Nature and Attributes of the Partnership PARTNERSHIPS

YU V NLRC ..............................................................................................................2
ESTANISLAO JR. V CA (160 SCRA 830) .....................................................................3
YULO V YANG CHIAO SENG.....................................................................................4
EVANGELISTA V COLLECTOR OF INTERNAL REVENUE..............................................6
ONA V COMMISSIONER OF INTERNAL REVENUE ....................................................8
PASCUAL V COMMISSIONER OF INTERNAL REVENUE .............................................9
BASTIDA V. MENZI AND CO .................................................................................. 11
ANTON V OLIVA.................................................................................................... 12
TOCAO V CA ......................................................................................................... 13
ORTEGA V CA........................................................................................................ 13

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Nature and Attributes of the Partnership PARTNERSHIPS

YU V NLRC
G.R. No. 97212, June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION(NLRC) and JADE
MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D.
BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU,
respondents.
FACTS
Benjamin Yu was the former Asst. General Manager of Jade
Mountain, a partnership engaged in marble quarrying and export of a
marble deposit in Bulacan, formed between Lea Bendal and Rhodora
Bendal as general partners and three other Taiwanese limited partners
(1st PARTNERSHIP). According to Yu, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the
partners that the balance would be paid when the firm shall have
secured additional operating funds from abroad. As Asst. GM, he
managed the operations and finances of the business and had overall
supervision of the workers at the marble quarry.
Sometime in 1988, without the knowledge of, the two general
partners SOLD and transferred their interests in the partnership to Willy
Co and Emmanuel Zapanta. Eventually, the partnership was constituted
solely by Co and Zapanta who continued to use the old firm name of Jade
Mountain. After the change, all partnership employees continued
working in the business except for Yu, whose salaries remained unpaid.
On Dec 1988, Yu filed a complaint for illegal dismissal and
recovery of unpaid salaries against Jade Mountain, Co and the other
private respondents. The respondents mainly contend that Yu was never
hired as an employee by the present and new partnership.

The Labor arbiter ruled in favor of Yu and ordered his

reinstatement and awarded his claim for unpaid salaries. On appeal, the
NLRC reversed the decision and dismissed the complaint, holding that a
new partnership was formed which had not retained Yu as Asst. GM, and
that there was no law requiring the new partnership to absorb the
employees of the old partnership. Therefore, Yu had not been illegally
dismissed and that claim for unpaid salaries should be claimed against
the old partnership.
Yu is now requesting the reversal, and mainly argues that a
partnership has a juridical personality separate and distinct from that of
each of its members. Such independent legal personality subsists, he
claims, notwithstanding changes in the identities of the partners.
Consequently, his employment with Jade Mountain could not have been
affected by changes in the latter's membership.
ISSUE
(1) Whether the partnership which had hired Yu as Assistant
General Manager had been EXTINGUISHED and REPLACED by a new
partnership composed of Co and Zapanta
(2) If yes, whether Yu could nonetheless assert his rights under
his employment contract as against the new partnership.
HELD / RATIO
(1) YES. When the original partners sell their equity interest
in the company, the original juridical person was extinguished and
the new set of partners constituted a new partnership arrangement
with a new juridical personality. Yet the underlying business
enterprise remained the same between the two sets of investors
and liability rules pertaining to the underlying business enterprise
must be respected.
A new partnership was formed which dissolved old partnership
by virtue of Art. 1828. The acquisition of 82% of the partnership interest
by new partners, coupled with the retirement or withdrawal of the
partners who had originally owned such 82% interest, was enough to
constitute a new partnership. Nevertheless, based on Art 1829, on

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Nature and Attributes of the Partnership PARTNERSHIPS

dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed. However, the new
partnership simply took over the business owned by the preceding
partnership and did not undertake the dissolution and winding up of its
business affairs.
(2) The new partnership is still liable for the debts of the
preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, the
Court held that under similar set of facts, a withdrawing partner remains
liable to a third party creditor of the old partnership.
Under Art. 1840,
the liability of a third person becoming a
partner in the partnership continuing the business to the creditors of the
dissolved partnership shall be satisfied out of the partnership property
only, unless there is a stipulation to the contrary. Such creditors have a
prior right to any claim of the retired partner or the representative of
the deceased partner against the person or partnership continuing the
business on account of the retired or deceased partner's interest in the
dissolved partnership or on account of any consideration promised for
such interest or for his right in partnership property. Yu is such a
creditor.
However, the new owners of the business enterprise have a
right to choose who would be employed in their newly acquired
business, and they cannot be compelled to maintain employment
contracts of the managers and employees existing with the
transferor. Therefore, the non-retention of Benjamin Yu as Asst.
General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause, which in the case at bar is
redundancy. The new partnership had its own new General Manager, Mr.
Co, the principal owner himself. Nevertheless, Mr. Yu is entitled to
separation pay.

ESTANISLAO JR. V CA (160 SCRA 830)

ELIGIO ESTANISLAO, JR., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO,
EMILIO and LEOCADIO SANTIAGO,respondents.
Estanislao Jr and his siblings are co-owners of certain lots which were
then being leased to SHELL. They agreed to open and operate a gas
station known as Estanislao Shell Service Station. The initial investment
was to be taken from the advance rentals due to them from SHELL for
the occupancy of the lots.
In a joint affidavit, the other siblings agreed that Estanislao Jr would
operate and manage the gasoline service station of the family. They
negotiated with SHELL. For practical purposes and in order not to run
counter to the company's policy of appointing only one dealer, it was
agreed that Estanislao Jr would apply for the dealership. For a year,
Estanislao Jrs sister helped in managing the bussiness.
Later, Estanislao Jr and his siblings entered into an Additional Cash
Pledge Agreement with SHELL wherein it was reiterated that the
advance rental shall be deposited with SHELL to cover advances of fuel
to Estanislao Jr as dealer with a proviso that said agreement cancels and
supersedes the Joint Affidavit executed by the co-owners."
For sometime, Estanislao Jr submitted financial statements regarding the
operation of the business to his other siblings, but therafter Estanislao Jr
failed to render subsequent accounting. A demand was made on
Estanislao Jr to render an accounting of the profits.
The financial report showed the profit made by the business, so the
other siblings filed a complaint praying that Estanislao Jr be ordered to
render a formal accounting of the business operation and to pay the
plaintiffs their lawful shares and participation in the net profits of the
business plus interest.

G.R. NO. L-49982 A PRIL 27, 1988

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Nature and Attributes of the Partnership PARTNERSHIPS

Estanislao Jr. contends that because of the said stipulation in the
Additional Cash Pledge Agreement cancelling and superseding that
previous Joint Affidavit, whatever partnership agreement there was in
said previous agreement had thereby been abrogated.
ISSUE: W/N a partnership was established by and among Estanislao Jr
and his siblings as regards the ownership and or operation of the
gasoline service station business
HELD: Yes.
RATIO: The cancelling provision was necessary because the Joint
Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966
while the latter agreement also refers to advance rentals of the same
amount starting May 24, 1966.
There is, therefore, a duplication of reference to the P 15,000.00 hence
the need to provide in the subsequent document that it "cancels and
supersedes" the previous one.
While it is true that in the latter document (Additional Cash Pledge
Agreement), it speaks of Estanislao Jr. as the sole dealer, but this is as it
should be because in the latter document SHELL was a signatory and it
would be against its policy if in the agreement it should be stated that
the business is a partnership with the siblings and not a sole
proprietorship of Estanislao Jr.
Moreover other evidence in the record shows that there was in fact such
partnership agreement between the parties. This is attested by:
-

the testimonies of the sister and Atty. Angeles.

Submission by Estanislao Jr of periodic accounting of the
business

Written authority given by Estanislao Jr to his sister to examine

and audit the books of their common business
sister assisted in the running of the business

There is no doubt that the parties 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 Estanislao Jr and the issuance of all government permits and licenses
in the name of Estanislao Jr 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.

YULO V YANG CHIAO SENG

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs and
appellants, vs. YANG CHIAO SENG, defendant and appellee.
FACTS:
Yang Chiao Seng wrote a letter to the plaintiff Mrs. Rosario U. Yulo,
proposing the formation of a partnership between them to operate a
theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz,
Manila with the conditions:
(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 two years and six months,
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

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Nature and Attributes of the Partnership PARTNERSHIPS

the lobby of the building. (4) that after December 31, 1947, all
improvements placed by the partnership shall belong to Mrs. Yulo, but
that 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.
Hence, a partnership agreement was made and Yang & Company,
Limited was established which was to exist from July 1, 1945 to
December 31, 1947. In June 1946, they executed a supplementary
agreement extending the partnership for 3 years beginning Jan 1, 1948
to Dec 31, 1950.
The land on which the theater was constructed was leased by Yulo from
owners, Emilia Carrion and Maria Carrion Santa Marina for an indefinite
period but that after 1 year, such lease may be cancelled by either party
upon 90-day notice. In Apr 1949, the owners notified Yulo of their desire
to cancel the lease contract come July. Yulo and husband brought a civil
action to declare the lease for a indefinite period. Owners brought their
own civil action for ejectment upon Yulo and Yang.
In 1950, Yulo demanded from Yang her share in the profits of the
business. Yang answered saying he had to suspend payment because of
pending ejectment suit. Defendant claims that the real agreement
between plaintiff and defendant was one of lease and not of partnership;
that the partnership was adopted as a subterfuge to get around the
prohibition contained in the contract of lease between the owners and
the plaintiff against the sublease of the property.
ISSUE: Whether or not, by virtue of the contracts between the parties,
there existed a partnership.

We have gone over the evidence and we fully agree with the conclusion
of the trial court that the agreement was a sublease, not a
partnership.
The following are 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.
Where one of the parties to a contract does not contribute the capital he
is supposed to contribute to a common fund; does not furnish any help
or intervention in the management of the business subject of the
contract; does not demand from the other party an accounting of the
expenses and earnings of the business; and is absolutely silent with
respect to any of the acts that a partner should have done, but, on the
other hand, receives a fixed monthly sum from the other party, there can
be no other conclusion than that the contract between the parties is one
of lease and not of partnership.
In the first place, plaintiff did not furnish the supposed P20,000 capital.
In the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she
has ever demanded from defendant any accounting of the expenses and
earnings of the business. Were she 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.
She was absolutely silent with respect to any of the acts that a partner
should have done; all that she did was to receive her share of P3,000 a
month, which cannot be interpreted in any manner than a payment for
the use of the premises which she had leased from the owners.
We find no error in the judgment of the court below and we affirm it in
toto, with costs against plaintiff-appellant.

HELD:

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Nature and Attributes of the Partnership PARTNERSHIPS

EVANGELISTA V COLLECTOR OF INTERNAL REVENUE

in his letter of demand be reversed, and that they be absolved from the
payment of the taxes in question, with costs against the respondent.

FACTS
Petitioners Eufemia Evangelista, Manuela Evangelista and Francisca
Evangelista borrowed from their father the sum of P59,1400.00 which
amount together with their personal monies was used by them for the
purpose of buying real properties. They bought from:
1. Mrs. Josefina Florentino, a lot with an area of 3,713.40 sq. m.
including improvements thereon from the sum of P100,000.00,
2. Mrs. Josefa Oppus, 21 parcels of land with an aggregate area of
3,718.40 sq. m. including improvements thereon for
P130,000.00,
3. the Insular Investments Inc., a lot of 4,353 sq. m. including
improvements thereon for P108,825.00, and
4. Mrs. Valentina Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.34.
In a document they appointed their brother Simeon Evangelista to
manage their properties with full power to lease; to collect and receive
rents; to issue receipts therefor; in default of such payment, to bring
suits against the defaulting tenants; to sign all letters, contracts, etc., for
and in their behalf, and to endorse and deposit all notes and checks for
them.

ISSUE
W/N petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for
corporations and the real estate dealers fixed tax.

After having bought the above-mentioned real properties the petitioners

had the same rented or leases to various tenants.
Respondent Collector of Internal Revenue demanded the payment of
income tax on corporations, real estate dealer's fixed tax and
corporation residence tax for the years 1945-1949, computed, according
to assessment made by said officer.
Said letter of demand and corresponding assessments were delivered to
petitioners whereupon they instituted the present case in the Court of
Tax Appeals, with a prayer that the decision of the respondent contained

RATIO
YES. Pursuant to Article 1767 of the Civil Code, the essential elements of
a partnership are two, namely: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed to, and
did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of
all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, because:
Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso.
They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common
fund.
They invested the same, not merely 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.

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Nature and Attributes of the Partnership PARTNERSHIPS

The aforesaid lots were not devoted to residential purposes, or
to other personal uses, of petitioners herein. The properties
were leased separately to several persons, who, from 1945 to
1948 inclusive, paid the total sum of P70,068.30 by way of
rentals. Seemingly, the lots are still being so let, for petitioners
do not even suggest that there has been any change in the
utilization thereof.
Since August, 1945, the properties have been under the
management of one person, namely Simeon Evangelista, with
full power to lease, to collect rents, to issue receipts, to bring
suits, to sign letters and contracts, and to indorse and deposit
notes and checks. Thus, the affairs relative to said properties
have been handled as if the same belonged to a corporation or
business and enterprise operated for profit.
The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first
property was acquired, and over twelve (12) years, since
Simeon Evangelista became the manager.
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.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point.
BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually contributed
money to a common fund with express purpose of engaging in real
estate business for profit. The series of transactions which they had

undertaken attest to this. I wish however to make to make the following

observation:
Article 1769 of the new Civil Code lays down the rule for determining
when a transaction should be deemed a partnership or a co-ownership.
Said article paragraphs 2 and 3, provides:
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish
partnership, whether or not the person sharing them have a joint
or common right or interest in any property from which the
returns are derived;
From the above it appears that the fact that those who agree to form a
co-ownership shared or do not share any profits made by the use of
property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself
establish a partnership whether or not the persons sharing therein have
a joint or common right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a
partnership, the existence of a judicial personality different from that of
the individual partners, and the freedom to transfer or assign any
interest in the property by one with the consent of the others (Padilla,
Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of
other circumstances showing a contrary intention cannot be considered
a partnership.

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Nature and Attributes of the Partnership PARTNERSHIPS

ONA V COMMISSIONER OF INTERNAL REVENUE
G.R. NO. L-19342 M AY 25, 1972
LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B.
OA, MARIANO B. OA, LUZB. OA, VIRGINIA B. OA and LORENZO B.
OA, JR., petitioners, vs.
THE COMMISSIONER OF INTERNAL REVENUE (CIR), respondent.
FACTS:
Julia Buales (Buales) died on March 23, 1944, leaving as heirs her
surviving spouse, Lorenzo T. Oa (Oa) and her five children. Oa
eventually was appointed as administrator of the estate of Buales.
Because three of Buales children were still minors, Oa was also
appointed as guardians of the persons and properties of the minor
children.
A project partition was submitted by Oa which was duly approved by
the court on May 16, 1949. However, no attempt was made to divide the
properties which remained in the management of Oa who used said
properties in business by leasing and selling them and investing the
income derived and the proceeds from the sales in real properties and
securities. As a result, petitioners' properties and investments
graduallyincreased from PhP105,450.00 in 1949 to PhP480,005.20 in
1956.
The said incomes are recorded in the books of account kept by Oa and
every year, the heirs file their income tax including their shares in the
net income derived from said properties and securities and from
transactions involving them.
In 1955 and 1956, the CIR assessed against the heirs corporate income
taxes. CIR decided that the heirs formed an unregistered partnership
and therefore, subject to corporate income tax pursuant to Section24, in
relation to Section 84(b), of the Tax Code.

ISSUE/S:
WON an unregistered partnership was formed
RULING:
From the moment the heirs allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties
themselves to be used by Oa as a common fund in undertaking several
transactions or in business, with the intention of deriving profit to be
shared by them proportionally, such act was tantamount to actually
contributing such incomes to a common fund and, in effect, they thereby
formed an unregistered partnership within the purview of the abovementioned provisions of the Tax Code.
RATIO:
For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the moment
the said common properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as determined in
a project partition either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or intestate
proceeding.
The reason for this is simple. From the moment of such partition, the
heirs are entitled already to their respective definite shares of the estate
and the incomes thereof, for each of them to manage and dispose of as
exclusively his own without the intervention of the other heirs, and,
accordingly he becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to be held in
common with his co-heirs under a single management to be used with
the intent of making profit thereby in proportion to his share, there can
be no doubt that, even if no document or instrument were executed for
the purpose, for tax purposes, at least, an unregistered partnership is
formed. This is exactly what happened to petitioners in this case.

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Buales died way back on March 23, 1944 and the project of partition of
her estate was judicially approved as early as May 16, 1949. It is
admitted that during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said profit, the
heirs engaged, thru Oa, in the purchase and sale of corporate securities.
It is likewise admitted that all the profits from these ventures were
divided among petitioners proportionately in accordance with their
respective shares in the inheritance.

PASCUAL V COMMISSIONER OF INTERNAL REVENUE

Respondent Commissioner informed petitioners that in the years 1968

and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a
corporation under Section 20(b) and its income was subject to the taxes
prescribed under Section 24, both of the National Internal Revenue
Code that the unregistered partnership was subject to corporate income
tax as distinguished from profits derived from the partnership by them
which is subject to individual income tax; and that the availment of tax
amnesty under P.D. No. 23, as amended, by petitioners relieved
petitioners of their individual income tax liabilities but did not relieve
them from the tax liability of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency income tax assessed.

G.R. NO. 78133 OCTOBER 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.

ISSUE: Was there an unregistered partnership between the petitioners?

FACTS
The distinction between co-ownership and an unregistered partnership
or joint venture for income tax purposes is the issue in this petition.

RATIO
The basis of the subject decision of the respondent court WAs the ruling
of this Court in Evangelista. In the said case, petitioners borrowed a sum
of money from their father which together with their own personal
funds they used in buying several real properties. They appointed their
brother to manage their properties with full power to lease, collect, rent,
issue receipts, etc. They had the real properties rented or leased to
various tenants for several years and they gained net profits from the
rental income. Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others, from them.
xxx
Upon consideration of all the facts and circumstances surrounding the
case, we are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among
themselves, because:
1. Said common fund was not something they found already in existence.
It was not a property inherited by them pro indiviso. They created it

Pascual and Dragon bought 2 parcels of land from Santiago Bernardino,

et al. They bought another 3 parcels of land from Juan Roque. The first 2
parcels of land were sold by petitioners in 1968 to Marenir Development
Corporation, while the 3 parcels of land were sold by petitioners to
Erlinda Reyes and Maria Samson. Petitioners realized net profits in the
said sales. The corresponding capital gains taxes were paid by
petitioners by availing of the tax amnesties.
However, in a letter dated March 31, 1979 of then Acting BIR
Commissioner Efren I. Plana, petitioners were assessed and required to
pay P107,101.70 as alleged deficiency corporate income taxes for the
years 1968 and 1970.

HELD
No.

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Nature and Attributes of the Partnership PARTNERSHIPS

purposely. What is more they jointly borrowed a substantial portion
thereof in order to establish said common fund;
2. They invested the same, not merely in one transaction, but in a series
of transactions. The number of lots (24) acquired and transcations
undertaken, as well as the brief interregnum between each, particularly
the last 3 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
petitioners. One cannot but perceive a character of habituality peculiar
to business transactions for gain.
3. The aforesaid lots were not devoted to residential purposes or to
other personal uses, of petitioners herein. The properties were leased
separately to several persons by way of rentals.
4. The properties have been under the management of one person, with
full power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and deposit notes and
checks. The affairs relative to said properties have been handled as if the
same belonged to a business enterprise operated for profit.
5. The foregoing conditions have existed for more than 10 years, or, to be
exact, over 15 years, since the first property was acquired, and over 12
years, since Simeon Evangelists became the manager.
xxx
In the present case, there is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund,
and that they intended to divide the profits among themselves.
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.

10

In Evangelists, there was a series of transactions where petitioners

purchased 24 lots showing that the purpose was not limited to the
conservation or preservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to business
transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought 2 parcels of land in 1965. They did
not sell the same nor make any improvements thereon. In 1966, they
bought another three 3 parcels of land from one seller. It was only 1968
when they sold the two 2 parcels of land after which they did not make
any additional or new purchase. The remaining 3 parcels were sold by
them in 1970. The transactions were isolated. The character of
habituality peculiar to business transactions for the purpose of gain was
not present.
In Evangelista, the properties were leased out to tenants for several
years. The business was under the management of one of the partners.
Such condition existed for over fifteen (15) years. None of the
circumstances are present in the case at bar. The co-ownership started
only in 1965 and ended in 1970.
The sharing of returns does not in itself establish a partnership whether
or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a
partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign
the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that
they thereby formed an unregistered partnership. The 2 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

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Nature and Attributes of the Partnership PARTNERSHIPS

circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income
tax, as the respondent commissioner proposes.

ISSUE: Is the relationship between the petitioner and Menzi that of

partners?
HELD: No.

BASTIDA V. MENZI AND CO

FACTS: In November 1921, Bastida, who had had some experience in

mixing and selling fertilizer, offered to assign to Menzi & Co. his contract
with Phil Sugar Centrals Agency and to supervise the mixing of the
fertilizer and to obtain other orders for 50 % of the net profit that Menzi
& Co., Inc., might derive therefrom. J. M. Menzi (gen. manager of Menzi &
Co.) accepted the offer. The agreement between the parties was verbal
and was confirmed later by the letter of Menzi to Bastida on January 10,
1922.
Pursuant to the verbal agreement, the defendant corporation on April
27, 1922 entered into a written contract with the plaintiff, marked
Exhibit A, which is the basis of the present action. Still, the fertilizer
business as carried on in the same manner as it was prior to the written
contract, but the net profit that the plaintiff herein shall get would only
be 35%. The intervention of the plaintiff was limited to supervising the
mixing of the fertilizers in the bodegas of Menzi.
Prior to the expiration of the contract (April 27, 1927), the manager of
Menzi notified the plaintiff that the contract for his services would not be
renewed. Subsequently, when the contract expired, Menzi proceeded to
liquidate the fertilizer business in question. The plaintiff refused to agree
to this. It argued, among others, that the written contract entered into by
the parties is a contract of general regular commercial partnership,
wherein Menzi was the capitalist and the plaintiff the industrial partner.

11

RATIO: The relationship established between the parties was not that of
partners, but that of employer and employee, whereby the plaintiff was
to receive 35% of the net profits of the fertilizer business of Menzi in
compensation for his services for supervising the mixing of the
fertilizers. Neither the provisions of the contract nor the conduct of the
parties prior or subsequent to its execution justified the finding that it
was a contract of copartnership. The written contract was, in fact, a
continuation of the verbal agreement between the parties, whereby the
plaintiff worked for the defendant corporation for one- half of the net
profits derived by the corporation form certain fertilizer contracts.
According to Art. 116 of the Code of Commerce, articles of association by
which two or more persons obligate themselves to place in a common
fund any property, industry, or any of these things, in order to obtain
profit, shall be commercial, no matter what it class may be, provided it
has been established in accordance with the provisions of the Code.
However in this case, there was no common fund. The business belonged
to Menzi & Co. The plaintiff was working for Menzi, and instead of
receiving a fixed salary, he was to receive 35% of the net profits as
compensation for his services. The phrase in the written contract en
sociedad con, which is used as a basis of the plaintiff to prove
partnership in this case, merely means en reunion con or in association
with.
It is also important to note that although Menzi agreed to furnish the
necessary financial aid for the fertilizer business, it did not obligate itself
to contribute any fixed sum as capital or to defray at its own expense the
cost of securing the necessary credit.

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Nature and Attributes of the Partnership PARTNERSHIPS

Despite the agreement that Bastida was to receive 35% of the profit
from the business of mixing and distributing fertilizer registered in
the name of Menzi and Co., there was never any contract of
partnership constituted between them based on the following key
elements: a) there was 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 and Co.; b) there was no provision in the agreement for
reimbursing Menzi and 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 and Co., and there were no separate
books and no 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 and Co.

ANTON V OLIVA
FACTS:
Ernesto and Corazon (Olivas) filed an action for accounting and specific
performance with damages against spouses Jose Miguel and Gladys
Miriam Anton (Antons) before RTC. The Olivas alleged that they entered
into 3 MOAs setting up a business partnership covering 3 fast food
stores known as Pinoy Toppings to be established at SM Megamall,
Cubao and Southmall. In the agreement, Olivas will get 30% of the net
profits in megamall and 20% in cubao and southmall stores.
Antons gave them P2,547,000 as shares of Olivas. But did not give them
their shares in SM Cubao and later on beginning Nov. 1997, Antons
stopped giving the shares of Olivas. Antons alleged that they never
partnered with the Olivas in the operations of the 3 stores. It is to be
noted that Gladys filed a separation case with Jose Miguel (partnership
terminated).

12

RTC holds that there was no partnership but Antons had an obligation to
render accounting and pay the share of Olivas. Antons appealed but CA
affirmed the decision but modified it by deleting the order to get an
independent accountant. It further ordered to pay Olivas the shares with
interest.
ISSUE:
W/N Antons have the obligation to pay the Olivas their shares of the net
profits of the 3 stores plus legal interest on the shares.
HELD: Yes!
RATIO:
The relationship between the parties was that creditor-debtor and not
partnership. Although MOA denominated the Oliva as partners the
amounts they gave did not appear to be capital contributions to the
establishment of the stores. Although Olivas were mere creditors,
Antons agreed to compensate them for the risk they have taken. There
was nothing illegal or immoral about this compensation scheme. Thus,
unless the MOAs are subsequently terminated on valid grounds, the
same remain valid and enforceable. Their obligation to pay their shares
was not extinguished.
Olivas have no right to demand accounting since they were not partners,
but they have the right to know so that they will know how much profit
they will make (diba based on percentages). The interest (12%)
awarded are not interest on the loan but interest on the unpaid shares of
net profits of the 3 stores.

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Nature and Attributes of the Partnership PARTNERSHIPS

TOCAO V CA

RULING:

G.R. NO. 127405. SEPTEMBER 20, 2001

PETITIONERS: Marjorie Tocao and William T. Belo
RESPONDENTS: Court Of Appeals and Nenita A. Anay

No. Belo acted merely as a guarantor of Geminesse Enterprise. Inasmuch

as Belo was not a partner in Geminesse Enterprise, Anay had no cause of
action against him and her complaint against him should accordingly be
dismissed.

FACTS:
RATIO:
On November 14, 2001, Tocao and Belo filed a Motion for
Reconsideration of the SC Decision dated October 4, 2000. The
dispositive portion of said decision states:
"WHEREFORE, the instant petition for review on certiorari is
DENIED. The partnership among petitioners and private
respondent 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 Regional Trial Court for proper proceedings relative to said
dissolution. The appealed decisions of the Regional Trial Court and
the Court of Appeals are AFFIRMED with MODIFICATIONS, as
follows ---"
They maintain that there was no partnership between Belo and Anay;
and that the latter being merely an employee of Tocao.
According to the testimony of Elizabeth Bantilan, a witness, Belo
guarantees the stocks that she owes somebody who is Peter Lo and he
acts as guarantor for us. We can borrow money from him. She affirmed
that Lo is the one fixing our orders that open the L/C. She affirmed that
Lo was the financier and Belo was a guarantor.

The business relationship created between Tocao and Anay was an

informal partnership, which was not even recorded with the Securities
and Exchange Commission. As such, it was understandable that Belo,
who was Tocaos good friend and confidante, would occasionally
participate in the affairs of the business, although never in a formal or
official capacity.
No evidence was presented to show that petitioner Belo participated in
the profits of the business enterprise. Anay herself professed lack of
knowledge that petitioner Belo received any share in the net income of
the partnership. On the other hand, Tocao declared that Belo was not
entitled to any share in the profits of Geminesse Enterprise. With no
participation in the profits, Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the profits and
losses.

ORTEGA V CA
FACTS:

ISSUE(S):
Whether or not a partnership existed between Belo and Anay.

13

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and

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Nature and Attributes of the Partnership PARTNERSHIPS

reconstituted with the Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several subsequent
amendments to the articles of partnership on 18 September 1958, to
change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July
1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18
April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4
December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on
11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977
to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F.
Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior
partners.
On February 17, 1988, petitioner-appellant wrote the respondentsappellees a letter stating that he is withdrawing and retiring from the
firm of Bito, Misa and Lozada and that the assets of the firm be
liquidated and his share be given to him.
Petitioner then filed a petition for dissolution with the SEC. the other
partners opposed the dissolution of the partnership.

The partnership agreement (amended articles of 19 August

1948) does not provide for a specified period or undertaking.
The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so
long as mutually satisfactory and upon the death
or legal incapacity of one of the partners, shall be
continued by the surviving partners."
The 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 4 but that it can result in a liability for damages. 5

HELD:

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. 6 Among
partners, 7 mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily
theright, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.

Yes. A partnership that does not fix its term is a partnership at will. That
the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and
Castillo," (somewhere during the pendency of the case, new partners
were included and Misa died) is indeed such a partnership need not be
unduly belabored. We quote, with approval, like did the appellate court,
the findings and disquisition of respondent SEC on this matter; viz:

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,
as might be distinguished from the winding up of, the business. 8 Upon
its dissolution, the partnership continues and its legal personality is
retained until the complete winding up of its business culminating in its
termination. 9

ISSUE:
whether the Withdrawal and retirement of Joaquin Misa dissolved the
partnership of Bito, Misa and Lozada?

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Nature and Attributes of the Partnership PARTNERSHIPS

(not part of the decision of the SC but what this is the decision which was
reversed by the SEC en banc, whose decision was ultimately affirmed by
SC)
The hearing officer however opined that the partnership is one for a
specific undertaking and hence not a partnership at will, citing
paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the
partnership is formed, is to act as legal adviser
and representative of any individual, firm and
corporation engaged in commercial, industrial or
other lawful businesses and occupations; to
counsel and advise such persons and entities
with respect to their legal and other affairs; and
to appear for and represent their principals and
client in all courts of justice and government
departments and offices in the Philippines, and
elsewhere when legally authorized to do so."
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 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. 3

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