EUFEMIA EVANGELISTA, et. al. v. THE COLLECTOR OF INTERNAL REVENUE G.R. No.

L-9996 October 15, 1957 Ponente: CONCEPCION, J. FACTS: Petitioners borrowed money from their father in the sum of P59,1400.00 which they used to buy properties. Some of the properties they purchased include 21 parcels of land with improvements from Mrs. Josefina Oppus, a parcel of land from Insular Investments, Inc., and a parcel of land from Mrs. Velentina Afable. They appointed their brother, Simeon Evangelista, to manage the properties. They then rented and leased said properties and earned income from it. On September 24, 1954 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. The petitioners sought recourse from the Court of Tax appeals reverse the decision of the CIR as contained in his demand letter. The CTA upheld the CIR. Hence, this petition. ISSUE: Whether petitioners are considered to be a partnership and, hence, subject to the tax on corporations. HELD: Yes. Pursuant to the article, 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. For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships with the exception only of duly registered general copartnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations.

LAGUNA TRANSPORTATION CO., INC. v. SOCIAL SECURITY SYSTEM G.R. No. L-14606 April 28, 1960 Ponente: BARRERA, J. FACTS: On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of First Instance of Laguna petition praying that an order be issued by the court declaring that it is not bound to register as a member of respondent Social Security System and, therefore, not obliged to pay to the latter the contributions required under the Social Security Act. To this petition, respondent filed its answer on February 11, 1958 praying for its dismissal due to petitioner's failure to exhaust administrative remedies, and for a declaration that petitioner is covered by said Act, since the latter's business has been in operation for at least 2 years prior to September 1, 1957. The trial court found petitioner to be an employer engaged in the business of common carrier and therefore subject to compulsory coverage. Hence, this recourse. ISSUE: Whether the lower court erred in holding that it is an employer engaged in business as a common carrier which had been in operation for at least 2 years prior to the enactment of the Social Security Act and, therefore, subject to compulsory coverage thereunder. HELD: No. It is not disputed that the Laguna Transportation Company, an unregistered partnership composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Cruz, commenced the operation of its business as a common carrier on April 1, 1949. These 4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the partnership into a corporate entity, by registering its articles of incorporation with the Securities and Exchange Commission on June 20, 1956. The firm name "Laguna Transportation Company" was not altered, except with the addition of the word "Inc." to indicate that petitioner was duly incorporated under existing laws. The corporation continued the same transportation business of the unregistered partnership, using the same lines and equipment. There was, in effect, only a change in the form of the organization of the entity engaged in the business of transportation of passengers. Hence, said entity as an employer engaged in business, was already in operation for at least 3 years prior to the enactment of the Social Security Act on June 18, 1954 and for at least two years prior to the passage of the amendatory act on June 21, 1957. Moreover, petitioner admitted that as an employer engaged in the business of a common carrier, its operation commenced on April 1, 1949 while it was a partnership and continued by the corporation upon its formation on June 20, 1956. Unlike in the conveyance made by the Bian Transportation Company to the partners Gonzalo Mercado, Artemio Mercado, Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the pleadings or in the stipulation of facts that the lines and equipment of the unregistered partnership had been sold and transferred to the corporation, petitioner herein. This omission, to our mind, clearly indicates that there was, in fact, no transfer of interest, but a mere change in the form of the organization of the employer engaged in the transportation business, i.e., from an unregistered partnership to that of a corporation. As a rule, courts will look to the substance and not to the form.

Finally, the weight of authority supports the view that where a corporation was formed by, and consisted of members of a partnership whose business and property was conveyed and transferred to the corporation for the purpose of continuing its business, in payment for which corporate capital stock was issued, such corporation is presumed to have assumed partnership debts, and is prima facie liable therefor. The reason for the rule is that the members of the partnership may be said to have simply put on a new coat, or taken on a corporate cloak, and the corporation is a mere continuation of the partnership.

J. M. TUASON & CO., INC. v. BOLAOS G.R. No. L-4935 May 28, 1954 Ponente: REYES, J. FACTS: Plaintiff filed a complaint against defendant to recover possesion of registered land situated in barrio Tatalon, Quezon City. Said complaint was amended three times with respect to the extent and description of the land sought to be recovered. Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and notorious possession (of land in dispute) under claim of ownership, adverse to the entire world by defendant and his predecessor in interest" from "time in-memorial". The answer further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest either personal or thru publication to defendant and/or predecessors in interest." The trial court ruled in favor of the plaintiff. Hence, this petition. ISSUE: Whether the trial court erred in not dismissing the case on the ground that the case was not brought by the real property in interest. HELD: As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also 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.

WOODHOUSE V. HALILI G.R. No. L-4811 July 31, 1953 Ponente: LABRADOR, J. FACTS: Halili communicated to Woodhouse that he wanted to invest half a million dollars in the bottling and distribution of Mission Soft Drinks. Woodhouse then relayed this message to Mission Dry Corporation of Los Angeles, USA. Mission Dry Corporation then gave plaintiff a thirty day option on exclusive bottling and distribution rights in the Philippines (Exhibit J). Thereafter, plaintiff and defendant entered into a written agreement with the following pertinent provisions: 1) they shall organize a partnership for the bottling and distributing of Mission soft drinks, with plaintiff, Woodhouse, as industrial partner or manager, and defendant, Halili, as capitalist; 2)defendant was to decide matters of general policy regarding the business, while plaintiff was to attend the operation and development of the bottling plant; 3) plaintiff was to secure Mission soft drinks franchise for and in behalf of the proposed partnership; and 4) plaintiff was to receive 30 percent of the net profits of the business. This contract was signed and the parties to this case then went to the United States to finalize the franchising agreement. Mission Dry Corporation then granted the defendant the exclusive right, license, and authority to produce, bottle, distribute and sell Mission beverages in the Philippines. When both parties went back to the Philippines, the bottling plant began its operation. At first, plaintiff was given advances, on account of the profits, and allowances which however ceased after two months. Moreover, when plaintiff demanded that the partnership papers be executed, defendant refused to do so and instead suggested that they just enter into a settlement. As no settlement was reached, the plaintiff filed a complaint in the CFI. In the CFI, plaintiff asks for execution of the contract of partnership, accounting of the profits and a share thereof of 30 percent. Defendant on his defense claims that plaintiff misrepresented himself that he was about to become the owner of an exclusive bottling franchise when in fact franchise was exclusively given to defendant, and that the plaintiff failed to contribute to the exclusive franchise of the partnership. CFI ordered defendant to render an accounting of the profits of the business and to pay plaintiff 15 percent thereof. But it held that the execution of the contract could not be enforced and the defense of fraud was not proved. Unsatisfied with this ruling, both parties appealed to the SC. ISSUE: 1. Whether plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages. 2. Whether this false representation amounts to fraud and may annul the agreement to form a partnership. HELD: 1. Yes. As found by the SC, Exhibit J was used by plaintiff as an instrument with which to bargain with the defendant and to close a deal with him, because if plaintiff claimed that all he had was an option to exclusively bottle and distribute Mission soft drinks in the Philippines, he would have probably lost the deal itself. This is further supported by the fact that when defendant learned that plaintiff did not have an exclusive franchise, he reduced plaintiffs participation in the profit to 15 percent, to which the plaintiff agreed.

2. Article 1270 of the Spanish Civil Code distinguished two kinds of fraud, causal fraud, which may be a ground for the annulment of a contract, and the incidental fraud, which only renders the party who employs it liable for damages. As founded by the SC the misrepresentation of plaintiff does not amount to causal fraud because it was not the principal inducement that led the plaintiff to enter into the partnership agreement. As it was already noted, both parties expressly agreed that they shall form a partnership. Lastly, the SC upheld the ruling of the trial court that the defendant may not be compelled against his will to carry out the partnership. 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.

ISABELO MORAN, JR. v. THE HON. COURT OF APPEALS and MARIANO E. PECSON G.R. No. L-59956 October 31, 1984 Ponente: GUTIERREZ, JR., J. FACTS: On February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran actually supervising the work. Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971. On December 15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be made. Pecson gave Moran P10,000 for which the latter issued a receipt. However, only a few posters were printed. Subsequently, on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees. The Court of First Instance ruled in favor of Pecson. On appeal, the Court of Appeals likewise ruled in favor of Pecson. Hence, this petition. ISSUES: 1. Whether the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership is highly speculative. 2. Whether the award of P8,000.00 as Pecson's supposed commission has no justifiable basis in law. 3. Whether the respondent Court of Appeals erred in holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of investment in a magazine venture. HELD:

1. Yes. We agree with the petitioner that the award of speculative damages has no basis in fact and law. The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because the appellant therein was remiss in his obligations as a partner and as prime contractor of the construction projects in question. This case was decided on a particular 7

set of facts. We awarded compensatory damages in the Uy case because there was a finding that the constructing business is a profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private respondent.

2. Yes. The partnership agreement stipulated that the petitioner would give the private respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly commissions. The agreement does not state the basis of the commission. The payment of the commission could only have been predicated on relatively extravagant profits. The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00 commission.

3. Yes. The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed. It was the private respondent himself who presented a copy of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error to state that the project never took place and on this basis decree the return of the private respondent's investment.

THE LEYTE-SAMAR SALES CO. and RAYMUNDO TOMASSI v. SULPICIO V. CEA and OLEGARIO LASTRILLA G.R. No. L-5963 May 20, 1953 Ponente: BENGZON, J. FACTS: In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages by the Leyte-Samar Sales Co. (LESSCO) and Raymond Tomassi against the Far Eastern Lumber & Commercial Co. (unregistered commercial partnership hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas, judgment against defendants jointly and severally for the amount of P31,589.14 plus costs was rendered on October 29, 1948. The Court of Appeals confirmed the award in November 1950, minus P2,000 representing attorney's fees mistakenly included. The decision having become final, the sheriff sold at auction on June 9, 1951 to Robert Dorfe and Pepito Asturias "all the rights, interests, titles and participation" of the defendants in certain buildings and properties described in the certificate, for a total price of eight thousand and one hundred pesos. But on June 4, 1951 Olegario Lastrilla filed in the case a motion, wherein he claimed to be the owner by purchase on September 29, 1949, of all the "shares and interests" of defendant Fred Brown in the FELCO, and requested "under the law of preference of credits" that the sheriff be required to retain in his possession so much of the deeds of the auction sale as may be necessary "to pay his right". Over the plaintiffs' objection the judge in his order of June 13, 1951, granted Lastrilla's motion by requiring the sheriff to retain 17 per cent of the money "for delivery to the assignee, administrator or receiver" of the FELCO. And on motion of Lastrilla, the court on August 14, 1951, modified its order of delivery and merely declared that Lastrilla was entitled to 17 per cent of the properties sold. Hence, this petition. ISSUE: Whether the orders issued were null and void for lack of jurisdiction. HELD: The respondent judge's action on Lastrilla's motion should be declared as in excess of jurisdiction, which even amounted to want of jurisdiction, considering specially that Dorfe and Austrias, and the defendants themselves, had undoubtedly the right to be heardbut they were not notified. Why was it necessary to hear them on the merits of Lastrilla's motion? Because Dorfe and Austrillas might be unwilling to recognize the validity of Lastrilla's purchase, or, if valid, they may want him not to forsake the partnership that might have some obligations in connection with the partnership properties. And what is more important, if the motion is granted, when the time for redemptioner seventeen per cent (178%) less than amount they had paid for the same properties.

COMMISSIONER OF INTERNAL REVENUE v. WILLIAM J. SUTER and THE COURT OF TAX APPEALS G.R. No. L-25532 February 28, 1969 Ponente: REYES, J.B.L., J. FACTS:

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 respondent 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. Hence, this petition. ISSUES: 1. 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. 2. 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. HELD:

1. No. 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 10

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.

2. No. 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. 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 justification 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.

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TAI TONG CHUACHE & CO. v. THE INSURANCE COMMISSION and TRAVELLERS MULTIINDEMNITY CORPORATION G.R. No. L-55397 February 29, 1988 Ponente: GANCAYCO, J. FACTS:

Complainants acquired from a certain Rolando Gonzales a parcel of land and a building located at San Rafael Village, Davao City. Complainants assumed the mortgage of the building in favor of S.S.S., which building was insured with respondent S.S.S. Accredited Group of Insurers for P25,000.00. On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of P100,000.00. To secure the payment of the loan, a mortgage was executed over the land and the building in favor of Tai Tong Chuache & Co. On April 25, 1975, Arsenio Chua, representative of Thai Tong Chuache & Co. insured the latter's interest with Travellers Multi-Indemnity Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents thereof). On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500, covering the building for P50,000.00 with respondent Zenith Insurance Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459 was procured from respondent Philippine British Assurance Company, covering the same building for P50,000.00 and the contents thereof for P70,000.00. On July 31, 1975, the building and the contents were totally razed by fire. Based on the computation of the loss, including the Travellers Multi- Indemnity, respondents, Zenith Insurance, Phil. British Assurance and S.S.S. Accredited Group of Insurers, paid their corresponding shares of the loss. Complainants were paid the following: P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6. Amended Complaint). Demand was made from respondent Travellers Multi-Indemnity for its share in the loss but the same was refused. Hence, complainants demanded from the other three (3) respondents the balance of each share in the loss based on the computation of the Adjustment Standards Report excluding Travellers MultiIndemnity in the amount of P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited) but the same was refused, hence, this action. ISSUE: Whether the suit was properly filed by petitioners as real party in interest. HELD: Yes. It should be borne in mind that petitioner being a partnership may sue and be sued in its name or by its duly authorized representative. The fact that Arsenio Lopez Chua is the representative of petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the managing partner of the partnership was corroborated by respondent insurance company. Thus Chua as the managing partner of the partnership may execute all acts of administration including the right to sue debtors of the partnership in case of their failure to pay their obligations when it became due and demandable. Or at the very least, Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an 12

agent, it is understood that he acted for and in behalf of the firm. Public respondent's allegation that the civil case filed by Arsenio Chua was in his capacity as personal creditor of spouses Palomo has no basis. The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal force and effect at the time of the fire, it is bound by its terms and conditions. Upon its failure to prove the allegation of lack of insurable interest on the part of the petitioner, respondent insurance company is and must be held liable.

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MARIANO P. PASCUAL and RENATO P. DRAGON v. THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS G.R. No. 78133 October 18, 1988 Ponente: GANCAYCO, J. FACTS: On June 22, 1965, petitioners bought two parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. 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, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required 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 in a letter of June 26, 1979 asserting that they had availed of tax amnesties way back in 1974. Petitioners filed a petition for review with the respondent Court of Tax Appeals, which affirmed the CIR. Hence, this petition. ISSUE: Whether petitioners are subject to the tax on corporations. HELD: No. 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 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. And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership. However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

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INOCENCIA DELUAO and FELIPE DELUAO v. NICANOR CASTEEL and JUAN DEPRA G.R. No. L-21906 December 24, 1968 Ponente: CASTRO, J. FACTS: In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. Said application was twice not acted upon and then rejected. Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While this motion was pending resolution, he was advised by the district forester of Davao City that no further action would be taken on his motion, unless he filed a new application for the area concerned. So he filed on May 27, 1947 his fishpond application 1717. Meanwhile, several applications were submitted by other persons for portions of the area covered by Casteel's application among of which are application by Leoncio Aradillos, Victor D. Carpio, Alejandro Cacam's fishpond application 1276, filed on December 26, 1946, was given due course on December 9, 1947 with the issuance to him of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of the area applied for by Casteel, upon certification of the Bureau of Forestry that the area was likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao filed his own fishpond application for the area covered by Casteel's application. Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built. Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel immediately filed the corresponding protests. However, the Director of Fisheries rejected Casteel's application on October 25, 1949, required him to remove all the improvements which he had introduced on the land, and ordered that the land be leased through public auction. Failing to secure a favorable resolution of his motion for reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and Natural Resources. In the interval, some more incidents occurred. On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the second part, executed a contract denominated a "contract of service." On the same date the above contract was entered into, Inocencia Deluao executed a special power of attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me in the administration of the fishpond at Malalag, Municipality of Padada, Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand, receive, and collect the value of the fish that is being periodically realized from it...." On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases (DANR Cases 353 and 353-B) and asked for 15

reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and Natural Resources), Deluao withdrew his petition for reinvestigation. On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR Case 353 reinstating Casteel's application. On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion stating as follows: WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor Casteel is required to pay the improvements introduced thereon by said permittees in accordance with the terms and dispositions contained elsewhere in this decision.... Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises. Alleging violation of the contract of service entered into between Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for specific performance and damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his contract. On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction, praying among other things, that during the pendency of the case and upon their filling the requisite bond as may be fixed by the court, a preliminary injunction be issued to restrain Casteel from doing the acts complained of, and that after trial the said injunction be made permanent. The lower court on April 26, 1951 granted the motion, and, two days later, it issued a preliminary mandatory injunction addressed to Casteel. On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the owner, lawful applicant and occupant of the fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its order of June 26, 1961. The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952, denying the material averments of the plaintiffs' complaint. A reply to the defendants' amended answer was filed by the plaintiffs on January 31, 1952. The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the plaintiffs opposed his motion. The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower court in its order of October 22, 1951. The defendants' motion for reconsideration filed on October 31, 1951 suffered the same fate when it was likewise denied by the lower court in its order of November 12, 1951. 16

After the issues were joined, the case was set for trial. Then came a series of postponements. Defendants filed a motion for postponement on April 26, 2956. On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez presiding), when informed about the defendants' motion for postponement filed on April 26, 1956, issued an order reiterating a previous order handed down in open court on March 21, 1956 and directing the plaintiffs to introduce their evidence ex parte, there being no appearance on the part of the defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May 4, 1956. The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of knowledge of the order of the court a quo setting the case for trial. The petition, however, was denied by the lower court in its order of May 21, 1956. Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final determination on the ground that it involves only questions of law. ISSUE: Whether the lower court incurred an error in ordering the issuance ex parte of a writ of preliminary injunction against him, and in not dismissing the appellee's complaint. HELD: Yes. Apparently, the court a quo relied on exhibit A the so-called "contract of service" and the appellees' contention that it created a contract of co-ownership and partnership between Inocencia Deluao and the appellant over the fishpond in question. It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called "contract of service" on November 25, 1949, there were two pending applications over the fishpond. One was Casteel's which was appealed by him to the Secretary of Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe Deluao's application over the same area which was likewise rejected by the Director of Fisheries on November 29, 1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture and Natural Resources. Clearly, although the fishpond was then in the possession of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond permit over the area. But be that as it may, they were not however precluded from exploiting the fishpond pending resolution of Casteel's appeal or the approval of Deluao's application over the same area whichever event happened first. No law, rule or regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle they cultivated it. Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which, although denominated a "contract of service," was actually the memorandum of their partnership agreement. That it was not a contract of the services of the appellant, was admitted by the appellees themselves in their letter to Casteel dated December 19, 1949 wherein they stated that they did not employ him in his (Casteel's) claim but because he used their money in developing and improving the fishpond, his right must be divided between them. Of course, although exhibit A did not specify any wage or share appertaining to the appellant as industrial partner, he was so entitled this being one of the conditions he specified for the execution of the document of partnership.

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Since the partnership had for its object the division into two equal parts of the fishpond between the appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond. The approval was an event which made it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership. However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership, succeeding events reveal the intent of both parties to terminate the partnership by refusing to share the fishpond with the other. Therefore, with the view that we take of this case, and even assuming that the injunction was properly issued because present all the requisite grounds for its issuance, its continuation, and, worse, its declaration as permanent, was improper in the face of the knowledge later acquired by the lower court that it was the appellant's application over the fishpond which was given due course. After the Secretary of Agriculture and Natural Resources approved the appellant's application, he became to all intents and purposes the legal permittee of the area with the corresponding right to possess, occupy and enjoy the same. Consequently, the lower court erred in issuing the preliminary mandatory injunction. We cannot overemphasize that an injunction should not be granted to take property out of the possession and control of one party and place it in the hands of another whose title has not been clearly established by law. However, pursuant to our holding that there was a partnership between the parties for the exploitation of the fishpond before it was awarded to Casteel, this case should be remanded to the lower court for the reception of evidence relative to an accounting from November 25, 1949 to September 15, 1950.

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KILOSBAYAN v. GUINGONA G.R. No. 113375 May 5, 1994 Ponente: DAVIDE, JR., J. FACTS: The PCSO decided to establish an on- line lottery system for the purpose of increasing its revenue base and diversifying its sources of funds pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the authority to hold and conduct "charity sweepstakes races, lotteries and other similar activities." PCSO is then seeking for a suitable contractor which shall build, at its own expense, all the facilities needed to operate and maintain a nationwide on-line lottery system. PCSO shall lease the facilities for a fixed percentage of quarterly gross receipts. Then subsequently, PGMC submitted its bid. On 21 October 1993, the Office of the President announced that it had given the respondent PGMC the go-signal to operate the country's on-line lottery system. PGMC and PSCO then entered into a contract of lease with certain agreements amongst themselves. This prompted the petitioner KILOSBAYAN, who are suing in their capacities as members of the Board of Trustees of KILOSBAYAN and as taxpayers and concerned citizens, opposed to the online lotto on account of its immorality and illegality. They also said that the lease agreement was not valid on the ground that PCSO is prohibited from holding and conducting charity sweepstakes races, lotteries, and other similar activities "in collaboration, association or joint venture with any person, association, company or entity, foreign or domestic. This ground was contested by PCSO on the ground that what they entered into with PGMC is just a lease contract and not a joint venture. ISSUE: Whether or not the lease agreement was valid HELD: No. Because if we look deeply into the lease agreement between PCSO and PGMC we can see that what they entered into is not simply a lease agreement but in fact a joint venture agreement. Moreover, PCSO is prohibited from holding and conducting charity sweepstakes races, lotteries and other similar activities in collaboration, association or joint venture with any person, association, company or entity, foreign or domestic, according to its charter. Furthermore, the following provision in their agreement constitutes that PCSO and PGMC in fact entered into a joint venture, instead of a simple lease contract, to wit: (a) Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for the fulfillment of its obligations under the contract , including, but not limited to the lease of the Facilities. However, this rent is not actually a fixed amount. Although it is stated to be 4.9% of gross receipts from ticket sales, payable net of taxes required by law to be withheld, it may be drastically reduced or, in extreme cases, nothing may be due or demandable at all because the PGMC binds itself to "bear all risks if the revenue from the ticket sales, on an annualized basis, are insufficient to pay the entire prize money." This risk-bearing provision is unusual in a lessor-lessee relationship, but inherent in a joint venture. (b) In the event of pre-termination of the contract by the PCSO, or its suspension of operation of the on-line lottery system in breach of the contract and through no fault of the PGMC, the PCSO binds itself "to promptly, and in any event not later than sixty (60) days, reimburse the Lessor the amount of its total investment cost associated with the On-Line Lottery System, including but 19

not limited to the cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired term of the lease." If the contract were indeed one of lease, the payment of the expected profits or rentals for the unexpired portion of the term of the contract would be enough. (c) The PGMC cannot "directly or indirectly undertake any activity or business in competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent." If the PGMC is engaged in the business of leasing equipment and technology for an on-line lottery system, we fail to see any acceptable reason why it should allow a restriction on the pursuit of such business. (d) The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within two years from the effectivity of the contract, cause itself to be listed in the local stock exchange and offer at least 25% of its equity to the public. If the PGMC is merely a lessor, this imposition is unreasonable and whimsical, and could only be tied up to the fact that the PGMC will actually operate and manage the system; hence, increasing public participation in the corporation would enhance public interest. (e) The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the requirements of the RFP, which it may, at its option, maintain as its initial performance bond required to ensure its faithful compliance with the terms of the contract. (f) The PCSO shall designate the necessary personnel to monitor and audit the daily performance of the on-line lottery system; and promulgate procedural and coordinating rules governing all activities relating to the on-line lottery system. The first further confirms that it is the PGMC which will operate the system and the PCSO may, for the protection of its interest, monitor and audit the daily performance of the system. The second admits the coordinating and cooperative powers and functions of the parties. (g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its debts, or if it stops or suspends or threatens to stop or suspend payment of all or a material part of its debts.

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TORRES v. CA G.R. No. 134559 December 9, 1999 Ponente: PANGANIBAN, J. FACTS: Petitioners Antonia Torres and Emeteria Baring are sisters. They entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots. However, the project did not push through despite the effort of Manuel Torres, he even gave additional capital just to develop the parcel of land. Subsequently the bank foreclosed the mortgage. ISSUE: 1. What relationship was formed between the Sisters Torres and Manuel Torres? 2. What will be the extent of their liabilities? HELD: 1. They formed a partnership. In their agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. 2. Petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract.

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FRANK BOURNS v. D.M. CARMAN G.R. No. 2880 December 4, 1906 Ponente: MAPA, J. FACTS: An action to recover the sum of $437.50 balance due on a contract for the sawing of lumber yard of Lo-Chim-Lim was filed by Bourns (Plaintiff). The contract was entered into by Lo-ChimLim, acting as in his own name with the plaintiff, and it appears that Lo-Chim-Lim personally agreed to pay for the work himself. The plaintiff brought the action against Lo-Chim-Lim and his co-defendants jointly, alleging that at the time the contract was made, they were the joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under the name and style of Lo-Chim-Lim, hence were partners. The lower court dismissed the action on the ground that defendants D.M. Carman, Fulgencio and Tan-Tongco, except Vicente Palance and Go-Tauco were not the partners of Lo-Chim-Lim. ISSUE: Whether appellants are deemed partners of Lo-Chim-Lim and hence are liable to Bourns HELD: No. The alleged partnership between Lo-Chim-Lim and the appellants was formed by verbal agreement only. There is no evidence tending to show that the said agreement was reduced to writing, or that it was ever recorded in a public instrument. Moreover, the partnership had no corporate name. The partnership was engaged in business under the name and style of LoChim-Lim only. Moreover, it does not appear that there was any mutual agreement between the parties and if there were any, it has not been shown what the agreement was. The contracts made with the plaintiff were made by Lo-Chim-Lim individually in his own name, and there is no evidence that the partnership over contracted in any form. Hence, the partnership is one of cuentasen participacion. It is but a simple business conducted by Lo-Chim-Lim exclusively in his own name. A partnership constituted in such a manner, the existence of which was only known to those who had an interest in the same, being no mutual agreements between the partners and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en participacion defined in Art. 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them.

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BIGLANGAWA and ESPIRITU v.PASTOR B. CONSTANTINO G.R. No. L-9965 August 29, 1960 Ponente: BARRERA, J. FACTS: On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First Instance of Rizal an amended complaint (docketed as Civil Case No. 2138) against petitioners Lucina Biglangawa and Lucia Espiritu, alleging that Petitioners are owners of a parcel of land and that Plaintiffs appointed Respondent their exclusive agent to develop the land into subdivision lots and to sell them to prospective homeowners; and as compensation for his services, defendants promised to pay him a commission of 20% on the gross sales and a fee of 10% on the collections made by him payable from "the first collections received from the purchasers in respect to each lot sold." Contracts were executed pursuant thereto. Respondent also alleged that Petitioners subsequently terminated the contracts depriving him of his full commission. He later on agreed to a settlement but the said settlement was not faithfully complied with by the petitioners prompting defendant to file the abovementioned complaint. On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to surrender their owner's copy of Transfer Certificate of Title No. 5459 for annotation of a notice of lis pendens, but petitioners refused to do so. However, on May 17, 1955, when petitioners registered the absolute deed of sale in favor of Carmelita L. Santos covering some of the lots of the subdivision, said official without their knowledge and consent, made the annotation of the lis pendens on petitioners' aforementioned title, as well as on the title issued to Carmelita L. Santos. Petitioners filed with the Court of First Instance of Bulacan, a petition praying for the cancellation of said notice of lis pendens. The CFI ruled in favor of petitioners. Hence, this petition. ISSUE: Whether respondent's complaint was one for the settlement and adjustment of partnership interest or a partition action or proceeding. HELD: No. It is true that in paragraph 5 of the amended complaint (supra) appellant claims to have made advances for the expenses incurred in the development and administration of the property. But again he never considered these as contributions to the business as to make him a partner; otherwise, he would have so stated it in his complaint. In fact, after a liquidation of these advances and the commissions due to appellant at the time of the termination of the agency, the whole balance was considered as appellees' indebtedness which appellant consented to be settled in monthly installments (see paragraphs 6, 8, and 9 of the amended complaint).While it is true again that the prayer in a complaint does not determine the nature of the action, it not being a material part of the cause of action, still it logically indicates, as it does in this case, the purpose of the actor. The four paragraphs of the prayer seeks the recovery of fixed amounts of underpayments and commissions and fees; not liquidation or accounting or partition as now insisted upon by appellant. Appellants's amended complaint, not being "an action affecting the title or the right of possession of real property", nor one "to recover possession of real estate, or to quiet title thereto, or to remove clouds upon the title thereof, or for partition or other proceeding of any kind in court affecting the title to real estate or the use or occupation thereof or the buildings thereon . . .", the same cannot be the basis for annotating a notice of lis pendens on the title of the petitioners-appellees.

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PIONEER INSURANCE & SURETY CORPORATION v. CA G.R. No. 84197 July 28, 1989 Ponente: GUTIERREZ, JR., J. FACTS: In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. Said aircrafts were duly delivered. On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature. On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of P298,626.12. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts, On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.

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The trial court rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. The CA reversed the decision. Hence, this petition. ISSUE: Whether as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. HELD: No. In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial despite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses. It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence to the crossclaims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. The supporting principles are: "[A de facto partnership] does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464)."

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In Re: PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES." G.R. No. L-9965 August 29, 1960 Ponente: BARRERA, J. FACTS: This case involves two separate Petitions filed before the Supreme Court by petitioners: 1) by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975, and 2) 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. In the Court's Resolution of September 2, 1976, both Petitions were ordered consolidated. Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court. ISSUE: Whether or not the use of the deceaseds name should be retained in petitioners partnership firm? HELD: No. Firstly, inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code. It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and in the case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including his name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers. Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than of a professional partnership, with no saleable good will but whose reputation depends on the personal qualifications of its individual members. Thus, it has been held that a saleable goodwill can exist only in a commercial partnership and cannot arise in a professional partnership consisting of lawyers. In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical impediment. The petitions filed are denied and petitioners advised to drop the names "SYCIP" and "OZAETA" from their respective firm names. Those names may be included in the listing of individuals who have been partners in their firms indicating the years during which they served as such

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ROSARIO U. YULO v. YANG CHIAO SENG G.R. No. L-12541 August 28, 1959 Ponente: LABRADOR, J. FACTS: Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and operate a theatre on the premises occupied by Cine Oro, Plaza Sta. Cruz, Manila, the principal conditions of the offer being (1) Yang guarantees Yulo a monthly participation of P3,000 (2) partnership shall be for a period of 2 years and 6 months with the condition that if the land is expropriated, rendered impracticable for business, owner constructs a permanent building, then Yulos right to lease and partnership even if period agreed upon has not yet expired; (3) Yulo is authorized to personally conduct business in the lobby of the building; and (4) after Dec 31, 1947, all improvements placed by partnership shall belong to Yulo but if partnership is terminated before lapse of 1 and years, Yang shall have right to remove improvements. Parties established, Yang and Co. Ltd., to exist from July 1, 1945 Dec 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. The CFI dismissed the complaint and declared the contract of lease terminated. The CA affirmed the judgment. 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. Hence, this petition. ISSUE: Was the agreement a contract a lease or a partnership? HELD: No. 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) the intention on the part of the partners to divide the profits among themselves (Article 1761, CC) Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any help or intervention in the management of the theatre. Neither has she demanded from defendant any accounting of the expenses and earnings of the business. She was absolutely silent with respect to any of the acts that a partner should have done; all 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 premises which she had leased from the owners.

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ELIGIO ESTANISLAO, JR. vs. COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO G.R. No. L-49982 April 27, 1988 Ponente: GUTIERREZ, JR., J. FACTS: The petitioner and private respondents are brothers and sisters who are co-owners of certain lots which were then being leased to SHELL. They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of P15,000 to be taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned by them in common. A joint affidavit was executed on April 1966. The respondents agreed to help their brother, petitioner, by allowing him to operate and manage the gasoline service station of the family. In order not to run counter to the companys policy of appointing only one dealer, it was agreed that petitioner would apply for the dealership. Respondent Remedios helped in co-managing the business with petitioner. On May 1966, the parties entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the P15,000 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that said agreement cancels and supersedes the Joint Affidavit. For some time, the petitioner submitted financial statements regarding the operation of the business to the private respondents, but thereafter petitioner failed to render subsequent accounting. Hence , the private respondents filed a complaint against the petitioner praying among others that the latter be ordered: to execute a public document embodying all the provisions of the partnership agreement they entered into; 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 ISSUE: Whether or not a partnership existed between petitioner and private respondents HELD: Yes. There is no merit in the petitioners contention that because of the stipulation cancelling and superseding the previous joint affidavit, whatever partnership agreement there was in said previous agreement had thereby been abrogated. Said cancelling provision was necessary for the Joint Affidavit speaks of P15,000 advance rental 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 P15,000 hence the need to provide in the subsequent document that it cancels and supersedes the previous none. Indeed, it is true that the latter document is silent as to the statement in the Join Affidavit that the value represents the capital investment of the parties in the business and it speaks of the petitioner as the sole dealer, but this is as it should be for in the latter document, SHELL was a signatory and it would be against their policy if in the agreement it should be stated that the business is a partnership with private respondents and not a sole proprietorship of the petitioner. Furthermore, there are other evidences in the record which show that there was in fact such partnership agreement between parties. The petitioner submitted to the private respondents periodic accounting of the business and gave a written authority to the private respondent Remedios Estanislao to examine and audit the books of their common business. The respondent Remedios, on the other hand, assisted in the running of the business. Indeed, the parties hereto formed a partnership when they bound themselves to contribute money in a common fund with the intention of dividing the profits among themselves. 28

JOSE FERNANDEZ vs. FRANCISCO DE LA ROSA G.R. No. 413 February 2, 1903 Ponente: MELENCIO-HERRERA, J. FACTS: Jose Fernandez alleged that he entered into a verbal agreement with Francisco De La Rosa to form a partnership for the purchase of cascoes and the carrying on of the business renting out the same. Francisco was to buy the cascoes and each partner was to provide funds, the profits were to be divided proportionately. Jose furnished to Franciso the amounts of P300 and P825 to purchase cascoes, the latter taking the title in his own name. When the parties undertook to draw up the articles of partnership for the purpose of embodying the same in an authentic document, they were unable to come to any understanding and no written agreement was executed. Since Francisco had control and management of the two cascoes, the plaintiff made a demand for an accounting upon him, which the defendant refused to render, denying the existence of the partnership altogether. ISSUE: Whether or not a partnership existed between the parties HELD: Yes. The essential elements upon which the minds of the parties must meet in a contract of partnership are: (1) mutual contribution to a common stock, and (2) a joint interest in the profits. If the contract contains these two elements the partnership relation results, and the law itself fixes the incidents of this relation if the parties fail to do so. Money was furnished by Jose and received by Francisco with the understanding that it was to be used for the purchase of the cascoes in question. This establishes the first element of the contract, namely, mutual contribution to a common stock. The second element, namely, the intention to share profits, appears to be an unavoidable deduction from the fact of the purchase of the cascoes in common, in the absence of any other explanation of the object of the parties in making the purchase in that form, and, it may be added, in view of the admitted fact that prior to the purchase of the first casco the formation of a partnership had been a subject of negotiation between them. Under other circumstances the relation of joint ownership, might have been the result of the joint purchase. If, for instance, it were shown that the object of the parties in purchasing in company had been to make a more favorable bargain for the two cascoes that they could have done by purchasing them separately, and that they had no ulterior object except to effect a division of the common property when once they had acquired it, the affectio societatis would be lacking and the parties would have become joint tenants only; but, as nothing of this sort appears in the case, we must assume that the object of the purchase was active use and profit and not mere passive ownership in common. The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of partnership as a civil contract, the contributions of the partners not having been in the form of immovables or rights in immovables.

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