G.R. No. 113375 May 5, 1994 Kilosbayan vs. Teofisto Guingona, JR.

BusOrg Compiled Case Digests by: 3rd Year Class of 2015
2nd & 3rd Page of the Syllabus

1. G.R. No. 113375 May 5, 1994
KILOSBAYAN 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.
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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 ONLINE 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
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.
DEFENSE RAISED BY PGMC:
On 21 October 1993, the Office of the President announced that it had

given the respondent PGMC the go-signal to operate the countrys on-
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)
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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."
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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?
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
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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
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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.
(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
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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
Constantinos consent.
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-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.
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.
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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
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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 RTCs
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
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.
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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.
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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.
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.
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
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.
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.
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
5. FLORENCIO REYES and ANGEL REYES vs. CIR G.R. Nos. L24020-21
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
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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
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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."
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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
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
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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.
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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.
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.
ISSUE: Whether or not the contract made Fortiz a co-partner in the

business.
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
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
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 REVENUE

G.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
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
Page 9 of 21

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
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.
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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).
Page 10 of 21

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
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
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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 Mercados 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
Page 11 of 21

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
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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
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 Mercados 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.
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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 whats 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 Manuels 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
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FACTS: On October 9, 1954 a co-partnership was formed under the
name of "Evangelista & Co." On June 7, 1955 the Articles of Copartnership 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."
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
Page 13 of 21

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
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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).
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;
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(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 Catalans 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
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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
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.
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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 Cerons 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,
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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 (
%) 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
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.
Page 16 of 21

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
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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
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,
Page 17 of 21

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 codefendants 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
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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 Alarillas 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 Alarillas
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 partners 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
Page 18 of 21

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 copartners. 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
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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.
Page 19 of 21

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
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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 onehalf 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.
Page 20 of 21

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.
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
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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.
Page 21 of 21

G.R. No. 113375 May 5, 1994 Kilosbayan vs. Teofisto Guingona, JR.

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2nd & 3rd Page of the Syllabus

FACTS: Pursuant to Section 1 of the charter of the PCSO (R.A. No.

As an initial step, Berjaya Group Berhad (through its individual

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OPPOSITION OF KILOSBAYAN ON THE SETTING UP OF THE ONLINE LOTTERY SYSTEM:

Even granting arguendo that a lease of facilities is not within the

On 21 October 1993, the Office of the President announced that it had

PGMC asserts that "(1) [it] is merely an independent contractor for a

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DEFENSE RAISED BY GUINGONA:

What the PCSO charter "seeks to prohibit is that arrangement akin to

With respect to the challenged Contract of Lease, the "role of PGMC is

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RULING: We agree with the petitioners that it does, notwithstanding

A careful analysis and evaluation of the provisions of the contract and

Collaboration is defined as the acts of working together in a joint

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Petitioners, therefore filed with the CFI of Bulacan, a petition for

Hence this appeal.

Issue: WON Constantino is a partner of the petitioners in their

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In April, 1980, the Commissioner of Internal Revenue required the four

All co-ownerships are not deemed unregistered partnership.

Co-ownerships of inherited properties to the tax on corporations,

Issue: Whether or not the petitioners had indeed formed a

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It is claimed by the appellants that the contract alleged in the

the duly authorized agents of the National Charity Sweepstakes Office

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

The above-mentioned ticket bearing No. 178637 won one of

7. GATCHALIAN v. COMMISSIONER OF INTERNAL REVENUE

On December 29, 1934 Jose Gatchalian was required by income

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

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Facts: On 19 November 1996, the Angeles spouses filed a criminal

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The Secretary of Justice adequately explained the alleged

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