CIR vs SUTTER
136 Phil. 538
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin'
Co., Ltd.", was formed on 30 September 1947 by herein
respondent William J. Suter, as the general partner, and
Julia Spirig and Gustav Carlson, as the limited
partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited
partnership was registered with the Securities and
Exchange Commission. The firm engaged, among other
activities, in the importation, marketing, distribution
and operation of automatic phonographs, radios,
television sets and amusement machines, their parts
and accessories. It had an office and held itself out as a
limited partnership, handling and carrying merchandise,
using invoices, bills and letterheads bearing its trade-
name, maintaining its own books of accounts and bank
accounts, and had a quota allocation with the Central
Bank.
In 1948, however, general partner Suter and limited
partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share
in the partnership to Suter and his wife. The sale was
duly recorded with the Securities and Exchange
Commission on 20 December 1948.
The limited partnership had been filing its income tax
returns as a corporation, without objection by the herein
petitioner, Commissioner of Internal Revenue, until in
1959 when the latter, in an assessment, consolidated
the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig, resulting in a
determination of a deficiency income tax against res-
pondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
Respondent Suter protested the assessment, and
requested its cancellation and withdrawal, as not in
accordance with law, but his request was
denied. Unable to secure a reconsideration, he appealed
to the Court of Tax Appeals, which court, after trial,
rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the
Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the
William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that
respondent William J. Suter and his wife, Julia
Spirig Suter, actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after
the marriage of the partners, respondent William J.
Suter and Julia Spirig Suter, and the subsequent sale to
them by the remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal
Revenue, is that the marriage of Suter and Spirig and
their subsequent acquisition of the interests of
remaining partner Carlson in the partnership dissolved
the limited partnership, and if they did not, the fiction of
juridical' personality of the partnership should be dis-
regarded for income tax purposes because the spouses
have exclusive ownership and control of the business;
consequently, the income tax return of respondent Suter
for the years in question should have included his and
his wife's individual incomes and that of the limited
partnership, in accordance with Section 45 (d) of the
National Internal Revenue Code, which provides as
follows:
"(d) Husband and wife. - In the case of
married persons, whether citizens, residents or non-
residents, only one consolidated return for the taxable
year shall be filed by either spouse to cover the income
of both spouses, - - - - -."
In refutation of the foregoing, respondent Suter
maintains, as the Court of Tax appeals held, that his
marriage with limited partner Spirig and their acquisi-
tion 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, as
contradistinguished from a duly registered general part-
nership, 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.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter
"Morcoin" Co., Ltd., has been dissolved by operation of
law because of the marriage of the only general partner,
William J. Suter, to the originally limited partner, Julia
Spirig, one year after the partnership was organized is
rested by the appellant upon the opinion of now Senator
Tolentino in Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. 1, 4th Ed.,
page 58, that reads as follows:
"' A husband and a wife may not enter into a contract
of general copartnership, 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)'"
The petitioner-appellant has evidently failed to observe
the fact that William J. Suter "Morcoin" Co., Ltd.
was not a universal partnership, but
a particular one. As appears from Articles 1674 and
1675 of the Spanish Civil Code of 1889 (which was the
law in force when the subject firm was organized in
1947), a universal partnership requires either that the
object of the association be all the present property of
the partners, as contributed by them to the common
fund, or else "all that the partners may acquire by
their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the
contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia
Spirig, and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co.,
Ltd. was not a partnership that spouses were forbidden
to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court,
D. Jose Castan, in his Derecho Civil, 7th Edition, 1952,
Volume. 4, page 546, footnote 1, says with regard to the
prohibition contained in the aforesaid Article 1677:
"Los conyuges, segun esto, no pueden celebrar entre si
el contrato de sociedad universal, Pero 8 podran
constituir sociedad particular? Aunque el punto ha sido
muy debetido, nos inclinamos a la tesis permisiva de los
contratos de sociedad particular entre esposos, ya que
ningun precepto de nuestro Codigo los prohibe, y hay
que ester a la norma general segun la que toda persona
es capaz pare contratar mientras no sea declarado
incapaz por la ley. La jurisprudencia de la Direccion de
los Registros fue favorable a esta misma tesis en su
resolucion de 3 de febrero de 1936, mas parece cambiar
de rumbo en la de 9 de marzo de 1943."
Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of the
causes provided for that purpose either by the Spanish
Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both
partners the company became a single proprietorship, is
equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned
and contributed by them before their marriage; and after
they were joined in wedlock, such contributions
remained their respective separate property under the
Spanish Civil Code (Article 1396):
"The following shall be the exclusive property of each
spouse:
(a) That which is brought to the marriage as his or her
own; - - - -- - - -."
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.
It being a basic tenet of the Spanish and Philippine law
that the partnership has a juridical personality of its
own, distinct and separate from that of its partners
(unlike American and English law that does not
recognize such separate juridical personality), the
bypassing of the existence of the limited partnership as
a taxpayer can only be done by ignoring or disregarding
clear statutory mandates and basic principles of our
law. The limited partnership's separate individuality
makes it impossible to equate its income with that of the
component members. True, section 24 of the Internal
Revenue Code merges registered general co
partnerships (compaias colectivas) with the personality
of the individual partners for income tax purposes. But
this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended
by mere implication to limited partnerships.
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 appellee's marriage, and had been
filing its own income tax returns as such independent
entity. The change in its membership, brought about by
the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income
tax. As far as the records show, the partners did not
enter into matrimony and thereafter buy the interests of
the remaining partner with the premeditated scheme or
design to use the partnership as a business conduit to
dodge the tax laws. Regularity, not otherwise, is
presumed.
As the limited partnership under consideration is
taxable on its income, to require that income to be
included in the individual tax return of respondent
Suter is to overstretch the letter and intent of the
law. In fact, it would even conflict with what it
specifically provides in itsSection 24: for the appellant
Commissioner's stand results in equal treatment,
taxwise, of a general copartnership (compaia colectiva)
and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter on
its income, but not the former, because it is in the case
of compaias colectivas that the members, and not the
firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly
registered general partnership (Section 26, N. I. R. C.;
Araas, Anno. & juris. on the N.I.R.C., As Amended, Vol.
1, pages 88-89).
But it is argued that the income of the limited
partnership is actually or constructively the income of
the spouses and forms part of the conjugal partnership
of gains. This is not wholly correct. As pointed out in
Agapito vs. Molo, 50 Phil. 779, and People's Bank vs.
Register of Deeds of Manila, 60 Phil. 167, the fruits of
the wife's parapherna become conjugal only when no
longer needed to defray the expenses for the
administration and preservation of the paraphernal
capital of the wife. Then again, the appellant's
argument erroneously confines itself to the question of
the legal personality of the limited partnerships which is
not essential to the income taxability of the partnership
since the law taxes the income of even joint accounts
that have no personality of their own.[1] Appellant is,
likewise, mistaken in that it assumes that the conjugal
partnership of gains is a taxable unit, which it is
not. What is taxable is the "income of both spouses"
[section 45 (d)] in their individual capacities. Though
the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and
wife) may be the same for a given taxable year, their
consequences would be different, as their contributions
in the business partnership are not the same.
The difference in tax rates between the income of the
limited partnership being consolidated with, and when
split from the income of the spouses, is not a justifica-
tion for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it
by requiring the limited partnership to pay tax on its
own income.
For the foregoing reasons, the decision under review is
hereby affirmed. No costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez,
Castro, Fernando, Capistrano, and Teehankee,
JJ., concur.
Barredo, J., did not take part.

PETITION FOR AUTHORITY TO
CONTINUE USE OF THE FIRM
NAME SYCIP, SALAZAR,
FELICIANO, HERNANDEZ &
CASTILLO".
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM
NAME SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO.
July 30, 1979
Facts:
Petitions were filed by the surviving partners of Atty. Alexander
Sycip, who died on May 5, 1975 and by the surviving partners of
Atty. Herminio Ozaeta, who died on February 14, 1976, praying that
they be allowed to continue using, in the names of their firms, the
names of partners who had passed away.
Petitioners contend that the continued use of the name of a
deceased or former partner when permissible by local custom, is not
unethical but care should be taken that no imposition or deception is
practiced through this use. They also contend that no local custom
prohibits the continued use of a deceased partners name in a
professional firms name; there is no custom or usage in the
Philippines, or at least in the Greater Manila Area, which recognizes
that the name of a law firm necessarily identifies the individual
members of the firm.
Issue:
WON the surviving partners may be allowed by the court to retain the
name of the partners who already passed away in the name of the
firm? NO
Held:
In the case of Register of Deeds of Manila vs. China Banking
Corporation, the SC said:
The Court believes that, in view of the personal and confidential
nature of the relations between attorney and client, and the high
standards demanded in the canons of professional ethics, no
practice should be allowed which even in a remote degree could give
rise to the possibility of deception. Said attorneys are accordingly
advised to drop the names of the deceased partners from their firm
name.
The public relations value of the use of an old firm name can tend to
create undue advantages and disadvantages in the practice of the
profession. An able lawyer without connections will have to make a
name for himself starting from scratch. Another able lawyer, who can
join an old firm, can initially ride on that old firms reputation
established by deceased partners.
The court also made the difference from the law firms and business
corporations:
A partnership for the practice of law is not a legal entity. It is a mere
relationship or association for a particular purpose. It is not a
partnership formed for the purpose of carrying on trade or business
or of holding property. Thus, it has been stated that the use of a
nom de plume, assumed or trade name in law practice is improper.
We find such proof of the existence of a local custom, and of the
elements requisite to constitute the same, wanting herein. Merely
because something is done as a matter of practice does not mean
that Courts can rely on the same for purposes of adjudication as a
juridical custom.
Petition suffers legal and ethical impediment.
CHARLES F. WOODHOUSE, plaintiff-appellant, vs.
FORTUNATO F. HALILI, defendant-appellant.
G.R. No. L-4811 July 31, 1953
Subject: BusOrg 1 (PAT)
Doctrine: Fraud
FACTS
On November 29, 1947, plaintiff Woodhouse entered into a
written agreement with defendant Halili stating among others
that: 1) that they shall organize a partnership for the bottling
and distribution of Missionsoft drinks, plaintiff to act as
industrial partner or manager, and the defendant as a capitalist,
furnishing the capital necessary therefore; 2) that plaintiff was
to secure the Mission Soft Drinks franchise for and in behalf of
the proposed partnership and 3) that the plaintiff was to receive
30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the
Mission Dry Corporation of Los Angeles, California, that he
had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a milliondollars in the
bottling and distribution of the said beverages, and requested,
in order that he may close the deal with him, that the right to
bottle and distribute be granted him for a limited time under the
condition that it will finally be transferred to the corporation.
Pursuant to this request, plaintiff was given a thirty days
option on exclusive bottling and distribution rights for the
Philippines. The contract was finally signed by plaintiff on
December 3, 1947.
When the bottling plant was already in operation, plaintiff
demanded of defendant that the partnership papers be executed.
Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of
partnership; 2) accounting of profits and 3)share thereof of 30
percent with 4) damages in the amount of P200,000. The
Defendant on the other hand claims that: 1) the defendants
consent to the agreement, was secured by the representation of
plaintiff that he was the owner, or was about to become owner
of an exclusive bottling franchise, which representation was
false, and that plaintiff did not secure the franchise but was
given to defendant himself 2) that defendant did not fail to
carry out his undertakings, but that it was plaintiff who failed
and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a
4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15
% of the profits and that the 2) execution of contract cannot be
enforced upon parties. Lastly, the 3) fraud wasnt proved
ISSUES
1. WON plaintiff falsely represented that he had an exclusive
franchise to bottle Mission beverages
2. WON false representation, if it existed, annuls the agreement
to form the partnership
HELD
1. Yes. Plaintiff did make false representations and this can be
seen through his letters to Mission Dry Corporation asking for
the latter to grant him temporary franchise so that he could
settle the agreement with defendant. The trial court reasoned,
and the plaintiff on this appeal argues, that plaintiff only
undertook in the agreement to secure the Mission Dry
franchise for and in behalf of the proposed partnership. The
existence of this provision in the final agreement does not
militate against plaintiff having represented that he had the
exclusive franchise; it rather strengthens belief that he did
actually make the representation. The defendant believed, or
was made to believe, that plaintiff was the grantee of an
exclusive franchise. Thus it is that it was also agreed upon that
the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the
same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California
he learned that plaintiff did not have the exclusive franchise,
was to reduce, as he himself testified, plaintiffs participation in
the net profits to one half of that agreed upon. He could not
have had such a feeling had not plaintiff actually made him
believe that he(plaintiff) was the exclusive grantee of the
franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code
distinguishes two kinds of (civil) fraud, the causal fraud, which
may be ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages only. The Supreme Court has held that in
order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente)
inducement to the making of the contract.
The record abounds with circumstances indicative of the fact
that the principal consideration, the main cause that induced
defendant to enter into the partnership agreement with plaintiff,
was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership.
The original draft prepared by defendants counsel was to the
effect that plaintiff obligated himself to secure a franchise for
the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the
partnership agreement. On the other hand, this supposed
ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share
of 30 per cent granted him in the net profits of the partnership
business. Defendant agreed to give plaintiff 30 per cent share in
the net profits because he was transferring his exclusive
franchise to the partnership.
Having arrived at the conclusion that the contract cannot be
declared null and void, may the agreement be carried out or
executed? The SC finds no merit in the claim of plaintiff that
the partnership was already a fait accompli from the time of the
operation of the plant, as it is evident from the very language of
the agreement that the parties intended that the execution of the
agreement to form a partnership was to be carried out at a later
date. , The defendant may not be compelled against his will to
carry out the agreement nor execute the partnership papers. The
law recognizes the individuals freedom or liberty to do an act
he has promised to do, or not to do it, as he pleases.
Dispostive Postion: With modification above indicated, the
judgment appealed from is hereby affirmed.
Ortega vs. CA
FACTS:
On December 19, 1980, respondent Misa associated himself
together, as senior partner with petitioners Ortega, del Castillo,
Jr., and Bacorro, as junior partners. On Feb. 17, 1988,
respondent Misa wrote a letter stating that he is withdrawing
and retiring from the firm and asking for a meeting with the
petitioners to discuss the mechanics of the liquidation. On June
30, 1988, petitioner filed a petition to the Commision's
Securities Investigation and Clearing Department for the
formal dissolution and liquidation of the partnership. On March
31, 1989, the hearing officer rendered a decision ruling that the
withdrawal of the petitioner has not dissolved the partnership.
On appeal, the SEC en banc reversed the decision and was
affirmed by the Court of Appeals. Hence, this petition.
ISSUE:
Whether or not the Court of Appeals has erred in holding that
the partnership is a partnership at will and whether or not the
Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his
good or bad faith
HELD:
No. The SC upheld the ruling of the CA regarding the nature of
the partnership. The SC further stated that a partnership that
does not fix its term is a partnership at will. 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.
TOCAO V. CA
G.R. No. 127405; October 4, 2000
Ponente: J. Ynares-Santiago
FACTS:
Private respondent Nenita A. Anay met petitioner
William T. Belo, then the vice-president for operations of
Ultra Clean Water Purifier, 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
Under the joint venture, Belo acted as capitalist, Tocao
as president and general manager, and Anay as head of
the marketing department and later, vice-president for
sales
The parties agreed that Belo's name should not appear
in any documents relating to their transactions with
West Bend Company. Anay having secured the
distributorship of cookware products from the West
Bend Company and organized the administrative staff
and the sales force, the cookware business took off
successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered
in Marjorie Tocao's name.
The parties agreed further that Anay would be entitled
to:
(1) ten percent (10%) of the annual net profits of the
business;
(2) overriding commission of six percent (6%) of the
overall weekly production;
(3) thirty percent (30%) of the sales she would make;
and
(4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of
Belo's assurances that he was sincere, dependable and
honest when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao
had signed a letteraddressed to the Cubao sales office to
the effect that she was no longer the vice-president of
Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to
demand her overriding commission for the period of
January 8, 1988 to February 5, 1988 and the audit of
the company to determine her share in the net profits.
Anay still received her five percent (5%) overriding
commission up to December 1987. The following year,
1988, she did not receive the same commission although
the company netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-
509, a complaint for sum of money with
damages against Marjorie D. Tocao and William Belo
before the Regional Trial Court of Makati, Branch 140
The trial court held that there was indeed an "oral
partnership agreement between the plaintiff and the
defendants. The Court of Appeals affirmed the lower
courts decision.
ISSUE:
Whether the parties formed a partnership
HELD:
Yes, the parties involved in this case formed a
partnership
The Supreme Court held that 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; a public instrument is necessary only where
immovable property or real rights are contributed
thereto.
This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as
a written one.
In the case at hand, Belo acted as capitalist while Tocao
as president and general manager, and Anay as head of
the marketing department and later, vice-president for
sales. Furthermore, Anay was entitled to a percentage of
the net profits of the business.
Therefore, the parties formed a partnership.
ARSENIO T. MENDIOLA vs. COURT OF APPEALS, FACTS: Private respondent Pacific Forest Resources,
NATIONAL LABOR RELATIONS COMMISSION, Phils., Inc. (Pacfor) is a corporation organized and
PACIFIC FOREST RESOURCES, PHILS., INC. and/or existing under the laws of California, USA. It is a
CELLMARK AB (July 31, 2006) subsidiary of Cellulose Marketing International
(organized in Sweden) Private respondent Pacfor entered
DOCTRINE: In a partnership, the members become co-
into a "Side Agreement on Representative Office known
owners of what is contributed to the firm capital and of
as Pacific Forest Resources (Phils.), Inc." with petitioner
all property that may be acquired thereby and through
Arsenio T. Mendiola (ATM). The Side Agreement outlines
the efforts of the members. The property or stock of the
the business relationship of the parties with regard to
partnership forms a community of goods, a common
the Philippine operations of Pacfor. Private respondent
fund, in which each party has a proprietary interest. In
will establish a Pacfor representative office in the
fact, the New Civil Code regards a partner as a co-owner
Philippines, to be known as Pacfor Phils, and petitioner
of specific partnership property. Each partner possesses
ATM will be its President. Petitioner's base salary and
a joint interest in the whole of partnership property. If
the overhead expenditures of the company shall be
the relation does not have this feature, it is not one of
borne by the representative office and funded by
partnership. This essential element, the community of
Pacfor/ATM, since Pacfor Phils. is equally owned on a
interest, or co-ownership of, or joint interest in
50-50 equity by ATM and Pacfor-usa. In its application
partnership property is absent in the relations between
(to the SEC), private respondent Pacfor proposed to
petitioner and private respondent Pacfor. xxx the parties
establish its representative office in the Philippines. It
in this case, merely shared profits. This alone does not
also designated petitioner as its resident agent in the
make a partnership. Besides, a corporation cannot
Philippines, authorized to accept summons and
become a member of a partnership in the absence of
processes in all legal proceedings, and all notices
express authorization by statute or charter. This
affecting the corporation. The Side Agreement was
doctrine is based on the following considerations: (1)
amended through a "Revised Operating and Profit
that the mutual agency between the partners, whereby
Sharing Agreement for the Representative Office Known
the corporation would be bound by the acts of persons
as Pacific Forest Resources (Philippines)," where the
who are not its duly appointed and authorized agents
salary of petitioner was increased to $78,000 per
and officers, would be inconsistent with the policy of the
annum. Both agreements show that the operational
law that the corporation shall manage its own affairs
expenses will be borne by the representative office and
separately and exclusively; and, (2) that such an
funded by all parties "as equal partners," while the
arrangement would improperly allow corporate property
profits and commissions will be shared among them. In
to become subject to risks not contemplated by the
July 2000, petitioner wrote the Vice President for Asia of
stockholders when they originally invested in the
Pacfor, seeking confirmation of his 50% equity of Pacfor
corporation. PONENTE: Puno, J.
Phils. Private respondent Pacfor, through its President,
replied that petitioner is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and
distinct from Pacfor-USA. "It's simply a 'theoretical
company' with the purpose of dividing the income 50-
50."11 Petitioner presumably knew of this arrangement
from the start, having been the one to propose to private
respondent Pacfor the setting up of a representative
office, and "not a branch office" in the Philippines to
save on taxes. Petitioner claimed that he was all along
made to believe that he was in a joint venture with
them; that he would have been better off remaining as
an independent agent or representative of Pacfor-USA as
ATM Marketing Corp. Petitioner raised other issues,
such as the rentals of office furniture, salary of the
employees, company car, as well as commissions
allegedly due him. The issues were not resolved, hence,
in October 2000, petitioner wrote Pacfor-USA
demanding payment of unpaid commissions and office
furniture and equipment rentals. Privatre respondent
Pacfor through counsel ordered petitioner to turn over to
it all papers, documents, files, records, and other
materials in his or ATM Marketing Corporation's
possession that belong to Pacfor or Pacfor Phils then to
remit more than 300k xmas giveaway fund for clients of
Pacfor Phil and finally Pacfor withdraw all its offers of
settlement and ordered petitioner to transfer title and
turn over to it possession of the service car.18 Private
respondent Pacfor likewise sent letters to its clients in
the Philippines, advising them not to deal with Pacfor
Phils. Petitioner construed these directives as a
severance of the "unregistered partnership" between him
and Pacfor, and the termination of his employment as
resident manager of Pacfor Phils. On the basis of the
"Side Agreement," petitioner insisted that he and Pacfor
equally own Pacfor Phils. Thus, it follows that he and
Pacfor likewise own, on a 12 PARTNERSHIP [1st SET]
(DIONNE) || D2014 50/50 basis, Pacfor Phils.' office
furniture and equipment and the service car. He also
reiterated his demand for unpaid commissions, and
proposed to offset these with the remaining Christmas
giveaway fund in his possession. Furthermore, he did
not renew the lease contract with Pulp and Paper, Inc.,
the lessor of the office premises of Pacfor Phils., wherein
he was the signatory to the lease agreement. Private
respondent Pacfor placed petitioner on preventive
suspension and ordered him to show cause why no
disciplinary action should be taken against him. Private
respondent Pacfor charged petitioner with willful
disobedience and serious misconduct for his refusal to
turn over the service car and the Christmas giveaway
fund which he applied to his alleged unpaid
commissions. Private respondent also alleged loss of
confidence and gross neglect of duty on the part of
petitioner for allegedly allowing another corporation
owned by petitioner's relatives, High End Products, Inc.
(HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales
and business of private respondent. Petitioner denied
the charges. He reiterated that he considered the import
of Pacfor Presidents letters as a "cessation of his
position and of the existence of Pacfor Phils." He likewise
informed private respondent Pacfor that ATM Marketing
Corp. now occupies Pacfor Phils.' office premises, and
demanded payment of his separation pay. Petitioner
filed his complaint for illegal dismissal, recovery of
separation pay, and payment of attorney's fees with the
NLRC. Private respondent directed petitioner to explain
why he should not be disciplined for serious misconduct
and conflict of interest; charged petitioner anew with
serious misconduct for the latter's alleged act of fraud
and misrepresentation in authorizing the release of an
additional peso salary for himself, besides the dollar
salary agreed upon by the parties. Private respondent
also accused petitioner of disloyalty and representation
of conflicting interests for having continued using the
Pacfor Phils.' office for operations of HEPI LA: ruled in
favor of petitioner, finding there was constructive
dismissal. By directing petitioner to turn over all office
records and materials, regardless of whether he may
have retained copies, private respondent Pacfor virtually
deprived petitioner of his job by the gradual diminution
of his authority as resident manager. Petitioner's
position as resident manager whose duty, among others,
was to maintain the security of its business transactions
and communications was rendered meaningless. NLRC:
in favor of Private respondent Pacfor. He set aside the
July 30, 2001 decision of the labor arbiter, for lack of
jurisdiction and lack of merit. It held there was no
employer-employee relationship between the parties.
Based on the two agreements between the parties, it
concluded that petitioner is not an employee of private
respondent Pacfor, but a full co-owner (50/50 equity).
MR denied. CA: Affirmed holding that "the legal basis of
the complaint is not employment but perhaps
partnership, co-ownership, or independent
contractorship." Hence, the Labor Code cannot apply.
MR denied
Issues:
Was there an employer-employee relationship or a
partnership?
Can both exist at the same time? There was an employer
employee relationship but no partnership Was he
constructively dismissed? (Not important so omitted)
YES. Ratio: Petitioner argues that he is an industrial
partner of the partnership he formed with private
respondent Pacfor, and also an employee of the
partnership. Petitioner insists that an industrial partner
may at the same time be an employee of the
partnership, provided there is such an agreement,
which, in this case, is the "Side Agreement" and the
"Revised Operating and Profit Sharing Agreement." We
hold that petitioner is an employee of private respondent
Pacfor and that no partnership or co-ownership exists
between the parties. In a partnership, the members
become co-owners of what is contributed to the firm
capital and of all property that may be acquired thereby
and through the efforts of the members. The property or
stock of the partnership forms a community of goods, a
common fund, in which each party has a proprietary
interest. In fact, the New Civil Code regards a partner as
a co-owner of specific partnership property. Each
partner possesses a joint interest in the whole of
partnership property. If the relation does not have this
feature, it is not one of partnership. This essential
element, the community of interest, or co-ownership of,
or joint interest in partnership property is absent in the
relations between petitioner and private respondent
Pacfor. Petitioner is not a part-owner of Pacfor Phils.
William Gleason, private respondent Pacfor's President
established this fact when he said that Pacfor Phils. is
simply a "theoretical company" for the purpose of
dividing the income 50-50. He stressed that petitioner
knew of this arrangement from the very start, having
been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch
office" in the Philippines to save on taxes. Thus, the
parties in this case, merely shared profits. This alone
does not make a partnership. Besides, a corporation
cannot become a member of a partnership in the
absence of express authorization by statute or charter.
This doctrine is based on the following considerations:
(1) that the mutual agency between the partners,
whereby the corporation would be bound by the acts of
persons who are not its duly appointed 13
PARTNERSHIP [1st SET] (DIONNE) || D2014 and
authorized agents and officers, would be inconsistent
with the policy of the law that the corporation shall
manage its own affairs separately and exclusively; and,
(2) that such an arrangement would improperly allow
corporate property to become subject to risks not
contemplated by the stockholders when they originally
invested in the corporation. No such authorization has
been proved in the case at bar. (This part goes into the
employer-employee relationship bit, I dont think its
important but I included it na din if ever magtanong re:
paano nagging employee) Be that as it may, we hold that
on the basis of the evidence, an employer-employee
relationship is present in the case at bar. The elements
to determine the existence of an employment
relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the
employee's conduct. The most important element is the
employer's control of the employee's conduct, not only
as to the result of the work to be done, but also as to the
means and methods to accomplish it.43 In the instant
case, all the foregoing elements are present. First, it was
private respondent Pacfor which selected and engaged
the services of petitioner as its resident agent in the
Philippines. Second, as stipulated in their Side
Agreement, private respondent Pacfor pays petitioner his
salary amounting to $65,000 per annum which was
later increased to $78,000. Third, private respondent
Pacfor holds the power of dismissal, as may be gleaned
through the various memoranda it issued against
petitioner, placing the latter on preventive suspension
while charging him with various offenses, including
willful disobedience, serious misconduct, and gross
neglect of duty, and ordering him to show cause why no
disciplinary action should be taken against him. Lastly
and most important, private respondent Pacfor has the
power of control over the means and method of
petitioner in accomplishing his work. The power of
control refers merely to the existence of the power, and
not to the actual exercise thereof. The principal
consideration is whether the employer has the right to
control the manner of doing the work, and it is not the
actual exercise of the right by interfering with the work,
but the right to control, which constitutes the test of the
existence of an employer-employee relationship.44 In
the case at bar, private respondent Pacfor, as employer,
clearly possesses such right of control. Petitioner, as
private respondent Pacfor's resident agent in the
Philippines, is, exactly so, only an agent of the
corporation, a representative of Pacfor, who transacts
business, and accepts service on its behalf. This right of
control was exercised by private respondent Pacfor
during the period of November to December 2000, when
it directed petitioner to turn over to it all records of
Pacfor Phils.; when it ordered petitioner to remit the
Christmas giveaway fund intended for clients of Pacfor
Phils.; and, when it withdrew all its offers of settlement
and ordered petitioner to transfer title and turn over to it
the possession of the service car. It was also during this
period when private respondent Pacfor sent letters to its
clients in the Philippines, particularly Intercontinental
Paper Industries, Inc. and DAVCOR, advising them not
to deal with petitioner and/or Pacfor Phils. In its letter
to DAVCOR, private respondent Pacfor replied to the
client's request for an invoice payment extension, and
formulated a revised payment program for DAVCOR.
This is one unmistakable proof that private respondent
Pacfor exercises control over the petitioner.
DISPOSITIVE: IN VIEW WHEREOF, the petition is
GRANTED. The Court of Appeals' January 30, 2003
Decision in CA-G.R. SP No. 71028 and July 30, 2003
Resolution, affirming the December 20, 2001 Decision of
the National Labor Relations Commission, are
ANNULED and SET ASIDE. The July 30, 2001 Decision
of the Labor Arbiter isREINSTATED with the
MODIFICATION that the amount of P250,000.00
representing an alleged increase in petitioner's salary
shall be deducted from the grant of separation pay for
lack of evidence. SO ORDERED.
TUASON VS. BOLANOS
GR. No. L-4935. May 28, 1954
95 Phil. 106
CASE DIGEST
Facts:
Plaintiffs complaint against defendant was to recover
possession of a registered land. In the complaint, the plaintiff
is represented by its Managing Partner, Gregorio Araneta,
Inc., another corporation. Defendant, in his answer, sets up
prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession under claim of
ownership, adverse to the entire world by defendant and his
predecessors in interest" from "time immemorial". After trial,
the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and
ordering him to restore possession thereof to plaintiff and to
pay the latter a monthly rent. Defendant appealed directly to
the Supreme Court and contended, among others, that
Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to
enter into a partnership
Issue:
Whether or not a corporation may enter into a joint
venture with another corporation.
Ruling:
It is true that the complaint states that the plaintiff is
"represented herein by its Managing Partner Gregorio Araneta,
Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or
juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. cannot act as managing partner for plaintiff on
the theory that it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is that "though a
corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by
its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A.
L. R., 1043, citing 2. Fletcher Cyc. of Corp., 1082.). There is
nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business of
either of them.
AURBACH VS. SANITARY WARES
FACTS: This was the case where there were essentially
two groups of shareholders in the company: one
composed of Filipinos, and the other group of foreign
investors. There was an increase in the latters shares in
the company so they wanted a proportionate increase in
their nominees to the companys Board of Directors.
HOLDING: Although a corporation cannot enter into a
partnership, it can nevertheless engage in a joint
venture with others. In this case, taking into
consideration their intent and history, the parties
formed a joint venture and not a corporation. This
becomes relevant because it implies that the argument
of ASI (the foreign investors), having been based on the
Corporation Code, will not apply.
A joint venture has been generally understood to mean
an organization formed for some temporary purpose. It
is distinguished mainly from a partnership in that the
latter contemplates a general business with some
continuity while the former is formed for the execution
of a single transaction.
THE CITY OF MANILA, Plaintiff-Appellant, v. FRANCISCO
GAMBE, ET AL., Defendants-Appellees.
Modesto Reyes, for Appellant.
Del-Pan, Ortigas & Fisher, for Appellees.
SYLLABUS
1. ATTACHMENT; DEBTS AND DEBTORS; PROPERTY SUBJECT TO
ATTACHMENT UNDER SECTION 431, CODE OF CIVIL PROCEDURE.
G., a pilot and member of the Pilots Association of the port of Manila,
while in charge of a certain steamship as such pilot, by negligence
caused an injury to the "Spanish Bridge," property belonging to the
city of Manila. The city brought an action against G. and secured a
judgment for the amount of damages. An execution was issued against
G. and returned unsatisfied. G., when he became a member of the
Pilots Association, as all of the members did, paid into the funds of
said association the sum of P800. This fund, according to the rules and
regulations of the association, was held by the association for the
purpose of answering for damages caused by its members to ships.
The city of Manila attempted, under the provisions of section 431 of
the Code of Procedure in Civil Actions, to attach the funds of the
association for the payment of its claim against G. : Held, That the
funds of the association did not constitute a debt, credit, or personal
property, belonging to G., subject to be attached under said section
431. The question whether the city of Manila could maintain a special
action against the association for the purpose of recovering damages
for the injury complained of is not decided.
2. PROPERTY ID.; ID.; ID.; THE WORDS "CREDIT," "DEBT,"
"PERSONAL." "Debt" as used in section 431, Code of Civil
Procedure, means some definite amount of money, ascertained or
capable of being ascertained, which may be paid over to the sheriff or
to the court under an order, while "credits" and "personal property"
 are something belonging to the defendant, but in possession and
under the control of the person attached. The debt, credit, or personal
property which is attempted to be subjected to the payment of the
obligation of the defendant and which is alleged to be in the
possession of the person attached, must exist in some definite and
ascertainable form at the time of the attachment.
DECISION
JOHNSON, J. :
From the record the following facts appear: chanrob1es v irt ual 1aw l ibra ry
First. That upon the 31st day of August, 1903, the plaintiff commenced
an action in the Court of First Instance of the city of Manila against the
defendants, Francisco Gambe, Manuel Perez, Antonio Herranz, and
Florencio Garriz, who constitute the commercial firm of Herranz &
Garriz, for the purpose of recovering the sum of five thousand dollars
($5,000), United States currency, for certain damages occasioned by
the steamship Alfred to the "Spanish Bridge" in the city of Manila.
Second. After a consideration of the facts adduced during the trial, the
Honorable Judge Rhode, then one of the judges of the Court of First
Instance of the city of Manila, rendered a judgment against the said
Francisco Gambe, for the sum of $1,300 United States currency, and
for the costs.
Third. Francisco Gambe was a pilot and a member of the Pilots
Association of Manila and was at the time of the alleged accident and
injury in charge of the said steamship Alfred. Judge Rohde dismissed
the cause as to the other defendants.
Fourth. From this judgment of the lower court the defendant Gambe
appealed to the Supreme Court.
Fifth. After a consideration of the facts, the Supreme Court on the 31st
day of March, 1906, affirmed with costs the judgment of the lower
court. (See City of Manila v. Gambe, 6 Phil. Rep., 49.)
Sixth. The judgment thus affirmed was returned to the lower court for
an execution of the same.
Seventh. On the 26th day of May, 1906, an execution was issued upon
the said judgment against the said defendant, Francisco Gambe, and
was returned upon the 23d day of June, 1906, unsatisfied.
Eighth. Later, upon 11th day of July, 1906, another execution was
issued out of the Court of First Instance against the defendant,
Francisco Gambe, which was returned upon the 17th day of August,
1906, unsatisfied.
Ninth. On the same day, or the 11th day of July, 1906, in accordance
with the provisions of section 431 of the Code of Procedure in Civil
Actions, the plaintiff attempted to attach whatever money or effects
which the defendant had in the said Pilots Association of Manila. These
attachments were directed to the Hongkong and Shanghai Banking
Corporation, the Hon. W Morgan Shuster, Collector of Customs, as well
as Francisco Aguado, who was the chief of the said Pilots Association.
Tenth. On the 22nd day of August, 1906, the attorney for the plaintiff
presented in the lower court the following affidavit: jgc:c hanro bles. com.ph
"Edmond Block, being duly sworn, says: jgc:chanroble s.com.p h
"That he is the attorney for the plaintiff in the above-entitled action.
"That a judgment was duly entered and docketed in the said action in
the said court on the 20th day of April, 1906, for the sum of thirteen
hundred dollars ($1,300), United States currency, and costs, against
the above-named defendant, in favor of the plaintiff.
"That an execution upon said judgment was duly issued against the
property of said judgment debtor.
"That the said judgment debtor now resides in the said city of Manila.
"That the sheriff of the city of Manila has returned said execution
wholly unsatisfied, and that the said judgment still remains wholly
unpaid.
"That affiant is informed and believes that an organization or
association known as the Manila Pilots Association, of which Francisco
Aguado is the chief pilot, Manuel Goitia is the treasurer and custodian
of its funds, and of which W. Morgan Shuster, Francisco Gambe, and
other pilots of the port of Manila are members, has property in its
possession dedicated to an for the purpose of payment of damages
caused through negligence of the pilots of said association, or any of
them, to third persons.
"That the said association has in its possession and under its control,
property of the said judgment debtor, exceeding eight hundred pesos
(P800), Philippine currency, and is indebted to the said judgment
debtor in an amount exceeding eight hundred pesos (P800), Philippine
currency.
"That the said indebtedness to said judgment debtor arose through
this, that the said judgment debtor has deposited with the said
association the said amount exceeding eight hundred pesos (P800),
Philippine currency, and that the said association now holds the said
amount subject to the order of said judgment debtor, and that the said
amount should be applied, affiant believes, to the payment or
satisfaction of the judgment debtor.
"That on the 23d day of June and 11th of July, 1906, the said Pilots
Association, through the chief pilot, the treasurer of said association.
W. Morgan Shuster, and Francisco Gambe, was duly notified and each
of the above-mentioned persons were so duly notified by the sheriff of
the city of Manila, that attachment was levied against all the goods,
effects, interests, credits or money belonging to the defendant, in the
possession of said association and persons, to cover the amount of two
thousand six hundred and seventy pesos (2,670), Philippine currency,
and to make immediate payment of said goods, effects, interests,
credits, or money and forward same to the sheriff.
"That all of the above-mentioned persons denied having in their
possession, and refused to deliver any such said goods, effects,
interests, credits, or money belonging to said defendant.
"Wherefore deponent prays an order of this court that the said
Francisco Agudao, Francisco Gambe, Manuel Goitia, and W. Morgan
Shuster, be and appear and answer as the indebtedness of the said
Pilots Association to said judgment debtor, at a time and place by said
court to be specified."
cra law virt ua1aw lib ra ry
(Signed) "Edmond Block.
"Subscribed and sworn to before me this 22d day of August, 1906,
exhibiting in the act cedula No. 1755565, dated Manila, June 6, 1906.
(Signed) "MODESTO REYES,
"Notary Public.
"Commission expires December 31, 1906."
Upon this affidavit, the Hon. A.S. Crossfield, one of the judges of the
Court of First Instance of the city of Manila, made the following
order:jgc:c han robles. com.ph
"On reading the foregoing affidavit, it satisfactorily appearing to me
therefrom that the Manila Pilots Association has property of Francisco
Gambe, the defendant in the above-entitled action, which property
ought to be applied toward the satisfaction Aguado is the chief pilot,
Manuel Goitia the treasurer, and Francisco Gambe and W. Morgan
Shuster are members of said association, and that it is proper cause
for this order, I, the undersigned, judge of the Court of First Instance
of the city of Manila, Philippine Islands, do hereby order the said
Francisco Aguado, Francisco Gambe, Manuel Goitia, and W. Morgan
Shuster personally to appear before me in the said city of Manila, on
the 10th day of September, at 10 oclock in the morning of that day, to
answer concerning the said property." cralaw vi rtua 1aw lib rary
Eleventh. In accordance with the above order, the said parties
appeared before the said court and testified relating to the money,
property, credits or effects which the said Pilots Association had in its
possession belonging to the said defendants.
After hearing the evidence of these parties, the said Hon. A.S.
Crossfield rendered the following judgment: jgc:c hanro bles. com.ph
"This case is now before the court for hearing the order directing
Francisco Aguado as chief pilot, Manuel Goitia as treasurer, and
Francisco Gambe and W. Morgan Shuster as members of the Pilots
Association to answer as to any property they may have in their
possession or under their control, belonging to the defendant,
Francisco Gambe. Execution having been issued in the above-entitled
action and the above named respondents having been attached, as in
garnishee proceedings, all of the above-named respondents appeared
and the two first-named made declarations as to the property in their
hands.
"From the declaration made it appears: jgc:chan roble s.com.p h
"That each member of the Pilots Association before becoming such,
must deposit with the association the sum of P800, to be retained by
the association for the purpose of satisfying damages which may be
incurred by others by reason of negligence or fault on the part of the
association in the transaction of its business.
"It further appears from the declarations that persons thus depositing
the money could not withdraw it; that it is property of the association
and may not be withdrawn, even in case of the death of a member,
and that said Francisco Gambe is a member.
"I therefore find that the above-named respondents, either as officers
of the association or members thereof, have not in their control, nor
do they possess any property, money or effects which would be the
subject of a levy under execution against said Gambe, and the order to
appear is discharged."cralaw virtua1aw l ibra ry
From this decision of the lower court the plaintiff appealed and made
the allowing assignments of error in this court: jgc: chan robles .com.p h
"1. The court below erred in deciding that the sum of P800, Philippine
currency, deposited by the defendant, Gambe, with the Pilots
Association could not be withdrawn by him:
Lim VS Phil Fishing Gear
Business Organization Partnership, Agency, Trust
Corporation by Estoppel
It was established that Lim Tong Lim requested Peter Yao
to engage in commercial fishing with him and one Antonio
Chua. The three agreed to purchase two fishing boats but
since they do not have the money they borrowed from one
Jesus Lim (brother of Lim Tong Lim). They again borrowed
money and they agreed to purchase fishing nets and other
fishing equipments. Now, Yao and Chua represented
themselves as acting in behalf of Ocean Quest Fishing
Corporation (OQFC) they contracted with Philippine
Fishing Gear Industries (PFGI) for the purchase of fishing
nets amounting to more than P500k.
They were however unable to pay PFGI and so they were
sued in their own names because apparently OQFC is a
non-existent corporation. Chua admitted liability and asked
for some time to pay. Yao waived his rights. Lim Tong Lim
however argued that hes not liable because he was not
aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and
consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it
is clear that Chua, Yao and Lim had decided to engage in a
fishing business, which they started by buying boats worth
P3.35 million, financed by a loan secured from Jesus Lim.
In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of
the sale of the boats, and to divide equally among them the
excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the
term common fund under Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be an
intangible like 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.
Lim Tong Lim cannot argue that the principle of corporation
by estoppels can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim benefited from the use of the
nets found in his boats, the boat which has earlier been
proven to be an asset of the partnership. Lim, Chua and
Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in
representation of it. 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.