2. COMMISSIONER OF INTERNAL REVENUE VS.
SUTER(27 SCRA 152) conduit of the partner-spouses; it wasorganized for legitimate business
Facts:
In 1947
A limited partnership, “William J.Suter ‘Morcoin’ Co., Ltd.”, was formed with
WilliamSuter as general partner, Julia Spirig and GustavCarlson as limited
partners, each contributing to thepartnership. In 1948, Suter married Spirig
andthereafter, Carlson sold his share in the partnershipto Suter and his wife.
The limited partnership hadbeen filing its income tax returns (ITRs) as
acorporation w/o objection from the CIR. Later in anassessment, the CIR
consolidated the income of thefirm and the individual incomes of partner-
spousesresulting in a determination of a deficiency incometax against
Suter. Suter protested and requestedcancellation and withdrawal but was
denied by theCIR. Suter appealed to the Court of Tax Appeals w/creversed
CIR’s decision.
Issues:
(1) Should the corporate personality of thepartnership be disregarded for
income tax purposessince partner-spouses form a single taxable
unit?(2)Was the partnership dissolved after the marriageof partner-spuses
and subsequent sale of Carlson of his participation in the partnership?
Held:
CTA decision affirmed
. The limited partnershipwas not a universal partnership but a particular
one.A universal partnership requires either that theobject of the association
be all the present propertyof the partners, as contributed by them to
thecommon fund, or else “all that the partners mayacquire by their industry
or work during theexistence of the partnership”. In the instant case, allof the
contributions were fixed sums of money andneither of them were industrial
partners. Thus it wasnot a partnership that spouses were forbidden toenter
under the 1889 Civil Code. The capital contributions of partner-spouses
wereseparately owned and contributed by them beforetheir marriage;
and after they were joined inwedlock, such contributions remained
theirrespective separate property under the Spanish CivilCode. Thus, the
individual interest of each did notbecome common property of both after
theirmarriage.In this case the limited partnership is not a merebusiness
purposes, Thechange in its membership brought about by themarriage is
not a ground for withdrawing thepartnership from coverage under §24 of
the tax code requiring it to pay income tax. What is taxable is theincome of
both spouses in their individual capacities.
3. IN THE MATTER OF THE PETITION FORAUTHORITY TO CONTINUE USE OF
THE FIRMNAME ‘OZAETA, ROMULO, ETC.Facts:
Two petitions were filed, one by the survivingpartners of Atty. Herminio
Ozaeta and the other bythe surviving partners of Atty. Alexander
Sycippraying that they be allowed to continue using thenames of
partners who had passed away in their firmnames. Both petitions
were consolidated.
Petitioners Arguments:
•
Under the law, a partnership is not prohibitedfrom continuing its business
under a firm namewhich includes the name of a deceasedpartner. In
fact, art. 1840 of the civil codeexplicitly sanctions the practice.
•
In regulating other professions, such asaccountancy and engineering,
the legislaturehas authorized the adoption of firm nameswithout any
restriction as to the use, in suchfirm name, of the name of the
deceasedpartner, the legislative authorization given tothose engaged
in the practice of accountancy –a profession requiring the same
degree of trustand confidence in respect of clients as thatimplicit in the
relationship of attorney andclient – to acquire and use a trade
name,strongly indicates that there us no fundamentalpolicy that is
offended by the continued use bya firm of professionals of a firm name
whichincluded the name of a deceased partner, atleast where such
firm name has acquired thecharacteristics of a ‘trade name’
•
The Canon of Professional Ethics are nottransgressed by the continued
use of the nameof a deceased partner in the firm name of a
lawpartnership as declared by Canon 33 adoptedby American Bar
Association declaring that‘The continued use of the name of a
deceasedor former partner when permissible by localcustom, is not
unethical, but care should betaken that no imposition or deception
ispracticed through this use.’
• formed by otherprofessionals or for business. For one thing, thelaw on
There is no possibility of imposition ordeception because the deaths of
theirrespective deceased partners were well –publicized in all
newspapers of generalcirculation for several days.
• carrying ina trade or business or of holding property. Thus,it has been
No local custom prohibits the continued use of a deceased partner’s
name in a professionalfirm name; and
The continued use of a deceased partner’sname in the firm name
of law partnerships hasbeen consistently allowed by U.S. Courts and
isan accepted practice in legal profession of most countries in the
world.
Issue:
Whether or not a firm name engaged in thelegal profession should
continue using the name of partners who had passed away.
SC ruling:
•
A partnership for the practice of law cannot belikened to partnerships
accountancy specifically allows the use of a trade name in connection
with the practice of accountancy. ‘A partnership for the practice
of law is not a legal entity. It is a mere relationshipor association for a
particular purpose.’ It is not apartnership formed for the purpose of
stated that the used of an assumedor trade name in law practice is
improper.
•
The right to practice law is not a natural orconstitutional right but is in
the nature of aprivilege or franchise. It is limited to persons of good
moral character with special qualificationsduly ascertained and
certified. The right doesnot only presuppose in its possessor
integrity,legal standing and attainment but also theexercise of
a special privilege,
highly personaland partaking of the nature of a public trust.

No. •
• The continued use of a deceased or formerpartner’s name in the
firm names of lawpartnerships not sanctioned by local custom dueto
The use in partnership names of the names of deceased partners will
the possibility of deception upon the publicwhere the name of
run counter to Article1825 of the CC which provides that names in afirm
a deceased partner continuesto be used. The possibility of deception
name of a partnership must either be thoseof living partners and, in the
upon thepublic, real or consequential, where the name of a deceased
case of non –partners, should be living persons who can besubjected
partner continues to be used cannotbe ruled out. A person in search of
to liability. In fact, art. 1825 prohibitsa third person from including his
legal counselmight be guided by the familiar ring of adistinguished
name in thefirm name under pain of assuming the liability of a partner.
name appearing in a firm title. Inaddition, there’s no local custom within
The heirs of a deceased partner in alaw firm cannot be held liable as
our jurisdiction that sanctions the practice of continued use of a
the oldmembers to the creditors of a firm particularlywhere they are
deceased partner’s name.Courts take no judicial notice of custom. A
non-lawyers. With regard to art.1840, it treats more of a commercial
localcustom as a source of right cannot beconsidered by a court
partnershipwith a good will to protect rather than aprofessional
of justice unless suchcustom is properly established by
partnership, with no saleable goodwill but whose reputation depends
competentevidence like any other fact. Merely becausesomething is
on thepersonal qualifications of its individual members. Thus, it has been
done as a matter of practice doesnot mean that Courts can rely on the
held that a saleable goodwillcan exist only in a commercial partnership
same forpurposes of adjudication as a juridical custom. Juridical
andcannot arise in a professional partnershipconsisting of lawyers.
custom must be differentiated fromsocial custom. The former can
supplementstatutory law or be applied in the absence of such statute.
Not so with the latter.
4. Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA,
SEC and Joaquin Misa
G.R. No. 109248 July 3, 1995
Facts:
 Ortega, then a senior partner in the law firm Bito, Misa, and
Lozada withdrew in said firm.
 He filed with SEC a petition for dissolution and liquidation of
partnership.
 SEC en banc ruled that withdrawal of Misa from the firm had
dissolved the partnership. Reason: since it is partnership at will,
the law firm could be dissolved by any partner at anytime, such
as by withdrawal therefrom, regardless of good faith or bad
faith, since no partner can be forced to continue in the
partnership against his will.
Issue: 1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada,
Ortega & Castillo) is a partnership at will; 2. WON the withdrawal of Misa
dissolved the partnership regardless of his good or bad faith;
Held: 1. Yes. The partnership agreement of the firm provides that ”[t]he
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.”
2. Yes. Any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will (e.g. by way of withdrawal of a
partner). 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.
5. Eligio STANISLAO, JR. VS. COURT OF APPEALS
Facts:
The petitioner and private respondents arebrothers and sisters who
are co-owners of certainlots at the in Quezon City which were then
beingleased to SHELL. They agreed to open and operate agas station
thereat to be known as Estanislao
ShellService Station with an initial investment of PhP15,000.00 to be
taken from the advance rentalsdue to them from SHELL for the
occupancy of thesaid lots owned in common by them. A joint
affidavitwas executed by them on April 11, 1966. Therespondents
agreed to help their brother, petitionertherein, by allowing him to
operate and manage thegasoline service station of the family. In order
not torun counter to the company’s policy of appointingonly one
dealer, it was agreed that petitioner wouldapply for the
dealership. Respondent Remedioshelped in co-managing the business
with petitionerfrom May 1966 up to February 1967.On May 1966, the
parties entered into an AdditionalCash Pledge Agreement with SHELL
wherein it wasreiterated that the P15,000.00 advance rental shallbe
deposited with SHELL to cover advances of fuel
topetitioner as dealer with a proviso that saidagreement “cancels and
supersedes the JointAffidavit.”
For sometime, the petitioner submitted financialstatement regarding
the operation of the business
tothe private respondents, but thereafter petitionerfailed to render
subsequent accounting. Hence ,
theprivate respondents filed a complaint against thepetitioner praying
among others that the latter beordered:(1)To execute a public
document embodyingall the provisions of the partnershipagreement
they entered into;(2)To render a formal accounting of thebusiness
operation veering the period fromMay 6, 1966 up to December 21,
1968, andfrom January 1, 1969 up to the time theorder is issued and
that the same be subjectto proper audit;(3)To pay the plaintiffs their
lawful shares andparticipation in the net profits of thebusiness; business and it speaks of the petitioner as thesole dealer, but this is as it
and(4)To pay the plaintiffs attorney’s fees andcosts of the suit. should be for in the latterdocument, SHELL was a signatory and it would
beagainst their policy if in the agreement it should bestated that the
Issue:
business is a partnership with
Can a partnership exist between members of the same family arising privaterespondents and not a sole proprietorship of thepetitioner.Furth
from their joint ownership of certain properties? ermore, there are other evidences in the recordwhich show that there
was in fact such
Trial Court: partnershipagreement between parties. The petitionersubmitted to th
e private respondents periodicaccounting of the business and
The complaint (of the respondents) wasdismissed. But upon a
gave a writtenauthority to the private respondent RemediosEstanislao
motion for reconsideration of the decision, another decision was
to examine and audit the books of their“common business” (aming
rendered in favorof the respondents.
negosyo). Therespondent Remedios, on the other hand, assisted inthe
CA: running of the business. Indeed, the
partieshereto formed a partnership when they boundthemselves to
Affirmed in toto
contribute money in a common
Petitioner: fundwith the intention of dividing the profits amongthemselves.

The CA erred in interpreting the legalimport of the Joint Affidavit vis-à- 6. Campos Rueda & Co v Pacific Commercial (44 Phil 916)
vis the AdditionalCash Pledge Agreement. Because of Facts:
the stipulationcancelling and superseding the Joint Affidavit,whatever
partnership agreement there Campos, Rueda & Co., a limited partnership, is indebted to the
was in saidprevious agreement had thereby been abrogated.Also, the appellants: Pacific Commercial Co. ,Asiatic Petroleum Co,
CA erred in declaring that a partnership wasestablished by and among and International Banking Corporation amounting to not less than
the petitioner and theprivate respondents as regards the ownership P1,000.00(which were not paid more than 30 days prior to the date of
and /oroperation of the gasoline service station business. the filing by petitioners of the applicationfor voluntary insolvency).The
trial court denied their petition on the ground that it was not proven, nor
Held:
alleged, that the membersof the firm were insolvent at the time the
There is no merit in the petitioner’s application was filed. It also held that the partners are personally and
contentionthat because of the stipulation cancelling andsuperseding solidarily liable for the consequences of the transactions of the
the previous joint affidavit, whateverpartnership agreement there partnership.
was in said previousagreement had thereby been Issue:Whether or not a limited partnership may be held to have
abrogated. Saidcancelling provision was necessary for the JointAffida committed an act of insolvency.
vit speaks of P15,000.00 advance rentalstarting May 25, 1966 while the
latter agreementalso refers to advance rentals of the same Held: Yes. A limited partnership¶s juridical personality is different from
amountstarting May 24, 1966. There is therefore aduplication of the personality of its members. Ongeneral principle, the limited
reference to the P15,000.00 hence theneed to provide in the partnership must answer for and suffer the consequence of its acts.
subsequent document that Under our Insolvency Law, one of the acts of bankruptcy upon w/c an
it“cancels and supercedes” the previous none.Indeed, it is true that adjudication of involuntary insolvencycan be predicated is the failure
the latter document is silent asto the statement in the Join Affidavit that to pay obligations.The failure of Campos, Rueda & Co., to pay its
the valuerepresents the “capital investment” of the parties inthe obligations constitutes an act w/c is specifically provided for in the
Insolvency Law for declaration of involuntary insolvency. The petitioners It has been the universal practice in the Philippine Islands since
have aright to a judicial decree declaring the involuntary insolvency of American occupation,and was the practice prior to that time, to treat
said partnership. companies of the class to which the plaintiff belongs as legal or juridical
entities and to permit them to sue and be sued in the name of
7. G.R. No. L-8576 February 11, 1915VARGAS and COMPANY,
thecompany, the summons being served solely on the managing age
plaintiff-appellee,vs. nt or other official of thecompany specified by the section of the Code
of Civil Procedure referred to. The plaintiff bringsthis action in the
CHAN HANG CHIU, ET AL., company name and not in the name of the members of the firm.
Actionsagainst companies of the class to which plaintiff belongs are br
defendants-appellants
ought, according to theuninterrupted practice, against such
Facts: companies in their company names and not against theindividual
partners constituting the firm. In case the individual members of the firm
On the 19th day of August, 1911, an action was begun by Chan Hang must beseparately served with process, the rule also prevails that they
Chiu against theplaintiff in this case as a mercantile association duly must be parties to the action,either plaintiffs or defendant, and that the
organized under the laws of the PhilippineIslands, to recover a sum action cannot be brought in the name of or againstthe company
of money. The summons and complaint were placed in the hands of itself.2. If it is necessary to serve the partners
thesheriff, delivering to and leaving with one individually, they are entitled to be heardindividually in the action and
Jose Macapinlac personally true copies thereof, hebeing the they must, therefore, be made parties thereto so that they can
managing agent of said Vargas & Co. at the time of such service. On beheard. It would be idle to serve process on individual members of a
July 2, 1912, the justice's court rendered judgment against Vargas & Co. partnership if the litigationwere to be conducted in the name of the
for the sum of 372.28.It is plaintiff’s contention that
partnership itself and by the duly constituted officials of the partnership
Vargas & Co. being a partnership, it is necessary, inbringing an action exclusively.
against it, to serve the summons on all of the partners, deliveringto each In this case, is apparent that the plaintiff is acting contrary to its ownco
one of them personally a copy thereof; and that the summons in this ntention by bringing the action in the name of the company. If not
casehaving been served on the managing agent of the company only, served withprocess, then the action should be brought in the individual
the service was of no effect as against the company and the members names of the partnersand not in the name of the company itself.
thereof and the judgment enteredby virtue of such a service was void.
9. ANG PUE & COMPANY, ET AL.,vSECRETARY OF COMMERCE AND
Issue: INDUSTRY
Whether or not it is indispensable in bringing Facts:
an action to a partnership to servesummons to all parties thereof.
On May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
Held:
organized the partnership Ang Pue & Company for aterm of five years.
No, it is dispensable. Prior to the expiration of the five-year term, the partners amended the
original articles of partnership soas to extend the term of life of
Reasons: the partnership to another five years. However, when the amended
articles were presentedfor registration in the Office of the SEC,
1.
registration was refused upon the ground that the extension was in
violation of RA1180
– them from the tax liability of the unregistered partnership. Hence, the
an act prohibiting the extension of the term of a partnership not wholly
formed by Filipinos.
Law:
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the
retail business. It provided, among other things,that, after its enactment,
a partnership not wholly formed by Filipinos could continue to engage
in the retail business untilthe expiration of its term.
Ruling:
To organize a corporation or a partnership that could claim a juridical
personality of its own and transact business assuch, is not a matter of
absolute right but a privilege which may be enjoyed only under such
terms as the State may deemnecessary to impose.
10. Pascual and Dragon v. CIR, G.R. No. 78133, October 18, 1988
FACTS:
Petitioners bought two (2) parcels of land and a year after, they bought
another three (3) parcels of land. Petitioners subsequently sold the said
lots in 1968 and 1970, and realized net profits. The corresponding capital
gains taxes were paid by petitioners in 1973 and 1974 by availing of the
tax amnesties granted in the said years. However, the Acting BIR
Commissioner assessed and required Petitioners to pay a total amount
of P107,101.70 as alleged deficiency corporate income taxes for the
years 1968 and 1970. Petitioners protested the said assessment asserting
that they had availed of tax amnesties way back in 1974. In a reply,
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
petitioners were required to pay the deficiency income tax assessed.
ISSUE:
Whether the Petitioners should be treated as an unregistered
partnership or a co-ownership for the purposes of income tax.
RULING:
The Petitioners are simply under the regime of co-ownership and not
under unregistered partnership.
By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves (Art. 1767, Civil Code
of the Philippines). 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. 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. Hence, there is no adequate basis
to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners and
paid their capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be considered
to have formed an unregistered partnership which is thereby liable for
corporate income tax, as the respondent commissioner proposes.
11. OÑA VS. COMMSSIONER OF INTERNAL REVENUEFacts:
Lorenzo Oña and his five children are thesurviving heirs of Julia Buñales.
Lorenzo, thesurviving spouse was appointed administrator of Julia’s
estate. He submitted the project of partitionwhich was approved by the
court and since 3 of the 5children were still minors, he was appointed
by thecourt as guardian of said minors. Despite theapproval of the
project of partition, no attempt wasmade to divide the properties
therein listed andremained under the management of Lorenzo
whoused said properties in business by leasing or sellingthem and
investing the income derived therefromand proceeds form the sales
thereof in realproperties and securities. Respondent CIR decidedthat
petitioners formed an ‘unregistered partnership’and therefore subject
to corporate tax pursuant toSec. 24 of the Tax Code. Accordingly he
assessedagainst the petitioners the amounts of P8,092.00 andP13.899.00
as corporate income taxes for 1955 and1956 respectively. Petitioners
protested against theassessment and asked for reconsideration which
wasdenied.
Petitioners’ Argument:
Petitioners are consideredas co – owners of the properties inherited by
themfrom the deceased Julia Buñales and the profitsderived from
transactions involving the same, theycannot be considered as an
unregistered partnershipand cannot be subject to corporate tax.
Issue:
W/N petitioners are deemed to have formedan unregistered
partnership subject to tax undersections 24 and 84(b) of the National
InternalRevenue code.
Ruling:
YES
• Issue:
For tax purposes, the co – ownership of inherited properties
is automatically convertedinto unregistered partnership the moment
thesaid common properties and/or incomesderived therefrom are use
as a common fundwith the intent to produce profits for the heirsin
proportion to their respective shares in theinheritance as determined in
a projectpartition. This is because from the moment of such partition,
the heirs are entitled already totheir respective definite shares of estate
andthe incomes thereof, for each of them tomanage and dispose of
as exclusively his ownwithout the intervention of the other heirs
andaccordingly he becomes liable individually forall taxes in
connection therewith. If after suchpartition, he allows his share to
be held incommon with his co – heirs under a singlemanagement to be
used with the intent of making profit thereby in proportion to hisshare,
there can be no doubt that even if nodocument or instrument were
executed for thepurpose, for tax purposes at least, anunregistered
partnership is formed.
•
The income derived from inherited propertiesmay be considered as
individual income of therespective heirs only so long as the
inheritanceor estate is not distributed or, at least,partitioned, but the
moment their respectiveknow shares are used as part of the
commonassets of the heirs to be used in making profits,it is but proper
that the income of such sharesshould be considered as part of the
taxableincome of an unregistered partnership.
•
For purposes of the tax on corporations, theNational Internal Revenue
Code, includespartnerships with the exception only of dulyregistered
general co-partnerships within thepurview of the term ‘corporation.
16. JO CHUNG CANG vs. PACIFIC COMMERCIAL Co.Facts:
In an insolvency proceedings of petitioner-establishment, “Sociedad
Mercantil, Teck Seing &Co., Ltd.”, creditors, Pacific Commercial and
othersfiled a motion with the Court to declare the individualpartners
parties to the proceeding, for each to file aninventory, and for each
to be adjudicated asinsolvent debtors.
What is the nature of the mercantileestablishment, Teck Seing & Co.,
Ltd.?
Held
: The contract of partnership established ageneral partnership.By
process of elimination, Teck Seing & Co., Ltd. Isnot a corporation nor an
accidental partnership (jointaccount association). To establish a limited
partnership, there must be, atleast, one general partner and the name
of at leastone of the general partners must appear in the firmname. This
requirement has not been fulfilled. Thosewho seek to avail themselves
of the protection of laws permitting the creation of limited
partnershipsmust the show a substantially full compliance withsuch
laws. It must be noted that all the requirementsof the Code have been
met w/ the sole exception of that relating to the composition of the firm
name. The legal intention deducible from the acts of theparties controls
in determining the existence of apartnership. If they intend to do a thing
w/c in lawconstitutes a partnership, they are partners althoughtheir very
purpose was to avoid the creation of suchrelation. Here the intention of
the persons makingup, Teck Seing & Co., Ltd. Was to
establishpartnership w/c they erroneously denominated as alimited
partnership.