that because he was part owner of the Carriedo property that was mortgaged for the purpose of obtaining a loan from Uy,
he became an involuntary owner of an undivided interest in the San Juan Estate, which acquired from the loan
proceeds. Lyons claims that he is entitled to 446 shares of J.K. Pickering stock, together with P125,000 worth of
dividends. He claims that he granted permission to mortgage the Carriedo property because Elser led him to believe that
the proceeds would be applied to the purchase of another property, known as the Ronquillo property through various
correspondences.
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Issue:
1. W/N Lyons can claim against the estate of Elser
Held/Ratio:
1. No, Lyons cannot claim against the estate of Elser. The Supreme Court denied the claim of Lyons based on three
primary grounds.
a. First, the Court ruled that Lyons was inattentive to the contents of the correspondences. Evidence proved
that Elser informed Lyons that because the value of the Ronquillo property had gone up, the former
doubted that he could still push through with its purchase.
b. Second, it appears that Elser sent Lyons a cablegram informing him that he had mortgaged the Carriedo
property. While Lyons denies that he received the cablegram, circumstances show that he had knowledge
of the mortgage since he even allowed the mortgage to remain on the property when he returned to
Manila. Elser did not act in bad faith nor did he employ fraud in securing Lyons consent.
c. Third, despite the insistence of Lyons, there was clearly no general relation of partnership between
him and Elser. It is clear that Elser, in buying the San Juan Estate was not acting for any partnership
composed of him and Lyons. Moreover, it is clear that no money belonging to Lyons was ever applied to
the purchase of the San Juan Estate. As discussed, the Carriedo property owned by Lyons and Elser was
released scratch free from the mortgage.
It must be noted that J.K. Pickering and Co was formed for a specific undertaking the development of the San
Juan Estate. Lyons turned down Elsers offer to join this venture. Thus, he cannot belatedly claim to be entitled to
its proceeds.
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Rojas v. Maglana (1990) (logging partnership, additional industrial partner)

Doctrine:
When there has been duly registered articles of partnership, and subsequently the original partners accept an
industrial partner but do not register a new partnership, and thereafter the industrial partner retires from the
business, and the original partners continue under the same set-up as the original partnership, then although the
second partnership was dissolved with the withdrawal of the industrial partner, there resulted a reversion back into
the original partnership under the terms of the registered articles of partnership. There is not constituted a new
partnership at will.
Facts:
In January 1955, Maglana and Rojas entered into a partnership called Eastcoast Development Enterprises
(EDE) with only the two of them as partners. EDE, with an indefinite term of existence, was duly registered a week later
with the SEC. Under the Articles of Co-Partnership, Maglana shall manage the business affairs of the partnership, while
appellant Rojas shall be the logging superintendent and shall manage the logging operations of the partnership.
Eventually, because of the difficulties encountered, Rojas and Maglana decided to avail of the services of
Pahamotang as industrial partner. In March 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of
Co-Partnership under the same firm name, but the same was not registered. Aside from a couple of insignificant
differences in the two articles, everything is essentially the same.
The second partnership started operation in May 1956, and was able to ship logs and realizes profits. In October
1956, Pahamotang, Maglana and Rojas agreed in an instrument among themselves that Maglana and Rojas shall
purchase the interest, share and participation in the Partnership of Pahamotang. After the withdrawal of
Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or
reconstitution of their written Articles of Partnership.
A year later, Rojas left and abandoned the partnership for another logging enterprise; he withdrew his
equipment from the partnership for use in the new endeavor. Because of this, Maglana wrote Rojas reminding the latter of
his obligation to contribute, either in cash or in equipment, to the capital investments of the partnership as well as his
obligation to perform his duties as logging superintendent. Two weeks after, Rojas told Maglana that he will not be able to
comply with the promised contributions and he will not work as logging superintendent. Maglana then told Rojas that the
latter's share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute.
Meanwhile, Rojas took funds from the partnership more than his contribution. Frustrated, Maglana notified Rojas
that he dissolved the partnership, which in turn prompted Rojas to file an action before the Court of First Instance of
Davao against Maglana for the recovery of properties, accounting, receivership and damages.
Issues:
1. W/N the first partnership continued after the dissolution of the second partnership.
2. W/N Maglana can unilaterally dissolve the partnership.
3. W/N Maglana is liable for damages for the dissolution.
Held/Ratio:
1. YES. It appears evident that it was not the intention of the partners to dissolve the first partnership, upon the
constitution of the second one. Except for the fact that they took in one industrial partner, everything else was
the same. They even adopted the same name; they pursued the same purposes; and maintained the same amounts
of capital contribution. Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a de facto partnership, nor a partnership at will, for there is an existing
partnership, duly registered. The withdrawal of Pahamotang (dissolution of the second partnership) therefore
resulted in the continuation of the first one.
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2. YES. Under Article 1830, even if there is a specified term, one partner can cause its dissolution by expressly
withdrawing even before the expiration of the period, with or without justifiable cause. If the cause is not
justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled
to remain in the firm.
3. NO. A withdrawing partner will only be liable for damages if there is no cause given, or even if there is one,
the same is not justified. In this case, there was more than good cause. After the withdrawal of Pahamotang,
Rojas entered into a management contract with another logging enterprise (CMS) engaged in the same business as
the partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital
investment and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The
records also show that Rojas not only abandoned the partnership but also took funds in an amount more than his
contribution. Thus, Maglana is cannot be held to be in bad faith nor can he be held liable for damages.
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Philex Mining Corp v. CIR (2008) (Power of Attorney, PARTNERSHIP compared to AGENCY)
Doctrines:
The essence of an agency, even one that is coupled with interest, is the agent's ability to represent his principal
and bring about business relations between the latter and third persons. Where representation for and in behalf
of the principal is merely incidental or necessary for the proper discharge of one's 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.
Article 1769(4) of the Civil Code explicitly provides that the receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner in the business. In an agency coupled with interest, it is the
agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon
it, or the mutual interest of both principal and agent.
Facts:
On April 16, 1971, petitioner Philex Mining Corporation, entered into an agreement with Baguio Gold Mining
Company for the former to manage and operate the latter's mining claim, known as the Sto. Nino mine, located in Atok
and Tublay, Benguet Province.
[Next two paragraphs are important. These contain their agreement.] Their agreement was denominated as Power
of Attorney and provides, among others, that Baguio Gold would provide up to P11M in such amounts as from time to
time may be required by Philex for use in the management of the Sto. Nino mine. Also, that whenever Philex deems it
necessary in connection with the management of such mine, it may transfer its own funds or property to the Sto. Nino
project "the ratio which the MANAGER'S (Philex) account has to the owner's account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims."
The agreement also provided that the compensation of the Philex shall be fifty per cent (50%) of the net profit
of the Sto. Nino PROJECT before income tax. That the Philex shall pay income tax on their compensation, while Baguio
Gold shall pay income tax on the net profit of the Sto. Nino project after deduction therefrom of the Philexs
compensation.
Pursuant to such agreement, Philex made advances in cash and property. However, the mind suffered continued
losses over the years which resulted to petitioners withdrawal as manager of the mine on January 28, 1982 and in the
eventual cessation of the mine operations on February 20, 1982.
Thereafter, the parties executed a Compromise with Dation in Payment wherein Baguio Gold admitted its
indebtedness to petitioner in the amount of P179,394,000.00. Subsequently, the parties executed an AMENDMENT to
such compromise in which the amount of indebtedness was increased to P259,137,245.00.
Baguio Gold undertook to pay the petitioner in two segments by first assigning tangible assets for
P127,838,051.00 and then transferring its equitable title in its Philadrill assets for P16,302,426.00. The parties then
ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.
The petitioner subsequently wrote off in its 1982 books the remaining outstanding indebtedness 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. However, the 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. Furthermore, petitioner emphasized that the debt arose out of a valid management contract it
entered into with Baguio Gold. The bad debt deduction represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Gold's "pecuniary obligations" to petitioner. It also included payments made
by petitioner as guarantor of Baguio Gold's long-term loans which legally entitled petitioner to be subrogated to the rights
of the original creditor.
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Petitioner also asserted that due to Baguio Gold's irreversible losses, it became evident that it would not be able to
recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless,
petitioner claimed that it was neither required to institute a judicial action for collection against the debtor nor to sell or
dispose of collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to enforce
collection and exhausted all reasonable means to collect.
BIR denied petitioner's 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 project's net profit.
CTA affirmed BIRs decision.
The CTA rejected petitioner's assertion that the advances it made for the Sto. Nino mine were in the nature of a
loan. It instead characterized the advances as petitioner's investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed by
petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount partook of the nature
of an investment, it could not be deducted as a bad debt from petitioner's gross income.
CA affirmed.
Issues:
1. Whether there was a partnership agreement between the parties as opposed to an agency coupled with
interest. (PARTNERSHIP RELATED)
2. W/N the amount should be considered as bad debt.
Held/Ratio:
1. PARTNERSHIP AGREEMENT. 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 latter's 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 agent's ability to represent his principal and bring about business relations between the latter and
third persons. Where representation for and in behalf of the principal is merely incidental or necessary for the
proper discharge of one's 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.
The SC also stated that the circumstances and the stipulations in the parties agreement indubitable lead to the
conclusion that a partnership was formed between the parties.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner
under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties' business relations, "the
ratio which the MANAGER'S account has to the owner's account will be determined, and the corresponding
proportion of the entire assets of the STO. NINO MINE, excluding the claims" shall be transferred to petitioner.
As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a proportionate return of the mine's
assets upon dissolution of the parties' business relations. There was nothing in the agreement that would require
Baguio Gold to make payments of the advances to petitioner as would be recognized as an item of obligation or
"accounts payable" for Baguio Gold.
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions
of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the terms and
conditions of such loans. The parties also did not provide a specific maturity date for the advances to become due
and demandable, and the manner of payment was unclear. All these point to the inevitable conclusion that the
advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto. Nino mine is the fact that it would receive 50% of
the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties' contractual
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stipulations simply leads to no other conclusion than that petitioner's "compensation" is actually its share in the
income of the joint venture.
2. NO. Petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income
tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to the deduction claimed. In this case, petitioner failed to
substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its
gross income. Consequently, it could not claim the advances as a valid bad debt deduction.
Jose Fernandez v. Francisco de la Rosa (1903)

Doctrines:
The essential elements upon which the parties must meet in a contract of partnership are: (1) mutual contribution
to a common stock, and (2) a joint interest in the profits.
It is of no importance that the parties have failed to reach an agreement with respect to the minor details of
contract. These details pertain to the accidental and not to the essential part of the contract.
The execution of a written agreement is not necessary 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.
Facts:
Fernandez alleges that in January 1900, he entered into a verbal agreement with Dela Rosa to form a partnership
for the purchase of cascoes (a boat that was once used to ferry goods between ship and shore) and the carrying on of the
business of letting the same for hire in Manila. Dela Rosa was to buy the cascoes and each partner was to furnish an
amount of money as he could, the profits to be divided proportionately. Fernandez gave Dela Rosa P300 to purchase a
casco. Dela Rosa did purchase one for P500, taking the title in his own name. Fernandez gave another P300 for repairs on
such casco. Later on, Fernandez gave Dela Rosa P825 to purchase another casco. Dela Rosa did so for P1000, again
taking the title in his own name. In April, Fernandez and Dela Rosa decided to draw up articles of partnership for
purposes of having it embodied in a document. However, no written document was drawn up considering that Dela
Rosa proposed a draft of the articles of partnership which differed materially from the terms of their verbal agreement.
Dela Rosa and Fernandez could not agree on the conditions with respect to the participation of each partner in the profits
or losses of the partnership. Fernandez then demanded an accounting from Dela Rosa, which he refused to render.
Later, Dela Rosa denied the existence of the partnership. He further denied that Fernandez ever gave him money.
Dela Rosa continued administering the business on his own. At some time after the failure to agree upon the partnership
articles, Dela Rosa gave Fernandez P1125. Fernandez claimed that he received the money with an express reservation on
his part of all rights as a partner.
Issues:
1. W/N there was a partnership?
2. And if there was one, W/N it was terminated as a result of the act of the Fernandez in receiving back the P1125?
Held/Ratio:
1. YES
Partnership is a contract by which two ore more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits among themselves. Hence, the essential
points upon which the minds of the parties must meet in a contract of partnership are: (1) mutual contribution to a
common stock and (2) joint interest in the profits. If the contract contains these two elements, the partnership
relation results and the law fixes the incidents of this relation if the parties fail to do so.
Although the court was unable to find evidence that there was any specific verbal agreement of partnership, a
partnership may be implied from the purchase of the casco. Fernandez and Dela Rosa agreed on the mutual
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contribution to a common stock. The intention to share profits appears to be implied from the fact of the
purchase of the cascoes in common. Nothing suggests that the parties intended joint ownership of the cascoes.
Hence, there was a complete and perfect contract of partnership. 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. (Dela Rosa moved for a rehearing
based on the conclusion of the court that it was unable to find evidence that there was a verbal agreement. The
court dismissed such, saying that the evidence at hand led them to rule that a partnership actually did exist. The
court also said that it is of no importance that the parties have failed to reach an agreement with respect to the
minor details of the contract. These details pertain to the accidental and not essential part of the contract. The
parties involved in the case did in fact agree to the essential requisites of a partnership.)
2. NO
The amount returned to Fernandez fell short of what he actually contributed to the capital. It did not include the
sum he had furnished for the repairs of the casco. Besides, it is quite possible that a profit may have been realized
from the business during Dela Rosa administered the business prior to returning the money. In receiving the
money, Fernandez had no intention to relinquish his rights as a partner. Dela Rosa might have terminated the
partnership at any time, if he had chosen to do so, by recognizing the plaintiffs right in the partnership property
and in the profits. Having failed to do so, Dela Rosa cannot be permitted to force a dissolution upon his co-partner
upon terms which the latter is unwilling to accept.
Woodhouse v. Halili (1953)

Doctrines:
To agreement or to execute the partnership papers falls within what Spanish commentators call a very personal act
(acto personalismo), of which courts may not compel compliance.
Facts:
Plaintiff entered on a written agreement, with the defendant and with the aid of their lawyers. The most important
provisions of which are:
1. That they shall organize a partnership for the bottling and distribution of Mision soft drinks, plaintiff to act as
industrial partner or manager, and the defendant as a capitalist
2. plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership
3. plaintiff was to receive 30 per cent of the net profits of the business
A (draft) contract was then signed by the plaintiff. He then subsequently went to the United States. A franchise
agreement was entered into the Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted
defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the
Philippines.
When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers be
executed. At first defendant executed himself, saying there was no hurry. Then he promised to do so after the sales of the
product had been increased to P50,000. After this condition was attained, and as defendant refused to give further
allowances to plaintiff, the latter caused his attorneys to take up the matter with the defendant with a view to a possible
settlement.
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. Defendant, on the other hand, alleges that it
was the plaintiff who was unable to comply with his obligations to the partnership as he misrepresented that he is the
owner or about to be an owner of a bottling franchise.
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Issues:
1. W/N defendant had falsely represented that he had an exclusive franchise to bottle Mission beverages
2. W/N this false representation or fraud, if it existed, annuls the agreement to form the partnership.
3. W/N agreement be carried out or executed
4. W/N the plaintiff is entitled to damages
Held/Ratio:
1. There is proof that the defendant false represented himself as having an exclusive franchise when he no longer
had one. This is proven by the testimony of the defendants lawyer as well as expressly stated in the first draft of
the agreement. It is improbable and incredible for the defendant to disclose the fact that he had only an option to
the exclusive franchise, which was to last thirty days only, and still more improbable for him to have disclosed
that, at the time of the signing of the formal agreement, his option had already expired.
Also, defendant would not have gone into the business unless the franchise was raised in his name, or at least in
the name of the partnership. Plaintiff assured defendant he could get the franchise. Thus, plaintiff did actually
represent to defendant that he was the holder of the exclusive franchise.
2. This Court had 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.
In this case, 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.
However, the principal obligation that the defendant assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry Corporation. Therefore, he is guilty only of
incidental fraud.
3. The defendant may not be compelled against his will to carry out the agreement nor execute the partnership
papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. It falls within what
Spanish commentators call a very personal act (acto personalismo), of which courts may not compel compliance.
4. Plaintiff is entitled to receive because of defendant's refusal to form the partnership, and damages that defendant
is also entitled to collect because of the falsity of plaintiff's representation. Under article 1106 of the Spanish Civil
Code the measure of damages is the actual loss suffered and the profits reasonably expected to be received,
embraced in the terms dao emergente and lucro cesante.
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Lorenzo Oa and the Heirs of Julia Banules v. Commissioner of Internal Revenue (1972) (partition+
unregistered partnership)
Doctrine:
When co-owners agree, after partition of the estate, to use common properties and income as a common fund with
the intention of making profit for them in proportion to their shares, the co-ownership was converted into a
partnership.
Facts:
Julia Baules died leaving her spouse, Oa, and her five children as heirs. Oa was appointed administrator of the
estate. In 1949, the heirs applied for partition of the estate. Oa as father, was appointed guardian of the three minor
heirs and their property. The project of partition shows that the heirs have an undivided interest in ten parcels of land, six
houses, and P50,000 from the War Damage Commission, and in an obligation of P94,973 based on several loans
contracted by the deceased. However, although the partition was approved by the Court, no attempt was made by
the heirs to divide the property. Instead, the properties were placed under the management of Oa who invested the
properties in several businesses (selling of properties, stocks, rents etc.). As a result, the heirs properties increased from
P105,000 to P480,005.20 from 1949-1956. These were recorded in the books of account kept by Oa where the
corresponding shares of the heirs in the net income were also recorded. The heirs also paid their corresponding income
taxes derived from the investments individually. However, the net income was not held by the heirs individually but was
managed by Oa. Based on these facts, respondent CIR decided that the petitioners formed an unregistered partnership
and should therefore be subject to corporate income tax. Accordingly, he assessed against them the amounts of P8,092
and P13,899 for the years 1955 and 1956, respectively. They assailed this decision in the Court of Tax Appeals, but the
latter rejected the appeal. Petitioners now assail the decision of the CTA and of the CIR that they formed an unregistered
partnership. They also rely on article 1769, which provides that the mere sharing of gross income does not in itself
constitute a partnership.
Issue:
1. W/N the heirs formed an unregistered partnership.
2. W/N they are liable for corporate income tax as an unregistered partnership.
3. W/N the various income tax they paid individually should be deducted from the corporate income tax
Held:
1. YES. It is the view of the Court that from the time the petitioners allowed Oa to use their respective shares in the
inheritance but also the inherited properties themselves to be used by Oa as common fund for the undertaking of
several businesses, with the intention of deriving profit to be shared by them proportionally, such act amounted to
forming an unregistered partnership. It is true that there exists a period of time wherein the heirs shall be
considered co-owners of the partnership, however, from the time the partition was executed they constitute as
individual owners of their respective shares. The act of putting their shares under a common administrator for
management constitutes a partnership.
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.
2. YES. Petitioners reliance on 1769 and other civil code provisions on partnership is unavailing because there is a
difference between the concept of partnership under the Civil Code and unregistered partnerships under the
National Internal Revenue Code (used within the purview of the term corporations). Partnerships under the
NIRC refer to partnerships which are not exactly constituted in the technical sense. It refers to any joint venture
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by which financial or business operations are carried on. On the other hand, duly registered general partnerships
under the civil code are exempt from corporate income tax.
3. NO. It should be the other way around. The corporate income tax should be deducted from the individual income
tax the heirs paid. But since the individual income taxes paid by each are not assailed in this case, the Court
cannot pass upon them.
Bastida v. Menzi and Co. (1933) (fertilizer)

Doctrine:
Despite the agreement that Bastida was to receive 35% profit from the business of mixing and distributing
fertilizer registered in the name of Menzi & Co., there was never any contract of partnership constituted between
them based on the following key elements:
(a) there was a never any common fund created between the parties, since the entire business, as well as the
expenses and disbursements for operating it, were entirely for the account of Menzi & Co.;
(b) there was no provision in the agreement for reimbursing Menzi & Co. in case there should be no profits at the
end of the year; and
(c) the fertilizer business was just one of the many lines of business of Menzi & Co., and there were no separate
books nor separate bank accounts kept for that particular line of business.
The arrangement was deemed to be one of employment, with Bastida contributing his services to manage the
particular line of business of Menzi &Co.
Facts:
Menzi, together with his wife and daughter, own Menzi & Co., Inc. The company, through its president and
general manager, J.M. Menzi, and under the authority of the board of directors, entered into a contract with Bastida to
engage in the business of exploiting prepared fertilizers. Under the terms of the agreement, Bastida was to receive 35% of
the profits.
Pursuant to the said contract, Menzi & Co., Inc., began to manufacture prepared fertilizers. Menzi and Schlobohm
managed the business and opened an account entitled "FERTILIZERS" on the books of the defendant Menzi & Co., Inc.,
where all the accounts of the partnership business were supposed to be kept. Bastida supervised the manufacturing and
mixing of the fertilizers and had no participation in the making of these entries, which were wholly in Menzi's charge,
under whose orders every entry was made.
Prior to the termination of their agreement, Menzi & Co., Inc. duly notified the plaintiff that it would not, under
any conditions, renew his said agreement or continue his said employment with it after its expiration, and after the
termination of said agreement.
Thereafter, Menzi & Co. liquidated the fertilizer business. During liquidation, Menzi employed White, Page and
Co. to re-audit the books. The auditors found errors in the bookkeeping and determined that the balance due to Bastida is
P21,633.20.
Bastida, in turn, employed his own auditors to examine the books. Thompson assumed that Menzi and Bastida
were partners and estimated the amount which was wholly different from those determine by Menzis auditors.
Issues:
1. W/N a partnership existed which would allow Bastida to demand P220,000 from Menzi.
Held/Ratio:
1. NO. Menzi & Co. had a fertilizer business before it entered into any agreement with Bastida. Bastida's agreement
was for a fixed period, five years, and during that time the business was carried on in the name of Menzi & Co.,
Inc., and in Menzi & Co.'s warehouses. After the expiration of plaintiff's contract, Menzi & Co., Inc. continued its
fertilizer business, as it had a perfect right to do. There was really nothing to which any good-will could attach.
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Bastida maintains, however, that the trade-marks used in the fertilizer business during the time that he was
connected with it acquired great value, and that they have been appropriated by the appellant to its own use. That
seems to be the only basis of the alleged good-will, to which a fabulous valuation was given. As we have seen, the
trade-marks were not new. They belonged to Menzi & Co., Inc. and were registered in its name; only the expense
of registering the formulas in the Bureau of Science was charged to the business in which the plaintiff was
interested. These trade-marks remained the exclusive property of Menzi & Co., and the plaintiff had no interest
therein on the expiration of his contract.
[The following exhibits are translated by Atty. Cochingyan from Spanish]
Exhibit A:
This contract is celebrated between Messrs. Menzi and Company of Manila as the First Party and Don Francisco
Bastida, also of Manila, of the Second Party, as follows:
Conditions:
1. The object of the contract is the operation of the business of fertilizers and processed fertilizers for
various agricultural applications;
2. The duration of this contract shall be five years from the date of execution;
3. The First Party undertakes to provide the necessary financial support for business;
4. The Second Party undertakes to put his entire time and all his experience at the disposal of the business;
5. The Second Party may not, directly or indirectly, engage alone or in partnership with others, or in any
manner other than with the First Party, the fertilizer business, simple or processed, or any material that is
commonly applied to the fertilization of soils and plants during the validity of this contract, unless the
express authorization of the First Party is secured for this;
6. The First Party may not engage, alone nor in association/partnership (en sociedad), or combination
with other persons or entities, nor in modes other than in association/partnership (en sociedad) with the
Second Party, the business of fertilizers or prepared fertilizers, they be already imported, they be already
prepared in the Philippines, nor may engage in the selling or business of materials or products that has
application as fertilizer, or that is used in the composition of fertilizer or manure, if they are products
manufactured on Filipino soil, nevertheless may sell or negotiate on materials for simple fertilizers
imported from the United States or abroad;
7. The First Party is obliged to cede and make effective to the Second Party thirty-five per cent (35%) of the
net profits of the fertilizer business, to be liquidated on the 30th of June of each year;
8. The First Party will deliver unto the Second Party a monthly sum of P300 for the account of his share of
benefits;
9. During the year 1923, the First Party will grant unto the Second Party the permission for him to be absent
from the Philippines for a period of time not exceeding one year, without prejudice to the rights of the
Second Party in accordance with this contract.
In witness whereof, signed in his presence in the City of Manila, I.F., 27th of April, 1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
First Party
(Fdo.) F. BASTIDA
Second Party
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
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On January 10, 1922, the defendant corporation, at plaintiffs request, gave him the following letter.
Exhibit B:
Manila, 10th of January, 1922
Sr. FRANCISCO BASTIDA
Manila
Dear Sir:
In the interim while we formalize the contract, where in principle, we have agreed to engage in the business of
manure and fertilizer, pursuant to this, we come to confirm your right to fifty per cent (50%) of the profits that is
derived from the contract obtained by you from the Philippine Sugar Centrals (1250 per barrel). And the contract
with the Calamba Sugar Estates, as well as such contracts that may be closed with buyers of prepared fertilizers
before the final formalization of our mutual agreement, as a guarantee and security for you.
MENZI & CO.
Por (Fdo.) W. TOEHL
Oscar Angeles and Ermita Angeles v. The Hon. Sec. of Justice and Felino Mercado (2005) (lanzones trees)
Doctrines:
Failure to register the contract of partnership with the SEC does not invalidate a contract that has the essential
requisites of a partnership.
The purpose of registration of the contract of partnership is to give notice to third parties, and does not affect the
liability of the partnership and the partners to third persons.
A partnership may exist even if the partners do not use the words partner or partnership.
Facts:
On November 1996, Spouses Angeles filed a complaint for estafa against Mercado (brother-in-law of the spouses,
married to the sister Emerita Angeles, Laura). Sps. Angeles claim that on November 1992, Mercado convinced them to
enter into a contract of antichresis, aka sanglaang-perde, covering 8 parcels of land with lanzones trees located in Laguna,
owned by Suazo.
The contract was to last for 5 years, with P210,000 as consideration. As the Sps. Angeles stayed in Manila during
weekdays and went to Laguna only on weekends, the parties agreed that Mercado would administer the lands and
complete the necessary paperwork. After 3 years, the Sps. Angeles asked for an accounting from Mercado. Mercado
explained that the land earned P46,210 in 1993, which he used to buy more lanzones trees. He also reported that the trees
bore no fruit in 1994. Mercado gave no accounting for the year 1995. The Sps. Angeles claim that only after this demand
for an accounting did they discover that Mercado had put the contract of sanglaang-perde/antichresis under his and his
spouses names.
Mercado claims that there exists an industrial partnership, aka sosyo industrial, between him and his spouse as
partners and Sps. Angeles as the financiers. The industrial partnership had existed since 1991, before the contract of
antichresis over the land. As the years passed, Mercado used his and his spouses earnings as part of the capital in the
business transactions which he entered into in behalf of the Sps. Angeles. It was their practice to enter into business
transactions with other people under the name of Mercado because the Sps. Angeles did not want to be identified as the
financiers.
Issues:
1.
W/N a partnership existed between Sps. Angeles and Mercado
2.
W/N there was misappropriation by Mercado of the proceeds of the lanzones (estafa part)
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Held/Ratio:
1.
YES.
The Sps. Angeles position that there is no partnership because of the lack of a public instrument indicating the
same and a lack of registration with Securities and Exchange Commission (SEC) holds no water. First, the Sps.
Angeles contributed money to the partnership and not immovable property. Second, mere failure to register the
contract of partnership with the SEC does not invalidate a contract that has the essential requisites of a
partnership. The purpose of registration of the contract of partnership is to give notice to third parties. Failure to
register the contract of partnership does not affect the liability of the partnership and of the partners to third
persons. Neither does such failure to register affect the partnerships juridical personality. A partnership may exist
even if the partners do not use the words partners or partnership.
Indeed, the Sps. Angeles admit to facts that prove the existence of a partnership: a contract showing a sosyo
industrial or industrial partnership, contribution of money and industry to a common fund, and division of profits
between the Sps. Angeles and Mercado
2.
NO.
The Secretary of Justice adequately explained the alleged misappropriation by Mercado: The document alone,
which was in the name of Mercado and his spouse, failed to convince us that there was deceit or false
representation on the part of Mercado that induced the Sps. Angeles to part with their money. Mercado
satisfactorily explained that the Sps. Angeles do not want to be revealed as the financiers.
It was the practice to have all the contracts of antichresis of their partnership secured in Mercados name as the
Angeles spouses are apprehensive that, if they come out into the open as financiers of said contracts, they might
be kidnapped by the New Peoples Army or their business deals questioned by the Bureau of Internal Revenue or
worse, their assets and unexplained income sequestered, as Oscar Angeles was then working with the
government.
Furthermore, accounting of the proceeds is not a proper subject for the present case.
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Agad v. Mabato (1968) "operate a fishpond"

Doctrine:
When the articles of partnership provides that the venture is established "to operate a fishpond," it does not
necessarily mean that immovable properties or real rights have been contributed into the partnership which would
trigger the operation of Art. 1773
Facts:
Mauricio Agad alleges that he and Severino Mabato, pursuant to a public instrument, are partners in a fishpond
business. He contributed P1,000 to the business and is entitled to 50% of the profits. According to Agad, it was Mabato
who handled partnership funds. For the years 1952-56, Mabato was faithful in rendering accounts. However, Mabato
refused to render accounts for the years 1957-62.
Mabato contends that the complaint should be dismissed because of want of cause of action. He alleges that Agad
failed to give his P1,000 contribution to the partnership and that the public instrument is null and void pursuant to Art.
1773 of the Civil Code because an inventory of the fishpond was not attached thereto. (Art. 1773: A contract of
partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made,
signed by the parties, and attached to the public instrument.) The lower courts granted the motion to dismiss. After
reconsideration was denied, Agad brought the matter to the SC for review by record on appeal.
Issue:
1. W/N "immovable property or real rights" have been contributed to the partnership under consideration.
2. W/N Article 1773 of our Civil Code is applicable to the contract of partnership on which the complaint herein is
based.
Held:
1. NO. What is stated in the public instrument is that the partnership was established "to operate a fishpond" not
to "engage in a fishpond business." 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.
2. NO. Since both Agad and Mabato did not contribute any real property but only P1,000 each, Art. 1773 of the
Civil Code is not applicable. The operation of the fishpond mentioned in the public instrument 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. The case
is remanded for further proceedings.
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Torres v. CA (1999)
Doctrine:
Partnership void under Art. 1773 in relation to 1771 may still be considered valid. Failure to prepare an inventory
of the immovable property contributed, in spite of article 1773 declaring the partnership void would not render the
partnership void when NO THIRD PARTY IS INVOLVED (since Art. 1773 was intended for the protection of
3rd parties; Partners have MADE A CLAIM ON the partnership agreement (from Ateneo Central Bar Ops)).
Facts:
The petitioners, sisters Antonia Torres and Emeteria Baring, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel of land in favor of Manuel, who had it registered in his name. Manuel
mortgaged the property to obtain a loan from Equitable Bank for P40,000 which was to be used for the development of
the subdivision. They also agreed to share the proceeds from the sale of the subdivided lots. The project did not push thru,
and the land was foreclosed.
According to petitioners, the project failed because of Manuels lack of funds or means and skills," and that
Manuel used the loan not for the development of the subdivision, but in furtherance of his own company.
Manuel alleged that he used the loan to survey lots, secure the City Council's approval of the subdivision, to
advertise, to construct roads, curbs and gutters, to enter into a contract for the building of 60 low-cost housing units, and
to set up a model house on one of the subdivision lots.
Manuel claimed that the subdivision project failed because petitioners had caused the annotations of adverse
claims on the title to the land, which scared away buyers. Despite his requests, petitioners refused to cause the clearing of
the claims, thereby forcing him to give up on the project.
Manuel won in the RTC and CA
Issue:
1. W/N there is a partnership
2. W/N the partnership is void
Held/Ratio:
1. YES, there is a partnership because of Art. 1767. Under Art. 1767, [b]y 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. And in the Joint Venture Agreement, petitioners would contribute
property to the partnership in the form of land which was to be developed into a subdivision; while respondent
would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated percentage. Clearly, the contract shows
intent to form a partnership which the parties implemented. Petitioners transferred the title to the land.
Respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. He also developed the roads, the curbs, and the gutters of the subdivision and entered into
a contract to construct low-cost housing units on the property.
2. NO, the partnership is not void. Petitioners argue that the Joint Venture Agreement is void under Art. 1773 of the
Civil Code, which states that [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.
Petitioners contend that since the parties did not make, sign, or attach to the public instrument an inventory of the
real property contributed, the partnership is void.
We clarify. First, Art. 1773 was intended primarily to protect third persons. Thus, Tolentino states that under Art.
1773, which is a complement of Art. 1771, "[t]he 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
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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 [believing 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% of the value of the property. They cannot in one breath deny the contract and in another recognize
it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions with regard to a
contract and the courts will not tolerate it.
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.
Petitioners also contend that the Joint Venture Agreement is void under Art. 1422 of the Civil Code, because it is
the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration. This
argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the
expectation of profits from the subdivision project which is the 60%. Consideration, more properly denominated
as cause, can take different forms.
Note: the SC affirmed the CAs decision that petitioners are not entitled to damages, because he was not able to
prove that the respondent was the cause of the failure of the project.
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Secuya v. Vda. De Selma (2000) (1/3 partition w/o deed vs. public instrument)
Doctrine:
While the sale of land appearing in a private deed is binding between the parties, it cannot be considered binding
on third persons if it is not embodied in a public instrument and recorded in the Registry of Deeds. When it comes
to contributions of real estate to a partnership, especially when it covers registered land, then the peremptory
provisions of the Property Registration Decree (PD 1529) will prevail as to who has a better claim, right, or lien
on the property, since registration in good faith and for value is the operative rule under the Torrens system.
[note: this did not appear in the case AT ALL; this is only in the syllabus. There is nothing in the case about
partnerships]
Facts:
Maxima Caballero owned certain friar lands by virtue of a patent. She entered into an Agreement of Partition on
January 5, 1938 with Pacencia Sabellona for 1/3 of the property. Sabellona took possession and occupation of the said
land. Later on, she sold a part of her share to Dalmacio Secuya for P1,850 by means of a private deed of sale, which
eventually got lost. Dalmacio and his brothers and sisters eventually took possession of the lot, and even constructed a
house in 1974. His niece and her husband lived there until the case was filed. Dalmacio Secuyas heirs are the plaintiffs in
the case.
In 1972, Gerarda Selma bought a part of the lot from Cesaria Caballero, and in 1975, she was able to buy the
entire lot; both of these transactions were evidenced by a duly notarized deed of sale. The Secuya heirs filed for an action
to quiet title over the land. The CA ruled in favor of Selma, saying that the Agreement of Partition is null and void for
being executed within the 5-year prohibitive period for land patents.
Issues:
1.
W/N the conveyance of the 1/3 portion of the lot through the Agreement of Partition was valid
2.
W/N Selma was a buyer in good faith
Held/Ratio:
1.
NO, it was conveyed within the 5-year prohibitive period for land patents and is thus null and void. However, the
agreement was not one of partition, but rather an express trust. Maxima Caballero bound herself to give 1/3 of the
lot to Pacencia Sabellona upon approval of Maximas application. When her application was approved, she should
have transferred the land to Pacencia, but she never did. Instead, her heirs sold the lot to Silvestro Aro, from
whom Selma derived her title. Additionally, there was a repudiation of this express trust when Maxima did not
transfer to Sabellona the land, and instead sold it to third persons. Thus, prescription will apply. Moreover, the
Agreement was not registered, and could not bind third persons.
2.
YES. Selma had the right to rely on the title presented to her. There was no notation of any encumbrance or
alienation. The sale to the Secuyas was not registered and could not bind third parties. While a private deed of
sale over land is binding as between the parties, in the instant case, even this private deed was lost. The Secuyas
therefore have nothing to support their allegations.
Even if Selma knew that the Secuyas were occupying the lot, this did not amount to bad faith as Cesaria Caballero
assured her that the Secuyas were merely tenants. She could not be faulted for believing this representation, as
there was nothing in the title to make her believe otherwise.
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Aurelio Litonjua, Jr. v. Eduardo Litonjua, Sr. and Yang (2005) (brothers, memorandum Annex A-1)
Doctrine:
An instrument purporting to be the contract of partnership/joint venture, which does not meet the exactions of
1771, 1772, and 1773 (since claims involve contributions of immovable properties), does not warrant a finding
that a contract of partnership/joint venture exists.
Facts:
Aurelio and Eduardo are brothers, Aurelio being the younger one. Aurelio has brought suit against his brother
Eduardo, Yang (as his alleged partner), and several corporations for specific performance (delivery and payment to
him after an accounting) of what he deems partnership/joint venture property in the Odeon Theater business. This
suit was premised on Aurelios allegations that:
1. He and his brother Eduardo have entered in to a joint venture/partnership for the continuation of their family
business and common family funds.
2. This joint venture/partnership agreement was contained in a memorandum addressed by Eduardo to his siblings
(attached to the complaint as Annex A-1). The memorandum reads: I will make sure that you get 1M or 10%
equity, whichever is greater. ... Because you will need a place to stay, I will give you first P100,000 in cash or
asset, like Lt. Artiaga so you can live there. The rest I will give you in stocks.
3. That the substantial assets of corporate defendants consisted of real properties
The trial court dismissed this suit on the ground that Aurelio had no cause of action, that no partnership had been
created by the document because this was not a public instrument and immovable properties were contributed to the
partnership. The court of appeals affirmed, adding that Aurelio cannot, on appeal, change his theory (from first alleging a
partnership or joint venture then on appeal saying it was an inominate contract).
Issues:
1. W/N there was indeed a partnership created by virtue of the memorandum referred to in Annex A-1
2. W/N Aurelio had a cause of action against Yang (a co-respondent)
Held:
1. NO. The memorandum did not evidence a partnership. It, being unsigned, undated, and not a public instrument,
did not comply with the following requirements of the civil code:
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 SEC.
Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership
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.
2. NO. Aurelio had not sufficiently established in his complaint the legal vinculum whence he sourced his right to
drag Yang into the fray. There was no allegation of the supposed contractual relation between Aurelio and Yang.
Nor was is shown that a ruling that the purported partnership between Eduardo and Aurelio is void and legally
inexistent directly affects the claim against Yang.
* the Court noted that a contract of partnership is defined as one where 2 or more persons bound themselves to
contribute money, property, or industry to a common fund with the intention of dividing the profits among
themselves. A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership
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since their elements are similar, i.e., community of interests in the business and sharing of profits and losses, being a
form of partnership, a joint venture is generally governed by the law on partnership.
Pioneer Insurance & Surety Corporation v. CA (1989) (airline, spare parts)

Doctrines:
When a corporate venture fails to formally incorporate, do the incorporators become partners? No.
A partnership relation between certain stockholders and other stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts
illegally contracted by the latter.
Facts:
In 1965, Jacob Lim was the owner-operator of Southern Air Lines (SAL), a single proprietorship. On May 17,
1965, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract in Tokyo, Japan. This was for
the sale and purchase of 2 DC-3A type aircrafts and 1 set of necessary spare parts for US$109,000 to be paid in
installments. One DC-3 Aircraft arrived in Manila on June 7, 1965 while the other aircraft arrived on July 18, 1965. On
May 22, 1965, Pioneer Insurance and Surety Corporation as surety executed and issued a Surety Bond in favor of JDA on
behalf of its principal Lim for the balance of the aircrafts and spare parts.
Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes, and
Constancio Maglana contributed some funds used in purchasing the aircrafts and spare parts. The funds they gave served
as their contribution to the corporation proposed by Lim to expand his airline business. 2 separate indemnity agreements
in favor of Pioneer were executed one signed by Maglana and the other jointly signed by Lim, Bormaheco, and
Cervanteses. These stipulated that the indemnitors principally agree and bind themselves jointly and severally to
indemnify and hold and save Pioneer from and against all damages and losses.
On June 10, 1965, Lim executed in favor of Pioneer a deed of chattel mortgage as security for Pioneers
suretyship. It was stipulated that Lim would transfer and convey the two aircrafts to the surety (Pioneer). Lim defaulted
payment. As a result, JDA requested payments from Pioneer who paid P298,626.12.
Pioneer filed a petition for the extrajudicial foreclosure of the chattel mortgage. The Cervanteses and Maglana
filed a third party claim alleging that they are co-owners of the aircrafts. Pioneer filed an action for judicial foreclosure
with an application for a writ of preliminary attachment against Lim, the Cervanteses, Bormaheco, and Maglana.
RTC: Lim liable to pay Pioneer. However, it dismissed Pioneers complaint against the other defendants.
CA: modified the trial courts decision with regard to Pioneers complaint against all the defendants dismissed.
Issues:
1. W/N the CA erroneously dismissed the appeal on the ground that Pioneer had already collected the proceeds of
the reinsurance on its bond in favor of JDA.
2. W/N the failure of the Cervanteses and Maglana to incorporate is tantamount to a de facto partnership.
Held/Ratio:
1. NO.
It is clear that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer. Pioneer was not the
real party in interest in the complaint. Therefore, he has no cause of action against the respondents. Pioneers
liability as a surety to JDA had already prescribed when it paid the amount. Pioneer has no more cause of action
to recover what it has paid to JDA. By virtue of an express stipulation in the surety bond, the failure of JDA to
present its claim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer
from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.
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2. NO.
Persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no
partnership shall exist. It should only be implied when it is necessary to do justice between the parties. A
partnership relation between certain stockholders and other stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts
illegally contracted by the latter.
In this case, Lim never had the intention to form a corporation with the Cervanteses and Maglana despite his
representations to them. He even denied having received any amount representing the participation of Bormaheco
and Maglana. Furthermore, Cervantes and Maglana claim that Lim lured and induced them to purchase the
airplanes and spare parts to serve as their contribution to the proposed partnership. No de facto partnership was
created among the parties which would entitle Lim to a reimbursement of the supposed losses of the proposed
corporation. It is clear that Lim was acting on his own and not in behalf of the others in transacting the sale of the
airplanes and spare parts.
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Lim Tong Lim v. Philippine Fishing Gear Industries Inc. (1999)

Doctrines:
When corporate venture fails to formally incorporate do the incorporators become partners?
o
All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable
as general partners for all debts, liabilities, and damages incurred or arising as a result thereof.
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.
Facts:
Antonio Chua and Peter Yao, on behalf of Ocean Quest Fishing Corporation, entered into a contract with
Philippine Fishing Gear Industries for the purchase of fishing nets. Chua and Yao claimed to be engaged in a business
venture with Lim Tong Lim, who, however, was not a signatory to the agreement. The total price of the nets amounted to
P532,045.
Chua and Yao failed to pay. Philippine Fishing instituted a collection suit against Chua, Yao, and Lim, as general
partners, on the allegation that the Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a
certification from the SEC. The trial court, in ordering Chua, Yao, and Lim, as general partners, to pay Philippine Fishing,
said that a partnership existed by virtue of a compromise agreement executed by the Chua, Yao and Lim in a separate civil
case. The compromise agreement provided that the three agreed to have four vessels sold and to apply the proceeds of the
sale to their debt with JL Holdings Corporation. If they would have an excess amount from the sale, the three will get a
1/3 share of the excess. If there would have a deficiency after the sale, the three will shoulder the deficiency through a
1/3-1/3-1/3 division. The Court of Appeals affirmed the ruling of the RTC. Lim appealed to the SC, claiming that he was
not part of the negotiations with Philippine Fishing and that the appellate court could not base its findings on the
compromise agreement alone.
Issues:
1. W/N by their acts, Lim, Chua, and Yao could be deemed to have entered into a partnership
2. W/N under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao and not to Lim
Held/Ratio:
1. YES
Lim requested Yao, who was engaged in commercial fishing, to join him in a business venture. At the time, Chua
was already Yaos partner. The three verbally agreed to acquire two fishing boats. They were able to purchase
such. Later, they agreed that Chua and Yao would shoulder the expenses for the repairs of the boats. In pursuant
of their business agreement, Yao and Chua bought nets from Philippine Fishing in behalf of Ocean Quest Fishing
Corporation, their purported business name. Subsequently, a civil case was brought by Yao and Chua against Lim
regarding the ownership of the fishing boats. Such was amicably settled through the aforementioned compromise
agreement.
The compromise agreement revealed the intention of the parties to pay the loan they had with the proceeds of the
sale of the boats and to divide equally among them the excess or loss. The boats, purchase, and repair, fell under
the term common fund. The contribution to such fund need not be cash or fixed assets; it could be credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a partnership. The partnership extended not only to
the purchase of the boat, but also to the nets, considering that such were needed for their business.
It cannot be said that the RTC and CA relied on the compromise agreement alone in determining whether or not
there was a partnership. The court delved into the history of the compromise agreement. The compromise
agreement was merely an embodiment of the relationship existing among the parties prior to its execution.
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2. NO
Section 21 of the Corporation Code of the Philippines provides:
All persons who assume to act as a corporation knowing it to be without authority to do so shall
be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof; Provided however, that when any such ostensible corporation is sued on any transaction
entered by it as a corporation or any tort committed by it as such, it shall not be allowed to use as
a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.
Hence, even if the ostensible corporate entity is proven to be legally inexistent, a party may be estopped from
denying its existence. The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
party. An unincorporated association, which represented itself as a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person who relied in good faith on such representation. On the
other hand, a third party, who knowing an association to be unincorporated, treated it as a corporation and
received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged
corporation. In this case, all who benefited from the transaction made by an ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.
It is clear that Lim benefited from the use of the nets. Though the corporation among the parties was never
formed, such does not preclude the liabilities of the three as contracting parties in representation of it. Clearly,
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. It is true that Lim did not directly act on behalf of the
corporation. However, he reaped the benefits of the contract entered into by persons with whom he previously had
an existing relationship. Lim is deemed to be part of the said association and is covered by the scope of the
doctrine of corporation by estoppel.
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Aguila v. CA (1999) (not real party in interest)

Doctrines:
In view of the separate juridical personality possessed by the partnership, the partners cannot be sued personally
under a contract entered into in the name of the partnership, unless it is shown that the legal fiction is being used
for a fraudulent, unfair, or illegal purpose. Another exception is when partnership assets have been exhausted to
make partners personally liable for partnership debts as provided in Art. 1816.
Facts:
Alfredo Aguila was the manager of A.C. Aguila & Sons, Co. (A.C. Aguila), a partnership that was engaged in
lending activities. A.C. Aguila and Felicia Vda. de Abrogar (with her late husbands consent) entered into a Memorandum
of Agreement (MoA) where a 240-sqm lot in a subdivision in Marikina was sold to A.C. Aguila for P200,000. In the
agreement, 90 days after its execution, Abrogar was to pay A.C. Aguila P230,000. A Deed of Absolute Sale was also
signed on the same day, which Deed became effective upon Abrogars failure to pay. Evidence showed that the price was
unusually inadequate, that Abrogar kept possession, and that he continued to pay taxes; all of which supported the theory
that it was a pacto de retro contract.
Abrogar failed to redeem the property within the 90-day period. Pursuant to the SPA, (authorizing Aguila to cause
the cancellation and issuance of the TCT, which was also signed on the same day of execution of the MoA) the TCT in
favor of Abrogar was cancelled, and a TCT in favor of A.C. Aguila was issued.
[As a side note, an ejectment case was also filed by A.C. Aguila. The case reached the Supreme Court
where the ruling was in favor of A.C. Aguila. On the other hand, a criminal complaint for falsification
was also filed by Abrogar against Aguila in the Office of the Prosecutor claiming that the Deed of sale
was a forgery because she could not have signed it as she was recuperating at the QC Medical Center
from wounds due to a vehicular accident. Her husband died a month and two days prior to the
execution of the MoA due to the same accident. The complaint was dismissed in a resolution.]
Abrogar filed a petition for declaration of nullity of the deed of sale before the RTC, impleading Alfredo
Aguila. The trial court ruled that the parties are bound by the MoA. The court of appeals ruled that it was, in
contemplation of law, an equitable mortgage, and that the transfer of ownership upon failure of payment constituted a
pactum commisorium. On such ground, the appellate court ordered the TCT of Abrogar reinstated, and that Abrogar pay
P230,000 to Aguila 90 days from the finality of the decision; and that in case of failure to pay the amount, then the
property shall be foreclosed and duly sold at public auction. Alfredo Aguila appealed to the Supreme Court,
contending, among other grounds, that he was not the real party in interest. There was, therefore, no cause of action
against him, and thus, the case must be dismissed.
Issues:
1. W/N Aguila is the real party in interest
Held/Ratio:
1. NO. The party impleaded was Alfredo Aguila. The real-party in interest was A.C. Aguila & Sons, Co. If the
party in the suit is not the real party in interest, then the case shall be dismissed.1 The Supreme Court does not
understand why this claim was not given due course by the lower courts when it was duly raised before them by
the petitioner-defendant. The decision of the Court of Appeals was reversed and the complaint against
petitioner was dismissed by the Supreme Court.

1.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that every action must be prosecuted and defended in the
name of the real party in interest. A real party in interest is one who would be benefited or injured by the judgment, or who is entitled to the avails of the suit.
This ruling is now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered against a person who is not a real party in
interest in the case cannot be executed. Hence, a complaint filed against such a person should be dismissed for failure to state a cause of action.
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United States v. Eusebio Clarin (1910)

Doctrine:
The partners or the partnership itself cannot be held liable for estafa when they fail or refuse to return the
contributions or share in profits of the partner.
a. Exception: When the partner receives funds from another partner for a particular purpose and he
misappropriates it, the receiving partner is liable for estafa. (Liwanag v. CA)
Facts:
Pedro Larin delivered to Pedro Tarug P172 in order that the latter, in company with Eusebio Clarin and Carlos
de Guzman, might buy and sell mangoes. Believing that he could make some money in this business, Larin made an
agreement with the three men by which the profits were to be divided equally among the four of them. It must be
noted that Larin reserved ownership of the P172 capital he provided and conveyed only the usufruct of his money.
Tarug, Clarin, and de Guzman did buy and sell mangoes and obtained P203 from the transactions. However, they
did not give Larin his share as stated in their agreement. Neither did they render him any account of the capital. For this
reason, Larin charged the three with the crime of estafa, but the fiscal only filed an information against Clarin for
appropriating the capital and the profits due Larin to himself. The trial court convicted Clarin for estafa. Clarin
appealed.
Issue:
1. W/N Clarin is guilty of the crime of estafa.
Held/Ratio:
1. NO. When Larin delivered P172, a partnership was created. He invested his capital in the risks or benefits of
the business. The action of the partner who furnished the capital for the recovery of his money is not a
criminal action for estafa but a civil action arising from the partnership for a liquidation of the partnership
and a levy on its assets if any. Article 535 of the RPC on estafa does not include money received from a
partnership; otherwise, the partner who reserved ownership of his capital could always file a criminal
complaint for estafa even if the capital was lost due to losses suffered by the partnership. If the case for
estafa were to be upheld, it would entail that the partnership receives money under the obligation to return it.
Such is not the case in partnerships.
The SC acquitted Clarin without prejudice to the filing of a civil case.
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Yu v. NLRC (1993) (unpaid wages)

Doctrines:
When the original partners sell their equity interest in the company, the original juridical person will be
extinguished and the new set of partners would constitute a new partnership arrangement with a new juridical
personality. Yet the underlying business enterprise remained the same between the two sets of investors and the
liability rules pertaining to the underlying business enterprise must be respected.
Facts:
Lea Bendal and Rhodora Bendal, as general partners, and Chin Shian Jeng, Chen Ho-Fu, and Yu Chang, as
limited partners, organized and operated a registered partnership with the name Jade Mountain Products Company
Limited. Such partnership business consisted of exploiting a marble deposit found on land owned by the Spouses Cruz.
They hired Benjamin Yu as Assistant General Manager. Yu managed the operations and finances of the business, had
overall supervision of the workers at the marble quarry, and took charge of the preparation of papers relating to the
exportation of the firms products. He was hired with a monthly salary of P4,000. But, according to Yu, he only got
half of his stipulated monthly salary since he accepted the promise of the partners that the balance would be paid
when the firm shall have secured additional operating funds from abroad.
Later, Lea and Rhodora Bendal sold and transferred their interests in the partnership to Willy Co and to
Emmanuel Zapanta. Yu Chang also sold his interest in the partnership to Co. Benjamin Yu had no knowledge of the sale
and transfer of interests in the partnership. Subsequently, the partnership was constituted solely by Co and Zapanta. They
continued to use the old firm name. The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, save Benjamin Yu.
Upon meeting Co, Benjamin Yu was informed that Co had bought the business from the original partners and that
it was for him to decide whether or not he was responsible for the obligations of the old partnership, including Yus
unpaid salaries. Yu was in fact not allowed to work anymore in the Jade Mountain business enterprise.
Yu filed a complaint for illegal dismissal and recovery of unpaid salaries, moral and exemplary damages, and
attorneys fees against Jade Mountain and Willy Co. The partnership and Co denied Yus charges, claiming that Yu was
never hired as an employee by the new partnership. The Labor Arbiter handling the case decided that Yu had been
illegally dismissed, ordered his reinstatement, and awarded him his claim for unpaid salaries, back wages, and attorneys
fees. On appeal, the National Labor Relations Commission (NLRC) reversed the decision of the Labor Arbiter and
dismissed the complaint. The NLRC said that the new partnership had not retained Yu in his original position as Assistant
General Manager and that there was no law requiring the new partnership to absorb the employees of the old one. The
NLRC also said that Yu should claim his unpaid wages from the original members of the partnership.
Issues:
1. W/N the partnership which had hired Yu as Assistant General Manager had been extinguished and replaced by a
new partnership composed of Willy Co and Emmanuel Zapanta
2. If indeed a new partnership had come into existence, W/N Yu could nonetheless assert his rights under his
employment contract as against the new partnership
Held/Ratio:
1. YES.
The legal effect of the changes in the membership of the partnership was the dissolution of the old partnership
which had hired Yu and the emergence of a new firm. Article 1828 provides that [t]he dissolution of a
partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business. Article 1830 also provides that the dissolution
is caused by the express will of any partner, who must act in good faith.
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2. YES.
Dissolution of a partnership does not automatically result in the termination of the legal personality of the
old partnership. The legal personality of the expiring partnership persists for the limited purpose of
winding up and closing of the affairs of the partnership. In the case at hand, the new partnership simply took
over the business owned by the original partners and continued using the same business name without winding up
the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and reassembling the said assets or most of them and opening a new business enterprise. Hence, not only the retiring
partners but also the new partnership itself, which continued the business of the old dissolved one are liable
for the debts of the preceding partnership. Under Article 1840, creditors of the old Jade Mountain are also the
creditors of the new Jade Mountain (which continued the business of the old one without liquidation of the
partnership affairs). A creditor of the old Jade Mountain, such as Yu, is entitled to priority vis--vis any claim of
any retired or previous partner insofar as such retired partners interest in the dissolved partnership is concerned.
Thus, Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment
with the previous partnership, against the new Jade Mountain. It is also evident that the new partnership was
entitled to appoint and hire a new general or assistant general manager to run the business. The non-retention of
Yu did not constitute an unlawful termination or termination without just cause. The cause of termination in the
case at hand was redundancy the new partnership had its own new general manager (Co). It follows that Yu is
entitled to separation pay. While the new Jade Mountain was entitled to decline to retain Yu, the SC said that Yu
was shabbily treated by the new partnership. The old partnership benefitted from the services of Yu. The new
partnership similarly benefitted from Yus work. Yu was never informed by the new partnership of the new
ownership, the relocation of the main office, and the assumption of Co of control of operations. Hence, Yu was
also awarded moral damages.
Villareal v. Ramirez (2003) Restaurant and catering business

Doctrine:
A share in a partnership can be returned only after the completion of the latters dissolution, liquidation and
winding up of the business.
Facts:
Petitioners Luzviminda J. Villareal, Carmelito Jose, and Jesus Jose formed a partnership with a capital of P750,000
for the operation of a restaurant and catering business under the name Aquarius Food House and Catering Services.
Villareal was appointed general manager and Carmelito Jose as operations manager.
Respondent Donaldo Efren Ramirez joined as a partner in the business 2 months after the constitution of the
partnership. His capital contribution of P250,000 was paid by his parents, respondents Cesar and Carmelita Ramirez.
After 3 years, Jesus Jose withdrew from the partnership and his contribution of P250,000 was refunded to him in cash by
agreement of the partners. In the same month, without prior knowledge of the Ramirezes, Villareal closed down the
restaurant allegedly because of increased rental. The restaurant furniture and equipment were deposited in the house of
spouses Ramirez for storage.
Spouses Ramirez wrote Villareal and Jose that they were no longer interested in continuing their partnership or in
reopening the restaurant, and that they were accepting the latters offer to return their capital contribution. Spouses
Ramirez wrote another letter informing petitioners of the deterioration of the restaurant furniture and equipment deposited
in their home and reiterated the request for the return of their one-third share in the equity of the partnership. Because
their requests were left unheeded, they filed a complaint for the collection of a sum of money. Petitioners Villareal and
Jose contend that respondent spouses Ramirez had already been paid upon the turnover to them of furniture and
equipment worth P400,000 and that they had no right to demand a return of their equity because their share, together with
the rest of the capital of the partnership, had been spent as a result of irreversible business losses.
RTC ruled that the parties had voluntarily entered into a partnership and petitioners Villareal and Jose clearly
intended to dissolve it when they stopped operating the restaurant. Villareal and Jose were ordered to pay P280,000 for
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damages and attorneys fees.

On appeal, the CA held that, although spouses Ramirez had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when Villareal and Jose lost interest in continuing the restaurant
business with them. Because the Villareal and Jose never gave a proper accounting of the partnership accounts for
liquidation purposes, and because no sufficient evidence was presented to show financial losses, the CA computed their
liability as follows:
Capital:
P 1,000,000
Outstanding obligation of the partnership:
240,658
(Capital Outstanding Obligation)
759,342
((Capital Outstanding Obligation)/3)
P 253,114 = Share of respondent spouses

Ramirez
Issues:
1.
W/N Villareal and Jose are liable to respondents for the latters share in the partnership
2.
W/N the CAs computation of P253,114 as the share of spouses Ramirez is correct
Held:
1.
NO.
Spouses Ramirez have no right to demand from Villareal and Jose the return of their equity share. Except as
managers of the partnership, petitioners did not personally hold its equity or assets. The partnership has a
juridical personality separate and distinct from that of each of the partners. Since the capital was contributed to
the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners.
2.
NO.
Since it is the partnership that must refund the shares of the partners, the amount to be refunded is necessarily
limited to its total resources. It can only pay out what it has, which consists of all its assets. However, before the
partners can be paid their shares, the creditors of the partnership must first be compensated. After all the creditors
have been paid, whatever is left of the partnership assets becomes available for the payment of the partners
shares.
The appellate court was under the misapprehension that the total capital contribution was equivalent to the gross
assets to be distributed to the partners at the time of the dissolution of the partnership. Generally, in the pursuit of
a partnership business, its capital is either increased by profits earned or decreased by losses sustained. It does not
remain static and unaffected by the changing fortunes of the business. The computation by the CA did not take
into consideration the meager profits of the business, depreciation of furniture and equipment, losses, loans, and
the P250,000 it returned to Jesus Jose upon his withdrawal from the partnership. Because of the above-mentioned
transactions, the partnership capital was actually reduced. When petitioners and respondents ventured into
business together, they should have prepared for the fact that their investment would either grow or shrink. In the
present case, the investment of respondents substantially dwindled. The original amount of P250,000 which they
had invested could no longer be returned to them, because one-third of the partnership properties at the time of
dissolution did not amount to that much.
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Idos vs CA (1998) Final stages of partnership

Doctrines:
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and (3)
termination
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership
affairs is completed.
Facts:
Eddie Alarilla supplied chemicals and rawhide to Irma L. Idos for use in the latter's business of manufacturing
leather. In 1985, he joined the accused-appellant's business and formed with her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City.
In January, 1986, the parties agreed to terminate their partnership. Upon liquidation of the business the
partnership had as of May 1986 receivables and stocks worth P1,800,000. The complainant's share of the assets was
P900,000 to pay for which the accused-appellant issued several postdated checks, all drawn against a Metrobank Branch
in Mandaue, Cebu.
The third check, which is the subject of this case, was dishonored on October 14, 1986 for insufficiency of funds.
The complainant demanded payment from the accused-appellant but the latter failed to pay.
Idos claimed that the check had been given upon demand of complainant in May 1986 only as "assurance" of his
share in the assets of the partnership and that it was not supposed to be deposited until the stocks had been sold.
Alarilla then filed his complaint in the Office of the Provincial Fiscal of Bulacan which on August 22, 1988 filed
an information for violation of BP Blg. 22 against accused-appellant.
Issues:
1. W/N the subject check was issued by petitioner to apply on account or for value, that is, as part of the
consideration of a "buy-out" of said complainant's interest in the partnership, and not merely as a commitment on
petitioner's part to return the investment share of complainant, along with any profit pertaining to said share, in
the partnership.
Held/Ratio:
1. It could not be denied that though the parties had agreed to dissolve the partnership, such agreement did not
automatically put an end to the partnership, since they still had to sell the goods on hand and collect the
receivables from debtors. In short, they were still in the process of "winding up" the affairs of the partnership,
when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and (3)
termination. These stages are distinguished, to wit:
a. Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in
the carrying on of the business (Art. 1828). It is that point in time the partners cease to carry on the
business together.
b. Winding up is the process of settling business affairs of dissolution. (Examples of winding up: the paying
of previous obligations; the collecting of assets previously demandable; even new business needs to be
wound up, as the contracting with a demolition company for the demolition of the garage used in a "used
car" partnership.)
c. Termination is the point in time after all the partnership affairs have been wound up.
Art 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on as distinguished from the winding up of the business.
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Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up
stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private complainant remained as co-partners. The check
was thus issued by the petitioner to complainant, as would a partner to another, and not as payment from a
debtor to a creditor.
Thus, the check was issued merely to evidence the complainant's share in the partnership property, or to assure the
latter that he would receive in time his due share therein. There is nothing on record which even slightly
suggested that petitioner ever became interested in acquiring, much less keeping, the shares of the complainant.
Absent the first element of the offense penalized under B.P. 22, which is "the making, drawing, and issuance of
any check to apply on account or for value, petitioner's issuance of the subject check was not an act
contemplated in nor made punishable by said statute. Under the circumstances obtaining in this case, we find the
petitioner to have issued the check in good faith, with every intention of abiding by her commitment to return, as
soon as able, the investments of complainant in the partnership.
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Marjorie Tocao and William Belo vs. CA and Nenita Anay (2000) (kitchenware)
Doctrines:
To be considered a juridical personality, a partnership must fulfill these requisites:

o
two or more persons bind themselves to contribute money, property, or industry to a common fund; and
there is an intention on the part of the partners to divide the profits among themselves.
It may be constituted in any form.
A mere falling out or misunderstanding between partners does not convert the partnership into a sham
organization. The partnership exists until dissolved under the law.
Facts:
Anay met petitioner Belo through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen
cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of marketing the product
considering her experience and established relationship with West Bend Company, a manufacturer of kitchen wares in
Wisconsin, USA. Under the joint venture, Belo acted as capitalist, Tocao as president and general manager, and Anay as
head of the marketing department and later, VP for sales. Anay organized the administrative staff and sales force while
Tocao hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belos name should not appear in any documents relating to their transactions
with West Bend Company. Instead, they agreed to use Anays name in securing distributorship of cookware from
that company. The parties agreed further that Anay would be entitled to:
(1) 10% of the annual net profits of the business;
(2) overriding commission of 6% of the overall weekly production;
(3) 30% of the sales she would make; and
(4) 2% for her demonstration services.
The agreement was not reduced to writing.
With Anay having secured the distributorship of cookware products from the West Bend and organized the
administrative staff and the sales force, the business took off successfully. They operated under the name of Geminesse
Enterprise, a sole proprietorship registered in Marjorie Tocaos name.
Muencheberg of West Bend invited Anay to the distributor/dealer meeting in the USA. Anay accepted the
invitation with the consent of Tocao, who even wrote a letter to the Visa Section of the U.S. Embassy in Manila:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for 20 years now,
acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, the Vice President of
Sales Marketing, and a business partner of our company, will attend in response to the invitation.
On August 31, 1987, she received a plaque of appreciation from the administrative and sales people through
Tocao for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed a memo entitling her
to a 37% commission for her personal sales "up Dec 31/87. Belo explained to her that said commission was apart
from her 10% share in the profits.
On October 9, 1987, Anay learned that Tocao had signed a letter addressed to the Cubao sales office indicating
that Tocao was no longer the VP of Geminesse Enterprise. The following day, October 10, she received a note from Cruz,
marketing manager, that Marjorie Tocao had barred her from holding office and conducting demonstrations in both
Makati and Cubao offices. Anay attempted to contact Belo. She wrote him twice to demand her overriding commission
for the period of Jan 8, 1988 to Feb 5, 1988, and the audit of the company to determine her share in the net profits. When
her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.
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Anay still received her 5% overriding commission up to December 1987.

Anay filed a civil case for collection of sum of money with damages against Tocao and Belo in the RTC.
Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in writing nor ratified
was either unenforceable or void or inexistent. As far as Belo was concerned, his only role was to introduce Anay to
Tocao. There could not have been a partnership because Geminesse Enterprise was the sole proprietorship of Marjorie
Tocao.
RTC ruled for Tocao and CA dismissed the appeal for lack of merit.
Issues:
1. W/N Anay was an employee or partner of Tocao and thus entitled to damages.
Held/Ratio:
1. YES. To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons
bind themselves to contribute money, property, or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. It may be constituted in any form. This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a written one. The fact
that there appears to be no record in the SEC of a public instrument embodying the partnership agreement did not
cause the nullification of the partnership.
Petitioners admit that Anay had the expertise to engage in the business of distributorship of cookware. Anay
contributed such expertise to the partnership and hence, under the law, she was the industrial or managing
partner. Tocao herself admitted in court Anays indispensable role in putting up the business when she was asked
if private respondent held the positions of marketing manager and VP for sales.
On the other hand, Belos denial that he financed is contrary to the fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover, his having authorized in writing on October 7, 1987, on
a stationery of his other business firm, Wilcon Builders Supply, that private respondent should receive 37% of the
proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the
business.
Also, Anay had a voice in the management of the affairs of the cookware distributorship, including selection of
people. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She
admitted that, like her who owned Geminesse Enterprise, Anay received only commissions and transportation and
representation allowances and not a fixed salary. If Tocao is really Anays employer, it is difficult to believe that
they would receive the same income in the business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable for the losses.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself
and/or for Belo financial gains resulting from Anays efforts to make the business venture a success.
A mere falling out or misunderstanding between partners does not convert the partnership into a sham
organization. The partnership exists until dissolved under the law. Since the partnership created by petitioners
and private respondent had no fixed term and is therefore a partnership at will predicated on their mutual desire
and consent, it may be dissolved by the will of a partner
Petition for review on certiorari is denied. Partnership is ordered dissolved and the parties are ordered to effect the
winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is
remanded to the RTC for proper proceedings relative to said dissolution.
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Litton v. Hill & Ceron (1939) (Presumption of consent)

Doctrines:
Under Article 226 of the Code of Commerce, the dissolution of a commercial association shall not cause any
prejudice to third parties until it has been recorded in the commercial registry.
The public need not make inquires as to the agreements between the partners.
Unless the contrary is shown, namely, that one of the partners did not consent to his co-partner entering into a
contract with a third person, and that the latter, with knowledge thereof, entered into said contract, the aforesaid
presumption with all its force and legal effects should be taken into account.
A third person may and has a right to presume that the partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his co-partner.
Facts:
This is a petition for certiorari on the decision of the CFI of Manila.
George Litton (the appellant) sold and delivered to Carlos Ceron, one of the managing partners of Hill & Ceron,
mining claims of Big Wedge Mining Company, through the delivery of a document transferring such rights. Ceron paid
Litton the sum of P1,150 leaving an unpaid balance of P720. However, the appellant was unable to collect the balance
either from the partnership or its surety (Visayan Surety & Insurance Corporation). Hence, Litton filed for recovery of
the said balance in the CFI of Manila. The trial court ordered Carlos Ceron to personally pay the remainder and absolved
the partnership, the partnerships surety company, and Robert Hill (the other partner). On appeal, the CA affirmed the
lower courts decision, concluding that Ceron did not intend to represent and did not act for the partnership in the said
transaction.
Issues:
1. W/N the transaction entered into by Ceron should be understood in law as effected by the partnership and binding
upon it.
2. Raised on an Motion for Reconsideration by Hill:
a. W/N Litton (appellant) was able to establish that Ceron had the consent of his co-partner Hill (movant) to
enter into the contract whose breach gave rise to the complaint
b. W/N the contract would be annulled if Ceron had in any way stated to Litton or if it could be inferred by
his conduct that at the time of the execution of the contract, he had the consent of Hill.
Held/Ratio:
1. YES, in view of certain undisputed facts and of certain regulation and provisions of the Code of Commerce.
Hill testified in trial that during the existence of the partnership, he and Ceron had the same power to buy and sell.
He also stated that prior to that date, he advised Litton not to deliver the shares as the partnership was dissolving.
However, during the date of the transaction, the partnership was still in existence. Under Article 226 of the Code
of Commerce, the dissolution of a commercial association shall not cause any prejudice to third parties until
it has been recorded in the commercial registry. The Supreme Court of Spain held that the dissolution of a
partnership by the will of the partners which is not registered in the commercial registry does not prejudice
third persons.
The CA concluded in their review of the articles of partnership of Hill & Ceron that for one of the partners to bind
the partnership, the consent of the other is necessary. The SC however ruled that 3rd persons (like Litton) are not
bound, in entering into a contract with any of the two partners, to ascertain whether or not the partner with whom
the transaction is made has the consent of the other partner. The public need not make inquires as to the
agreements between the partners. The knowledge that it is contracting with the partnership that is
represented by one of the managing partners is enough.
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Furthermore, in view of the kind of business Hill & Ceron was engaged in (brokerage), neither of the two partners
may legally engage in the said business under Art 130 of the Code of Commerce. Ceron, therefore, could not have
entered into the contract of sale of shares with Litton as a private individual, but as a managing partner of Hill &
Ceron.
2. On issues raised in the MR:
a. No need to establish consent, since the presumption is that consent was given, in relation to 3rd parties
contracting with any of the managing partners.
Unless the contrary is shown, namely, that one of the partners did not consent to his co-partner entering
into a contract with a third person, and that the latter with knowledge thereof entered into said contract,
the aforesaid presumption with all its force and legal effects should be taken into account.
There is nothing in the case at bar which destroys this presumption; the only thing appearing in the
findings of fact of the Court of Appeals is that the plaintiff "has failed to prove that Hill had consented to
such contract."
Although there was a stipulation in the articles of partnership requiring that both of the managing partners
must have the consent of the other to contract and sign in the name of the partnership, this obligation is
not imposed upon a 3rd person who contracts with the partnership. Neither is it necessary for the
third person to ascertain if the managing partner with whom he contracts has previously obtained the
consent of the other. A third person may and has a right to presume that the partner with whom he
contracts has, in the ordinary and natural course of business, the consent of his co-partner; for
otherwise, he would not enter into the contract.
It is not the appellant who, under the articles of partnership, should obtain and prove the consent of Hill,
but the latter's partner, Ceron, should he file a complaint against the partnership for compliance with the
contract. But in the present case, it is a third person, the plaintiff, who asks for it. While the said
presumption stands, the plaintiff has nothing to prove.
b. NO, the contract shall not be annulled in any case, notwithstanding the liability of the guilty partner.
The reason or purpose behind these legal provisions is no other than to protect a third person who
contracts with one of the managing partners of the partnership, thus avoiding fraud and deceit to
which he may easily fall a victim without this protection which the Code of Commerce wisely provides.
If consent of all the managing partners would be needed in order to transact with the partnership,
transactions would be hindered which is not desirable and is contrary to the nature of business.
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Goquiolay v. Sycip (1960) (widow as managing partner)

Doctrine:
Even if the articles or partnership provide that in case of death of a partner within the 10-year lifespan of the
partnership, the deceased partner shall be represented by his heirs or assigns in said co-partnership, and the sole
managing partner was substituted by his widow, the widow cannot be deemed to have assumed sole management
of the partnership, since the article provision on succession can only cover proprietary rights, not managerial
rights which is based on trust and confidence.
Facts:
Antonio Goquiolay and Tan Sin An entered into a partnership with each other, contributing a capital of P18,000
and P12,000 respectively. In the articles of partnership, they agreed that Tan Sin An would be designated as managing
partner charged with the exclusive management of the affairs of the co-partnership. On the other hand, it was also
agreed upon that Goquiolay, the co-partner, would have no voice or participation in the management of the affairs; but he
may examine the accounts once every six months. Goquiolay also executed a power of attorney in favor of Tan Sin An,
granting him powers, among which was the power to settle partnership debts. The lifetime of the partnership was fixed at
10 years and that in the event of death of any of the partners before the expiration of the term, the co-partnership shall
not be dissolved but will have to be continued and the deceased shall be represented by his heirs or assigns in said copartnership.
The object of the partnership was to buy and sell lands. In 1940, the partnership bought 3 parcels of land,
assuming the payment of a mortgage obligation of P25,000, payable to La Urbana for a period of 10 years. Subsequently,
Tan Sin An, in his individual capacity, purchased another 46 parcels of land and assumed to pay off a mortgage debt
thereon for P35,000. Yutivo and Co. advanced the down payment and amortization. Later that year, the two separate
obligations were consolidated, whereby the 49 parcels were mortgaged in favor of Banco Hipotecario (as successor to
La Urbana). 2 years after, Tan Sin An died and was succeeded in the partnership by his widow, Kong Chai Pin.
Banco Hipotecario demanded payment from the partnership and at the request of Yutivo, Sing Yee and Cuan Co.
Inc. paid the balance on the mortgage debt, cancelling the mortgage. Thereafter, Yutivo, Sing Yee, and Cuan Co. filed
claims against the intestate proceedings of Tan Sin An for obligations of the partnership for advances paid in
discharging its debt with La Urbana and Banco Hipotecario. The widow Kong Chai Pin, for the purpose of settling the
debts, sold the 49 lots to Washington Sycip and Betty Lee, the latter assuming the obligation to pay the claims of
Yutivo, Sing Yee, and Cuan Co.
Upon learning of the sale, Goquiolay brought action to annul the sale by Kong Chai Pin, and the probate court
annulled the sale with respect to the 60% interest of Goquiolay. Kong Chai Pin appealed to the CA, which certified the
case to the SC, which set aside the orders or the probate court in favor of Goquiolay and ordered a new trial.
Issues:
1. W/N Kong Chai Pin succeeded Tan Sin An, upon the latters death, as the managing partner of the partnership (by
virtue of the articles of partnership)
2. W/N she had authority to sell the partnership property to cover the debts (by virtue of the general power of
attorney granted by Goquiolay to Tan Sin An in order to pay partnership debts)
3. W/N Kong Chai Pin managed the business of the partnership, and if so, W/N Goquiolay acquiesced to it
4. W/N Goquiolays consent was necessary to perfect the sale
Held/Ratio:
*main decision - July 26, 1960
1. NO. She did not become sole managing partner by virtue of the articles of partnership nor the power of
attorney granted to her husband. Such rights were personal to him, based on trust and confidence; hence,
they were extinguished upon his death.
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2. NO. (See #1)

3. YES. She, by her affirmative actions, manifested her intent to be bound as a general partner rather than a
limited partner. She acted as a managing partner by retaining possession of the lands, deriving income from the
same, and even selling the same. By allowing her to retain control of the firms property for 7 years (19421949), Goquiolay estopped himself from denying her legal representation of the partnership, with the
power to bind it.
4. NO. Strangers dealing with the partnership have the right to assume, in the absence of a restrictive clause in the
partnership agreement, that every general partner has the power to bind the partnership, especially those acting
with ostensible authority.
*resolution of motion for reconsideration - December 10, 1963
Goquiolay, in his MR, insists that Kong Chai Pin never became more than a limited partner, as he was
incapacitated by law to manage the affairs of the partnership. Goquiolays own testimony
Goquiolay: Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the
properties (as) she had no other means of income. Then I said, because I wanted to help her, she could
just do it and besides I am not interested in agricultural lands.
was used as justification that there was indeed acquiescence on his part to Kong Chai Pins management.
*dissent by Bautista Angelo, J.
The question of whether or not Kong Chai Pin indeed executed acts of management of the partnership is highly
controverted. The most we can say is that the alleged acts are doubtful more so when they are disputed by defendants
themselves who later became the purchasers of the properties. And yet, these alleged acts, if at all, only refer to
management of the properties and not to management of the partnership, which are two different things. (This is
because there were some discrepancies on the testimonies of Goquiolay and the defendants.)
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Evangelista & Co. v. Abad Santos (1973)

Doctrine:
An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so.
However, being a Judge of the City Courts of Manila can hardly be characterized as a business antagonistic to that
of the partnership.
Facts:
A co-partnership was formed under the name of Evangelista & Co. The Articles of Co-partnership was
amended as to include Estrella Abad Santos, as industrial partner, with Domingo C. Evangelista, Jr., Leonardo Atienza
Abad Santos, and Conchita P. Navarro with a contribution of P17,500 each. The amended Articles provided that the
contribution of [Estrella] Abad Santos consists of her industry being an industrial partner, and that the profits and losses
shall be divided and distributed among the partners ... in the proportion of 70% for the first three partners to be divided
among them equally; and 30% for the fourth partner Estrella Abad Santos.
Estrella filed suit against the 3 other partners in CFI of Manila, alleging that the partnership had been paying
dividends to the partners except to her. Despite her demands, the other partners allegedly refused to let her examine the
partnership books, to give her information regarding the partnership affairs, or to pay her any share in the dividends
declared by the partnership.
The partners denied ever having declared dividends or distributed profits of the partnership. They also denied that
Estrella ever demanded that she be allowed to examine the partnership books. They further alleged that the amended
Articles of Co-partnership did not express the true agreement of the parties, that the plaintiff was not an industrial partner,
and that she did not in fact contribute industry to the partnership. Estrellas share 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 Estrella had signed a promissory note as co-maker and mortgaged
her property as security.
Issue:
1. W/N Estrella is an industrial partner or merely a profit-sharer.
Held/Ratio:
1. YES, Estrella is an industrial partner. The CA did not hold that the Articles of Co-partnership was conclusive
evidence that the respondent was an industrial partner, but considered it together with other factors, consisting of
both testimonial and documentary evidences, in arriving at the factual conclusion expressed in the decision.
First, Evangelista & Co. admitted to the genuineness and due execution of the Articles of Co-Partnership. The
said documents showed that Estrella was an industrial partner. Evangelista & Co. is therefore estopped from
attempting to detract from the probative force of the documents because they all bear the imprint of their
knowledge and consent and there is no credible showing that they ever protested against or opposed their
contents.
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. There is no pretense, however, that Estrella was engaged in any business
antagonistic to that of Evangelista & Co., since being a Judge of one of the branches of the City Court of Manila
and teaching in a law school in Manila can hardly be characterized as a business.
Their version that Estrella is only a profit-sharer is further discredited by Estrellas documentary evidence and
also by the fact that Evangelista & Co. did nothing to correct the alleged false agreement of the parties over a
period of 8 years. Furthermore, it was only just mentioned by the partners that they exercised their right of
exclusion as mentioned in their Supplemental Answer around 9 years after the filing of their answer to the
complaint.
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The court also ruled that since Estrella is an industrial partner, she has a right to demand accounting from the
company. The decision is based on Art. 1899 of the New Civil Code.
Muasque v. CA (1985) (Galan and Associates, solidary liability of the partnership)

Doctrines:
If there was a falling out or misunderstanding between the partners, such does not convert the partnership into
a sham organization.
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of
the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner
in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good the loss:

...
2. Where the partnership in the course of its business receives money or property of a third person and
the money or property so received is misapplied by any partner while it is in the custody of the
partnership.
Art. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the
partnership arising before his admission as though he had been a partner when such obligations were
incurred, except that this liability shall be satisfied only out of partnership property, unless there is a
stipulation to the contrary.
Facts:
The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and
Muasque," entered into a contract with private respondent Tropical Commercial for remodeling of their Cebu
branch building. A total amount of P25,000 was to be paid under the contract for the entire service. The terms of
payment were as follows: 30% of the whole amount upon the signing of the contract and the balance to be divided into 3
equal installments (P6,000) every 15 working days.
Tropical drew a check worth P7,000 as first payment in the name of petitioner, which the latter endorsed to private
respondent Galan to enable him to pay for the materials and labor. Muasque alleges that Galan spent the first check
for his personal use, which lead Muasque to deny endorsing the second payment of P6,000 to Galan. Galan, after
informing Tropical of their misunderstanding, caused the payee of the checks to be changed from Muasque to Galan
and Associates, the registered name of the partnership between Muasque and Galan. Galan withdrew the amounts.
Despite the setbacks, Muasque was able to accomplish the construction through his sole effort. He then filed a
complaint for the sum and damages against the respondents. The trial court sided with the respondents, absolving
Tropical and holding Muasque and Galan jointly and severally liable to the respondents. The CA affirmed the
decision with a slight modification, holding Muasque and Galan jointly liable instead.
(NOTE: The trial court and the CA awarded Cebu Southern Hardware and Blue Diamond Glass Palace as valid
intervenors to the case.)
Issues:
1. W/N the appellate court erred in holding that a partnership existed between petitioner and respondent Galan.
2. W/N the court committed grave abuse of discretion in holding that the payment made by Tropical to Galan was
good payment.
3. (ISSUE RAISED BY SC) W/N petitioner and Galan are jointly liable, as decided by the appellate court.
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Held/Ratio:
1. NO, If there was a falling out or misunderstanding between the partners, such does not convert the
partnership into a sham organization. There is nothing in the records to indicate that the partnership
organized by the two men was not a genuine one. With the act of petitioner endorsing the check to Galan,
respondent Tropical had every right to presume that the petitioner and Galan were true partners. It is
the petitioners fault for making it appear that the relationship existed between him and Galan.
2. NO, no error was committed by the appellate court in holding that the payment made by Tropical to Galan was
a good payment which binds both Galan and the petitioner. Since the two were partners when the debts were
incurred, they are also both liable to third persons who extended credit to their partnership. Tropical had every
reason to believe that a partnership existed between the petitioner and Galan and no fault or error can be
imputed against it for making payments to Galan and Associates. As far as it was concerned, Galan was a
true partner with real authority to transact on behalf of the partnership.
3. NO. Art. 1824 provides that the partnership is solidarily liable in cases provided under Art. 1822 and 1823.
These articles refer to injuries to third parties not part of the partnership. In these cases, the partnership shall
be held solidarily bound to make good the loss caused by any partner against a third person.
As between the partners Muasque and Galan, justice dictates that Muasque be reimbursed by Galan for the
payments made by the former representing the liability of their partnership to herein intervenors, as it was
satisfactorily established that Galan acted in bad faith in his dealings with Muasque as a partner.
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Island Sales, Inc. v. United Pioneers, et al. (1975) (pro-rata liability NOT increased)
Doctrines:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all the
partnership assets have been exhausted, for the contracts which may be entered into in the name and for the
account of the partnership, under its signature and by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership contract.
Facts:
[This is a very short case. Most likely, you will also be asked to recite the next case.] United Pioneers General
Construction Co. was a general partnership composed of 5 general partners: (1) Ben Daco, (2) Dan Guizona, (3) Noel
Sim, (4) Romy Lumauig, and (5) Gus Palisoc. The partnership purchased a motor vehicle from Island Sales, Inc with a
promissory note for the amount of P9,440, payable in 12 equal installments of P786 with the condition that failure to pay
any of said installments as they fall due would render the whole unpaid balance immediately due and demandable.
The partnership failed to pay on the third installment. Island Sales sued United Pioneers for the balance of
P7,119. The five general partners were included as co-defendants in their capacity as general partners of the defendant
company.
Daniel A. Guizona failed to file an answer and was consequently declared in default. Subsequently, on
motion of Island Sales, the complaint was dismissed insofar as the Romy Lumauig was concerned. When the case
was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent to them.
Consequently, the trial court authorized the plaintiff to present its evidence ex-parte, after which the trial court rendered
the decision ordering United Pioneer to pay the balance with interest and attorneys fees; and in case the partnership
had no more leviable properties to satisfy the judgment, Daco, Guizona, Sim, and Palisoc are to pay Island Sales.
Daco and Sim moved to reconsider the decision claiming that since there are five (5) general partners, the joint
and subsidiary liability of each partner should not exceed one-fifth (1/5) of the obligations of the defendant
company. But the trial court denied the said motion notwithstanding the conformity of Island Sales to limit the liability of
Daco and Sim to only one-fifth (1/5) of the obligations of the defendant company. Hence, this appeal.
Issues:
1. W/N the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and
subsidiary liability of each of the remaining partners for the obligations of the partnership.
Held/Ratio:
1. NO. In the instant case, there were five (5) general partners when the promissory note in question was executed
for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Daco
shall be limited to only one-fifth (1/5) of the obligations of the defendant company. The fact that the complaint
against the Lumauig was dismissed, upon motion of the Island Sales, does not unmake the said Lumauig as a
general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely
condoned Lumauig's individual liability to the plaintiff.
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Claudio v. Zandueta (1937) (non-inclusion of CCMA and other members)

Doctrines:
In order that a receiver may be appointed in a case, an application under oath must be filed, alleging all the facts
necessary to convince the court to grant the same, for the purpose of preserving the property which is the subject
of litigation and protecting thereby the rights of all the parties interested therein. Moreover, the consequences or
effects of such appointment should be considered in order to avoid causing irreparable injustice or injury.
Facts:
Zandueta, Neuffer, Meyer, Skiles, and Araneta instituted a civil case to ask for the dissolution of the association
named Cotabato & Cagayan Mining Association; the accounting of the money and property of the said association by
Claudio, Goyena, and Flores; and the appointment of a receiver to take charge of the properties of the association
until the court directs otherwise.
The Court, through Judge Zandueta, granted the prayer of the respondent pertaining to the appointment of a
receiver and appointed J.C. Cowper as the receiver even if the latter was not made party to the case.
Issue:
1. W/N Judge Zandueta exceeded his jurisdiction and abused his discretion when he appointed the receiver.
Held/Ratio:
1. YES. In order that a receiver may be appointed in a case, an application under oath must be filed, alleging all the
facts necessary to convince the court to grant the same, for the purpose of preserving the property which is the
subject of litigation and protecting thereby the rights of all the parties interested therein. Moreover, the
consequences or effects of such appointment should be considered in order to avoid causing irreparable injustice
or injury.
In the complaint for the application of the appointment of the receiver, it was evident that the plaintiff did not
include the 279 members of the Association nor did they show that they were acting on behalf of the interest of
the Association. Therefore, the judge exceeded his jurisdiction and abused his discretion because he should have
required the inclusion therein of the necessary members of the Association. Moreover, he should have also
considered the fact that in the respondents pleadings, they did not bring the action for themselves and in the name
of the Association, or for the benefit of the other members, or for the persons who might be affected by the
remedy applied for.
It necessarily follows that in order that respondent judge could exercise his jurisdiction or authority to appoint a
receiver in the case under consideration, he should have required the inclusion therein, as necessary parties, of the
CCMA or of the other members not included as such parties; or at least, the plaintiffs should have brought the
action for themselves and in the name of the association in question or for the benefit of the other members. Not
having done so, the respondent judge undoubtedly acted in excess of his jurisdiction and abused his discretion.
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Singson vs Isabela Sawmill (1979)

Doctrines:
The dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the
business. However, on dissolution, the partnership is not terminated but continues until the winding up of the
business.
Facts:
Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua entered into a Contract of Partnership under
the firm name "Isabela Sawmill. Saldejeno eventually left the partnership. The partnership was dissolved in a civil case.
Garibay and Tubungbanua continued doing business as Isabela Sawmill. There was no division of assets and properties.
Isabela Sawmill incurred plenty of debts. Some of the properties of Isabela Sawmill were mortgaged and
eventually sold to Saldejeno. The creditors of Isabela Sawmill sought to annul the mortgage and sale of the properties to
Saldejeno.
Saldejeno, as a defense, contended that Isabela Sawmill has been dissolved and that Garibay and Tubungbanua
are the true debtors.
Issues:
1. W/N Isabela Sawmill has been dissolved
Held/Ratio:
1. NO. The dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of
the business. However, on dissolution, the partnership is not terminated but continues until the winding up
of the business.
In this case, the remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of
winding up the business of the partnership, they continued the business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement with Saldejeno that the remaining partners had constituted
themselves as the partnership entity, the Isabela Sawmill. In addition, there was no liquidation of the assets of
the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing the business
of the partnership in the name of Isabela Sawmill.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had a right to expect that whatever credit they extended to
Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership Isabela Sawmill could
be enforced against the properties of said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees also acted in
good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damage to be caused must bear the consequences. Had Margarita G. Saldajeno not
entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing
the business of the partnership, the appellees would not have been misled into thinking that they were still dealing
with the partnership Isabela Sawmill.
Thus, Saldajeno was correctly held liable by the trial court because she purchased at public auction the properties
of the partnership which were mortgaged to her.
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Ames v. Downing, N.Y. Surr. Cit. (reproduced in Bautista, Treatise on Philippine Partnership Law)
1. The system of limited partnership (in the US) was borrowed from the French Code (under the name of la societ
en commandite)
a. It has existed in France from most authentic commercial records, and in the early mercantile regulations
of Marseilles and Montpelier
b. The French Code permits a special partnership, of which the capital may be divided into shares, or stock,
transmissible from hand to hand. In such a case, the death of the special partner does not dissolve the
firm, the creation of transmissible shares being a proof that the association is formed respectu negotii and
not respectu personarum; but even in such a partnership the death of the general partner effects a
dissolution, unless it is expressly stipulated otherwise.
2. It was called comanda during the middle ages
a. In the middle ages, it was one of the most frequent combinations of trade, and was the basis of the active
and widely extended commerce of the maritime cities of Italy.
3. In Italy, it was called accommenda
4. At a period when capital was in the hands of nobles, who from pride or canonical regulations, could not engage
directly in trade, limited partnership afforded the means of secretly embarking in commercial enterprises and
reaping the profits of such lucrative pursuits without personal risk.
5. Thus, a special partnership is, in fact, no novelty, but an institution of considerable antiquity, well known,
understood and regulated
6. Ducange defines it to be societas mercatorem qua uni sociorum tota negotationis cura commendatur, certis
conditionibus. It was always considered a proper partnership, societas, with certain reserves and restrictions.
7. Different from the French Code, M. Tropolong says that it would be wrong to extend the rule that a partnership,
of which the capital is divided into transmissible shares, is not dissolved by the death of a stockholder, to a special
partnership, the capital of which is not so divided. The statute of New York recognizes this kind of partnership,
the names of parties being required to be registered, and any change in the name working a dissolution, and
turning the firm into a general partnership. Such a partnership has always been held to be dissolved by the death
of the special partner. The partnership remains under the dominion of the common law. It has created between the
special and general partner a tie, which is not subjected to the caprice of unforeseen changes; it has produced
mutual relations of confidence, which the general partner cannot be forced to extend to strangers.
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Commissioner of Internal Revenue v. Suter (1969) (subsequent marriage of partners; income tax)
Doctrine:
Prohibition does not apply when the partners entered into a limited partnership, the man being the general partner
and the woman being the limited partner, and a year later the two get married.
Facts:
William J. Suter 'Morcoin Co., Ltd was a firm engaged, among other activities, in the importation, marketing,
distribution, and operation of automatic phonographs, radios, television sets, amusement machines, and their parts and
accessories. Its general partner, William J. Suter, herein respondent, and limited partners Julia Spirig and Gustav Carlson,
contributed P20,000, P18,000, and P2,000 to the partnership, respectively.
In 1948, general partner Suter and limited partner Spirig got married and on 18 December 1948, limited partner
Carlson sold his share in the partnership to Suter and his wife. The limited partnership had been filing its income tax
returns as a corporation, without objection by the herein petitioner, Commissioner of Internal Revenue, until 1959 when
the latter declared a deficiency income tax against Suter. Suter protested the assessment, but his request was denied.
Unable to secure a reconsideration, he appealed to the Court of Tax Appeals, which reversed that of the Commissioner of
Internal Revenue.
The Commissioner of Internal Revenue contended that the marriage of Suter and Spirig and their subsequent
acquisition of the interests of Carlson in the partnership dissolved the limited partnership, and consequently the income
tax return of Suter for the years in question should have included his and his wife's individual incomes and that of the
limited partnership.
Suter countered that his marriage with Spirig and their acquisition of Carlson's interests in the partnership in 1948
is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New Civil Code, and that since
its juridical personality had not been affected and since, as a limited partnership it is taxable on its income similarly with
corporations, Suter was not bound to include in his individual return the income of the limited partnership.
Issues:
1. W/N the partnership was dissolved after the marriage of the partners.
2. W/N the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for income tax
purposes, because the marriage of William J. Suter and his wife, Julia Spirig Suter made it a single proprietorship.
3. W/N the individual partners are liable for income tax for the income of the limited partnership.
Held/Ratio
1. NO, the marriage of Suter and Spirig did not dissolve the limited partnership. This theory springs from the
opinion of then Senator Tolentino that:
A husband and a wife may not enter into a contract of general co-partnership, because under the Civil
Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited
from making donations to each other are prohibited from entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
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 Civil Code of 18892, a universal partnership requires that the object of the
association be all the present property of the partners. Since the contributions of the partners were fixed sums of
money, William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership. It follows that spouses are not
forbidden to enter such partnership by Article 1677 of the Civil Code of 1889. Nor could the subsequent marriage

2.
This was the law in force when the subject firm was organized in 1947.
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of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose either by
the Spanish Civil Code or the Code of Commerce.
2. NO, the marriage did not render the partnership a single proprietorship. 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 Article 1396 of
the Spanish Civil Code.3 Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did
not become common property of both after their marriage in 1948.
3. NO. The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the
fiction of legal personality of the corporations involved therein are not applicable to the present case.
In the cited cases, the corporations were already subject to tax when the fiction of their corporate
personality was pierced; in the present case, to do so would exempt the limited partnership from
income taxation but would throw the tax burden upon the partners-spouses in their individual
capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is
not true in the present case. Here, the limited partnership is not a mere business conduit of the
partner- spouses; it was organized for legitimate business purposes; it conducted its own dealings
with its customers prior to appellees marriage; and had been filing its own income tax returns as such
independent entity. ... As far as the records show, the partners did not enter into matrimony and
thereafter buy the interests of the remaining partner with the premeditated scheme or design to
use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is
presumed. (at p. 159.)
In other words, Suter holds that when the facts show that the juridical personality of the partnership is but a means
to evade the law or a sham, then the courts will pierce the veil of its separate juridical personality to treat the
partners as directly liable or accountable for the consequences of the acts or contracts done in the partnership
name.
Jo Chung Cang v. Pacific Commercial Co. (1923)

Doctrines:
Substantial, rather than strict, compliance in good faith with the legal requirements is all that is necessary for the
formation of a limited partnership; otherwise, where there is not even substantial compliance, the partnership
becomes a general partnership as far as third persons are concerned.
A limited partnership that does not comply with the registration requirements shall be treated as a general
partnership in which all the members are liable for partnership debts.
Facts:
Sociedad Mercantil, Teck Seing & Co, Ltd., filed an application to be adjudged insolvent. The creditor (Pacific
Commercial Company, Piol & Company, Riu Hermanos, and W. H. Anderson & Company) filed a motion to declare the
individual partners as parties to the proceeding, requiring each of the said partners to file an inventory of his property and
that each of the said partners be adjudicated insolvent debtors in this proceeding. The trial judge first granted the motion,
but subsequently denied it.
Issue:
1. W/N Teck Seing & Co, Ltd. is a general partnership.

3.
The following shall be the exclusive property of each spouse: (a) That which is brought to the marriage as his or her own; ... .
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2. W/N the fact that the firm name Teck Seing & Co., Ltd. does not contain the name of all or any of the partners,
as prescribed by the Code of Commerce, prevented the creation of a general partnership.
Held/Ratio:
1. YES. It is a general partnership. To establish a limited partnership, there must be at least 1 general partner and the
name of at least 1 of the general partners must appear in the firm name. But neither of these requirements have been
fulfilled. The general rule is, those who seek to avail themselves of the protection of laws permitting the creation of
limited partnerships must show a substantially full compliance with such laws. A limited partnership that has not
complied with the law of its creation is not considered a limited partnership at all, but a general partnership in which
all the members are liable.
Article 125 of the Code of Commerce provides that the articles of general co-partnership must state the names,
surnames, and domiciles of the partners; the firm name; the names and surnames of the partners to whom the
management of the firm and the use of its signature is entrusted; the capital which each partner contributes in cash,
credits, or property, stating the value given the latter or the basis on which their appraisement is to be made; the
duration of the co-partnership; and the amounts which, in a proper case, are to be given to each managing partner
annually for his private expenses. Succeeding articles of the Code provide that the general co-partnership must
transact business under the name of all its members, of several of them, or of one only.
Referring to the documents provided (all stated in Spanish), it will be noted that all of the requirements of the Code
have been met, with the sole exception of that relating to the composition of the firm name.
2. NO. The Supreme Court quoted Professor Jose A. Espiritu as amicus curi:
My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing the formation of a
general partnership, especially if the other requisites are present and the requisite regarding registration of the
articles of association in the Commercial Registry has been complied with, as in the present case. I do not
believe that the adoption of a wrong name is a material fact to be taken into consideration in this case; first,
because the mere fact that a person uses a name not his own does not prevent him from being bound in a
contract or an obligation he voluntarily entered into; second, because such a requirement of the law is merely
a formal and not necessarily an essential one to the existence of the partnership, and as long as the name
adopted sufficiently identity the firm or partnership intended to use it, the acts and contracts done and entered
into under such a name bind the firm to third persons; and third, because the failure of the partners herein to
adopt the correct name prescribed by law cannot shield them from their personal liabilities, as neither law nor
equity will permit them to utilize their own mistake in order to put the blame on third persons, and much less,
on the firm creditors in order to avoid their personal possibility.
The legal intention deducible from the acts of the parties controls in determining the existence of a partnership. If they
intend to do a thing which in law constitutes a partnership, they are partners, although their purpose was to avoid the
creation of such relation. Here, the intention of the persons making up Teck Seing & co., Ltd. was to establish a
partnership which they erroneously denominated a limited partnership. If this was their purpose, all subterfuges
resorted to in order to evade liability for possible losses, while assuming their enjoyment of the advantages to be
derived from the relation, must be disregarded. The partners who have disguised their identity under a designation
distinct from that of any of the members of the firm should be penalized, and not the creditors who presumably have
dealt with the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the general co-partnership liable personally
and in solidum with all their property for the results of the transactions made in the name and for the account of the
partnership. Section 51 of the Insolvency Law, likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. If a firm be insolvent, but one or more partners thereof are solvent, the
creditors may proceed both against the firm and against the solvent partner or partners, first exhausting the assets of
the firm before seizing the property of the partners.
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Kilosbayan v Guingona Jr (1994) [PCSO, on-line lottery]

Doctrines:
When a Contract of Lease mandates contribution into the venture on the part of the purported lessee, and makes
the lessee participate not only in the revenues generated from the venture and in fact absorb most of the risks
involved therein, then a joint venture has really been constituted between the purported lessor and lessee, since
under the Law on Partnership, whenever there is an agreement to contribute money, property and industry to a
common fund, with an agreement to share the profits and losses therein, then a partnership arises.
Facts:
PCSO decided to establish an on- line lottery system for the purpose of increasing its revenue base and
diversifying its sources of funds. After learning that the PCSO was interested in operating an on-line lottery system, the
Berjaya Group Berhad, thru its subsidiary, Sports Toto Malaysia, with its "affiliate, the International Totalizator Systems,
Inc became interested to offer its services and resources to PCSO. As an initial step, Berjaya Group Berhad organized
with some Filipino investors a Philippine corporation known as the Philippine Gaming Management Corporation
(PGMC), which was intended to be the medium through which the technical and management services required for the
project would be offered and delivered to PCSO.
PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line lottery system for the
PCSO. PGMC then submitted its bid to PCSO. The submission was preceded by complaints by the Bid and Awards
Committee's Chairperson. On 21 October 1993, the Office of the President announced that it had given the respondent
PGMC the go-signal to operate the country's on-line lottery system. KILOSBAYAN sent an open letter to Presidential
Fidel V. Ramos strongly opposing the setting up to the on-line lottery system on the basis of serious moral and ethical
considerations
Kilosbayan requested for copies of the documents pertaining to the lottery award from then Exec Sec Guingona
Jr. but before release of the documents, the Contract of Lease was finally executed by PCSO and PGMC. To stop
Malacanang, Kilosbayan with co-petitioners filed this petition.
Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease with the PGMC
because it is an arrangement wherein the PCSO would hold and conduct the on-line lottery system in
"collaboration" or "association" with the PGMC, in violation of Section 1(B) of R.A. No. 1169, as amended by BP
42, which prohibits the PCSO from holding and conducting charity sweepstakes races, lotteries, and other similar
activities "in collaboration, association, or joint venture with any person, association, company, or entity, foreign
or domestic
Issues:
1. W/N the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169, as
amended by BP 42, which prohibits the PCSO from holding and conducting lotteries "in collaboration,
association, or joint venture with" another.
Held/Ratio:
1. YES.
Sec. 1 of RA 1169 as amended by BP 42 prohibits the PCSO from holding and conducting lotteries "in
collaboration, association, or joint venture with any person, association, company, or entity, whether domestic or
foreign." The language of the section is indisputably clear that with respect to its franchise or privilege "to hold
and conduct charity sweepstakes races, lotteries, and other similar activities," the PCSO cannot exercise it "in
collaboration, association, or joint venture" with any other party. This is the unequivocal meaning and import of
the phrase "except for the activities mentioned in the preceding paragraph (A)," namely, "charity sweepstakes
races, lotteries, and other similar activities."
A careful analysis and evaluation of the provisions of the contract and a consideration of the contemporaneous
acts of the PCSO and PGMC indubitably disclose that the contract is not in reality a contract of lease under which
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the PGMC is merely an independent contractor for a piece of work, but one where the statutorily proscribed
collaboration or association, in the least, or joint venture, at the most, exists between the contracting
parties. Collaboration is defined as the acts of working together in a joint project. Association means the act of a
number of persons in uniting together for some special purpose or business. Joint venture is defined as an
association of persons or companies jointly undertaking some commercial enterprise; generally all
contribute assets and share risks. It requires a community of interest in the performance of the subject
matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by
agreement to share both in profit and losses.
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its own nor the
expertise to operate and manage an on-line lottery system, and that although it wished to have the system, it
would have it "at no expense or risks to the government." In short, the only contribution the PCSO would have is
its franchise or authority to operate the on-line lottery system. The PCSO, however, makes it clear in its RFP that
the proponent can propose a period of the contract which shall not exceed fifteen years, during which time it is
assured of a "rental" which shall not exceed 12% of gross receipts. The so-called Contract of Lease is not,
therefore, what it purports to be. (actually a joint venture)
This joint venture is further established by the following:
a. Rent is not actually a fixed amount. Although it is stated to be 4.9% of gross receipts from ticket sales,
payable net of taxes required by law to be withheld, it may be drastically reduced or, in extreme cases,
nothing may be due or demandable at all because the PGMC binds itself to "bear all risks if the revenue
from the ticket sales, on an annualized basis, are insufficient to pay the entire prize money." This riskbearing provision is unusual in a lessor-lessee relationship, but inherent in a joint venture.
b. In the event of pre-termination of the contract by the PCSO, or its suspension of operation of the on-line
lottery system in breach of the contract and through no fault of the PGMC, the PCSO binds itself "to
promptly, and in any event not later than sixty (60) days, reimburse the Lessor the amount of its total
investment cost associated with the On-Line Lottery System, including but not limited to the cost of the
Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the
unexpired term of the lease." If the contract were indeed one of lease, the payment of the expected
profits or rentals for the unexpired portion of the term of the contract would be enough.
c. The PGMC cannot "directly or indirectly undertake any activity or business in competition with or
adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent." If the
PGMC is engaged in the business of leasing equipment and technology for an on-line lottery system,
we fail to see any acceptable reason why it should allow a restriction on the pursuit of such
business.
d. The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within two
years from the efficacy of the contract, cause itself to be listed in the local stock exchange and offer at
least 25% of its equity to the public. If the PGMC is merely a lessor, this imposition is unreasonable and
whimsical, and could only be tied up to the fact that the PGMC will actually operate and manage the
system; hence, increasing public participation in the corporation would enhance public interest.
f.
The PCSO shall designate the necessary personnel to monitor and audit the daily performance of
the on-line lottery system; and promulgate procedural and coordinating rules governing all activities
relating to the on-line lottery system. The first further confirms that it is the PGMC which will
operate the system and the PCSO may, for the protection of its interest, monitor and audit the daily
performance of the system. The second admits the coordinating and cooperative powers and
functions of the parties.
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All of the foregoing unmistakably confirm the indispensable role of the PGMC in the pursuit, operation, conduct,
and management of the On-Line Lottery System. It is even safe to conclude that the actual lessor in this case is
the PCSO and the subject matter thereof is its franchise to hold and conduct lotteries since it is, in reality, the
PGMC which operates and manages the on-line lottery system for a period of eight years.
Information Technology Foundation of the Philippines v. COMELEC (2004) (automated election bidding)
Doctrine:
There is really no joint venture among the parties, lacking the essential elements of a partnership, when only the
primary venturer in a consortium declares unilaterally that the other 4 members are part of the consortium, but
there is 1) no affirmation from any of the other members, nor 2) any showing of a community interest, a sharing
of risks, profits, or losses.
Facts:
COMELEC adopted, in its Resolution 02-0170, a modernization program for the 2004 elections. It resolved to
conduct biddings for the 3 phases of its Automated Election System. In the Invitation to Apply for Eligibility and to Bid, it
was stated that only bids from the following entities shall be entertained:
1. Duly licensed Filipino citizens/partnerships
2. Partnerships duly organized ... at least 60% of the interest belongs to citizens of the Philippines
3. Corporations duly organized ... at least 60% of the outstanding capital stock belongs to citizens of the Philippines
4. Manufacturers, suppliers, and/or distributors forming themselves into a joint venture, i.e. a group of 2 or
more manufacturers, suppliers, and/or distributors that intend to be jointly and severally responsible or
liable for a particular contract, provided that Filipino ownership thereof shall be 60%
5.
Cooperatives duly registered with the CDA
The public bidding was to be conducted under a 2-envelop/2-stage system. The bidders first envelop or the
Eligibility envelop should establish the bidders eligibility to bid and its qualifications to perform the acts if accepted. The
other envelop would be the Bid Envelop itself. Note that the Eligibility Envelop of MPC did not contain a single joint
venture or consortium agreement. Instead, it contained 4 separate and distinct bilateral agreements between MPEI
Mega Pacific eSolutions Inc with the other members of the consortium. Out of the 57 bidders, the Bids and
Awards Committee found MPC Mega Pacific Consortium and TIMC Total Information Management Corporation
eligible. Both obtained failing marks in the technical evaluation but notwithstanding these failures, Comelec awarded the
bid to MPC. 5 individuals, including herein petitioner IT Foundation, protested the award due to glaring irregularities in
the manner in which the bidding process had been conducted. It is also alleged that MPC was ineligible; hence, its bid
should not have been considered.
Issues:
1. W/N the Comelec gravely abused its discretion in considering the bid of MPC despite it not having complied
with the eligibility requirements (as a joint venture or a consortium)
2. W/N the rules on partnership may be applied
3. Procedural issues not to be discussed (like locus standi)
Held/Ratio:
1. YES. There was grave abuse of discretion on the part of Comelec in awarding the bid to MPC. The evidence does
not support that MPC was indeed a consortium. It goes without saying that in case of a consortium or joint
venture, the Eligibility Envelop would necessarily have to include a copy of the joint venture agreement, the
consortium agreement or a business plan or some other instrument of similar import establishing the due
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existence, composition, and scope of such aggrupation. Comelec gravely abused its discretion by relying on the
unilateral declarations of the MPEI president that the other 4 entities are indeed members of the consortium, but
without the assent of the latter, and without sufficient evidentiary basis. Although it is not required that the joint
venture or consortium agreement be in a single instrument, the 4 separate bilateral agreements submitted failed to
evince the existence of a consortium.
Comelec argues that because of the phrase for a particular contract in the above quoted eligibility criteria, it
is sufficient that only the lead company of the joint venture and the member in charge of a particular
aspect agree to be solidarily liable. The Court ruled that such argument is untenable because the contract
referred to (The Automated Counting and Canvassing Project Contract) was only between Comelec and MPEI,
not the alleged consortium. Nowhere in that contract is there mention of a consortium, of members thereof, much
less of joint and several liability.
2. NO. Comelec claims that liability may still be enforced under the provisions of partnership because MPEI et al
represented themselves as partners and members of MPC and are therefore liable to Comelec to the extent of such
representation. Such argument, according to the Court, is again untenable because the other 4 members never
represented themselves to be such; it was MPEI alone that represented them to be members of a consortium.
PS: there are dissents and concurring opinions but I couldnt find them online. BUT the part in the outline is discussed
here.
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Marsman Drysdale Land, Inc. vs. Philippine Geoanalytics, Inc. and Gotesco Properties (2010) (50-50
profits & loss)
Doctrine:
A joint venture being a form of partnership, it is to be governed by the laws on partnership. In the JVA, Marsman
Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project. However, they did not provide for
the splitting of losses. Applying art. 1797 then, the same ratio applies in splitting the P535,353.50 obligation-loss
of the joint venture. However, the appellate courts decision must be modified. Marsman Drysdale and Gotesco
being jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale for 50% of the aggregate sum
due to PGI. Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be
contrary to the law on partnership on division of losses but would partake of a clear case of unjust enrichment at
Gotescos expense.
Facts:
Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco) entered into a Joint
Venure Agreement (JVA) for the construction and development of an office building on a land owned by Marsman
Drysdale in Makati City.
The JVA contained the following pertinent provisions:
1. The parties shall invest in the project on a 50-50 basis
2. Marsman Drysdale shall contribute the property worth P420,000,000 and shall deliver the
property in buildable condition. Buildable condition shall mean that the old building/structure
which stands on the property is demolished and taken to ground level.
3. Gotesco shall contribute P420,000 in cash payable as follows:
a. P50,000.00 upon signing of agreement
b. P370,000.00 based on progress billings, relative to the development of the building
4. Funding for the project shall be obtained from the cash contribution of Gotesco.
5. Marsman Drysdale shall not be obligated to fund the project as its contribution is limited to
property.
6. All funds advanced by any party/third party shall be repaid by the JV.
7. If any party agrees to make an advance to the project but fails to do so, the other party may
advance the shortfall and the party in default shall indemnify the party making the substitute
advance on demand for all of its losses, costs and expenses incurred in so doing.
The JV engaged the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration,
laboratory testing, seismic study, and geotechnical engineering for the project. For this, they executed a Technical
Services Contract (TSC). PGI was only able to drill four out of five boreholes needed to conduct its exploration because
the joint venture partners failed to clear the area where drilling was to be made. PGI was able to complete its seismic
study though.
PGI billed the JV for P284,553.50 for cost of soil exploration and P250,800 for cost of completed seismic study.
The JV failed to pay. Because of unfavorable economic condition, the JV was cut short and the building project shelved.
PGI filed a complaint for collection of sum of money and damages. Marsman Drysdale filed a counterclaim and
cross-claim, stating that it was Gotesco who was solely liable for monetary expenses of the project. Gotesco on the other
hand alleges that it was Marsman Drysdale who failed to clear the property resulting which prevented the PGI from
completing its work.
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ATTY. COCHINGYAN
RTC decision:
1. Gotesco and Marsman Drysdale are ordered to pay plaintiff jointly:
P535,353.50 owing to PGI, exclusive of damages, attorneys fees and costs of suit.
2. Cross-claim of Marsman Drysdale was granted, ordering Gotesco to reimburse Marsman Drysdale
P535,353.50 in accordance with the JVA, exclusive of attorneys fees.
CA decision:
The CA affirmed with modification the RTCs decision, ordering Gotesco to reimburse Marsman Drysdale
50% of P535,353.50
Issue:
1. Which between the joint venturers Marsman Drysdale and Gotesco bears the liability to pay PGI and its unpaid
claims?
Held:
1. Marsman Drysdale and Gotesco are JOINTLY liable to PGI.
PGI executed a TSC with the joint venture and was never a party to the JVA. While the JVA clearly stated that
the capital contribution of Marsman Drysdale was the property and Gotesco was cash, the JVA cannot be used
to defeat the lawful claim of PGI against the two joint venturers-partners. The TSC clearly listed the joint
venturers Marsman Drysdale and Gotesco as the beneficial owners of the project.
Art. 1207: The concurrence ... of two or more debtors in one and the same obligation does not
imply that each one ... is bound to render entire compliance with the prestations. There is a
solidary liability only when the obligation expressly so states.
Article 1208: ... the credit or debt shall be presumed to be divided into as many equal shares as
there are creditors or debtors.
A joint venture being a form of partnership, it is to be governed by the laws on partnership. Article 1797 of the
Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall
be in the same proportion.
From the abovementioned articles, there is a presumption that the obligation owing to PGI is joint. The only
time that the JVA may be made to apply in the present petitions is when the liability of joint venturers to
each other would set in. A joint venture being a form of partnership, it is to be governed by the laws on
partnership. In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project.
However, they did not provide for the splitting of losses. Applying art. 1797 then, the same ratio applies in splitting
the P535,353.50 obligation-loss of the joint venture. However, the appellate courts decision must be modified.
Marsman Drysdale and Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale
for 50% of the aggregate sum due to PGI. Allowing Marsman Drysdale to recover from Gotesco what it paid to
PGI would not only be contrary to the law on partnership on division of losses but would partake of a clear case of
unjust enrichment at Gotescos expense.
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ATTY. COCHINGYAN
J. Tiosejo Investment Corp. v. Spouses Benjamin and Eleanor Ang (2010) (Meditel Condo Project)
Doctrines:
A joint venture is considered in this jurisdiction as a form of partnership and is, accordingly, governed by the law
on partnerships.
Under Article 1824 of the Civil Code of the Philippines, all partners are solidarily liable with the partnership for
everything chargeable to the partnership, including loss or injury caused to a third person, or penalties incurred
due to any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership
or with the authority of his co-partners. Whether innocent or guilty, all the partners are solidarily liable with the
partnership itself.
Facts:
This is a petition for review seeking the reversal of the CAs Resolution declaring J Tiosejo (petitioner) solidary
liable with Primetown Property Group, Inc. (PPGI) to pay Spouses Ang.
J. Tiosejo entered into a Joint Venture Agreeemtn with PPGI for the development of a residential condominium
project known as Meditel in Mandaluyong City. Petitioner contributed the lot while PPGI undertook to develop the
condominium. The parties further agreed to a 17%-83% sharing as to developed units. PPGI further undertook to use all
proceeds from the pre-selling of its saleable units for the completion of the Condominium Project.
Sometime in 1996, PPGI executed a Contract to Sell with Spouses Ang on a certain condominium unit and
parking slot for P2,077,334.25 and P313,500, respectively.
On July 1999, respondent Spouses filed before the Housing and Land Use Regulatory Board (HLURB) a
complaint for the rescission of the Contract to Sell, against J. Tiosejo and PPGI. They claim that they were promised
that the condo unit would be available for turn-over and occupancy by December 1998; however, the project was not
completed as of the said date. Spouses Ang instructed petitioner and PPGI to stop depositing the post-dated checks they
issued and to cancel said Contracts to Sell. Despite several demands, petitioner and PPGI have failed and refused to
refund the P611,519.52 they already paid under the circumstances.
As defense, PPGI claims that the delay was attributable to the economic crisis and to force majeure (unexpected
and unforeseen inflation and increase rates and cost of building materials). They also state that it offered several
alternatives to Spouses Ang to transfer their investment to its other feasible projects and for the amounts they already paid
to be considered as partial payment for the replacement unit/s.
On a separate answer, petitioner claims that its prestation under the JVA consisted of contributing the property on
which the condominium was to be contributed. Not being privy to the Contracts to Sell executed by PPGI and
respondents, it did not receive any portion of the payments made by the latter; and, that without any contributory fault
and negligence on its part, PPGI (and not the petitioner) breached its undertakings under the JVA by failing to complete
the condominium project.
The Housing and Land Use (HLU) ruled in favor of respondents, rescinding the contract and ordering petitioner
and PPGI to pay the refund, interest, damages, attorneys fees and administrative fines.
The HLURB Board of Commissioners affirmed the HLUs order. Motion for Reconsideration (MR) was denied.
The case was subsequently raised to the Office of the President (OP) which rendered a decision dismissing
petitioners appeal on the ground that the latters appeal memorandum was filed out of time and that the HLURB Board
committed no grave abuse of discretion in rendering the appealed decision. MR was also denied.
Petitioner filed before the CA a motion for extension within which to file its petition for review, claiming heavy
workload of its counsel. This was denied by the CA. MR was denied for lack of merit.
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Issues:
1. W/N the CA erred in dismissing the petition on mere technicality.
2. JV Related - W/N the CA erred in affirming the HLURBs decision insofar as it found J. Teosejo with PPGI liable
to pay Spouses Ang.
Held/Ratio:
1. NO, while the dismissal of an appeal on purely technical grounds is concededly frowned upon, it bears
emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial technicalities that
litigants can just discard and disregard at will.
In view of the initial 15-day extension granted by the CA and the injunction under Sec. 4, Rule 43 of the 1997
Rules of Civil Procedure against further extensions except for the most compelling reason, it was clearly
inexcusable for petitioner to expediently plead its counsels heavy workload as ground for seeking an additional
extension of 10 days within which to file its petition for review.
2. NO, the HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for respondents claims
and the administrative fine.
By express terms of the JVA, it appears that petitioner not only retained ownership of the property pending
completion of the condominium project but had also bound itself to answer liabilities proceeding from
contracts entered into by PPGI with third parties. Article VIII, Section 1 of the JVA distinctly provides as
follows:
Section 1: Rescission and damages:
...
In any case, the Owner shall respect and strictly comply with any covenant entered into by
the Developer and third parties with respect to any of its units in the Condominium Project.
To enable the owner to comply with this contingent liability, the Developer shall furnish the
Owner with a copy of its contracts with the said buyers on a month-to-month basis.
Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by claiming that it was
not in any way privy to the Contracts to Sell executed by PPGI and respondents.
Moreover, a joint venture is considered in this jurisdiction as a form of partnership and is, accordingly,
governed by the law of partnerships. Under Article 1824 of the Civil Code of the Philippines, all partners are
solidarily liable with the partnership for everything chargeable to the partnership, including loss or injury
caused to a third person or penalties incurred due to any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of his co-partners. Whether
innocent or guilty, all the partners are solidarily liable with the partnership itself.
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ATTY. COCHINGYAN
Aurbach v. Sanitary Wares (1989) (elections, board of directors)

Doctrines:
The manner of nomination of the members of the Board of Directors provided in the Joint Venture Agreement
must be made effective and reconciled with the statutory provision on cumulative voting made applicable by the
Corporation Code to stock corporations.
Facts:
Saniwares, a domestic corporation, was incorporated for the purpose of manufacturing and marketing of sanitary
wares. Baldwin Young, one of the incorporators, went abroad to look for foreign partners. American Standard Inc. (ASI),
a corporation domiciled in the US, entered into an Agreement with Saniwares and some Filipino investors where they
agreed to participate in the ownership of an enterprise which would engage in manufacturing and selling in the Philippines
and abroad of vitreous china and sanitary wares. They agreed to carry on an incorporated enterprise and that the name of
the corporation be Sanitary Wares Manufacturing Corporation.
The Agreement had the following pertinent provisions regarding the nomination and election of the directors of
the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed
hereto as Exhibit A and, insofar permitted under Philippine law, shall specifically provide for
1. Cumulative voting for directors
...
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors which shall
consist of nine individuals. As long as American-Standard shall own at least 30% of the
outstanding stock of the Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other stockholders of the
Corporation.
The business prospered. Later, there was a disagreement between the investors. The Filipino group claimed that
such disagreement was due to their desire to expand the export operations of the company to which ASI objected since it
had other joint ventures in countries where Philippine exports were contemplated.
During the annual stockholders meeting, the stockholders held an election for the members of the board of
directors. The ASI group nominated three people: Aurbach, Griffin, and Whittingham. The Philippine investors
nominated six: Ernesteo Lagdameo Sr., Lagdameo Jr., Enrique Lagdameo, Boncan, Lee, and Young. However, one Mr.
Ceniza nominated Salazar, who in turn, nominated Chamsay. Baldwin Young ruled the last two nominations (Salazar and
Chamsay) out of order on the basis of Section 5 (a) and the consistent practice to nominate only nine persons as nominees
for the nine-member board. There were protests against Youngs action. During the voting, the ASI representative
announced that all votes accruing to ASI shares were being cumulatively voted for the three ASI nominees and Chamsay.
Salazar, and other proxy holders said that all the votes owned by and/or represented by them were being cumulatively
voted in favor of Salazar. Young nevertheless instructed the secretary to cast all votes equally in favor of the three ASI
nominees and the six originally nominated Filipinos. Hence, the secretary certified the election for the original nine. The
meeting was then adjourned. However, the ASI Group, Salazar, and other stockholders decided to continue the meeting at
the elevator lobby of the building. Such meeting, presided by Salazar, voted the following as directors: Aurbach, Griffin,
Whittingham, Chamsay, and Salazar. Such election was certified by an acting secretary, with the explanation that there
was a tie among the other six nominees for the four remaining positions and that the body decided not to break the tie.
These incidents led to the filing of separate petitions with the SEC. The SEC hearing officer upheld the election of
the Lagdameo Group and dismissed the petition of Salazar and Chamsay. The SEC en banc affirmed the decision. The CA
also affirmed such decision.
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ATTY. COCHINGYAN
Issues:
1. W/N the nature of the business established by the parties was a joint venture (as opposed to a corporation)
2. Who were the duly elected directors?
Held/Ratio:
1. YES, it was a JOINT VENTURE.
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. 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. The history of the organization of Saniwares and the unusual agreements (there were
provisions in the Agreement which protected ASI as a minority group) which govern its policy making body are
all consistent with a joint venture and not with a corporation. Moreover, ASI in its communications referred to the
enterprise as a joint venture.
2. The duly elected directors are the originally designated people: Aurbach, Griffin, Whittingham, Lagdameo Sr.,
Lagdameo Jr., Enrique Lagdameo, Boncan, Lee, and Young.
The ASI group and Salazar claim that ASI had the right to vote their additional equity (ASI had additional 10%)
pursuant to Section 24 of the Corporation Code,4 which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Salazar also said that such right if granted would not necessarily
mean a violation of the Anti-Dummy Act. The SC said that ASI argument is correct within the context of Section
24 of the Corporation Code. The point of query, however, is whether or not that provision is applicable to a joint
venture with clearly defined agreements. Hence, the resolution of the question of whether or not the ASI
Group may vote their additional equity lies in the agreement of the parties.
As in other joint venture companies, the extent of ASIs participation in the management of the corporation is
spelled out in the Agreement. Having entered into a well-defined contractual relationship, it is imperative that the
parties should honor and adhere to their respective rights and obligations thereunder. The SC recognized and
upheld the division of the stockholders into two groups, and at the same time upheld the right of the stockholders
within each group to cumulative voting in the process of determining who the groups nominees would be. In
practical terms, this means that if the Filipino stockholders cannot agree who their six nominees will be, a
vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within
the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to get a majority of the board seats, a result which is
clearly contrary to the contractual intent of the parties.
Section 5 (a) of the Agreement, which uses the word designates in the allocation of board directors, should not
be interpreted in isolation. This should be construed in relation to Section 3 (a) (1). Section 3 (a) (1) relates to the
manner of voting for these nominees (which is cumulative voting) while Section 5 (a) relates to the manner of

4.
Sec. 24. Election of directors or trustees. - At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by
written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. The election
must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person
or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws
are silent, at the time of the election; and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may
cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may
distribute them on the same principle among as many candidates as he shall see fit: Provided, That the total number of votes cast by him shall not exceed the
number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no
delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock
may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving the highest number of votes
shall be declared elected. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or
indefinitely if, for any reason, no election is held, or if there not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital
stock, or if there be no capital stock, a majority of the member entitled to vote.
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ATTY. COCHINGYAN
nominating the members of the board of directors. The petitioners agreed to such procedure and cannot
impugn its legality.
The joint venture character of the enterprise must always be taken into account, so long as the company exists
under its original agreement. Cumulative voting may not be used as a device to enable ASI to achieve
stealthily or indirectly what they cannot accomplish openly.
JG Summit Holdings, Inc. v. CA (2003)

Doctrine:
A right of first refusal agreed to by the Government in the Joint Venture Agreement entered into with its coventurer must be made to apply and be binding to the Government and the bidder at a public bidding held on the
shares of the joint venture corporation constituted pursuant to the agreement.
Facts:
The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (Kawasaki) for the construction,
operation, and management of the Subic National Shipyard, Inc. (SNS), which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a
shareholding proportion of 60%-40%, respectively. One of the provisions of the JVA accorded the parties the right of
first refusal should either party sell, assign, or transfer its interest in the joint venture.
According to the JVA, the authorized capital stock of PHILSECO shall be P330 million. The parties shall
thereafter increase their subscription in PHILSECO as may be necessary and as called by the Board of Directors,
maintaining a proportion of 60%-40% up to a total subscribed and paid-up capital stock of P312 million.
Years later, NIDC transferred all its rights, title, and interest in PHILSECO to the Philippine National Bank
(PNB). More than two months later, by virtue of Administrative Order No. 14, PNBs interest in PHILSECO was
transferred to the National Government.
President Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to and possession of, conserve, manage, and dispose of non-performing assets of the
National Government. A trust agreement was entered into between the National Government and the APT by virtue of
which the latter was named the trustee of the National Governments share in PHILSECO. As a result of a quasireorganization of PHILSECO to settle its huge obligations to PNB, the National Governments shareholdings in
PHILSECO increased to 97.41%, thereby reducing Kawasakis shareholdings to 2.59%.
Exercising their discretion, the COP and the APT deemed it in the best interest of the national economy and the
government to privatize PHILSECO by selling 87.67% of its total outstanding capital stock to private entities. After a
series of negotiations between the APT and Kawasaki, they agreed that the latters right of first refusal under the JVA be
exchanged for the right to top by 5% the highest bid for said shares. They further agreed that Kawasaki would be
entitled to name a company in which it was a stockholder, which could exercise the right to top. Kawasaki informed APT
that Philyards Holdings, Inc. (PHI) would exercise its right to top by 5%.
At the public bidding on said date, the consortium composed of JG Summit Holdings, Inc., Sembawang Shipyard
Ltd. of Singapore (Sembawang), and Jurong Shipyard Limited of Malaysia (Jurong), was declared the highest bidder at
P2.03 billion. However, the consortium was notified that PHI had fully paid the balance of the purchase price of the
subject bidding and the COP had approved the same.
JG Summit filed a petition for mandamus but was dismissed by the RTC which was also affirmed by the CA.
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ATTY. COCHINGYAN
Issue:
1. W/N PHILSECO is a public utility
2. W/N under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total
capitalization of PHILSECO
3. W/N the right to top granted to KAWASAKI violates the principles of competitive bidding
Held/Ratio:
1. NO. PHILSECO is not a public utility, as by nature, a shipyard is not a public utility and no law declares a
shipyard to be a public utility. Since the shipyard was not considered as public property, KAWASAKI has the
right to purchase the said stocks.
2. NO. There is nothing in the 1977 JVA which prevents KAWASAKI from acquiring more than 40% of
PHILSECOs total capitalization.
The authorized capital stock would be P330M and maintaining proportion of 60-40% for NIDC and KAWASAKI
respectively, up to a total subscribed and paid up capital stock of P312M. The maintaining proportion of 6040% refers to their respective share of the burden if the Board of Directors decides to increase the subscription
target to reach the paid-up capital of P312M. It does not bind the parties to maintain the sharing scheme all
throughout the existence of the partnership.
The parties agreed to preserve their respective interests in the partnership via the right of first refusal given to
each. The right of first refusal was made in order that the other party may still exercise control.
3. NO. The right to top granted to KAWASAKI in exchange for its right of first refusal did not violate the principles
of competitive bidding.
The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with
that function. It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award
of a contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary, and
whimsical exercise of power.
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AgPart 925 - Partnership and JV Digest

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PARTNERSHIP/JOINT VENTURE DIGESTS

Evangelista vs. CIR (1957) (habitually peculiar to business)

Essential elements of a partnership:

An agreement to contribute money, property, or industry to a common fund

Intent to divide the profit among the contracting parties.

PARTNERSHIP/JOINT VENTURE DIGESTS

Yulo vs. Yang Chiao Seng (1959) (lessor-lessee; theater)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

The essence of partnership is the sharing of profits and losses.

PARTNERSHIP/JOINT VENTURE DIGESTS

Pascual vs CIR (1998)

PARTNERSHIP/JOINT VENTURE DIGESTS

Mendoza vs. Paule (2009) (Partnership with SPA)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Ortega v. CA (1995) (law firm)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Lyons v. Rosenstock (1932) (San Juan Estate)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Rojas v. Maglana (1990) (logging partnership, additional industrial partner)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Jose Fernandez v. Francisco de la Rosa (1903)

PARTNERSHIP/JOINT VENTURE DIGESTS

Woodhouse v. Halili (1953)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Bastida v. Menzi and Co. (1933) (fertilizer)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

W/N a partnership existed between Sps. Angeles and Mercado

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Agad v. Mabato (1968) "operate a fishpond"

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

W/N Selma was a buyer in good faith

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Pioneer Insurance & Surety Corporation v. CA (1989) (airline, spare parts)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Lim Tong Lim v. Philippine Fishing Gear Industries Inc. (1999)

PARTNERSHIP/JOINT VENTURE DIGESTS

PARTNERSHIP/JOINT VENTURE DIGESTS

Aguila v. CA (1999) (not real party in interest)

PARTNERSHIP/JOINT VENTURE DIGESTS

United States v. Eusebio Clarin (1910)

PARTNERSHIP/JOINT VENTURE DIGESTS

Yu v. NLRC (1993) (unpaid wages)

PARTNERSHIP/JOINT VENTURE DIGESTS

Villareal v. Ramirez (2003) Restaurant and catering business

PARTNERSHIP/JOINT VENTURE DIGESTS

damages and attorneys fees.