ADRIANO ARBES, ET AL vs.

VICENTE
POLISTICO, ET AL.,
G.R. No. 31057 September 7, 1929
VILLAMOR, J.:
FACTS:
This is an action to bring about liquidation of
the funds and property of the association
called "Turnuhan Polistico & Co." The plaintiffs
were members or shareholders, and the
defendants were designated as presidenttreasurer, directors and secretary of said
association. This case is brought for 2nd time.
In the 1 st one, the court court held then that
in an action against the officers of a voluntary
association to wind up its affairs and enforce
an accounting for money and property in their
possessions, it is not necessary that all
members of the association be made parties
to the action. The court appointed
commissioner of Insular Auditor's Office, to
examine all the books, documents, and
accounts of "Turnuhan Polistico & Co.," and to
receive whatever evidence. Commissioner's
report show a balance of P24, 607.80 cash on
hand. Despite defendants objection to the
report, the trial court rendered judgment
holding said association is unlawful. And
sentenced defendants jointly and severally to
return the amount and documents to the
plaintiffs and members of the association. The
Appellant alleged that the association being
unlawful, some charitable institution to whom
the partnership funds may be ordered to be
turned over, should be included, as a party
defendant. Referring to article 1666 of the
Civil Code, which provides: A partnership
must have a lawful object, and must be
established for the common benefit of the
partners. When the dissolution of an unlawful
partnership is decreed, the profits shall be
given to charitable institutions of the domicile
of the partnership, or, in default of such, to
those of the province.
ISSUE:
Whether or not charitable institution is a
necessary party to this case.
HELD:
No. No charitable institution is a necessary
party in the present case of determination of
the rights of the parties. The action which
may arise from said article, in the case of
unlawful partnership, is that for the recovery
of the amounts paid by the member from
those in charge of the administration of said
partnership, and it is not necessary for the

said parties to base their action to the

existence of the partnership, but on the fact
that of having contributed some money to the
partnership capital. And hence, the charitable
institution of the domicile of the partnership,
and in the default thereof, those of the
province are not necessary parties in this
case. The article cited above permits no
action for the purpose of obtaining the
earnings made by the unlawful partnership,
during its existence as result of the business
in which it was engaged, because for the
purpose, as Manresa remarks, the partner will
have to base his action upon the partnership
contract, which is to annul and without legal
existence by reason of its unlawful object; and
it is self evident that what does not exist
cannot be a cause of action. Hence,
paragraph 2 of the same article provides that
when the dissolution of the unlawful
partnership is decreed, the profits cannot
inure to the benefit of the partners, but must
be given to some charitable institution.The
profits are so applied, and not the
contributions, because this would be an
excessive and unjust sanction for, as we have
seen, there is no reason, in such a case, for
depriving the partner of the portion of the
capital that he contributed, the circumstances
of the two cases being entirely different. Art.
1807. Every partner must account to the
partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other partners
from any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use by him of its
property.
G.R. No. L-25532
February 28,
1969
COMMISSIONER OF INTERNAL REVENUE,
petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF
TAX APPEALS, respondents.
A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed in 1947 by
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. 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.
In 1948, however, general partner Suter
and limited partner Spirig got married and,

thereafter, limited partner Carlson sold his

share in the partnership to Suter and his wife.
The limited partnership had been filing
its income tax returns as a corporation. In
1959, the Commissioner, 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.
ISSUES:
(a) Whether or not the corporate
personality of the William J. Suter "Morcoin"
Co., Ltd. should be disregarded for income tax
purposes, considering that respondent William
J. Suter and his wife, Julia SpirigSuter actually
formed a single taxable unit; and
(b) Whether or not the partnership was
dissolved after the marriage of the partners,
respondent William J. Suter and Julia
SpirigSuter 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.
SC:
(a)
CIR has evidently failed to observe
the fact that the partnership was not a
universal partnership, but a particular one. A
universal partnership requires either that the
object of the association be all the present
property of the partners, as contributed by
them to the common fund, or else "all that
the partners may acquire by their industry or
work during the existence of the partnership".
William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the
contributions of the partners were fixed sums
of money, P20,000.00 by William Suter and
P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to
enter by Article 1677 of the Civil Code of
1889.
The 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 the partnership did not become
common property of both after their marriage
in 1948.
The change in its membership, brought about
by the marriage of the partners and their
subsequent acquisition of all interest therein,
is no ground for withdrawing the partnership
from the coverage of Section 24 of the tax
code, requiring it to pay income tax.
The code (NIRC) taxes a limited partnership
on its income, but not a general copartnership
(compaiacolectiva), because it is in the case
of compaiascolectivas that the members,
and not the firm, are taxable in their
individual capacities for any dividend or share
of the profit derived from the duly registered
general partnership.
(b) The firm was not a universal partnership,
but a particular one. It follows that the
partnership was not one that A and B were
forbidden to enter under Article 1677. (now
Art. 1782.) Nor could the subsequent
marriage of the partners operate to dissolve
it, such marriage not being one of the causes
provided for that purpose by law.
MAXIMILIANO SANCHO, vs. SEVERIANO
LIZARRAGA
G.R.No. L-33580 February 6, 1931
Subject: BusOrg 1
FACTS:
The plaintiff brought an action for the
rescission of the partnership contract between
himself and the defendant and the
reimbursement of his investment worth
50,000php with interest at 12 per cent per
annum form October 15, 1920, with costs,
and any other just and equitable remedy
against said defendant. The defendant denies
generally and specifically all the allegations of
the complaint and asked for the dissolution of
the partnership, and the payment to him as
its manager and administrator P500 monthly
from October 15, 1920 until the final
dissolution with interest.
The CFI found that the defendant had not
contributed all the capital he had bound
himself to invest hence it demanded that the
defendant liquidate the partnership, declared
it dissolved on account of the expiration of the
period for which it was constituted, and
ordered the defendant, as managing partner,
to proceed without delay to liquidate it,

submitting to the court the result of the

liquidation together with the accounts and
vouchers within the period of thirty days from
receipt of notice of said judgment. The
plaintiff appealed from said decision praying
for the rescission of the partnership contract
between him and the defendant in
accordance with Art. 1124.

ISSUE:
WON plaintiff acquired the right to demand
rescission of the partnership contract
according to article 1124 of the Civil Code.
HELD:
The SC ruled that owing to the defendants
failure to pay to the partnership the whole
amount which he bound himself to pay, he
became indebted to the partnership for the
remainder, with interest and any damages
occasioned thereby, but the plaintiff did not
thereby acquire the right to demand
rescission of the partnership contract
according to article 1124 of the Code. Article
1124 cannot be applied to the case in
question, because it refers to the resolution of
obligations in general, whereas articles 1681
and 1682 specifically refer to the contract of
partnership in particular. And it is a well
known principle that special provisions prevail
over general provisions. Hence, SC dismissed
the appeal left the decision appealed from in
full force.
Pang Lim vs Lo Seng
Facts:
Lo Seng and Pang Lim were partners in
the business of running a distillery,
known as "El Progreso
The land on which said distillery is
located was to the firm of Lo Seng and
Co. for the term of three years.
Upon the expiration of this lease a new
written contract, in the making of
which Lo Yao was represented by one
Lo Shui as attorney in fact, became
effective whereby the lease was
extended for fifteen years.
Pang Lim sold all his interest in the
distillery to his partner Lo Seng, thus
placing the latter in the positionof sole
owner
Lo Shui, again acting as attorney in
fact of Lo Yao, executed and
acknowledged before a notary public a
deed purporting to convey to Pang Lim
and another Chinaman named Benito
Galvez, the entire distilleryplant. But

this document was never recorded in

the registry of property.
Thereafter, Pang Lim and Benito
Galvez demanded possession from Lo
Seng, but the latter refused to yield;
and the present action of unlawful
detainer was there upon initiated by
Pang Lim and Benito Galvez in the
court of the justice of the peace of
Paombong tore cover possession of the
premises.
Plaintiff Pang Lim has occupied a
double role in thet ransactions which
gave rise to this litigation, namely,first,
as one of the lessees; and secondly, as
one of the purchasers now seeking to
terminate the lease. These two
positions are essentially antagonistic
and incompatible. Every competent
person is by law bond to maintain in all
good faith the integrity of his own
obligations; and no less certainly is he
bound to respect the rights of any
person whom he has placed in his own
shoes as regards any contract
previously entered into by himself.

Issue: WON Pang Lim, having been a

participant in the contract of lease now in
question, is in a position to terminate it: and
this is a fatal obstacle to the maintenance of
the action of unlawful detainer by him.
Held: NO.
While yet a partner in the firm of Lo Seng and
Co., Pang Lim participated in the creation of
this lease, and when he sold out his interest in
that firm to Lo Seng this operated as a
transfer to Lo Seng of Pang Lim's interest in
the firm assets, including the lease; and Pang
Lim cannot now be permitted, in the guise of
a purchaser of the estate, to destroy an
interest derived from himself, and for which
he has received full value.
Ratio:
The bad faith of the plaintiffs in seeking to
deprive the defendant of this lease is
strikingly revealed in the circumstance that
prior to the acquisition of this property Pang
Lim had been partner with Lo Seng and Benito
Galvez an employee. Both therefore hadbeen
in relations of confidence with Lo Seng and in
that position had acquired knowledge of the
possibilities of the property and possibly an
experience which would have enabled them,
in case they had acquired possession, to
exploit the distillery with profit.
it would be shocking to the moral sense if the
condition of the law were found to be such

that Pang Lim, after profiting by the sale of his

interest in a business, worthless without the
lease, could intervene s purchaser of the
property and confiscate for his own benefit
the property which he had sold for avaluable
consideration to Lo Seng.
Above all other persons in business relations,
partners are required to exhibit towards each
other the highest degree of good faith. In fact
the relation between partners is essentially
fiduciary, each being considered in law, as he
is in fact, the confidential agent of the other.
If one partner obtains in his own name and for
his own benefit the renewal of a lease on
property used by the firm, to commence at a
date subsequent to the expiration of the firm's
lease, the partner obtaining the renewal is
held to be a constructive trustee of the firm as
to such lease.
as Lo Seng is vested with the possessory right
as against Pang Lim, he cannot be ousted
either by Pang Lim or Benito Galvez. Having
lawful possession as against one cotenant, he
is entitled to retain it against both.
CATALAN vs. GATCHALIAN 105 Phil 1270, G.R.
No. L-11648, April 22, 1959
FACTS:
Catalan and Gatchalian are partners. They
mortgaged two lots to Dr. Maravetogether
with the improvements thereon to secure a
credit from the latter. Thepartnership failed to
pay the obligation. The properties were sold
to Dr. Marave at apublic auction. Catalan
redeemed the property and he contends that
title should becancelled and a new one must
be issued in his name.
ISSUE:
Did Catalans redemption of the properties
make him the absolute owner of thelands?
HELD:
No. Under Article 1807 of the NCC every
partner becomes a trustee for hiscopartner
with regard to any benefits or profits derived
from his act as a partner.Consequently, when
Catalan redeemed the properties in question,
he became a trusteeand held the same in
trust for his copartner Gatchalian, subject to
his right to demand from the latter his
contribution to the amount of redemption

JOSUE SONCUYA, plaintiff-appellant,

vs.
CARMEN DE LUNA, defendant-appellee.
Facts:

Plaintiff Josue Soncuya filed with the Court of

First Instance of Manila and amended
complaint against Carmen de Luna in her own
name and as co-administratrix of the intestate
estate, of Librada Avelino, in which, upon the
facts therein alleged, he prayed that
defendant be sentenced to pay him the sum
of P700,432 as damages and costs.
Plaintiff prayed that defendant Carmen de
Luna be sentenced to pay plaintiff damages in
the sum of P700,432 as a result of the
administration, said to be fraudulent, of the
partnership, "Centro Escolar de Seoritas", of
which plaintiff, defendant and the deceased
LibradaAvelino were members.
Defendant Carmen de Luna interposed a
demurrer based on the following grounds: (1)
That the complaint does not contain facts
sufficient to constitute a cause of action; and
(2) that the complaint is ambiguous,
unintelligible and vague.
Trial on the demurrer: Ordering the plaintiff to
amend his complaint. But Plaintiff manifested
that he would not amend his amended
complaint. Defendant filed motion praying
that the amended complaint be dismissed CFI
ordered the dismissal of the aforesaid
amended complaint.Hence this appeal.
Issue: W/N liquidation of the business is
prerequisite for the adjudication to plaintiff
damages which he alleged to have suffered as
a partner?
Ruling: Yes
For the purpose of adjudicating to plaintiff
damages which he alleges to have suffered as
a partner by reason of the supposed
fraudulent management of the partnership
referred to, it is first necessary that a
liquidation of the business thereof be
made to the end that the profits and
losses may be known and the causes of
the latter and the responsibility of the
defendant as well as the damages which
each partner may have suffered, may be
determined.
It is not alleged in the complaint that such a
liquidation has been effected nor is it prayed
that it be made. Consequently, there is no
reason or cause for plaintiff to institute the
action for damages which he claims from the
managing partner Carmen de Luna