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BusOrg Compiled Case Digests by: 3rd Year Class of 2015 STM College of Law2nd & 3rd Page of the Syllabus

1. G.R. No. 113375 May 5, 1994KILOSBAYAN vs. TEOFISTO GUINGONA, JR.,

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.

Sometime before March 1993, 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,” “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.”

PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line lottery system for the PCSO. PGMC submitted its bid to the PCSO.

On 21 October 1993, the Office of the President announced that it had given the respondent PGMC the go-signal to operate the country’s on-line lottery system and that the corresponding implementing contract would be submitted not later than 8 November 1993 “for final clearance and approval by the Chief Executive.”

OPPOSITION OF KILOSBAYAN ON THE SETTING UP OF THE ON-LINE LOTTERY SYSTEM:

They 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."

Even granting arguendo that a lease of facilities is not within the contemplation of "collaboration" or "association," an analysis, however, of the Contract of Lease clearly shows that there is a "collaboration, association, or joint venture between respondents PCSO and PGMC in the holding of the On-Line Lottery System," and that there are terms and conditions of the Contract "showing that respondent PGMC is the actual lotto operator and not respondent PCSO." 19

DEFENSE RAISED BY PGMC:PGMC asserts that "(1) [it] is merely an independent contractor for a piece of work, (i.e., the building and maintenance of a lottery system to be used by PCSO in the operation of its lottery franchise); and (2) as such independent contractor, PGMC is not a co-operator of the lottery franchise with PCSO, nor is PCSO sharing its franchise, 'in collaboration, association or joint venture' with PGMC — as such statutory limitation is viewed from the context, intent, and spirit of Republic Act 1169, as amended by Batas Pambansa 42."

DEFENSE RAISED BY GUINGONA:public respondents Executive Secretary Teofisto Guingona, Jr., Assistant Executive Secretary Renato Corona, and the PCSO maintain that the contract of lease in question does not violate Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and that the petitioner's interpretation of the phrase "in collaboration, association or joint venture" in Section 1 is "much too narrow, strained and utterly devoid of logic" for it "ignores the reality that PCSO, as a corporate entity, is vested with the basic and essential prerogative to enter into all kinds of transactions or contracts as may be necessary for the attainment of its purposes and objectives."

What the PCSO charter "seeks to prohibit is that arrangement akin to a "joint venture" or partnership where there is "community of interest in the business, sharing of profits and losses, and a mutual right of control," a characteristic which does not obtain in a contract of lease."

With respect to the challenged Contract of Lease, the "role of PGMC is limited to that of a lessor of the facilities" for the on-line lottery system; in "strict technical and legal sense," said contract "can be categorized as a contract for a piece of work as defined in Articles 1467, 1713 and 1644 of the Civil Code."

ISSUE: Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with" another?

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RULING: We agree with the petitioners that it does, notwithstanding its denomination or designation as a (Contract of Lease). Whether the contract in question is one of lease or whether the PGMC is merely an independent contractor should not be decided on the basis of the title or designation of the contract but by the intent of the parties, which may be gathered from the provisions of the contract itself.

A careful analysis and evaluation of the provisions of the contract and a consideration of the contemporaneous acts of the PCSO and PGMC indubitably disclose that the contract is not in reality a contract of lease under which the PGMC is merely an independent contractor for a piece of work, but one where the statutorily proscribed collaboration or association , in the least, or joint venture , at the most, exists between the contracting parties .

Collaboration is defined as the acts of working together in a joint project. 63 Association means the act of a number of persons in uniting together for some special purpose or business. 64 Joint venture is defined as an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit andlosses. 65

The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its own nor the expertise to operate and manage an on-line lottery system, and that although it wished to have the system, it would have it "at no expense or risks to the government."

In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line lottery system; with the rest, including the risks of the business, being borne by the proponent or bidder .

Howsoever viewed then, from the very inception, the PCSO and the PGMC mutually understood that any arrangement between them would necessarily leave to the PGMC the technical, operations, and management aspects of the on-line lottery system while the PCSO would, primarily, provide the franchise.

The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination as such is a crafty device, carefully conceived, to provide a built-in defense in the event that the agreement is questioned as violative of the exception in Section 1 (B) of the PCSO's charter. The acuity or skill of its draftsmen to accomplish that purpose easily manifests itself in the Contract of

Lease. It is outstanding for its careful and meticulous drafting designed to give an immediate impression that it is a contract of lease. Yet, woven therein are provisions which negate its title and betray the true intention of the parties to be in or to have a joint venture for a period of eight years in the operation and maintenance of the on-line lottery system.

Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the PGMC represents and warrants that it has access to all managerial and technical expertise to promptly and effectively carry out the terms of the contract. And, for a period of eight years, the PGMC is under obligation to keep all the Facilities in safe condition and if necessary, upgrade, replace, and improve them from time to time as new technology develops to make the on-line lottery system more cost-effective and competitive; XXXX

This joint venture is further established by the following:

(a) Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for the fulfillment of its obligations under the contract, including, but not limited to the lease of the Facilities. However, this rent is not actually a fixed amount. XXXX PGMC binds itself to "bear all risks if the revenue from the ticket sales, on an annualized basis, are insufficient to pay the entire prize money." This risk-bearing provision is unusual in a lessor-lessee relationship, but inherent in a joint venture.

(b) In the event of pre-termination of the contract by the PCSO, or its suspension of operation of the on-line lottery system in breach of the contract and through no fault of the PGMC, the PCSO binds itself "to promptly, and in any event not later than sixty (60) days, reimburse the Lessor the amount of its total investment cost associated with the On-Line Lottery System, including but not limited to the cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired term of the lease." If the contract were indeed one of lease, the payment of the expected profits or rentals for the unexpired portion of the term of the contract would be enough.

(c) The PGMC cannot "directly or indirectly undertake any activity or business in competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent." If the PGMC is engaged in the business of leasing equipment and technology for an on-line lottery system, we fail to see any acceptable reason why it should allow a restriction on the pursuit of such business.

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(d) The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within two years from the effectivity of the contract, cause itself to be listed in the local stock exchange and offer at least 25% of its equity to the public. If the PGMC is merely a lessor, this imposition is unreasonable and whimsical, and could only be tied up to the fact that the PGMC will actually operate and manage the system; hence, increasing public participation in the corporation would enhance public interest.

(e) The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the requirements of the RFP, which it may, at its option, maintain as its initial performance bond required to ensure its faithful compliance with the terms of the contract.(f) The PCSO shall designate the necessary personnel to monitor and audit the daily performance of the on-line lottery system; and promulgate procedural and coordinating rules governing all activities relating to the on-line lottery system. The first further confirms that it is the PGMC which will operate the system and the PCSO may, for the protection of its interest, monitor and audit the daily performance of the system. The second admits the coordinating and cooperative powers and functions of the parties.

(g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its debts, or if it stops or suspends or threatens to stop or suspend payment of all or a material part of its debts.

All of the foregoing unmistakably confirm the indispensable role of the PGMC in the pursuit, operation, conduct, and management of the On-Line Lottery System. They exhibit and demonstrate the parties' indivisible community of interest in the conception, birth and growth of the on-line lottery, and, above all, in its profits, with each having a right in the formulation and implementation of policies related to the business and sharing, as well, in the losses — with the PGMC bearing the greatest burden because of its assumption of expenses and risks, and the PCSO the least, because of its confessed unwillingness to bear expenses and risks.

In a manner of speaking, each is wed to the other for better or for worse. In the final analysis, however, in the light of the PCSO's RFP and the above highlighted provisions, as well as the "Hold Harmless Clause" of the Contract of Lease, it is even safe to conclude that the actual lessor in this case is the PCSO and the subject matter thereof is its franchise to hold and conduct lotteries since it is, in reality, the PGMC which operates and manages the on-line lottery system for a period of eight years.

We thus declare that 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.

2. LUCINA BIGLANGAWA and LUCIA ESPIRITU vs. PASTOR B. CONSTANTINO

FACTS: On June 25, 1953, respondent Constantino filed with the CFI of Rizal an amended complaint against petitioners Lucina Biglangawa and Lucia Espiritu which provides among others:

- Lucina Biglangawa and Lucia Espiritu were or have been the owners of a parcel of land in Marulas, Polo, Bulacan.

-On January 14, 1950, Lucina Biglangawa, with the consent of her co-owner Lucia Espiritu, appointed respondent Constantino as their exclusive agent to develop an area into subdivision lots and to sell them to prospective homeowners. The power thus conferred by Lucina Biglangawa to respondent Constantino was confirmed in a notarial document with the added stipulation that they could not revoke the contract of agency without respondent Constantino’s consent.

-Later, in October, 1951, Lucina Biglangawa and Lucia Espiritu wantonly, oppressively, and in evident bad faith terminated the agency contracts depriving Constantino of his rights to commission fees of 20% on the sale of the remaining lots and 10% fee on the cash receipts of the business every month.

To this complaint, petitioners filed their answer on August 25, 1953.

While said Civil Case was pending in said court, respondent, on April 5, 1955, filed with the ROD of Bulacan, notice of lis pendens on the said properties subject of subdivision plan.

On April 6, 1955, the ROD of Bulacan requested petitioners to surrender their titles for annotation of said notice of lis pendens, but petitioners refused to do so. However, when petitioners registered the deed of sale in favor of one buyer, said official, without their knowledge and consent, made the annotation of the lis pendens on petitioners' said titles.

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Petitioners, therefore filed with the CFI of Bulacan, a petition for cancellation of said notice of lis pendens.

The court then issued an order cancelling the said annotation for lis pendens.

Hence this appeal.

Issue: WON Constantino is a partner of the petitioners in their business of selling subdivision lots that would make the annotation of lis pendens legal. NO.

Held: Constantino's theory is neither supported by the allegations of his complaint, nor borne out by the purpose of his action. There is no word or expression in the various paragraphs of his amended complaint that suggests any idea of partnership. On the contrary, Constantino expressly averred that petitioners "appointed Constantino as their exclusive agent to develop the area into subdivision lots and to sell them to prospective homeowners; and as compensation for his services petitioners promised to pay him a commission of 20% on the gross sales and a fee of 10% on the collections made by him. . . ." Categorically, appellant referred to himself as an agent, not a partner; entitled to compensation, not participation, in the form of commission or fee, not a share.

It is true that in the amended complaint Constantino claims to have made advances for the expenses incurred in the development and administration of the property. But again he never considered these as contributions to the business as to make him a partner; otherwise, he would have so stated it in his complaint. In fact, after a liquidation of these advances and the commissions due to a Constantino at the time of the termination of the agency, the whole balance was considered as petitioners’ indebtedness which Constantino consented to be settled in monthly installments.

Thus, Constantino's amended complaint, not being "an action affecting the title or the right of possession of real property",1 nor one "to recover possession of real estate, or to quiet title thereto, or to remove clouds upon the title thereof, or for partition or other proceeding of any kind in court affecting the title to real estate or the use or occupation thereof or the buildings thereon . . .",2 the same cannot be the basis for annotating a notice of lis pendens on the title of the petitioners.

3. NAVARRO V CA

Facts: Olivia Yanson (Yanson) and Lourdes Navarro (Navarro) were engage in a business under the name of Air Freight Service Agency (Air) pursuant to a verbal agreement.

It was found that under their agreement, Yanson would supply the necessary equipments and money for use in the operation of the said business. A certain Atty. Rodolfo Villaflores as the manager thereof and Navarro as their cashier.

It was further agreed that there be equal sharing of whatever proceeds the business will realize.

Yanson then brought in the business a number of chattels and movables which were registered in her name.

However, sometime on July 23, 1976, Yanson filed a complaint “Delivery of Personal Properties with Damages” and an application for replevin with the RTC of Bacoor in order to recover those movables which she brought to the business.

Subsequently Judge Oscar Victoriano (Judge) rendered the decision in favor of Yanson and issued a writ for replevin.

Navarro filed a petition for annulment of judgment of the RTC’s decision alleging that it erred in declaring the non-existence of a partnership, contrary to the evidence presented. According to her, she and Yanson actually formed a partnership through their verbal agreements over the operation of Air.

Issue: WON there is partnership.

Held: There was none. Article 1767 states that, “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 a co-ownership or co-possession of some items, and/or any sharing of proceeds by way of advances received by both plaintiff and defendant, these are not indicative and supportive

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of the existence of any partnership between them. Article 1769 par. 2 provides that “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 property”. The alleged profits here were merely the difference found after valuating the assets and not from the real operation of the business. In accounting procedures, this could not be profit but a net worth.

Note: Kung mag kulit si maam na based on the facts naa jud partnership. Just in case di na jud ta ka argue, ingnan nlng nato na wrong remedy ni sya. The proper remedy is Appeal and not Annulment of Judgement. Beside the petition for annulment of judgment did not state the extrinsic fraud. Nagging final and executory na ni sya before pa na abot sa CA.

4. OBILLOS JR VS CIR

Facts:On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and 963 square meters of located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The Torrens titles issued to them showed that they were co-owners of the two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canada for the total sum of P313,050. They derived from the sale a total profit of P134, 341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-half thereof or of P16,792.

In April, 1980, the Commissioner of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof. The petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Hence, the instant appeal.

Issue: Whether or not the petitioners had indeed formed a partnership or joint venture and thus liable for corporate tax.

Held: The Supreme Court held that the petitioners should not be considered to have formed a partnership just because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves. To regard so would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction.

*Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.*

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later.

They did not contribute or invest additional ' capital to increase or expand the properties, nor was there an unmistakable intention to form partnership or joint venture.

All co-ownerships are not deemed unregistered partnership.—Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all

Co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation.

5. FLORENCIO REYES and ANGEL REYES vs. CIR G.R. Nos. L-24020-21

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Note: The Evangelista vs. CIR ruling was applied in this case.

FACTS: Petitioners purchased a lot and building situated at Manila for P835,000.00. The initial payment of P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was leased to various tenants, whose rights under the lease contracts with the original owners, the purchasers, petitioners herein, agreed to respect. The administration of the building was entrusted to an administrator who collected the rents; kept its books and records and rendered statements of accounts to the owners; negotiated leases; made necessary repairs and disbursed payments, whenever necessary, after approval by the owners; and performed such other functions necessary for the conservation and preservation of the building. Petitioners divided equally the income of operation and maintenance. The gross income from rentals of the building amounted to about P90,000.00 annually."

Petitioners thereafter were assessed by respondent CIR the sum of P46,647.00 as income tax, surcharge and compromise for the years 1951 to 1954, an assessment subsequently reduced to P37,528.00. Thereafter, another assessment was made against petitioners for back income taxes plus surcharge and compromise in the total sum of P25,973.75, covering the years 1955 and 1956. In a joint decision of the cases, respondent CTA reduced the tax liability for the years 1951 to 1954 to P37,128.00 and for the years 1955 and 1956, to P20,619.00 as income tax due "from the partnership formed" by petitioners.

Respondent CTA applying the appropriate provisions of the National Internal Revenue Code, the first of which imposes an income tax on corporations "organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships...," a term, which according to the second provision cited, includes partnerships "no matter how created or organized, ...," and applying the leading case of Evangelista v. Collector of Internal Revenue, sustained the action of respondent Commissioner of Internal Revenue, but reduced the tax liability of petitioners, as previously noted.

ISSUE: Whether petitioners are partners.

RULING: Yes. Petitioners, in acquiring the Gibbs Building, established a partnership subject to income tax as a corporation under the National Internal Revenue Code.There are two essential elements of a 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.

Evangelista vs. CIR Ruling: After referring to another section of the National Internal Revenue Code, which explicitly provides that the term corporation "includes partnerships" and then to Article 1767 of the Civil Code of the Philippines, defining what a contract of partnership is, the opinion goes on to state that "the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, ..."

In support of the above conclusion, reference was made to the following circumstances, namely, the common fund being created purposely not something already found in existence, the investment of the same not merely in one transaction but in a series of transactions; the lots thus acquired not being devoted to residential purposes or to other personal uses of petitioners in that case; such properties having been under the management of one person with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts and to endorse notes and checks; the above conditions having existed for more than 10 years since the acquisition of the above properties; and no testimony having been introduced as to the purpose "in creating the set up already adverted to, or on the causes for its continued existence." The conclusion that emerged had all the imprint of inevitability. Thus: "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."

It may be said that there could be a differentiation made between the circumstances above detailed and those existing in the present case. It does not suffice though to preclude the applicability of the Evangelista decision. Petitioners could harp on these being only one transaction. They could stress that an affidavit of one of them found in the Bureau of Internal Revenue records would indicate that their intention was to house in the building acquired by them the respective enterprises, coupled with a plan of effecting a division in 10 years. It is

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a little surprising then that while the purchase was made on October 31, 1950 and their brief as petitioners filed on October 20, 1965, almost 15 years later, there was no allegation that such division as between them was in fact made. Moreover, the facts as found and as submitted in the brief made clear that the building in question continued to be leased by other parties with petitioners dividing "equally the income ... after deducting the expenses of operation and maintenance ..." Differences of such slight significance do not call for a different ruling.

This is the way it was disposed of in the opinion of the present Chief Justice: "This pretense was correctly rejected by the Court of Tax Appeals." Then came the explanation why: "To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships", which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among others, "joint accounts, " and "associations", none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" — which are possessed of the aforementioned personality - have been expressly excluded by law from the connotation of the term "corporation". "The opinion went on to summarize the matter aptly: "For purposes of the tax on corporations, our National Internal Revenue Code, include these partnerships — with the exception only of duly registered general co-partnerships 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."

6. FORTIZ VS GUTIERREZ HERMANOS

FACTS: Fortiz, an employee of the defendants brought this action to recover a balance due him as salary for his second year of service. He alleged that he was entitled, as salary, to 5 per cent of the net profits of the business of the defendants for said year. The complaint also contained a cause of action for the sum of, money expended by Fortiz for the defendants during the 3rd year. The court found that the contract had been made, that 5 per cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos, Mexican currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican currency, and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency. The court also ordered judgment against the defendants for the 600 pesos mentioned in the complaint, and intereat thereon. The total judgment rendered against the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40.

Evidence is sufifcient to support the finding of the court to the effect that Fortiz worked for the defendants under a contract by which he was to receive as compensation 5 per cent of the net profits of the business. The contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the provisions of the articles of partnership he was made one of the managers of the company, with full power to transact all of the business thereof. As such manager he had authority to make a contract of employment with the plaintiff.

It is claimed by the appellants that the contract alleged in the complaint made Fortiz a copartner of the defendants in the business which they were carrying on.

ISSUE: Whether or not the contract made Fortiz a co-partner in the business.

RULING:NO.

It was a mere contract of employment. Fortiz had no voice nor vote in the management of the affairs of the company. The fact that the compensation received by him was to be determined with reference to the profits made by the defendants in their business did not in any sense make by a partner therein. The articles of partnership between the defendants provided that the profits should be divided among the partners named in a certain proportion. The contract made between the plaintiff and the then manager of the defendant partnership did not in any way vary or modify this provision of the articles of partnership. The profits of the business could not be determined until all of the expenses had been paid. A part of the expenses to be paid

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for the year was the salary of the plaintiff. That salary had to be deducted before the net profits of the business, which were to be divided among the partners. It was undoubtedly necessary in order to determine what the salary of the plaintiff was, to determine what the profits of the business were, after paying all of the expenses except his, but that determination was not the final determination of the net profits of the business. It was made for the purpose of fixing the basis upon which his compensation should be determined. Furthermore, it was not necessary that the contract between the plaintiff and the defendants should be made in writing.

7. GATCHALIAN v. COMMISSIONER OF INTERNAL REVENUEG.R. No. 45425; April 29, 1939

FACTS: On December 15, 1934, the plaintiffs, all 15 of them, each contributed in order to buy a sweepstakes ticket worth Php 2.00.

That immediately thereafter but prior to December 16, 1934, plaintiffs purchased, in the ordinary course of business, from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in the name of Jose Gatchalian and Company. The above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding check covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes Office in favor of Jose Gatchalian& Company against the Philippine National Bank, which check was cashed during the latter part of December, 1934 by Jose Gatchalian& Company On December 29, 1934 Jose Gatchalian was required by income tax examiner Alfredo David to file the corresponding income tax return covering the prize won by Jose Gatchalian& Company. The defendant made an assessment against Jose Gatchalian& Company requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan. January 20, 1935, the plaintiffs requested exemption from the payment of the income tax but 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, thus not exempted from paying income tax

HELD: YES, the plaintiffs formed a partnership.

There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax under the law. But 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 ( Article 1665, Civil Code ) . 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.

Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay the income tax which the defendant collected under Section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that the tax should be prorated among them and paid individually, resulting in their exemption from the tax.

8. SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION vs. CA

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FACTS: Sabesaje sued to recover ownership of a parcel of land, based on a private document of absolute sale, allegedly executed by Dalion, who, however denied the fact of sale, contending that the document sued upon is fictitious, his signature thereon, a forgery, and that subject land is conjugal property, which he and his wife acquired in 1960 from Saturnina Sabesaje.

The spouses denied claims of Sabesaje that after executing a deed of sale over the parcel of land, they had pleaded with Sabesaje, their relative, to be allowed to administer the land because Dalion did not have any means of livelihood.

They admitted, however, administering five (5) parcels of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje. They never received their agreed 10% and 15% commission on the sales of copra and abaca, respectively. Sabesaje's suit, they countered, was intended merely to harass, preempt and forestall Dalion's threat to sue for these unpaid commissions.

From the adverse decision of the trial court, Dalion appealed, assigning errors some of which, however, were disregarded by the appellate court, not having been raised in the court below. While the Court of Appeals duly recognizes Our authority to review matters even if not assigned as errors in the appeal, We are not inclined to do so since a review of the case at bar reveals that the lower court has judicially decided the case on its merits.

ISSUE: Whether or not there a necessity of a public document to transfer ownership thereto.

RULING: Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless still impugns the validity of the sale on the ground that the same is embodied in a private document, and did not thus convey title or right to the lot in question since "acts and contracts which have for their object the creation, transmission, modification or extinction of real rights over immovable property must appear in a public instrument" (Art. 1358, par 1, NCC).

This argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument.

A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold (Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to execute corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive).

As regards petitioners' contention that the proper action should have been one for specific performance, We believe that the suit for recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil Code gives the parties to a perfected contract of sale the right to reciprocally demand performance, and to observe a particular form, if warranted, (Art. 1357). The trial court, aptly observed that Sabesaje's complaint sufficiently alleged a cause of action to compel Dalion to execute a formal deed of sale, and the suit for recovery of ownership, which is premised on the binding effect and validity inter partes of the contract of sale, merely seeks consummation of said contract.

A sale of a real property may be in a private instrument but that contract is valid and binding between the parties upon its perfection. And a party may compel the other party to execute a public instrument embodying their contract affecting real rights once the contract appearing in a private instrument hag been perfected (Art. 1357).

9. ANGELES v. CA

Facts: On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa against Mercado before the Provincial Prosecution

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Office (PPO). Mercado is the brother-in-law of the Angeles spouses, being married to Emerita Angeles sister Laura.

In their affidavits, the Angeles spouses claimed that Mercado convinced them to enter into a contract of antichresis, colloquially known as sanglaang-perde, covering 8 parcels of land planted with fruit-bearing lanzones trees located in Laguna and owned by Juana Suazo. The contract of antichresis was to last for five years with 210K as consideration. As the Angeles spouses stay in Manila during weekdays and go to Laguna only on weekends, the parties agreed that Mercado would administer the lands and complete the necessary paperwork.

After 3 years, the Angeles spouses asked for an accounting from Mercado. Mercado gave no accounting for 1995. The Angeles spouses claim that only after this demand for an accounting did they discover that Mercado had put the contract of sanglaang-perde over the subject land under Mercado and his spouses names.

In his counter-affidavit, Mercado denied the Angeles spouses allegations. He claimed that there exists an industrial partnership, colloquially known as sosyo industrial, between him and his spouse as industrial partners and the Angeles spouses as the financiers. This industrial partnership had existed since 1991, before the contract of antichresis over the subject land. As the years passed, Mercado used his and his spouses earnings as part of the capital in the business transactions which he entered into in behalf of the Angeles spouses. It was their practice to enter into business transactions with other people under the name of Mercado because the Angeles spouses did not want to be identified as the financiers.

Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his name for the Angeles spouses. Mercado also attached the minutes of the barangay conciliation proceedings and during the barangay conciliation proceedings, Oscar Angeles stated that there was a written sosyo industrial agreement: capital would come from the Angeles spouses while the profit would be divided evenly between Mercado and the Angeles spouses.

Complaint for estafa was dismissed. The Angeles spouses filed a motion for reconsideration, which the PPO denied. On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document evidencing the contract of sanglaang-perde with Juana Suazo was executed in the name of the Mercado spouses, instead of the Angeles spouses. The Angeles spouses allege that this document alone proves Mercado’s misappropriation of their 210K. The Secretary of Justice found that a partnership truly existed between the Angeles spouses and Mercado. The formation of a partnership was clear from

the fact that they contributed money to a common fund and divided the profits among themselves. Records would show that Mercado was able to make deposits for the account of the Angeles spouses. These deposits represented their share in the profits of their business venture. Although the Angeles spouses deny the existence of a partnership, they, however, never disputed that the deposits made by Mercado were indeed for their account.

During the hearing of their barangay conciliation case reveals that the Angeles spouses acknowledged their joint business ventures with Mercado although they assailed the manner by which[Mercado conducted the business and handled and distributed the funds. Although the legal formalities for the formation of a partnership were not adhered to, the partnership relationship of the Angeles spouses and Mercado is evident in this case. Consequently, there is no estafa where money is delivered by a partner to his co-partner on the latters representation that the amount shall be applied to the business of their partnership. In case of misapplication or conversion of the money received, the co-partners liability is civil in nature.

The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely on Articles 1771 to 1773 of the Civil Code.

Issues: Whether a partnership existed between the Angeles spouses and Mercado; and assuming that there was a partnership, whether there was misappropriation by Mercado of the proceeds of the lanzones after the Angeles spouses demanded an accounting from him.

Ruling: Yes there is partnership. The Angeles spouses position that there is no partnership because of the lack of a public instrument indicating the same and a lack of registration with the Commission (SEC) holds no water. First, the Angeles spouses contributed money to the partnership and not immovable property. Second, mere failure to register the contract of partnership with the SEC does not invalidate a contract that has the essential requisites of a partnership. The purpose of registration of the contract of partnership is to give notice to third parties. Failure to register the contract of partnership does not affect the liability of the partnership and of the partners to third persons. Neither does such failure to register affect the partnerships juridical personality. A partnership may exist even if the partners do not use the words partner or partnership.

Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract showing a sosyo industrial or industrial

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partnership, contribution of money and industry to a common fund, and division of profits between the Angeles spouses and Mercado.

The Secretary of Justice adequately explained the alleged misappropriation by Mercado: The document alone, which was in the name of Mercado and his spouse, failed to convince us that there was deceit or false representation on the part of Mercado that induced the Angeles spouses to part with their money.Mercadosatisfactorily explained that the Angeles spouses do not want to be revealed as the financiers.

Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil case for damages, injunction and restraining order filed by the Angeles spouses against Mercado and Leo Cerayban, stated: xxx It was the practice to have all the contracts of antichresis of their partnership secured in Mercado’s name as the Angeles spouses are apprehensive that, if they come out into the open as financiers of said contracts, they might be kidnapped by the New Peoples Army or their business deals be questioned by the Bureau of Internal Revenue or worse, their assets and unexplained income be sequestered, as xxx Oscar Angeles was then working with the government.

10. Antonia Torres vs Court of Appeals

Facts: In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel over a parcel of land, the sisters received no cash payment from Manuel but the promise of profits (60% for the sisters and 40% for Manuel) – said parcel of land is to be developed as a subdivision.

Manuel then had the title of the land transferred in his name and he subsequently mortgaged the property. He used the proceeds from the mortgage to start building roads, curbs and gutters. Manuel also contracted an engineering firm for the building of housing units. But due to adverse claims in the land, prospective buyers were scared off and the subdivision project eventually failed.

The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value of the property, which according to the sisters, is what’s due them as per the contract.

The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.

The sisters then appealed before the Supreme Court where they argued that there is no partnership between them and Manuel because the joint venture agreement is void.

ISSUE: Whether or not there exists a partnership.

HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a partnership agreement whereby they agreed to contribute property (their land) which was to be developed as a subdivision. While on the other hand, though Manuel did not contribute capital, he is an industrial partner for his contribution for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage (60-40). Clearly, the contract manifested the intention of the parties to form a partnership. Further still, the sisters cannot invoke their right to the 60% value of the property and at the same time deny the same contract which entitles them to it.

At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to Manuel (the sisters on their appeal did not show evidence as to Manuel’s fault in the failure of the partnership). The sisters must then bear their loss (which is 60%). Manuel does not bear the loss of the other 40% because as an industrial partner he is exempt from losses.

11. EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS vs. ESTRELLA ABAD SANTOS

FACTS: On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

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On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila, alleging that the partnership, which was also made a party-defendant, had been paying dividends to the partners except to her; and that notwithstanding her demands the defendants had refused and continued to refuse and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends declared by the partnership.

The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership books; and byway of affirmative defense alleged that the amended Articles of Co-partnership did not express the true agreement of the parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership; and that her share of 30% was to be based on the profits which might be realized by the partnership only until full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as security.

ISSUE: Whether the plaintiff-appellee (respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled evidence presented by the parties as the trial in support of their respective positions on the issue of whether or not the respondent was an industrial partner was thoroughly analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the lengthy testimony of the witnesses.to 30% of the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants (herein petitioners).

RULING: AFFIRMED.

One cannot read appellee's testimony just quoted without gaining the very definite impression that, even as she was and still is a Judge of the City Court of Manila, she has rendered services for appellants without which they would not have had the wherewithal to operate the business for which appellant company was organized. Article 1767 of the New Civil Code which provides that "By 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, 'does not specify the kind of industry that a

partner may thus contribute, hence the said services may legitimately be considered as appellee's contribution to the common fund. Another article of the same Code relied upon appellants reads:

'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case.'

It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful compliance by said partner with this prestation. There is no pretense, however, even on the part of the appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of one of the branches of the City Court of Manila can hardly be characterized as a business. That appellee has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it was only after filing of the complaint in this case and the answer thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29, 1964 — or after around nine (9) years from June 7, 1955 — subsequent to the filing of defendants' answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the defendant partnership and/or in its net profits or income, on the ground plaintiff has never contributed her industry to the partnership, instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to performance of her duties as such judge and enjoying the privilege and emoluments appertaining to the said office, aside from teaching in law school in Manila, without the express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always knows as a appellee as a City judge even before she joined appellant company on June 7, 1955 as an industrial partner, why did it take appellants many years before excluding her from said company as aforequoted allegations? And how can they reconcile such exclusive with their main theory that appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was to grant the appellee a share of 30% of the net profits which the appellant partnership may realize from June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).

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What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of appellant company, with the right to demand for a formal accounting and to receive her share in the net profit that may result from such an accounting, which right appellants take exception under their second assigned error. Our said holding is based on the following article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors of law, accepting as conclusive the factual findings of the lower court upon its own assessment of the evidence.

12. CATALAN VS. GATCHALIAN Facts: Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the improvements thereon to secure a credit from the latter. The partnership failed to pay the obligation. The properties were sold to Dr. Marave at a public auction. Catalan redeemed the property and he contends that title should be cancelled and a new one must be issued in his name. Issue: Did Catalan’s redemption of the properties make him theabsolute owner of the lands? Ruling: No. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to any benefits or profits derived from his act as a partner. Consequently, when Catalan redeemed the properties in question, he became a trustee and held the same in trust for his copartner Gatchalian, subject to his right to demand from the latter his contribution to the amount of redemption.

13. THE UNITED STATES vs. EUSEBIO CLARIN

Facts: Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes. Larin made an agreement with the three men by which the profits were to be divided equally between him and them.

Pedro Tarug, Eusebio Clarin, and Carlos de Guzman obtained P203 from the business, but did not deliver to Larin his half of the profits; neither did they render him any account of the capital.

Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against Eusebio Clarin in accusing him of appropriating to himself the share of the profits that belonged to Larin, amounting to P15.50.

The trial court ruled against Eusebio Clarin. The defendant appealed, and in deciding his appeal we arrive at the following conclusions:

Issues:1. WON a partnership exist in this case. (YES)2. WON Clarin is guilty of Esatafa. (No)

Ruling:1. A partnership exist in this case. 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, a contract is formed which is called partnership. (Art. 1665, Civil Code.)

When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he invested his capital in the risks or benefits of the business of the purchase and sale of mangoes, and, even though he had reserved the capital and conveyed only the usufruct of his money, it would not devolve upon of his three partners to return his capital to him, but upon the partnership of which he himself formed part.

2. The P172 having been received by the partnership, the business commenced and profits accrued, the action that lies with the partner who furnished the capital for the recovery of his money is not a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should be any.

No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the prejudice of another, shall appropriate or misapply any money, goods, or any kind of personal property which

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they may have received as a deposit on commission for administration or in any other character producing the obligation to deliver or return the same," (as, for example, in commodatum, precarium, and other unilateral contracts which require the return of the same thing received) does not include money received for a partnership; otherwise the result would be that, if the partnership, instead of obtaining profits, suffered losses, as it could not be held liable civilly for the share of the capitalist partner who reserved the ownership of the money brought in by him, it would have to answer to the charge of estafa, for which it would be sufficient to argue that the partnership had received the money under obligation to return it.

14. LITTON VS. HILL & CERON 67 P 509

Facts: Litton sold and delivered to Carlos Ceron, who is one of the managing partners of Hill & Ceron, a certain number of mining claims, and by virtue of said transaction, Ceron delivered to plaintiff a document (receipt) acknowledging that he received from Litton certain share certificates of Big Wedge Mining Company totaling P1870. Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety & Insurance Corporation, Litton filed a complaint in the Court of First Instance of Manila against the said defendants for the recovery of the said balance.

The lower court, after trial, ordered Carlos Ceron personally to pay the amount claimed and absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On appeal to the CA, the latter affirmed the decision of the lower court, having reached the conclusion that Ceron did not intend to represent and did not act for the firm Hill & Ceron in the transaction involved in this litigation.

Issue: WON Ceron’s act binds the partnership.

Held: Yes, we reach the conclusion that the transaction made by Ceron with the plaintiff should be understood in law as effected by Hill & Ceron and binding upon it.

In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he and Ceron, during the partnership, had the same power to buy and sell; that in said partnership Hill as well as Ceron made the transaction as partners in equal parts; that on the date of the transaction, February 14, 1934, the partnership between Hill and Ceron was in existence.

According to the articles of copartnership of ‘Hill & Ceron,’ a written contract of the firm can only be signed by one of the partners if the other partner consented. Without the consent of one partner, the other cannot bind the firm by a written contract. Now, assuming for the moment that Ceron attempted to represent the firm in this contract with the plaintiff (the plaintiff conceded that the firm name was not mentioned at that time), the latter has failed to prove that Hill had consented to such contract. Also, third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners, to ascertain whether or not this partner with whom the transaction is made has the consent of the other partner. The public need not make inquires as to the agreements had between the partners. Its knowledge is enough that it is contracting with the partnership which is represented by one of the managing partners.

The defendants are ordered to pay to the plaintiff, jointly and severally, the sum of P720, with legal interest, from the date of the filing of the complaint, minus the commission of one-half per cent (½%) from the original price of P1,870, with the costs to the respondents.

15. ANTONIO PARDO vs. THE HERCULES LUMBER CO., INC., and IGNACIO FERRER

Facts: Petitioner is a stockholder in the Hercules Lumber Company, Inc., and that the respondent, Ignacio Ferrer, as acting secretary of the said company, has refused to permit the petitioner or his agent to inspect the records and business transactions of the said Hercules Lumber Company, Inc., at times desired by the petitioner.

The main ground upon which the defense appears to be rested has reference to the time, or times, within which the right of inspection may be exercised. In this connection the answer asserts that in article 10 of the by-laws of the respondent corporation it is declared that “every shareholder may examine the books of the company and other documents pertaining to the same upon the days which the board of directors shall annually fix.

The board also resolved to call the usual general (meeting of shareholders) for March 30 of the present year, with notice to the shareholders that the books of the company are at their disposition from the 15th to 25th of the same month for examination, in appropriate hours. The contention for the respondent is that this resolution of the board constitutes a lawful restriction on the right conferred by statute; and it

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is insisted that as the petitioner has not availed himself of the permission to inspect the books and transactions of the company within the ten days thus defined, his right to inspection and examination is lost, at least for this year.

Petitioner now seeks to obtain a writ of mandamus to compel the respondents to permit the plaintiff and his duly authorized agent and representative to examine the records and business transactions of said company.

Issue: WON the board resolution constitutes a lawful restriction on the right conferred by statute.

Held: NO.

In the case of Philpotts Vs. Philippine Manufacturing Co., and Berry it was held that the right of examination there conceded to the stockholder may be exercised either by a stockholder in person or by any duly authorized agent or representative.

It may be admitted that the officials in charge of a corporation may deny inspection when sought at unusual hours or under other improper conditions; but neither the executive officers nor the board of directors have the power to deprive a stockholder of the right altogether. A by-laws unduly restricting the right of inspection is undoubtedly invalid. It will be noted that our statute declares that the right of inspection can be exercised &at reasonable hours.

This means at reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days chosen by the directors. In addition, the motive of the shareholder exercising the right is immaterial.16. DAN FUE LEUNG vs.HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU

FACTS: This case originated from a complaint filed by respondent Leung Yiu with the then CFI of Manila, Branch II to recover the sum equivalent to 22% of the annual profits from petitioner Dan Fue Leung derived from the operation of Sun Wah Panciteria since October, 1955.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a

partnership and that he was one of the partners having contributed P4,000.00 to its initial establishment. The private respondents evidence is summarized as follows: bout the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a receipt wherein the petitioner acknowledged his acceptance of theP4,000.00 by affixing his signature thereto.

Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check from the profits of the operation of the restaurant for the year 1974.

The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned the genuineness of the receipt. The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. Petitioner presented various government licenses and a permit showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself alone.

ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah Panciteria?

HELD: The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are 1)two or more persons bind themselves to contribute money, property, or industry to a common fund; and 2) intention on the part of the partners to divide the profits among themselves have been established. As stated by the respondent, a partner shares not only in profits but also in the losses of the firm. If excellent relations exist among the partners at the start of business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It would be incorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such rights are irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give him the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in the partnership

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17. ISLAND SALES, INC vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO

Facts: On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as they fall due would render the whole unpaid balance immediately due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the defendant company.

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig is concerned.

When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to present its evidence ex-parte , after which the trial court rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-fifth (1/5 ) of the obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth (1/5 ) of the obligations of the defendant company. Hence, this appeal.

Issue: Whether or not the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership

Held: no

Article 1816 of the Civil Code provides:

Art. 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.

In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff.

18. IDOS V. CA G.R. NO. 110782, SEPTEMBER 25, 1998 Facts: In 1985, Eddie Alarilla and Irma Idos formed a partnership which they decided to terminate after a year. To pay Alarilla’s share of the asset, Idos issued 4 post dated checks. Alarilla was able to encash the first, second and fourth checks but the third was dishonored for insufficiency of funds. He demanded payment but Idos failed to pay. She claimed that the checks were issued as assurance of Alarilla’s share in the assets of the partnership and that it was supposed to be deposited until the stocks were sold. He filed an information for violation of BP blg. 22 against Idos in which she was found guilty by the trial court. Issue: Did the court confused and merged into one the legal concepts of dissolution, liquidation and termination of a partnership? Ruling: The partner’s agreement to terminate the partnership did not automatically dissolve the partnership. They were in the process of winding-up when the check in question was issued. The best evidence of the existence of the partnership, which was not yet terminated were the unsold goods and uncollected receivables which were

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presented to the trial court. Article 1829 of the Civil Code provides that “on dissolution the partnership is not terminated but continues until the winding-up of partnership affairs is completed. Since the partnership has not been terminated, Idos and Alarilla remained co-partners. The check was issued by petitioner to respondent as would a partner to another and not as a payment by debtor to creditor. Thus, absent the first element of the complained offense, the act is not punishable by the statute.

19. SINGSONG V. ISABELA SAWMILL

Facts: In 1951, defendants entered into a contract of partnership under the firm name “Isabela Sawmill”. In 1956 the plaintiff sold to the partnership a motor truck and two tractors. The partnership was not able to pay their whole balance even after demand was made. One of the partners withdrew from the partnership but instead of terminating the said partnership it was continued by the two remaining partners under the same firm name. Plaintiffs also seek the annulment of the assignment of right with chattel mortgage entered into by the withdrawing partner and the remaining partners. The appellants contend that the chattel mortgage may no longer be nullified because it had been judicially approved and said chattel mortgage had been judicially foreclosed.

Issue: WON the withdrawal of one of the partners dissolved the partnership.

Ruling: No. It does not appear that the withdrawal of the partner was not published in the newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended to the remaining partners could be enforced against the properties of the partnership. The withdrawing partner cannot be relieved from her liability to the creditor of the partnership due to her own fault by not insisting on the liquidation of the partnership. Though she had acted in good faith, the appellees also acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Technically, the partnership was dissolved by the withdrawal of one of the partners. Through her acts of entering into a memorandum with the remaining partners misled the creditors that they were doing business with the partnership. Hence, from the order of the lower court ordering the withdrawing partner to pay the plaintiffs, she is thus entitled for reimbursement from the remaining partners.

20. DELUAO v. CASTEEL

FACTS: In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy land, 178.76 hectares, in the then sitio of Malalag, municipality of Padada, Davao for 3 consecutive times because the Bureau of Fisheries did not act upon his previous applications.

Despite the said rejection, Casteel did not lose interest. Because of the threat poised upon his position by the other applicants who entered upon and spread themselves within the area, Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating marketable fishes. But lacking financial resources at that time, he sought financial aid from his uncle Felipe Deluao.Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel immediately filed a protest. Consequently, two administrative cases ensued involving the area in question.

However, despite the finding made in the investigation of the above administrative cases, the Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the improvements which he had introduced on the land, and ordered that the land be leased through public auction.

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the second part, executed a contract — denominated a "contract of service". On the same date the above contract was entered into, Inocencia Deluao executed a special power of attorney in favor of Jesus Donesa. On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases and asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond. The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel to be reinstated in the area and that he shall pay for the improvement made thereupon.

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises.

ISSUE: Whether the reinstatement of Casteel over the subject land constitute a dissolution of the partnership between him and Deluao.

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HELD: Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

The Supreme Court ruled that the arrangement under the so-called "contract of service" continued until the decision both dated Sept. 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B. This development, by itself, brought about the dissolution of the partnership. Since the partnership had for its object the division into two equal parts of the fishpond between the appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one half thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond.

The approval was an event which made it unlawful for the members to carry it on in partnership. Moreover, subsequent events likewise reveal the intent of both parties to terminate the partnership because each refused to share the fishpond with the other.

21. DOMINGO BEARNEZA vs. BALBINO DEQUILLA

Facts: In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a partnership for the purpose of exploiting a fish pond situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to contribute to the payment of the expenses of the business, which obligation she made good, and both agreeing to divide the profits between themselves, which they had been doing until the death of the said Perpetua in the year 1912.

The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond in question.

Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of the part of the fish pond belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza brought this action to recover said part of the fish pond belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza brought this action recover said part of the fish pond and one-half of the profits received by the defendant

from the fish pond from the year 1913 to 1919, as damages (the amended complaint was filed on April 12, 1920), amounting, according to plaintiff, to the sum of thirteen thousand one hundred pesos (13,100).

In his answer, the defendant denies generally and specifically the allegations of the complaint, and alleges, as special defense, that "the formation of the supposed partnership between the plaintiff and the defendant for the exploitation of the aforesaid fish pond was not carried into effect, on account of the plaintiff having refused to defray the expenses of reconstruction and exploitation of said fish pond." As another special defense, the defendant alleges "that in the event that the court should hold the plaintiff to be entitled to the undivided one-half of the fish pond, claimed in the complaint, the plaintiff's action has prescribed, the time for bringing the same having elapsed."

the lower court rendered judgment, declaring the plaintiff owner of one-half of the fish pond,

Issue: Whether or not the plaintiff has any right to maintain an action for the recovery of one-half of the said fish pond.

Held: no

The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of which the proof contained in the record is conclusive, It was a particular partnership, as defined in article 1678 of the Civil Code, it having had for its subject-matter a specified thing, to with, the exploitation of the aforementioned fish pond.This partnership not having been organized in the form of a mercantile partnership, and, therefore, the provisions of the Code of Commerce not being applicable thereto (article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and falls under the provisions of article 1700, subsection 3, of the same Code, and not under the exception established in the last paragraph of said article 1700 of the Civil Code.

Neither can it be maintained that the partnership continued to exist after the death of Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been made by her and the defendant, pursuant to the provisions of article 1704 of the Code last cited.

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There is no sufficient ground for holding that a community of property existed between the plaintiff and the defendant, it not being known whether the deceased still had any interest in the partnership property which could have been transmitted by will to the plaintiff. There being no community of property, article 395 of the Civil Code cited by the plaintiff in support of his contention can have no application to the case at bar.

Neither can it be said that the partnership continued between the plaintiff and the defendant. It is true that the latter's act in requiring the heirs of Perpetua to contribute to the payment of the expenses of exploitation of the aforesaid fishing industry was an attempt to continue the partnership, but it is also true that neither the said heirs collectively, nor the plaintiff individually, took any action in response to that requirement, nor made any promise to that effect, and therefore no new contract of partnership existed.

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