PARTNERSHIP AND JURIDICAL PERSON
IT MAY SUE AND BE SUED IN ITS FIRM
Article 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities
for public interest or purpose, created by
law; their personality begins as soon as
they have been constituted according to
law;
(3) Corporations, partnerships and
associations for private interest or purpose
to which the law grants a juridical
personality, separate and distinct from that
of each shareholder, partner or member.
(35a)
Article 45. Juridical persons mentioned in Nos. 1 and
2 of the preceding article are governed by the laws
creating or recognizing them.
Private corporations are regulated by laws of general
application on the subject.
Partnerships and associations for private interest or
purpose are governed by the provisions of this Code
concerning partnerships. (36 and 37a)
Article 1768. The partnership has a juridical
personality separate and distinct from that of each of
the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph. (n)
Article 1772. Every contract of partnership having a
capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which
must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirements of the
preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
(n)
Article 1784. A partnership begins from the moment of
the execution of the contract, unless it is otherwise
stipulated. (1679)
CONSEQUENCES OF BEING A JURIDICAL
PERSON:
A. ENTITY HAS LEGAL CAPACITY TO ENTER
INTO CONTRACTS AND INCUR
OBLIGATIONS (ARTICLE 46)
Article 46. Juridical persons may acquire and
possess property of all kinds, as well as incur
obligations and bring civil or criminal actions, in
conformity with the laws and regulations of
their organization. (38a)
B. IT MAY ACQUIRE PROPERTIES IN ITS OWN
NAME (ARTICVLE 46 AND 1774)
Article 1774. Any immovable property or an
interest therein may be acquired in the
partnership name. Title so acquired can be
conveyed only in the partnership name. (n)
C.
NAME (ARTICLE 46)
G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner,
vs.
THE INSURANCE COMMISSION and
TRAVELLERS MULTI-INDEMNITY
CORPORATION, respondents.
Insurance; Evidence; Each party must prove his own
affirmative allegations.—It is a well known postulate
that the case of a party is constituted by his own
affirmative allegations. Under Section 1, Rule 131 each
party must prove his own affirmative allegations by the
amount of evidence required by law which in civil cases
as in the present case is preponderance of evidence.
The party, whether plaintiff or defendant, who asserts
the affirmative of the issue has the burden of
presenting at the trial such amount of evidence as
required by law to obtain a favorable judgment. Thus,
petitioner who is claiming a right over the insurance
must prove its case. Likewise. respondent insurance
company to avoid liability under the policy by setting up
an affirmative defense of lack of insurable interest on
the part of the petitioner must prove its own affirmative
allegations.
Same; Same; Same; Respondent having admitted the
material allegations in the complaint has the burden of
proof to show that petitioner has no insurable interest
over the insured property at the time the contingency
took place.—It will be recalled that respondent
insurance company did not assail the validity of the
insurance policy taken out by petitioner over the
mortgaged property. Neither did it deny that the said
property was totally razed by fire within the period
covered by the insurance. Respondent, as mentioned
earlier advanced an affirmative defense of lack of
insurance interest on the part of the petitioner alleging
that before the occurrence of the peril insured against
the Palomos had already paid their credit due the
petitioner. Respondent having admitted the material
allegations in the complaint, has the burden of proof to
show that petitioner has no insurable interest over the
insured property at the time the contingency took
place. Upon that point, there is a failure of proof.
Respondent, it will be noted, exerted no effort to
present any evidence to substantiate its claim, while
petitioner did. For said respondent's failure, the
decision must be adverse to it.
Same; Same; Court cannot sanction respondent
Commission's findings based upon a mere
inference.—However, as adverted to earlier,
respondent Insurance Commission absolved
respondent insurance company from liability on the
basis of the certification issued by the then Court of
First Instance of Davao, Branch II, that in a certain civil
action against the Palomos, Arsenio Lopez Chua
stands as the complainant and not Tai Tong Chuache.
From said evidence respondent commission inferred
that the credit extended by herein petitioner to the
Palomos secured by the insured property must have
been paid. Such is a glaring error which this Court
cannot sanction. Respondent Commission's findings
are based upon a mere inference.
Same; Insurance company bound by the term s and
conditions of the policy which is of legal force and effect
at the time of the fire.—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.
Civil Law; Loan; Presumption of non-payment when
creditor is in possession of the document of credit.—
The record of the case shows that the petitioner to
support its claim for the insurance proceeds offered as
evidence the contract of mortgage (Exh. 1) which has
not been cancelled nor released. It has been held in a
long line of cases that when the creditor is in
possession of the document of credit, he need not
prove non-payment for it is presumed. The validity of
the insurance policy taken by petitioner was not
assailed by private respondent. Moreover, petitioner's
claim that the loan extended to the Palomos has not
yet been paid was corroborated by Azucena Palomo
who testified that they are still indebted to herein
petitioner.
Civil Procedure; Party in interest; Actions; Partnership;
Action must be brought in the name of the real party in
interest; A partnership may sue and be sued in its
name or by its duly authorized representative —Public
respondent argues however, that if the civil case really
stemmed from the loan granted to Azucena Palomo by
petitioner the same should have been brought by Tai
Tong Chuache or by its representative in its own
behalf. From the above premise respondent concluded
that the obligation secured by the insured property
must have been paid. The premise is correct but the
conclusion is wrong. Citing Rule 3, Sec. 2 respondent
pointed out that the action must be brought in the name
of the real party in interest. We agree. However, 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 Ar senio
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
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. Tai
Tong Chuache & Co. vs. Insurance Commission, 158
SCRA 366, No. L-55397 February 29, 1988
D. IT WOULD HAVE DOMICILED: PLACE
WHERE LEGAL REPRESENTATION IS
ESTABLISHED OR WHERE IT EXERCISES
ITS PRINCIPAL FUNCTIONS ARTICLE 51
Article 51. When the law creating or recognizing them,
or any other provision does not fix the domicile of
juridical persons, the same shall be understood to be
the place where their legal representation is
established or where they exercise their principal
functions. (41a)
E. IT IS TAXED AS A CORPORATE TAXPAYER
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY
OF FINANCE & JOSE U. ONG, as COMMISSIONER
OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA
LAW OFFICES, CARLO A. CARAG, MANUELITO
O. CABALLES, ELPIDIO C. JAMORA, JR. and
BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as
SECRETARY OF FINANCE and JOSE U. ONG, in
his capacity as COMMISSIONER OF INTERNAL
REVENUE, respondents.
Taxation; Simplified Net Income Taxation (“SNIT”);
Republic Act No. 7496 did not adopt a gross income,
but have retained the net income, taxation scheme.—
On the basis of the above language of the law, it would
be difficult to accept petitioner’s view that the
amendatory law should be considered as having now
adopted a gross income, instead of as having still
retained the net income, taxation scheme. The
allowance for deductible items, it is true, may have
significantly been reduced by the questioned law in
comparison with that which has prevailed prior to the
amendment; limiting, however, allowable deductions
from gross income is neither discordant with, nor
opposed to, the net income tax concept. The fact of the
matter is still that various deductions, which are by no
means inconsequential, continue to be well provided
under the new law.
Same; Same; Constitutional Law; Titles of Bills;
Objectives of the constitutional provision on titles of
bills.—Article VI, Section 26(1), of the Constitution has
been envisioned so as (a) to prevent log-rolling
legislation intended to unite the members of the
legislature who favor any one of unrelated subjects in
support of the whole act, (b) to avoid surprises or even
fraud upon the legislature, and (c) to fairly apprise the
people, through such publications of its proceedings as
are usually made, of the subjects of legislation. The
above objectives of the fundamental law appear to us
to have been sufficiently met. Anything else would be
to require a virtual compendium of the law which could
not have been the intendment of the constitutional
mandate.
Same; Same; Same; Uniformity of taxation merely
requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and
liabilities.—Uniformity of taxation, like the kindred
concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to
be treated alike both in privileges and liabilities (Juan
Luna Subdivision vs. Sarmiento, 91 Phil. 371).
Uniformity does not forfend classification as long as:
(1) the standards that are used therefor are substantial
and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all
things being equal, to both present and future
conditions, and (4) the classification applies equally
well to all those belonging to the same class (Pepsi
Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).
Same; Same; Same; The legislative intent is to
increasingly shift the income tax system towards the
schedular approach in the income taxation of individual
taxpayers and to maintain, by and large, the present
global treatment on taxable corporations.—What may
instead be perceived to be apparent from the
amendatory law is the legislative intent to increasingly
shift the income tax system towards the schedular
approach in the income taxation of individual taxpayers
and to maintain, by and large, the present global
treatment on taxable corporations.
Same; Same; Same; Words and Phrases; Schedular
Approach, Defined.—Schedular approach is a system
employed where the income tax treatment varies and
made to depend on the kind or category of taxable
income of the taxpayer.
Same; Same; Same; Same; Global Treatment,
Defined.—Global treatment is a system where the tax
treatment views indifferently the tax base and generally
treats in common all categories of taxable income of
the taxpayer.
Same; Same; Same; Separation of Powers; With the
legislature primarily lies the discretion to determine the
nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation, and the
Supreme Court cannot freely delve into those
matters.—Petitioner gives a fairly extensive discussion
on the merits of the law, illustrating, in the process,
what he believes to be an imbalance between the tax
liabilities of those covered by the amendatory law and
those who are not. With the legislature primarily lies the
discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs
(place) of taxation. This court cannot freely delve into
those matters which, by constitutional fiat, rightly rest
on legislative judgment. Of course, where a tax
measure becomes so unconscionable and unjust as to
amount to confiscation of property, courts will not
hesitate to strike it down, for, despite all its plenitude,
the power to tax cannot override constitutional
proscriptions. This stage, however, has not been
demonstrated to have been reached within any
appreciable distance in this controversy before us.
Same; Same; Same; Due Process; The due process
clause may correctly be invoked only when there is a
clear contravention of inherent or constitutional
limitations in the exercise of the tax power.—Having
arrived at this conclusion, the plea of petitioner to have
the law declared unconstitutional for being violative of
due process must perforce fail. The due process
clause may correctly be invoked only when there is a
clear contravention of inherent or constitutional
limitations in the exercise of the tax power. No such
transgression is so evident to us.
Same; Same; Same; Partnerships; A general
professional partnership, unlike an ordinary business
partnership, is not itself an income taxpayer, as the
income tax is imposed not on the professional
partnership but on the partners themselves in their
individual capacity.—The Court, first of all, should like
to correct the apparent misconception that general
professional partnerships are subject to the payment of
income tax or that there is a difference in the tax
treatment between individuals engaged in business or
in the practice of their respective professions and
partners in general professional partnerships. The fact
of the matter is that a general professional partnership,
unlike an ordinary business partnership (which is
treated as a corporation for income tax purposes and
so subject to the corporate income tax), is not itself an
income taxpayer. The income tax is imposed not on the
professional partnership, which is tax exempt, but on
the partners themselves in their individual capacity
computed on their distributive shares of partnership
profits.
Same; Same; Same; Same; Words and Phrases;
“Income Tax-payers,” Defined; The Tax Code, in
levying the tax, adopts the most comprehensive tax
situs of nationality and residence of the taxpayer and
of the generally accepted and internationally
recognized income taxable base.—We can well
appreciate the concern taken by petitioners if perhaps
we were to consider Republic Act No. 7496 as an
entirely independent, not merely as an amendatory,
piece of legislation. The view can easily become
myopic, however, when the law is understood, as it
should be, as only forming part of, and subject to, the
whole income tax concept and precepts long obtaining
under the National Internal Revenue Code. To
elaborate a little, the phrase “income taxpayers” is an
all embracing term used in the Tax Code, and it
practically covers all persons who derive taxable
income. The law, in levying the tax, adopts the most
comprehensive tax situs of nationality and residence of
the taxpayer (that renders citizens, regardless of
residence, and resident aliens subject to income tax
liability on their income from all sources) and of the
generally accepted and internationally recognized
income taxable base (that can subject non-resident
aliens and foreign corporations to income tax on their
income from Philippine sources). In the process, the
Code classifies taxpayers into four main groups,
namely: (1) Individuals, (2) Corporations, (3) Estates
under Judicial Settlement and (4) Irrevocable Trusts
(irrevocable both as to corpus and as to income).
Same; Same; Same; Same; Partnerships under the
Tax Code, Classified; Ordinarily, partnerships are
subject to income tax which are by law assimilated to
be within the context of, and so legally contemplated
as, corporations.—Partnerships are, under the Code,
either “taxable partnerships” or “exempt partnerships.”
Ordinarily, partnerships, no matter how created or
organized, are subject to income tax (and thus alluded
to as “taxable partnerships”) which, for purposes of the
above categorization, are by law assimilated to be
within the context of, and so legally contemplated as,
corporations. Except for few variances, such as in the
application of the “constructive receipt rule” in the
derivation of income, the income tax approach is alike
to both juridical persons.
Same; Same; Same; Same; SNIT is not intended or
envisioned to cover corporations and partnerships
which are independently subject to the payment of
income tax.—Obviously, SNIT is not intended or
envisioned, as so correctly pointed out in the
discussions in Congress during its deliberations on
Republic Act 7496, aforequoted, to cover corporations
and partnerships which are independently subject to
the payment of income tax.
Same; Same; Same; Same; “Exempt partnerships” are
not similarly identified as corporations nor even
considered as independent taxable entities for income
tax purposes.—“Exempt partnerships,” upon the other
hand, are not similarly identified as corporations nor
even considered as independent taxable entities for
income tax purposes. A general professional
partnership is such an example. Here, the partners
themselves, not the partnership (although it is still
obligated to file an income tax return [mainly for
administration and data]), are liable for the payment of
income tax in their individual capacity computed on
their respective and distributive shares of profits. In the
determination of the tax liability, a partner does so as
an individual, and there is no choice on the matter. In
fine, under the Tax Code on income taxation, the
general professional partnership is deemed to be no
more than a mere mechanism or a flow-through entity
in the generation of income by, and the ultimate
distribution of such income to, respectively, each of the
individual partners.
Same; Same; Same; Same; Section 6 of Revenue
Regulation No. 2-93 consistent with the Tax Code as
modified by Republic Act No. 7496.—Section 6 of
Revenue Regulation No. 2-93 did not alter, but merely
confirmed, the above standing rule as now so modified
by Republic Act No. 7496 on basically the extent of
allowable deductions applicable to all individual income
taxpayers on their non-compensation income. There is
no evident intention of the law, either before or after the
amendatory legislation, to place in an unequal footing
or in significant variance the income tax treatment of
professionals who practice their respective professions
individually and of those who do it through a general
professional partnership. Tan vs. Del Rosario, Jr., 237
SCRA 324, G.R. No. 109289, G.R. No. 109446
October 3, 1994
F. IT MAY BE DECLARED INSOLVENT EVEN
IF THE PARTNERS ARE NOT
G.R. No. L-18703 August 28, 1922
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA
& CO., S. en C., appellee,
vs.
PACIFIC COMMERCIAL CO., ASIATIC
PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION,petitioners-appellants.
INVOLUNTARY INSOLVENCY; LIMITED
PARTNERSHIP; ACT OF BANKRUPTCY;
SOLVENCY OF PARTNERS.—In the Philippines a
limited partnership duly organized in accordance with
law has a personality distinct from that of its members;
and if it commits an act of bankruptcy, such as that of
failing for more than thirty days to pay debts amounting
to P1,000 or more, it may be adjudged insolvent on the
petition of three of its creditors although its members
may not be insolvent. Campos Rueda & Co. vs. Pacific
Commercial Co., 44 Phil. 916, No. 18703 August 28,
1922
G. PARTNERSHIP IS A PERSON ENTITLED TO
CONSTITUTIONAL RIGHTS
2. LIMITATIONS ON PRINCIPLE OF SEPARATE
JURIDICAL PERSONALITY.
A. PARTNERS ARE CO-OWNERS OF
PARTNERSHIP PROPERTIES ARTICLE
1811.
Article 1811. A partner is co-owner with his partners of
specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this
Title and to any agreement between the
partners, has an equal right with his partners to
possess specific partnership property for
partnership purposes; but he has no right to
possess such property for any other purpose
without the consent of his partners;
(2) A partner's right in specific partnership
property is not assignable except in connection
with the assignment of rights of all the partners
in the same property;
(3) A partner's right in specific partnership
property is not subject to attachment or
execution, except on a claim against the
partnership. When partnership property is
attached for a partnership debt the partners, or
any of them, or the representatives of a
deceased partner, cannot claim any right under
the homestead or exemption laws;
(4) A partner's right in specific partnership
property is not subject to legal support under
article 291. (n)
B. PARTNERS MAY INDIVIDUALLY
DISPOSE OF REAL PROPERTY OF THE
PARTNERSHIP EVEN WHEN IN
PARTNERSHIP NAME ARTICLE 1819
Article 1819. Where title to real property is in the
partnership name, any partner may convey title to such
property by a conveyance executed in the partnership
name; but the partnership may recover such property
unless the partner's act binds the partnership under the
provisions of the first paragraph of article 1818, or
unless such property has been conveyed by the
grantee or a person claiming through such grantee to
a holder for value without knowledge that the partner,
in making the conveyance, has exceeded his authority.
Where title to real property is in the name of the
partnership, a conveyance executed by a partner, in
his own name, passes the equitable interest of the
partnership, provided the act is one within the authority
of the partner under the provisions of the first
paragraph of article 1818.
Where title to real property is in the name of one or
more but not all the partners, and the record does not
disclose the right of the partnership, the partners in
whose name the title stands may convey title to such
property, but the partnership may recover such
property if the partners' act does not bind the
partnership under the provisions of the first paragraph
of article 1818, unless the purchaser or his assignee,
is a holder for value, without knowledge.
(3) The assets shall be applied in the order of
their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(4) The partners shall contribute, as provided
by article 1797, the amount necessary to
satisfy the liabilities.

Where the title to real property is in the name of one or
more or all the partners, or in a third person in trust for
the partnership, a conveyance executed by a partner
in the partnership name, or in his own name, passes
the equitable interest of the partnership, provided the
act is one within the authority of the partner under the
provisions of the first paragraph of article 1818.
Where the title to real property is in the name of all the
partners a conveyance executed by all the partners
passes all their rights in such property. (n)
C. PARTNERS ARE PERSONALLY LIABLE
FOR PARTNERSHIP DEBTS AFTER
EXHAUSTION OF PARTNERSHIP
ASSETS ARTICLE 1816, 1817, 1824, 1839
Article 1816. All partners, including industrial ones,
shall be liable pro rata with all their property and after
all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and
for the account of the partnership, under its signature
and by a person authorized to act for the partnership.
However, any partner may enter into a separate
obligation to perform a partnership contract. (n)
Article 1817. Any stipulation against the liability laid
down in the preceding article shall be void, except as
among the partners. (n)
(5) An assignee for the benefit of creditors or
any person appointed by the court shall have
the right to enforce the contributions specified
in the preceding number.
(6) Any partner or his legal representative shall
have the right to enforce the contributions
specified in No. 4, to the extent of the amount
which he has paid in excess of his share of the
liability.
(7) The individual property of a deceased
partner shall be liable for the contributions
specified in No. 4.
(8) When partnership property and the
individual properties of the partners are in
possession of a court for distribution,
partnership creditors shall have priority on
partnership property and separate creditors on
individual property, saving the rights of lien or
secured creditors.
(9) Where a partner has become insolvent or
his estate is insolvent, the claims against his
separate property shall rank in the following
order:
(a) Those owing to separate creditors;

Article 1824. All partners are liable solidarily with the (b) Those owing to partnership
partnership for everything chargeable to the creditors;
partnership under articles 1822 and 1823. (n)
(c) Those owing to partners by way of
Article 1839. In settling accounts between the partners contribution. (n)
after dissolution, the following rules shall be observed,
subject to any agreement to the contrary:

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners

necessary for the payment of all the
liabilities specified in No. 2.

(2) The liabilities of the partnership shall rank in

order of payment, as follows:

(a) Those owing to creditors other than

partners,

(b) Those owing to partners other than

for capital and profits,

(c) Those owing to partners in respect

of capital,

(d) Those owing to partners in respect

of profits.
YU VS. NATIONAL LABOR RELATIONS
COMMISSION 224 SCRA 75. June 30, 1993.
J.Feliciano.
FACTS: Petitioner Benjamin Yu was formerly the
Assistant General Manager of the marble quarrying
and export business operated by a registered
partnership with the firm name of "Jade Mountain
Products Company Limited". The partnership was
originally organized by Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen
Ho-Fu and Yu Chang, all citizens of the Republic of
China, as limited partners. The partnership business
consisted of exploiting a marble deposit found on land
owned by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province. The partnership had its
main office in Makati, Metropolitan Manila. Benjamin
Yu was hired as Assistant General Manager with a
monthly salary of P4,000.00. According to petitioner
Yu, however, he actually received only half of his
stipulated monthly salary, since he had accepted the
promise of the partners that the balance would be paid
when the firm shall have secured additional operating
funds from abroad. Yu actually managed the
operations and finances of the business; he had overall
supervision of the workers at the marble quarry in
Bulacan and took charge of the preparation of papers
relating to the exportation of the firm's products. In
1988, without the knowledge of Yu, the general
partners sold and transferred their interests in the
partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner,
also sold and transferred his interest in the partnership
to Willy Co. The partnership now constituted solely by
Willy Co and Emmanuel Zapanta continued to use the
old firm name of Jade Mountain, though they moved
the firm's main office from Makati to Mandaluyong. Yu
reported to the Mandaluyong office for work and was
informed by Willy Co that the latter had bought the
business from the original partners and that it was for
him to decide whether or not he was responsible for the
obligations of the old partnership, including petitioner's
unpaid salaries. Petitioner was in fact not allowed to
work anymore in the Jade Mountain business
enterprise. His unpaid salaries remained unpaid. Yu
filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to
October 1988, moral and exemplary damages and
attorney's fees, against Jade Mountain, Mr. Willy Co
and the other private respondents. The partnership and
Willy Co denied petitioner's charges, contending that
Yu was never hired as an employee by the present or
new partnership.
ISSUE: a) Whether or not the partnership which hired
Yu had been extinguished and replaced b) If a new
partnership came into existence, can Yu assert his
rights under his employment contract with the old
partnership
HELD: a) Yes, changes in the membership of the
partnership resulted in the dissolution of the old
partnership which had hired Yu b) Yes, the new
partnership is liable for the debts of the old partnership
RATIO DECIDENDI: a) Under Article 1828 of the Civil
Code, The dissolution of a partnership is the change in
the relation of the partners caused by any partner
ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
However, no winding up of affairs in this case as
contemplated in Art. 1829: on dissolution the
partnership is not terminated, but continues until the
winding up of partnership affairs is completed. b) As
stated in Article 1840 of the Civil Code, creditors of the
old partnership are also creditors of the person or
partnership continuing the business.
Issues: 1. WON the partnership which had hired Yu as
Asst. Gen. Manager had been extinguished and
replaced by a new partnership composed of Co and
Zapanta; 2. if indeed a new partnership had come into
existence, WON Yu could nonetheless assert his rights
under his employment contract with the old partnership
as against the new partnership
Held: 1. Yes. Changes in the membership of the
partnership resulted in the dissolution of the old
partnership which had hired Yu and the emergence of
a new partnership composed of Co and Zapanta. 
Legal bases: Art. 1828. The dissolution of a
partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the
business.  Art. 1830. Dissolution is caused: (1) without
violation of the agreement between the partners; (b) by
the express will of any partner, who must act in good
faith, when no definite term or particular undertaking is
specified; (2) in contravention of the agreement
between the partners, where the circumstances do not
permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
No winding up of affairs in this case as contemplated
in Art. 1829: on dissolution the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed  the new partnership
simply took over the business enterprise owned by the
old partnership, and continued using the old name of
Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net
assets, and then re-assembling the said assets or most
of them and opening a new business enterprise 
2. Yes. the new partnership is liable for the debts of the
old partnership  Legal basis: Art. 1840 (see codal) 
Yu is entitled to enforce his claim for unpaid salaries,
as well as other claims relating to his employment with
the previous partnership, against the new partnership
But Yu is not entitled to reinstatement. Reason: new
partnership was entitled to appoint and hire a new gen.
or asst. gen. manager to run the affairs of the business
enterprise take over. An asst. gen. manager belongs to
the most senior ranks of management and a new
partnership is entitled to appoint a top manager of its
own choice and confidence. The non-retention of Yu
did not constitute unlawful termination. The new
partnership had its own new General Manager, Co, the
principal new owner himself. Yu’s old position thus
became superfluous or redundant. Yu is entitled to
separation pay at the rate of one month’s pay for each
year of service that he had rendered to the old
partnership, a fraction of at least 6 months being
considered as a whole year.
Ortega vs. CA
FACTS: On December 19, 1980, respondent Misa
associated himself together, as senior partner with
petitioners Ortega, del Castillo, Jr., and Bacorro, as
junior partners. On Feb. 17, 1988, respondent Misa
wrote a letter stating that he is withdrawing and retiring
from the firm and asking for a meeting with the
petitioners to discuss the mechanics of the liquidation.
On June 30, 1988, petitioner filed a petition to the
Commision's Securities Investigation and Clearing
Department for the formal dissolution and liquidation of
the partnership. On March 31, 1989, the hearing officer
rendered a decision ruling that the withdrawal of the
petitioner has not dissolved the partnership. On
appeal, the SEC en banc reversed the decision and
was affirmed by the Court of Appeals. Hence, this
petition.
ISSUE: Whether or not the Court of Appeals has erred
in holding that the partnership is a partnership at will
and whether or not the Court of Appeals has erred in
holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad
faith
HELD: No. The SC upheld the ruling of the CA
regarding the nature of the partnership. The SC further
stated that a partnership that does not fix its term is a
partnership at will. The birth and life of a partnership at
will is predicated on the mutual desire and consent of
the partners. The right to choose with whom a person
wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is,
in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it,
and the absence of a cause for dissolution provided by
the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of
the partnership but that it can result in a liability for
damages.
Gregorio Ortega, Tomas del Castillo, Jr. and
Benjamin Bacorro v. CA, SEC and Joaquin Misa
G.R. No. 109248 July 3, 1995 Vitug, J.
Facts: Ortega, then a senior partner in the law firm
Bito, Misa, and Lozada withdrew in said firm. He filed
with SEC a petition for dissolution and liquidation of
partnership. SEC en banc ruled that withdrawal of Misa
from the firm had dissolved the partnership. Reason:
since it is partnership at will, the law firm could be
dissolved by any partner atanytime, such as by
withdrawal therefrom, regardless of good faith or bad
faith, since nopartner can be forced to continue in the
partnership against his will.
Issue: 1. WON the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo)is a partnership at
will; 2. WON the withdrawal of Misa dissolved the
partnership regardlessof his good or bad faith;
Held: 1. Yes. The partnership agreement of the firm
provides that ‖[t]he partnership shallcontinue so long
as mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by
the surviving partners.‖ 2. Yes. Any one of the partners
may, at his sole pleasure, dictate a dissolution of the
partnership at will (e.g. by way of withdrawal of a
partner). He must, however, act in good faith, not that
the attendance of bad faith can prevent the dissolution
of the partnership but that it can result in a liability for
damages.
G.R. No. 101847 May 27, 1993 LOURDES NAVARRO
AND MENARDO NAVARRO, petitioners, vs.
COURT OF APPEALS, JUDGE BETHEL
KATALBAS-MOSCARDON, Presiding Judge,
Regional Trial Court of Bacolod City, Branch 52,
Sixth Judicial Region and Spouses OLIVIA V.
YANSON AND RICARDO B. YANSON,respondents.
FACTS: Private respondent Olivia V. Yanson and
Petitioner Lourdes Navarro were engaged in the
business of Air Freight Service Agency. Pursuant to the
Agreement which they entered, they agreed to operate
the said Agency; It is the Private Respondent Olivia
Yanson who supplies the necessary equipment and
money used in the operation of the agency. Her brother
in the person of Atty. Rodolfo Villaflores was the
manager thereof while petitioner Lourdes Navarro was
the Cashier; In compliance to her obligation as stated
in their agreement, private respondent brought into
their business certain chattels or movables or personal
properties. However, those personal properties remain
to be registered in her name; Among the provisions
stipulated in their agreement is the equal sharing of
whatever proceeds realized from their business;
However, sometime on July 23, 1976, private
respondent Olivia V. Yanson, in order for her to
recovery the above mentioned personal properties
which she brought into their business, filed a complaint
against petitioner Lourdes Navarro for "Delivery of
Personal Properties With Damages and with an
application for a writ of replevin. Private respondents'
application for a writ of replevin was later
approved/granted by the trial court. For her defense,
petitioner Navarro argue that she and private
respondent Yanson actually formed a verbal
partnership which was engaged in the business of Air
Freight Service Agency. She contended that the
decision sustaining the writ of replevin is void since the
properties belonging to the partnership do not actually
belong to any of the parties until the final disposition
and winding up of the partnership.
ISSUE:1. Whether or not there was a partnership that
existed between the parties.
2. Whether the properties that were commonly used in
the operation of Allied Air Freight belonged to the
alleged partnership business.
RULING: Article 1767 of the New Civil Code defines
the contract of partnership: Art. 1767. By the contract
of partnership two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the proceeds among
themselves. A cursory examination of the evidences
presented no proof that a partnership, whether oral or
written had been constituted. In fact, those movables
brought by the plaintiff for the use in the operation of
the business remain registered in her name. While
there may have been co-ownership or co-possession
of some items and/or any sharing of proceeds by way
of advances received by both plaintiff and the
defendant, these are not indicative and supportive of
the existence of any partnership between them. Art.
1769 par. 2 provides: Co-ownership or co-possession
does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any
profits made by the use of the property” Besides, the
alleged profit was a difference found after valuating the
assets and not arising from the real operation of the
business. In accounting procedures, strictly, this could
not be profit but a net worth.
JARANTILLA V. JARANTILLA (G.R. NO. 154486;
DECEMBER 1, 2010)
CASE DIGEST: FEDERICO JARANTILLA, JR.,
Petitioner, v. ANTONIETA JARANTILLA,
BUENAVENTURA REMOTIGUE, substituted by
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA
and TOMAS JARANTILLA, Respondents.
FACTS: The spouses Andres Jarantilla and
FelisaJaleco were survived by eight children: Federico
Sr., Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael
and Antonieta. Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son
Federico Jarantilla, Sr. and his wife Leda Jamili.
Petitioner also has two other brothers: Doroteo and
Tomas Jarantilla. The Jarantilla heirs extrajudicially
partitioned amongst themselves the real properties of
their deceased parents. With the exception of the real
property adjudicated to PacitaJarantilla, the heirs also
agreed to allot the produce of the said real properties
for the years 1947-1949 for the studies of Rafael and
AntonietaJarantilla.
Sps. Rosita Jarantilla and Vivencio Deocampo entered
into an agreement with the spouses Buenaventura
Remotigue and ConchitaJarantilla to provide mutual
assistance to each other by way of financial support to
any commercial and agricultural activity on a joint
business arrangement. This proved to be successful as
they were able to establish a manufacturing and
trading business, acquire real properties, and construct
buildings, among other things. The same ended in
1973 upon their voluntary dissolution.
The spouses Buenaventura and ConchitaRemotigue
executed a document Acknowledgement of
Participating Capital stating the participating capital of
of their co-owners as of the year 1952, with
AntonietaJarantillas stated as eight thousand pesos
(P8,000.00) and Federico Jarantilla, Jr.s as five
thousand pesos (P5,000.00).
The controversy started when Antonieta filed a
complaint against Buenaventura, Cynthia, Doroteo and
Tomas, for the accounting of the assets and income of
the co-ownership, for its partition and the delivery of
her share corresponding to eight percent (8%), and for
damages. She alleged that the initial contribution of
property and money came from the heirs inheritance,
and her subsequent annual investment of seven
thousand five hundred pesos (P7,500.00) as additional
capital came from the proceeds of her farm.
Respondents denied having formed a partnership.
They did not deny the existence and validity of the
"Acknowledgement of Participating Capital" and in fact
used this as evidence to support their claim that
Antonietas 8% share was limited to the businesses
enumerated therein. Petitioner Federico Jr joined his
aunt Antonieta and likewise asserted his share in the
supposed partnership.
The RTC rendered judgment in favor of Antonieta and
Federico. On appeal, the CA set the RTC Decision.
Petitioner filed a petition for review to the SC.
ISSUE: Did the CA err in ruling that petitioners are
not entitled to profits over the businesses not
listed in the Acknowledgement?
HELD: There is a co-ownership when an undivided
thing or right belongs to different persons. It is a
partnership when two or more persons bind
themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.
The common ownership of property does not itself
create a partnership between the owners, though they
may use it for the purpose of making gains; and they
may, without becoming partners, agree among
themselves as to the management, and use of such
property and the application of the proceeds therefrom.
Under Article 1767 of the Civil Code, there are two
essential elements in a contract of partnership: (a) an
agreement to contribute money, property or industry to
a common fund; and (b) intent to divide the profits
among the contracting parties.
It is not denied that all the parties in this case have
agreed to contribute capital to a common fund to be
able to later on share its profits. They have admitted
this fact, agreed to its veracity, and even submitted one
common documentary evidence to prove such
partnership - the Acknowledgement of Participating
Capital.
The Acknowledgement of Participating Capital is a duly
notarized document voluntarily executed by Conchita
Jarantilla-Remotigue and Buenaventura Remotigue in
1957. Petitioner does not dispute its contents and is
actually relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share
of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner
in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner
shall not be liable for the losses.
The petitioner himself claims his share to be 6%, as
stated in the Acknowledgement of Participating
Capital. However, petitioner fails to realize that this
document specifically enumerated the businesses
covered by the partnership: Manila Athletic Supply,
Remotigue Trading in Iloilo City and Remotigue
Trading in Cotabato City. Since there was a clear
agreement that the capital the partners contributed
went to the three businesses, then there is no reason
to deviate from such agreement and go beyond the
stipulations in the document. Therefore, the Court of
Appeals did not err in limiting petitioners share to the
assets of the businesses enumerated in the
Acknowledgement of Participating Capital.
In Villareal v. Ramirez, the Court held that since a
partnership is a separate juridical entity, the shares to
be paid out to the partners is necessarily limited only to
its total resources.
***
The petitioner further asserts that he is entitled to
respondents properties based on the concept of trust.
He claims that since the subject real properties were
purchased using funds of the partnership, wherein he
has a 6% share, then "law and equity mandates that he
should be considered as a co-owner of those
properties in such proportion."
As a rule, the burden of proving the existence of a trust
is on the party asserting its existence, and such proof
must be clear and satisfactorily show the existence of
the trust and its elements. While implied trusts may be
proved by oral evidence, the evidence must be
trustworthy and received by the courts with extreme
caution, and should not be made to rest on loose,
equivocal or indefinite declarations. Trustworthy
evidence is required because oral evidence can easily
be fabricated.
The petitioner has failed to prove that there exists a
trust over the subject real properties. Aside from his
bare allegations, he has failed to show that the
respondents used the partnerships money to purchase
the said properties. Even assuming arguendo that
some partnership income was used to acquire these
properties, the petitioner should have successfully
shown that these funds came from his share in the
partnership profits. After all, by his own admission, and
as stated in the Acknowledgement of Participating
Capital, he owned a mere 6% equity in the partnership.
DENIED
JARANTILLA, JR. vs. JARANTILLA 636 SCRA 299,
G.R. No. 154486, December 1, 2010, Leonardo-De
Castro, J.: p
FACTS: The present case stems from the
complaintfiled by Antonieta Jarantilla against
Buenaventura Remotigue, Cynthia Remotigue,
Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas
Jarantilla, for the accounting of the assets and income
of the co-ownership, for its partition and the delivery of
her share corresponding to eight percent (8%), and for
damages. Antonieta claimed that in 1946, she had
entered into an agreement with the defendants to
engage in business through the execution of a
document denominated as "Acknowledgement of
Participating Capital”. Antonieta also alleged that she
had helped in the management of the business they
co-owned without receiving any salary. Antonieta
further claimed co-ownership of certain properties (the
subject real properties) in the name of the defendants
since the only way the defendants could have
purchased these properties were through the
partnership as they had no other source of income. The
respondents did not deny the existence and validity of
the "Acknowledgement of Participating Capital" and in
fact used this as evidence to support their claim that
Antonieta’s 8% share was limited to the businesses
enumerated therein. The respondents denied using the
partnership’s income to purchase the subject real
properties. During the course of the trial at the RTC,
petitioner Federico Jarantilla, Jr., who was one of the
original defendants, entered into a compromise
agreement17 with Antonieta Jarantilla wherein he
supported Antonieta’s claims and asserted that he too
was entitled to six percent (6%) of the supposed
partnership in the same manner as Antonieta was.
ISSUE: Whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the
subject real properties.
HELD: Under Article 1767 of the Civil Code, there are
two essential elements in a contract of partnership: (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,
all the parties in this case 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. It is not denied that all the parties in this
case have agreed to contribute capital to a common
fund to be able to later on share its profits. They have
admitted this fact, agreed to its veracity, and even
submitted one common documentary evidence to
prove such partnership - the Acknowledgement of
Participating Capital. The petitioner himself claims his
share to be 6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner fails to
realize that this document specifically enumerated the
businesses covered by the partnership: Manila Athletic
Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City. Since there was
a clear agreement that the capital the partners
contributed went to the three businesses, then there is
no reason to deviate from such agreement and go
beyond the stipulations in the document. There is no
evidence that the subject real properties were assets
of the partnership referred to in the Acknowledgement
of Participating Capital. Petition denied.
Binglangawa vs. Constantino, 109 Phil 168
Facts: Petitioners were the owners of parcel of land.
They appoint the respondent as their exclusive agent
to develop and sell the area. As compensation, the
respondent shall receive a commission and
percentage for the collection. There was a breached of
contract of agency on the part of petitioners rendering
the respondent to file a complaint to pay the
respondent of the unpaid balances. Petitioners
promised to pay their liability and the respondent
consented to the settlement but to no avail. While the
case was pending, respondent filed with the ROD
notice of lis pendens; involving rights and interest and
claims for services and damages. The ROD requested
the petitioners to surrender the owner‘s copy of CTC.
When petitioners registered the absolute deed of sale
in favor of Santos, the ROD made the annotations of
lis pendens. The petitioners sought for the cancellation
of the lis pendens which the lower courts granted. The
courts ruled that the action of respondent is purely a
claim of money. The respondents contends that the
commission and collection made by him, as well as the
advancements, converted him into partner.
Issue: Is the respondent a partner?
Held: No. Respondent was only an appointed agent. In
fact he expressly said in his complaint that the
petitioners were indebted to him for the unpaid balance
and consented to the settlement. The advances made
by the respondent were never considered as
contribution to make him a partner. In fact, after the
liquidation at the time of the termination of the agency,
the whole balance was considered petitioner‘s debts
which appellant consented.
Pioneer Insurance vs. Court of Appeals, 175 scra
668
Facts: Jacob S. Lim was engaged in the airline
business as owner-operator of Southern Air Lines
(SAL) a single proprietorship. One time, Japan
Domestic Airlines (JDA) and Lim entered into and
executed a sales contract 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. Pioneer
Insurance and Surety Corporation as surety executed
and issued its Surety Bond 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. During
these transactions, Lim executed two(2) separate
indemnity agreements in favor of Pioneer, one signed
by Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses. 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. Lim in an
undertaking promised to incorporate his airline in
accordance with their agreement and proceeded to
acquire the planes on his own account. Since then, Lim
has refused, failed and still refuses to set up the
corporation or return the money of Maglana and the
others upon demand. Lim defaulted on his subsequent
installment payments prompting JDA to request
payments from the surety, Pioneer. Pioneer then filed
a petition for the extrajudicial foreclosure of the said
chattel mortgage. Pioneer filed an action for judicial
foreclosure with an application for a writ of preliminary
attachment against Lim and respondents,
Cervanteses, Bormaheco and Maglana. After trial on
the merits, a decision was rendered holding Lim liable
to pay Pioneer but dismissed Pioneer's complaint
against all other defendants.
Issues: 1. Was the failure to incorporate in effect
created a de facto partnership which would allow
petitioner to be reimbursed from the losses incurred?
2. What legal rules govern the relationship of co-
investors‘ Jacob S. Lim, Bormacheco, Fransico,
Cervantes and Maglana whose agreement was to do
business as a Corporation but failed to do so?
Ruling: No. The Supreme Court held that no de facto
partnership was created among the parties which
would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. In some
cases, it is ordinarily held that persons who attempt,
but fail, to form a corporation and who carry on
business under the corporate name occupy the
position of partners inter se (Lynch v. Perryman, 119
P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065).
However, in London Assur. Corp. v. Drennen, Minn., 6
S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688, such a
relation 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 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). In the instant case, it was found during trial
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 in order to incorporate
his airline in accordance with their agreement and
proceeded to acquire the planes on his own account.
However, petitioner denied their claims of such.
Doctrinal pronouncement in Pioneer Insurance: When
parties come together intending to form a Corporation,
but failed to do so, then the Following Rules may apply:
(a) Parties who had intended to participate or actually
participated in the business affairs of the proposed
corporation would be considered as partners under a
de facto partnership, and would be liable as such in an
action for settlement of partnership obligations; -While-
(b) Parties who took no part except to subscribe to
shares of stock in a proposed corporation, do not
become partners with other subscribers who engaged
in business under the name of the pretended
corporation, and are not liable for action for settlement
of the alleged partnership contribution.
KILOS BAYAN VS GUINONA
GR No. 113375, May 5 1994, 232 SCRA 110
FACTS: 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," the PCSO decided to establish an on- line
lottery system for the purpose of increasing its revenue
base and diversifying its sources of funds. After
learning that the PCSO was interested in operating an
on-line lottery system, the Berjaya Group Berhad, "a
multinational company and one of the ten largest public
companies in Malaysia, and who has been long
engaged in lottery operations in Asia, became
interested to offer its services and resources to PCSO.
As an initial step, Berjaya Group Berhad (through its
individual nominees) organized with some Filipino
investors in March 1993 a Philippine corporation
known as the Philippine Gaming Management
Corporation (PGMC), which was intended to be the
medium through which the technical and management
services required for the project would be offered and
delivered to PCSO.
Before August 1993, the PCSO formally issued a
Request for Proposal (RFP) for the Lease Contract of
an on-line lottery system for the PCSO. The bids
submitted by PGMC were evaluated by the Special
Pre-Qualification Bids and Awards Committee
(SPBAC) for the on-line lottery and its Bid Report was
thereafter submitted to the Office of the President. On
21 October 1993, the Office of the President
announced that respondent PGMC may finally operate
the country's on-line lottery system and that the
corresponding implementing contract would be
submitted for final clearance and approval by the Chief
Executive.
On 4 November 1993, KILOSBAYAN sent an open
letter to Presidential Fidel V. Ramos strongly opposing
the setting up to the on-line lottery system on the basis
of serious moral and ethical considerations. Petitioners
also submit that the PCSO cannot validly enter into the
assailed Contract of Lease with the PGMC because it
is an arrangement wherein the PCSO would hold and
conduct the on-line lottery system in "collaboration" or
"association" with the PGMC, in violation of Section
1(B) of R.A. No. 1169, as amended by B.P. Blg. 42,
which prohibits the PCSO 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." Petitioner seeks to prohibit and
restrain the implementation of the "Contract of Lease"
executed by the Philippine Charity Sweepstakes Office
(PCSO) and the Philippine Gaming Management
Corporation (PGMC) in connection with the on- line
lottery system, also known as "lotto."
ISSUE: Whether or not the oppositions made by the
petitioner was valid.
HELD: The Court agrees with the petitioners and the
challenged Contract of Lease executed by respondent
PCSO and respondent PGMC is declared to be
contrary to law and invalid. The preliminary issue on
the locus standi of the petitioners which was raised by
the respondents should be resolved in their favor. The
Court finds this petition to be of transcendental
importance to the public. The issues it raised are of
paramount public interest and of a category even
higher than those involved in many of the aforecited
cases. The ramifications of such issues immeasurably
affect the social, economic, and moral well-being of the
people even in the remotest barangays of the country
and the counter-productive and retrogressive effects of
the envisioned on-line lottery system are as staggering
as the billions in pesos it is expected to raise. The legal
standing then of the petitioners deserves recognition
and, in the exercise of its sound discretion, this Court
hereby brushes aside the procedural barrier which the
respondents tried to take advantage of.
On the substantive issue regarding the provision in
Section 1 of R.A. No. 1169, as amending by B.P. Blg.
42, is indisputably clear with respect to its franchise or
privilege "to hold and conduct charity sweepstakes
races, lotteries and other similar activities." Meaning,
the PCSO cannot exercise it "in collaboration,
association or joint venture" with any other party. Thus,
the challenged Contract of Lease violates the
exception provided for in paragraph B, Section 1 of
R.A. No. 1169, as amended by B.P. Blg. 42, and is,
therefore, invalid for being contrary to law.
=FROM OTHER DIGEST
On issues 2, 3, and 4, Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, prohibits the PCSO from
holding and conducting lotteries “in collaboration,
association or joint venture with any person,
association, company or entity, whether domestic or
foreign.” There is undoubtedly a collaboration between
PCSO and PGMC and not merely a contract of lease.
The relations between PCSO and PGMC cannot be
defined simply by the designation they used, i.e., a
contract of lease. Pursuant to the wordings of their
agreement, PGMC at its own expense shall build,
operate, and manage the network system including
its facilities needed to operate a nationwide online
lottery system. PCSO bears no risk and all it does is to
provide its franchise – in violation of its charter.
Necessarily, the use of such franchise by PGMC is a
violation of Act No. 3846.
LITONJUA v. LITONJUA (Dec 13, 2005)
OCTRINE: A Partnership must be in a public document
if: 1) Immoveable Property and Real Rights contributed
to it. a. If it involves immoveable property, inventory of
such is needed signed by the par tners. (else VOID) 2)
It involves capital P 3,000 (must be filed in the SEC)
NATURE: Petition for review on certiorari
PONENTE: Garcia, J.
FACTS: Aurelio (Petitioner) and Eduardo Litonjua are
brothers. Aurelio alleges that he had a partnership with
his brother Eduardo evidenced by a private
memorandum (unsigned) executed by Eduardo which
said he was giving 10% of the equity or 1 m illion pesos,
and that they would work together in maintaining the
family business. A third person Yang was also alleged
to be a member in the joint venture a nd partnership.
Here Aurelio files for an action of Specific Performance
against his partners, to render an accounting and give
him his share of the profits.
ISSUES: W/N there is a Valid Partnership?
HELD: No, the contract was void or at most
unenforceable. RATIO/RULING: The supposed
contract of partnership was evidenced by a private
memorandum (unsigned), in which Eduardo expressed
his desire to train his brother, and promising him a 10%
share or 1 million pesos. The supposed contract is
void, for being contrary to Articles 1771, 1772, and 177
3 of the Civil Code. The memorandum, on its face,
contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document,
there can be no quibbling that 1) The memorandum
does not meet the public instrumentation requirements
exacted under Article 1771 of the Civil Code. 2)
Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,00 0.00 in money
or property, The Memorandum cannot be presented for
notarization, let alone registered with the Securities
and Exchange Commission (SEC), as called for under
the Article 1772 of the Code. 3) And inasmuch as the
inventory requirement under the succeeding Article
1773 goes into the matter of validity when immovable
property is contributed to the partnership, the next
logical point of inquiry turns on the nature of petitioner‘s
contribution, if any, to the supposed partnership.
Petitioner, then goes on to allege that, assuming
arguendo, that the contract was not one of partnership
that the same actually established an innominate
contract and was a source of actionable rights. Court
ruled even as a innominate contract, it would be void
as in violation of the statute of frauds. (Being it‘s
performance was to be done 1 year after perfection of
the contract.) DISPOSITION: Petition is DENIED ruling
of the CA AFFIRMED.
G.R. No. 31057 September 7, 1929 ADRIANO
ARBES, ET AL., plaintiffs-appellees, vs. VICENTE
POLISTICO, ET AL., defendants-appellants.
Digested By: Kathy Florence Baldonado
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 president-treasurer, directors and
secretary of said association. By agreement of the
parties, the court appointed a commissioner to
examine all the books, documents, and accounts of
"Turnuhan Polistico & Co. The commissioner rendered
his report, showing a balance of the cash on hand in
the amount of P24,607.80. The trial court in accepting
the report, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and
sentencing the defendants jointly and severally to
return the amount of P24,607.80, as well as the
documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the rest
of the members of the said association represented by
said plaintiffs. There is no question that "Turnuhan
Polistico & Co." is an unlawful partnership, but the
appellants allege that because it is so, some charitable
institution to whom the partnership funds may be
ordered to be turned over, should be included, as a
party defendant. The appellants refer to article 1666 of
the Civil Code, particularly the second paragraph,
which provides: “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 A CHARITABLE
INSTITUTION IS A NECESSARY PARTY IN THIS
CASE.
RULING: 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. 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. In so ruling, the court had the
occasion of explaining the scope and spirit of the
provision of Article 1666 of the Civil Code (now Article
1770 of the New Civil Code). With regard to
Contributions of an Illegal Partnership: the court holds
that – (1) The partner who limits himself to demanding
only the amount contributed by him need not resort to
the partnership contract on which to base his action
since said contract does not exist in the eyes of the law,
the purpose from which the contribution was made has
not come into existence, and the administrator of the
partnership holding said contribution retains what
belongs to others, without any consideration; for which
reason he is not bound to return it and he who has paid
in his share is entitled to recover it. (2) Our Code does
not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be
returned by the partners, because it only deals with the
disposition of the profits; but the fact that said
contributions are not included in the disposal
prescribed profits, shows that in consequences of said
exclusion, the general law must be followed, and hence
the partners should reimburse the amount of their
respective contributions. (3) Any other solution is
immoral, and the law will not consent to the latter
remaining in the possession of the manager or
administrator who has refused to return them, by
denying to the partners the action to demand them.
With regard to Profits of an Illegal Partnership: the
court holds that – (1) 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, 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. (2) Profits earned in
the course of the partnership, because they do not
constitute or represent the partner's contribution but
are the result of the industry, business or speculation
which is the object of the partnership, and therefor, in
order to demand the proportional part of the said
profits, the partner would have to base his action on the
contract which is null and void, since this partition or
distribution of the profits is one of the juridical effects
thereof. (3) Furthermore, it would be immoral and
unjust for the law to permit a profit from an industry
prohibited by it.
EUFEMIA EVANGELISTA, MANUELA
EVANGELISTA, and FRANCISCA EVANGELISTA,
petitioners, vs. THE COLLECTOR OF INTERNAL
REVENUE and THE COURT OF TAX APPEALS,
respondents. G.R. No. L-9996, October 15, 1957
Facts: Petitioners borrowed sum of money from their
father and together with their own personal funds they
used said money to buy several real properties. They
then appointed their brother (Simeon) as manager of
the said real properties with powers and authority to
sell, lease or rent out said properties to third persons.
They realized rental income from the said properties for
the period 1945-1949. 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 letter of demand and
corresponding assessments were delivered to
petitioners on December 3, 1954, whereupon they
instituted the present case in the Court of Tax Appeals,
with a prayer that "the decision of the respondent
contained in his letter of demand dated September 24,
1954" be reversed, and that they be absolved from the
payment of the taxes in question. CTA denied their
petition and subsequent MR and New Trials were
denied. Hence this petition.
Issue: Whether or not petitioners have formed a
partnership and consequently, are subject to the tax on
corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate
dealers fixed tax.
Held: YES. 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.
Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for
monetary gain and then divide the same among
themselves, because of the following observations,
among others: (1) Said common fund was not
something they found already in existence; (2) They
invested the same, not merely in one transaction, but
in a series of transactions; (3) The aforesaid lots were
not devoted to residential purposes, or to other
personal uses, of petitioners herein.
Although, taken singly, they might not suffice to
establish the intent necessary to constitute a
partnership, the collective effect of these
circumstances is such as to leave no room for doubt on
the existence of said intent in petitioners herein. 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.
LIM TONG LIM VS PHIL FISHING GEAR FACTS: On
behalf of ―Ocean Fishing Corporation‖, Antonio Chua
& Peter Yao entered into a Contract for the purchase
of fishing nets from the respondent. They claimed that
they were engaged in a business venture w/ Lim Tong
Lim (petitioner), who however was not a signatory to
the agreement. They failed to pay the fishing nets and
the floats; hence, Philippine Fishing Gear filed a
collection suit against Chua, Yao and Lim Tong Lim.
The Suit was brought against the three in their
capacities as general partners, on the allegation that
Ocean Quest was a non-existent corporation as shown
by a Certification from the Securities and Exchange
Commission.
ISSUE: Whether a general partnership is formed
between Chua, Yao and Lim. YES
RULING: Given the preceding facts, it is clear that
there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They
purchased the boats, which constituted the main
assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would
be divided among them. Lim, Chua and Yao decided
to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Lim Tong Lim vs. Philippine Fishing, 317 SCRA 728
Facts: On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao entered into
a Contract for the purchase of fishing nets of various
sizes from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the
agreement. The buyers, however, failed to pay for the
fishing nets and the floats; hence, private respondents
filed a collection suit against Chua, Yao and Petitioner
Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in
their capacities as general partners, on the allegation
that "Ocean Quest Fishing Corporation" was a
nonexistent corporation. On November 18, 1992, the
trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent. It ruled
that a partnership among Lim, Chua and Yao was
formed based on a compromised agreement providing
that after selling their 4 vessels and the nets they will
divide the excess into three (3). Lim appealed asserting
that no partnership existed among them. He disclaims
any direct participation in the purchase of the nets,
alleging that the negotiations were conducted by Chua
and Yao only, and that he has not even met the
representatives of the respondent company, invoking
the doctrine of Corporation by estoppel.
Issue: 1.Was there a Contract of Partnership formed
between, Lim, Chua and Yao? 2. What is the Doctrine
of Corporation by estoppel? Will it apply in this case?
Ruling: 1. Yes, there was a partnership formed. The
Supreme Court held that under Art. 1767 of the Civil
Code — By the contract of partnership, two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves. In
the case at bar, from the factual findings of both lower
courts, it is clear that Chua, Yao and Lim had decided
to engage in a fishing business, which they started by
buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner's brother.
In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally
among them the excess or loss. Moreover, it is clear
that the partnership extended not only to the purchase
of the boat, but also to that of the nets and the floats.
2. Sec. 21 of the Corporation Code of the Philippines
provides: Sec. 21. Corporation by estoppel. — All
persons who assume to act as a corporation knowing
it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is
sued on any transaction entered by it as a corporation
or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate
personality. Although, petitioner insists that the
doctrine of corporation by estoppel only applies to
those who dealt in the name of the ostensible
corporation (Ocean Quest Fishing Corp.) should be
held liable. Since his name does not appear on any of
the contracts and since he never directly transacted
with the respondent corporation, ergo, he cannot be
held liable.
The Supreme Court in applying the doctrine of
Corporation by estoppel held that The doctrine of
corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to
be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person
who relied in good faith on such representation. On the
other hand, a third party who, knowing an association
to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be
barred from denying its corporate existence in a suit
brought against the alleged corporation. In such case,
all those who benefited from the transaction made by
the ostensible corporation, despite knowledge of its
legal defects, may be held liable for contracts they
impliedly assented to or took advantage of. In the case
at bar, petitioner as considered to be a third party who,
benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be
an asset of the partnership. Technically, it is true that
petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of
the contract entered into by persons with whom he
previously had an existing relationship, he is deemed
to be part of said association and is covered by the
scope of the doctrine of corporation by estoppel
AFISCO Insurance Corporation vs CA GR NO.
112675 January 25, 1999
Facts: The petitioners are 41 local non-life insurance
corporations. Upon their issuance of Erection,
Machinery Breakdown, Boiler Explosion and
Contractors All Risk insurance policies, the petitioners
entered into a Quota Share Reinsurance Treaty and a
Surplus Reinsurance Treaty with the foreign insurance
corporation, Munchener Ruckversicherungs-
Gesselschaft (Munich). The reinsurance treaties
required petitioners to form a pool which was created
on the same day. Subsequently, the pool of insurers
submitted a financial statement and filed an
“Information Return of Organization Exempt from
Income Tax” for the year ending in 1975, on the basis
of which, it was assessed by the Commissioner of
Internal Revenue a deficiency in corporate taxes in the
amount of P1,843,273.60, and withholding taxes in the
amount of P1,768,799.39 and P89,438.68 on
dividends paid to Munich and to the petitioners,
respectively. The petitioners filed a protest which the
Commissioner of Internal Revenue denied. The Court
of Tax Appeals affirmed this decision. Concurrently,
the CA ruled that the pool of insurers was considered
as a partnership taxable as a corporation, and that the
latter’s collection of premiums on behalf of its members
was taxable income.
Issue: Whether or not the pool is a partnership whose
dividends are subject to tax.
Held: The SC sustained the ruling of the Court of
Appeals that the pool is taxable as a corporation.
Section 24 of the NIRC, provides: SEC. 24. Rate of tax
on corporations. -- (a) Tax on domestic corporations. -
- A tax is hereby imposed upon the taxable net income
received during each taxable year from all sources by
every corporation organized in, or existing under the
laws of the Philippines, no matter how created or
organized, but not including duly registered general co-
partnership (compaias colectivas), general
professional partnerships, private educational
institutions, and building and loan associations xxx. In
Evangelista v. Collector of Internal Revenue the Court
held that Section 24 covered in its definition these
unregistered partnerships and even associations or
joint accounts, which had no legal personalities apart
from their individual members. The Court said that the
term partnership includes a syndicate, group, pool,
joint venture or other unincorporated organization,
through or by means of which any business, financial
operation, or venture is carried on. Article 1767 of the
Civil Code recognizes the creation of a contract of
partnership when two or more persons bind
themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the
profits among themselves. Its requisites are: (1) mutual
contribution to a common stock, and (2) a joint interest
in the profits. Meanwhile, an association implies
associates who enter into a joint enterprise for the
transaction of a business. In the case before us, the
companies entered into a Pool Agreement or an
association that would handle all the insurance
businesses covered under their quota-share
reinsurance treaty and surplus reinsurance treaty with
Munich. The following unmistakably indicates a
partnership or an association covered by Section 24 of
the NIRC: (1) The pool has a common fund, consisting
of money and other valuables that are deposited in the
name and credit of the pool. This common fund pays
for the administration and operation expenses of the
pool. (2) The pool functions through an executive
board, which resembles the board of directors of a
corporation, composed of one representative for each
of the ceding companies. (3) True, the pool itself is not
a reinsurer and does not issue any insurance policy;
however, its work is indispensable, beneficial and
economically useful to the business of the insurance
companies and Munich, because without it they would
not have received their premiums. The insurance
companies share in the business ceded to the pool and
in the expenses according to a Rules of Distribution
annexed to the Pool Agreement. Profit motive or
business is, therefore, the primordial reason for the
pools formation. As aptly found by the CTA: “The fact
that the pool does not retain any profit or income does
not obliterate an antecedent fact that of the pool being
used in the transaction of business for profit. It is
apparent, and petitioners admit, that their association
or coaction was indispensable to the transaction of the
business. If together they have conducted business,
profit must have been the object as, indeed, profit was
earned. Though the profit was apportioned among the
members, this is only a matter of consequence, as it
implies that profit actually resulted.” Thus, the petition
is DENIED and the Resolutions of the Court of Appeals
are hereby AFFIRMED.
FERNANDEZ VS. DELA ROSA
Facts: On the part of plaintiff Fernandez, he claims that
he entered into a verbal agreement with defendant De
la Rosa to form a partnership for the purchase of
cascoes with the undertaking that the defendant will
buy the cascoes and that each partner will furnish such
amount as he could, while the profits will be divided
proportionately. Plaintiff furnished P300 for casco No.
1515 and P825 for casco No. 2089, both of which were
placed under the name of the defendant only. In April
1900, the parties undertook to draw up articles of their
partnership for the purpose of embodying it in an
authentic document. The agreement however did not
materialize because defendant proposed articles
which were materially different from their verbal
agreement, and he was also unwilling to include casco
No. 2089 in the partnership. Because the cascoes
were under the management of the defendant, the
plaintiff demanded an accounting over it to which the
defendant refused claiming that no partnership existed
between them. De la Rosa, on the other hand, admits
that he desired to form a partnership with the plaintiff
but denies that any agreement was ever
consummated. Moreover, he denied receiving any
money furnished by plaintiff for casco No. 1515, but
claims that he merely borrowed the P300 on his
individual account from the bakery business in which
plaintiff was a copartner. And as for the P825 furnished
by the plaintiff, the defendant claims that it was actually
for casco No. 1515 and not for casco No. 2089. He also
added that the repairs made on the two cascoes were
exclusively borne by him, and that he returned a sum
of P1,125 to plaintiff with an express reservation on his
part of all his rights as a partner.
Issue: a) W/N a partnership existed between the
parties.
HELD: Yes. a) The essential points upon which the
minds of the parties must meet in a contract of
partnership are 1) mutual contribution and 2) joint
interest in the profits. The fact that the defendant
received money furnished by the plaintiff for the
purpose of using it to purchase the cascoes
establishes the first element of the partnership, mutual
contribution to a common stock. For the second
element, the fact that the formation of partnership had
been a subject of negotiation between them, even
before the purchase of the first casco, and that both
parties intended to purchase the cascoes in common
satisfies the requirement that there should be an
intention on the part of both parties to share the profits.
With these, a complete and perfect contract of
partnership was entered into by the parties. It must be
noted however that this partnership was subject to a
suspensive condition which is the execution of a written
agreement regarding the distribution of profits,
character of xpartnership, etc. But since the defendant
actually purchased the cascoes, it would seem that the
partnership already existed. And as furthermore
provided by the Civil Code, a written agreement was
not necessary in order to give efficacy to the verbal
agreement of the partnership because the
contributions of the partners to the partnership were
not in the form of immovables.
ISSUE: b) W/N the partnership was terminated when
the defendant returned the P1,125 to plaintiff. No.
Held: b) During trial, the court was able to prove that
plaintiff actually furnished some amount for the repair
of the cascoes and that it was presumed that a profit
has been obtained by the defendant prior to the return
of the money. With these, the return of the P1,125 fell
short of the amount which the plaintiff has actually
contributed to the partnership. For these reasons, the
acceptance by the plaintiff of the amount returned by
the defendant did not have the effect of terminating the
legal existence of the partnership by converting it into
a societas leonina. The court also proved that there
was no intention on the part of the plaintiff, in accepting
the money, to relinquish his rights as a partner. On the
contrary he notified defendant that he waived none of
his rights in the partnership. Also the lack of recognition
on the part of the defendant of the plaintiff’s right in the
partnership property and in the profits does not give the
former the right to force a dissolution upon the later
upon the terms which the plaintiff is unwilling to accept.
A partnership therefore existed between the two and
cascoes No. 1515 and 2089 are partnership properties.
Gatchalian vs.Collector of Internal Revenue GR L-
45425
FACTS: Jose Gatchalian along with 14 others bonded
together to purchase a sweeptakes ticket in the amount
of Ps 2.00 and registered the same as Jose Gatchalian
and Co. This ticket has eventually won 3rd prize
amounting to Ps 50,000.00 which they divided in
accordance with their aliquot share in the cost of the
ticket. Gatchalian receiving Ps 4425 for his Ps .18 cost.
A month after winning the ticket they were assessed by
the Collector of Internal Revenue for the payment of
Income Tax of their unregistered partnership
requesting them to pay Ps 1,499.94. They replied that
that they merely formed a co-ownership not
Partnership and requested the CIR that they be
exempted from paying such assessed income tax.
They also submitted evidence of payment of income
tax by each of them for their corresponding individual
taxable pertaining to their share in the winnings.
However it was denied by the CIR. Demand letter
ensued until it resulted to the issuance of Warrant of
distraint and levy on the property of the petitioner.
Through the the 2 co-owner of Gatchalian they paid a
portion of the tax assessed amounting to Ps 602.51 to
avoid the embargo of the property and promised to pay
the balance in installments guaranteed by 2 solvent
persons as required by the CIR. The payment was
made under protest and petitioner filed for request for
refund at the same time. The protest was overruled and
the demand for refund was denied. Another warrant for
distraint and levy on the property was issued for failure
to pay the monthly installments. Finally the balance
was paid Ps 1,260.93 which includes legal interest and
penalties. Again a formal protest and request for refund
was filed and was denied. Petitioners elevated the
matter to SC requesting refund of amount of Ps
1,863.44 and legal interest hereon.
ISSUE: Whether or not Petitioners formed Co-
Ownership or Unregistered Partnership when they
purchased the winning sweepstakes ticket?
RULING: SC ruled that when they bonded together
and contributed to the cost of the ticket they formed an
Unregistered Partnership. For they contributed money
or property into a common fund which they invest in the
ticket and when it won, they divided the profit among
themselves.
Jose Gatchalian, et.al. plaintiffs-appellants, vs. The
Collector of Internal Revenue, defendant-appellee.
 A distraint warrant is a document served by the
sheriff that indicates the amount of overdue taxes,
the due date and instructions prohibiting the
removal or destruction of any property within the
business.
Facts: Plaintiffs purchased, in the ordinary course of
business, from one of the duly authorized agents of the
National CharitySweepstakes Office one ticket for the
sum of two pesos (P2), said ticket was registered in the
name of Jose Gatchalian and Company. The ticket
won one of the third-prizes in the amount of
P50,000. Jose Gatchalian was required to file the
corresponding income tax return covering the prize
won. Defendant-Collector made an
assessment against Jose Gatchalian and Co.
requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan.
Plaintiffs, however through counsel made a request for
exemption. It was denied. Plaintiffs failed to pay the
amount due, hence a warrant of distraint and levy was
issued. Plaintiffs paid under protest a part of the tax
and penalties to avoid the effects of the warrant. A
request that the balance be paid by plaintiffs in
installments was made. This was granted on the
condition that a bond be filed. Plaintiffs failed in their
installment payments. Hence a request for execution of
the warrant of distraint and levy was made. Plaintiffs
paid under protest to avoid the execution. A claim for
refund was made by the plaintiffs, which was
dismissed, hence the appeal.

Issue: Whether the plaintiffs formed a partnership or

community of property. If a partnership, hence liable for
income tax.

Held: Yes. The plaintiffs formed a formed a

partnership. According to the stipulation facts the
plaintiffs organized a partnership of a civil nature
because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact
in the amount of P50,000. The partnership was not only
formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as
such collection the prize, the office issued the check for
P50,000 in favor of Jose Gatchalian and company, and
the said partner, in the same capacity, collected the
said check. All these circumstances repel the idea that
the plaintiffs organized and formed a community of
property only.