ATTRIBUTES OF THE PATNERSHIP
operation of the quarry with spouses Cruz.
YU VS NLRC
(old partnership to new partnership)
FACTS:
Petitioner Benjamin Yu was formerly the
Assistant General Manager of the marble
quarrying and export business operated by a
registered partnership with the firm name of
"Jade Mountain Products Company Limited"
("Jade Mountain").
The partnership was originally organized on 28
June 1984 with Lea Bendal and Rhodora Bendal
as general partners and Chin Shian Jeng,
Chen Ho-Fu and Yu Chang, all citizens of the
Republic of China (Taiwan), as limited
partners.
The partnership business consisted of
exploiting a marble deposit found on land owned
by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province, under a
Memorandum Agreement dated 26 June 1984
with the Cruz spouses. 1 The partnership had its
main office in Makati, Metropolitan Manila.
Petitioner was hired as Asst General Manager,
monthly salary of 4K. however, accg to him, he
only receives half of his salary, as partners
promised the balance when they got the
operating funds from abroad. He managaed the
operations and finances of the business; had
overall supervision of the workers in marble
quarry in Bulacan.
1988, without petitioner knowledge, general
partners transferred their interests in the
partnership to PR Willy CO and Zapanta.
One limited partner also sold his interest to Co.
PR continued to use the old firm name Jade
Mountain, transferred the principal office from
Manila to MAndaluyong.
Memorandum was entered into for the
Operations continued just like the same, and all
of the employees of the partners continued
working in the business.
Due to the transfer of office, petitioner
reported in Mandaluyong, met Co for the first
time.
Petitioner was in fact not allowed to work
anymore in the Jade Mountain business
enterprise. His unpaid salaries remained
unpaid.3
Petitioner then filed a complaint for illegal
dismissal and recovery of unpaid salaries from
Nov 1984-Oct 1988, moral and exemplary
damages against Jade Mountain, Co, and other
PR.
PR CONTENTION: The partnership and Willy Co
denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an
employee by the present or new partnership.
LA decided petitioner was illegally dismissed,
ordered reinstatement and damages.
NLRC reversed the decision. The NLRC held
that a new partnership consisting of Mr. Willy Co
and Mr. Emmanuel Zapanta had bought the
Jade Mountain business, that the new
partnership had not retained petitioner Yu in
his original position as Assistant General
Manager, and that there was no law requiring
the new partnership to absorb the employees of
the old partnership. Benjamin Yu, therefore, had
not been illegally dismissed by the new
partnership which had simply declined to retain
him in his former managerial position or any
other position.
NLRC held that petitioner should assert his
action against the original members of the
partnership.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 1
Petitioner contention: Such independent legal
personality subsists, petitioner claims,
notwithstanding changes in the identities of the
partners. Consequently, the employment
contract between Benjamin Yu and the
partnership Jade Mountain could not have
been affected by changes in the latter's
membership.
ISSUE:
(1) whether the partnership which had hired
petitioner Yu as Assistant General Manager had
been extinguished and replaced by a new
partnerships composed of Willy Co and
Emmanuel Zapanta; and
(2) if indeed a new partnership had come into
existence, whether petitioner Yu could
nonetheless assert his rights under his
employment contract as against the new
partnership.
HELD:
FIRST ISSUE
We agree with the result reached by the NLRC,
that is, that the legal effect of the changes in the
membership of the partnership was the
dissolution of the old partnership which had
hired petitioner in 1984 and the emergence of a
new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
The applicable law in this connection — of which
the NLRC seemed quite unaware — is found in
the Civil Code provisions relating to
partnerships. Article 1828 of the Civil Code
provides as follows:
Art. 1828. The dissolution of a partnership is the
change in the relation of the partners caused by
any partner ceasing to be associated in the
carrying on as distinguished from the winding
up of the business.
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between
the partners;
(b) by the express will of any partner, who must
act in good faith, when no definite term or
particular undertaking is specified;
The acquisition of 82% of the partnership
interest by new partners, coupled with the
retirement or withdrawal of the partners who
had originally owned such 82% interest, was
enough to constitute a new partnership.
The occurrence of events which precipitate the
legal consequence of dissolution of a
partnership do not, however, automatically
result in the termination of the legal
personality of the old partnership. Article
1829 of the Civil Code states that:
[o]n dissolution the partnership
is not terminated, but continues
until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal
personality of the expiring partnership
persists for the limited purpose of winding
up and closing of the affairs of the
partnership.
What is important for present purposes is that,
under the above described situation, not only the
retiring partners (Rhodora Bendal, et al.)
but also the new partnership itself which
continued the business of the old, dissolved,
one, are liable for the debts of the preceding
partnership.
The liability of the new partnership, upon the
other hand, in the set of circumstances obtaining
in the case at bar, is established in Article 1840
of the Civil Code.
(3) When any Partner retires or dies and the
business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this
Article, with the consent of the retired partners or
the representative of the deceased partner, but
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 2
without any assignment of his right in
partnership property;
(4) When all the partners or their representatives
assign their rights in partnership property to one
or more third persons who promise to pay the
debts and who continue the business of the
dissolved partnership;
The liability of a third person becoming a partner
in the partnership continuing the business, under
this article, to the creditors of the dissolved
partnership shall be satisfied out of the
partnership property only, unless there is a
stipulation to the contrary.
Under Article 1840 above, creditors of the old
Jade Mountain are also creditors of the new
Jade Mountain which continued the business of
the old one without liquidation of the partnership
affairs. Indeed, a creditor of the old Jade
Mountain, like petitioner Benjamin Yu in
respect of his claim for unpaid wages, is entitled
to priority vis-a-vis any claim of any retired or
previous partner insofar as such retired partner's
interest in the dissolved partnership is
concerned.
The non-retention of Benjamin Yu as Assistant
General Manager did not therefore constitute
unlawful termination, or termination without just
or authorized cause. We think that the precise
authorized cause for termination in the case at
bar was redundancy. 10 The new partnership
had its own new General Manager, apparently
Mr. Willy Co, the principal new owner himself,
who personally ran the business of Jade
Mountain.
The treatment (including the refusal to honor his
claim for unpaid wages) accorded to Assistant
General Manager Benjamin Yu was so summary
and cavalier as to amount to arbitrary, bad faith
treatment, for which the new Jade Mountain may
legitimately be required to respond by paying
moral damages.
Benjamin Yu is entitled to unpaid wages,
separation and atty’s fees.
LYONS vs ROSENSTOCK (1932)
FACTS:
Prior to his death, Henry Welser is a resident of
city of Manila where he was engaged in buy and
sell and administer real estate.
In several ventures, plaintiff Lyons joined him,
the profits being shared by the two equally.
Plaintiff’s regular vocation was as a missionary
of Methodist Episcopal Church, went to US for
nearly a year and a half. Eve of his departure,
ELSER made a writtern statements showing that
Lyons was half owner with him of three parcels
of real property.
Concurrently with this act Lyons execute in favor
of Elser a general power of attorney
empowering him to manage and dispose of said
properties at will and to represent Lyons fully
and amply, to the mutual advantage of both.
While Lyons was away, 2 of the properties were
sold, leaving one property in Carriedo St,
Manila, with 282 sq m with improvements (SAN
JUAN ESTATE).
1920, Elser drawn his attention to a piece of
land, 1,500,000 sq m, discerned opportunity for
the promotion and development of a suburban
development. The owner offered that land for
P570,000
To afford a little time for maturing his plans,
Elser purchased an option on this property for
P5,000, and when this option was about to
expire without his having been able to raise the
necessary funds, he paid P15,000 more for an
extension of the option, with the understanding
in both cases that, in case the option should be
exercised, the amounts thus paid should be
credited as part of the first payment.
Later on, he was able to acquire the said estate.
First payment was P150k, he has 120K plus the
previous 20K, and obtained a loan for 50K.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 3
Loan was obtained from a Chinese merchant of
the city named Uy Siuliong. Lon was secured
through son of the lender and in order to get the
money it was necessary for Elser not only to
give a personal note signed by himself and his
two associates in the projected enterprise, but
also by the Fidelity & Surety Company
June 28, 1920, he was able to purchase the
San Juan property.
For the purpose of the further development of
the property a limited partnership had, about this
time, been organized by Elser and three
associates, under the name of J. K. Pickering &
Company; and when the transfer of the property
was effected the deed was made directly to
this company. As Elser was the principal
capitalist in the enterprise he received by far the
greater number of the shares issued, his portion
amount in the beginning to 3,290 shares.
While negotiations are going, Elser hoped Lyons
might be induced to come in with him and supply
part of the means necessary.
May 1920, Elser made a letter to Lyons for an
offer for a big subdivision
June 3, 1920, 8 days before the first option to
buy expires, E cabled L to leave his work in New
York.
Summer of 1920, Lyons went back to Manila,
resumed to his position as managing teasurer
and one of its trustees.
One source of embarrassment which had
operated on Lyson to bring him to the
resolution to stay out of this venture, was
that the board of mission was averse to his
engaging in business activities other than those
in which the church was concerned; and some
of Lyons' missionary associates had apparently
been criticizing his independent commercial
activities.
Accg to the books, E was indebted to Lyons of
11,669, accrued to L from profits and earnings
derived from profits.
and when the J. K. Pickering & Company was
organized and stock issued, Elser indorsed to
Lyons 200 of the shares allocated to himself, as
he then believed that Lyons would be one of his
associates in the deal. It will be noted that the
par value of these 200 shares was more than
P8,000 in excess of the amount which Elser
in fact owed to Lyons.
L then sold the shares for his own benefit.
We should perhaps add that after Lyons' return
to the Philippine Islands he acted for a time as
one of the members of the board of directors of
the J. K. Pickering & Company, his qualification
for this office being derived precisely from the
ownership of these shares.
We now turn to the incident which supplies the
main basis of this action. It will be remembered
that, when Elser obtained the loan of P50,000 to
complete the amount needed for the first
payment on the San Juan Estate, the lender, Uy
Siuliong, insisted that he should procure the
signature of the Fidelity & Surety Co. on the note
to be given for said loan. But before signing the
note with Elser and his associates, the Fidelity &
Surety Co. insisted upon having security for the
liability thus assumed by it. To meet this
requirements Elser mortgaged to the Fidelity &
Surety Co. the equity of redemption in the
property owned by himself and Lyons on
Carriedo Street. This mortgage was executed on
June 30, 1920, at which time Elser expected that
Lyons would come in on the purchase of the
San Juan Estate. But when he learned from the
letter from Lyons of July 21, 1920, that the latter
had determined not to come into this deal, Elser
began to cast around for means to relieve the
Carriedo property of the encumbrance which he
had placed upon it. For this purpose, on
September 9, 1920, he addressed a letter to the
Fidelity & Surety Co., asking it to permit him to
substitute a property owned by himself at 644 M.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 4
H. del Pilar Street, Manila, and 1,000 shares of Lyons tells us that he did not know until after
the J. K. Pickering & Company, in lieu of the Elser's death that the money obtained from Uy
Carriedo property, as security. The Fidelity & Siuliong in the manner already explained had
Surety Co. agreed to the proposition; and on been used to held finance the purchase of the
September 15, 1920, Elser executed in favor San Juan Estate.
of the Fidelity & Surety Co. a new mortgage
on the M. H. del Pillar property and delivered the ISSUE:
same, with 1,000 shares of J. K. Pickering &
WON LYONS CAN BE CONSIDERED AS A
Company, to said company. The latter
PARTNER BEING HALF OWNER OF THE
thereupon in turn executed a cancellation of the
MORTGAGED PROPERTY CARRIEDO
mortgage on the Carriedo property and
delivered it to Elser.
NO. Of course, if an actual relation of
But notwithstanding the fact that these partnership had existed in the money used, the
case might be difference; and much emphasis is
documents were executed and delivered, the
laid in the appellant's brief upon the relation of
new mortgage and the release of the old partnership which, it is claimed, existed. But
were never registered; and on September 25, there was clearly no general relation of
1920, thereafter, Elser returned the cancellation partnership, under article 1678 of the Civil Code.
of the mortgage on the Carriedo property and It is clear that Elser, in buying the San Juan
took back from the Fidelity & Surety Co. the new Estate, was not acting for any partnership
mortgage on the M. H. del Pilar property, composed of himself and Lyons, and the law
cannot be distorted into a proposition which
together with the 1,000 shares of the J. K. would make Lyons a participant in this deal
Pickering & Company which he had delivered to contrary to his express determination.
it.
It seems to be supposed that the doctrines of
It is also plain that no money actually deriving
equity worked out in the jurisprudence of
from this mortgage was ever applied to the
England and the United States with reference to
purchase of the San Juan Estate. What really
trust supply a basis for this action. The doctrines
happened was the Elser merely subjected the
referred to operate, however, only where money
property to a contingent liability, and no actual
belonging to one person is used by another for
liability ever resulted therefrom. The financing of
the acquisition of property which should belong
the purchase of the San Juan Estate, apart from
to both; and it takes but little discernment to see
the modest financial participation of his three
that the situation here involved is not one for the
associates in the San Juan deal, was the work
application of that doctrine, for no money
of Elser accomplished entirely upon his own
belonging to Lyons or any partnership
account.
composed of Elser and Lyons was in fact used
by Elser in the purchase of the San Juan Estate.
The case for the plaintiff supposes that, when
Elser placed a mortgage for P50,000 upon the
equity of redemption in the Carriedo property,
Lyons, as half owner of said property,
became, as it were, involuntarily the owner of
an undivided interest in the property
acquired partly by that money; and it is
insisted for him that, in consideration of this
fact, he is entitled to the four hundred forty-
six and two-thirds shares of J. K. Pickering &
Company, with the earnings thereon, as
claimed in his complaint.

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 5

CONTRACT OF PARTNERSHIP
YULO VS YANG CHIAO SENG
FACTS:
Defendant Seng wrote a letter to plaintiff Mrs.
Rosario Yulo, proposing the formation of a
partnership between them to run and operate a
theatre on the premises occupied by former
Cine Oro at Plaza Sta. Cruz, Manila.
Principal conditions:
1. Seng guaranteers Mrs. Yulo monthly
participation of 3000 payable quarterly
2. Partnership for a period of 2 years and
six months, July 1945-Dece,ber 31,
1947
3. With condition if the land s expropriated
or if owner constructs a permanent
building, or lease is terminated,
partnership shall be terminated early.
4. that Mrs. Yulo is authorized personally
to conduct such business in the lobby of
the building as is ordinarily carried on in
lobbies of theatres in operation
5. that after December 31, 1947, all
improvements placed by the partnership
shall belong to Mrs. Yulo, but if the
partnership agreement is terminated
before the lapse of one and a half
years period under any of the causes
mentioned in paragraph (2), then Yang
Chiao Seng shall have the right to
remove and take away all improvements
that the partnership may place in the
premises.
Parties then executed partnership agreement,
“Yang Company, Ltd”.
The capital is fixed at P100,000, P80,000 of
which is to be furnished by Yang Chiao Seng
and P20,000, by Mrs. Yulo. All gains and
profits are to be distributed among the partners
in the same proportion as their capital
contribution and the liability of Mrs. Yulo, in case
of loss, shall be limited to her capital
contribution.
June 1946, executed a contract extending the
partnership for three years. Benefits are to be
divided 50-50; after the contract, showhouse
building shall belong exclusively to Mrs. Yulo.
Land was leased by Mrs. Yulo from the owners
Emilia Carrion Santa Marina and Maria Carrion
Santa Marina for an indefinite time, but may be
cancelled after one year by written notice 90
days before the date of cancellation.
April 5, 1949 – attorney notified Mrs. Yulo of the
owner’s desire to cancel the contract of lease on
July 31, 1949.
MTC ordered ejectment of Mrs Yulo and Mr
Yang.
On October 27, 1950, Mrs. Yulo demanded
from Yang Chiao Seng her share in the
profits of the business. Yang answered the
letter saying that upon the advice of his counsel
he had to suspend the payment (of the rentals)
because of the pendency of the ejectment suit
by the owners of the land against Mrs. Yulo.
In this letter Yang alleges that inasmuch as he is
a sublessee and inasmuch as Mrs. Yulo has not
paid to the lessors the rentals from August,
1949, he was retaining the rentals to make good
to the landowners the rentals due from Mrs. Yulo
in arrears.
On refusal of Mr. Yang to pay for the amount
agreed upon, Mrs. Yulo filed an action alleging
the existence of the partnership between them
and that defendant has refused to pay her
share.
And by the termination in 1950, plaintiff became
the absolute owner of the building; that the
defendant has acted maliciously and refuses to
pay the participation of the plaintiff in the profits
of the business amounting to P35,000 from
November, 1949 to October, 1950, and that as a
result of such bad faith and malice on the part of
the defendant, Mrs. Yulo has suffered damages.
DEFENDANT CONTETION: defendant alleges
that the real agreement between the plaintiff and
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 6
the defendant was one of lease and not of
partnership.
That the partnership was adopted as a
subterfuge to get around the prohibition
contained in the contract of lease between the
owners and the plaintiff against the sublease of
the said property.
ISSUE: WON THERE IS CONTRACT OF
PARTNERSHIP BETWEEN THE PARTIES
HELD:
We have gone over the evidence and we fully
agree with the conclusion of the trial court that
the agreement was a sublease, not a
partnership.
The following are the requisites of partnership:
(1) two or more persons who bind themselves to
contribute money, property, or industry to a
common fund;
(2) intention on the part of the partners to divide
the profits among themselves. (Art. 1767, Civil
Code.).
In the first place, plaintiff did not furnish the
supposed P20,000 capital. In the second
place, she did not furnish any help or
intervention in the management of the theatre.
In the third place, it does not appear that she
has ever demanded from defendant any
accounting of the expenses and earnings of the
business. Were she really a partner, her first
concern should have been to find out how the
business was progressing, whether the
expenses were legitimate, whether the earnings
were correct, etc. She was absolutely silent
with respect to any of the acts that a partner
should have done; all that she did was to
receive her share of P3,000 a month, which
can not be interpreted in any manner than a
payment for the use of the premises which
she had leased from the owners. Clearly,
plaintiff had always acted in accordance with the
original letter of defendant of June 17, 1945
(Exh. "A"), which shows that both parties
considered this offer as the real contract
between them.
ELIGIO ESTANISLAO vs COURT OF
APPEALS, REMEDIOS ESTANISLAO, EMILIO
AND LEOCADIO SANTIAGO
FACTS:
Petitioner and PRs are brothers and sisters
who are co-owners of certain lots in Quezon
City, being leased in Shell Philippines Ltd.
They agreed to open and operate a gas station
thereat to be known as Estanislao Shell Service
Station with an initial investment of P 15,000.00
to be taken from the advance rentals due to
them from SHELL for the occupancy of the said
lots owned in common by them.
A joint affidavit was made. Petitioner was
allowed to operate and manage the gasoline
service station for the family.
*T*hey negotiated with SHELL. For practical
purposes and in order not to run counter to the
company's policy of appointing only one dealer,
it was agreed that petitioner would apply for the
dealership. Respondent Remedios helped in
managing the business with petitioner from May
3, 1966 up to February 16, 1967.
**On May 26, 1966, the parties herein entered
into an Additional Cash Pledge Agreement with
SHELL wherein it was reiterated that the P
15,000.00 advance rental shall be deposited
with SHELL to cover advances of fuel to
petitioner as dealer with a proviso that said
agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-
owners."
Petitioner submitted financial statements
regarding the operation of the business to PR,
but petitioner failed to render accounting, so Atty
Angeles demanded to render accounting on
profits.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 7
Dec 31, 1968, shows that business was able to
make profit of P87, 293, and end of 1969, P150k
was realized.
1970, PR filed a complaint against petitioner that
latter be ordered: 1) to execute public instrument
embodying all provisions of the partnership
agreement between parties; 2) render formal
accounting of business operation; 3) to pay
private respondents proper shares and
participation.
Hon. Lino Anover rendered judgment dismissing
the complaint and counterclaim and ordering PR
to pay 3000 attys fees.
PR filed an appeal, Hon. Tensuan set aside
decision, rendered another in favor of PR.
Until it reached the SC.
PETITIONER CONTENTION: relied heavily in
the Joint Affidavit.
(1) That we are the Lessors of two parcels of
land fully describe in Transfer Certificates of
Title Nos. 45071 and 71244 of the Register of
Deeds of Quezon City, in favor of the LESSEE -
SHELL COMPANY OF THE PHILIPPINES
LIMITED a corporation duly licensed to do
business in the Philippines;
(the facts above)
In the Additional Cash Pledge Agreement:
WHEREAS, CO-OWNER Eligio Estanislao Jr. is
the Dealer of the Shell Station constructed on
the leased land, and as Dealer under the Cash
Pledge Agreement dated llth May 1966, he
deposited to SHELL in cash the amount of
PESOS TEN THOUSAND (P 10,000), Philippine
Currency, to secure his purchase on credit of
Shell petroleum products; . . .
The CO-OWNERS dohere by waive in favor of
DEALER the monthly rentals due to all CO-
OWNERS, collectively, under the above
describe two Lease Agreements,
The above stated monthly rentals accumulated
shall be treated as additional cash deposit by
DEALER to SHELL, thereby in increasing his
credit limit from P 10,000 to P 25,000. This
agreement, therefore, cancels and supersedes
the Joint affidavit dated 11 April 1966 executed
by the CO-OWNERS.
In the aforesaid Joint Affidavit of April 11, 1966
(Exhibit A), it is clearly stipulated by the
parties that the P 15,000.00 advance rental
due to them from SHELL shall augment their
"capital investment" in the operation of the
gasoline station, which advance rentals shall
be credited as rentals from May 25, 1966 up to
four and one-half months or until 10 October
1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional
Cash Pledge Agreement" above reproduced
(Exhibit 6), the private respondents and
petitioners assigned to SHELL the monthly
rentals due them commencing the 24th of May
1966 until such time that the monthly rentals
accumulated equal P 15,000.00 which private
respondents agree to be a cash deposit of
petitioner in favor of SHELL to increase his
credit limit as dealer. As above-stated it provided
therein that "This agreement, therefore,
cancels and supersedes the Joint Affidavit
dated 11 April 1966 executed by the CO-
OWNERS."
PETITIONER CONTENTION: because of the
cancellation, partnership agreement has been
abrogated.
NO MERIT.
Said cancelling provision was necessary for the
Joint Affidavit speaks of P 15,000.00 advance
rentals starting May 25, 1966 while the latter
agreement also refers to advance rentals of the
same amount starting May 24, 1966. There is,
therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 8
subsequent document that it "cancels and
supersedes" the previous one. True it is that
in the latter document, it is silent as to the
statement in the Joint Affidavit that the P
15,000.00 represents the "capital investment"
of the parties in the gasoline station business
and it speaks of petitioner as the sole dealer,
but this is as it should be for in the latter
document SHELL was a signatory and it
would be against its policy if in the
agreement it should be stated that the
business is a partnership with private
respondents and not a sole proprietorship of
petitioner.
As to the issue of Partnership
 Petitioner gave a written authority to
private respondent Remedies
Estanislao, his sister, to examine and
audit the books of their "common
business' aming negosyo).
 Respondent Remedios assisted in the
running of the business. There is no
doubt that the parties hereto formed a
partnership when they bound
themselves to contribute money to a
common fund with the intention of
dividing the profits among themselves.
 The sole dealership by the petitioner
and the issuance of all government
permits and licenses in the name of
petitioner was in compliance with the
afore-stated policy of SHELL and the
understanding of the parties of
having only one dealer of the SHELL
products.
EVANGELISTA vs COLLECTOR OF
INTERNAL REVENUE, CTA
FACTS:
That petitioners borrowed from their father with
sum of P59,140, which amount with their
personal money, for purpose of buying real
properties.
That on February 2, 1943, they bought from Mrs.
Josefina Florentino a lot with an area of
3,713.40 sq. m. including improvements thereon
from the sum of P100,000.00; this property has
an assessed value of P57,517.00 as of 1948
That on April 3, 1944 they purchased from Mrs.
Josefa Oppus 21 parcels of land with an
aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this
property has an assessed value of P82,255.00
as of 1948;
That on April 28, 1944 they purchased from the
Insular Investments Inc., a lot of 4,353 sq. m.
including improvements thereon for
P108,825.00. This property has an assessed
value of P4,983.00 as of 1948;
That on April 28, 1944 they bought form Mrs.
Valentina Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.34. This
property has an assessed value of P59,140.00
as of 1948;
1945, they appointed their brother Simeon to
manage their properties with full power to lease,
collect and receive rents, issue receipts, in
default, to bring suits.
After being brought all properties, had the same
rented or leased to various tenants.
1945: net rental was 5, 948.
1946: net rental 7, 498
1948: net rental 12, 615
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 9
1954, Collector of Internal Revenue demanded
payment of income tax on corporations, real
estate dealer’s fixed tax and corporation
residence tax.
Said letter of assessments were delivered to
petitioners, whereupon they instituted the presnt
case, decision be reversed and that they be
absolved from payment of the taxes in question.
ISSUE:
whether petitioners are subject to the tax on
corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise
known as the National Internal Revenue
Code, as well as to the residence tax for
corporations and the real estate dealers fixed
tax.
HELD:
Tax on corporation includes the terms
“corporation” and “partnership”.
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. YES.
We (SC) are fully satisfied that their purpose
was to engage in real estate transactions for
monetary gain and then divide the same among
themselves.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 10
1. they jointly borrowed a substantial
portion in order to establish said
common fund.
2. They invested the same, not merely not
merely in one transaction, but in
a series of transactions
3. The aforesaid lots were not devoted to
residential purposes, or to other
personal uses, of petitioners herein. The
properties were leased separately to
several persons, who, from 1945 to
1948 inclusive, paid the total sum of
P70,068.30 by way of rentals.
4. Since August, 1945, the properties have
been under the management of one
person, namely Simeon Evangelista,
with full power to lease, to collect rents,
to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and
deposit notes and checks. Thus, the
affairs relative to said properties have
been handled as if the same belonged
to a corporation or business and
enterprise operated for profit.
5. Conditions have existed for more
than 10 years, to be exact 15 yrs, and
12 years under the management of
Simeon.
Petitioners insist, however, that they are mere
co-owners, not copartners, for, in consequence
of the acts performed by them, a legal entity,
with a personality independent of that of its
members, did not come into existence, and
some of the characteristics of partnerships are
lacking in the case at bar. This pretense was
correctly rejected by the Court of Tax
Appeals.
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
other, joint accounts, (cuentas en participation)"
and "associations," none of which has a legal
personality of its own, independent of that of its
members.
For purposes of the tax on corporations, our
National Internal Revenue Code, includes
these partnerships — with the exception only
of duly registered general copartnerships —
within the purview of the term
"corporation." It is, therefore, clear to our
mind that petitioners herein constitute a
partnership, insofar as said Code is
concerned and are subject to the income tax
for corporations.
Lastly, the records show that petitioners have
habitually engaged in leasing the properties
above mentioned for a period of over twelve
years, and that the yearly gross rentals of said
properties from June 1945 to 1948 ranged from
P9,599 to P17,453. Thus, they are subject to the
tax provided in section 193 (q) of our National
Internal Revenue Code, for "real estate dealers.”
'Real estate dealer' includes any person
engaged in the business of buying, selling,
exchanging, leasing, or renting property or
his own account as principal and holding
himself out as a full or part time dealer in real
estate or as an owner of rental property or
properties rented or offered to rent for an
aggregate amount of three thousand pesos or
more a year. . . (emphasis supplied.)
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 11
LORENZO ONA AND HEIRS OF BUNALES vs
COMMISSIONER OF INTERNAL REVENUE
FACTS
Lorenzo Ona and 5 children were the heirs of
Julia Bunales. A case was instituted for the
settlement of her estate, Lorenzo as
administrator.
The project of partition shows that heirs have ½
interest in ten parcels of land with total assessed
value of P17,590 and undetermined amount to
be collected from War Damage Commission.
They then received 50,000, but was not divided
among them., but used for rehabilitation of
properties owned by them in common.
2 out of 10 parcels were acquired after the death
of decedent with money borrowed from the Phil
Trust Company amount of P72,173.
The project of partition also shows that the
estate shares equally with Lorenzo T. Oña, the
administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by
the latter with the approval of the Court.
Although project of partition was approved, no
attempt was made to divide the properties
therein listed.
Instead, the properties remained under the
management of Lorenzo T. Oña who used
said properties in business by leasing or selling
them and investing the income derived
therefrom and the proceeds from the sales
thereof in real properties and securities.
Petitioners’ properties and investment gradually
increased from 105K to 480K.
Books of account kept by Ona where
corresponding shares of the petitioners in
the net income are known.
Petitioners returned income tax purposes their
share in net income every year.
However, petitioners did not actually receive
their shares in the yearly income.
Income was left in the hands of Lorenzo Ona,
as heretofore pointed out, invested them in
real properties and securities.
Based on the facts, respondent CIR decided that
petitioners formed an unregistered partnership,
therefore, subject to corporate income tax.
Respondent assessed against petitioners 8K
and 13, 889 as corporate income tax.
Petitioners then protested against the
assessment and asked for reconsideration of the
ruling of the respondent.
ISSUE: WON THERE IS AN UNREGISTERED
PARTNESHIP FORMED AMONG THE HEIRS
OF JULIA BUNALES
HELD:
petitioners' predecessor in interest died way
back on March 23, 1944 and the project of
partition of her estate was judicially approved as
early as May 16, 1949, and presumably
petitioners have been holding their respective
shares in their inheritance since those dates
admittedly under the administration
management of the head of the family, the
widower and father Lorenzo T. Oña, the
assessment in question refers to the later
years 1955 and 1956.
IN 1944-1954, respondent treated petitioners as
co-owners, not liable to corporate tax, and it was
only in 1955 he considered petitioners formed
partnership.
Indeed, it is admitted that during the material
years herein involved, some of the said
properties were sold at considerable profit, and
that with said profit, petitioners engaged, thru
Lorenzo T. Oña, in the purchase and sale of
corporate securities. It is likewise admitted that
all the profits from these ventures were divided
among petitioners proportionately in accordance
with their respective shares in the inheritance. In
these circumstances, it is Our considered view
that from the moment petitioners allowed not
only the incomes from their respective
shares of the inheritance but even the
inherited properties themselves to be used
by Lorenzo T. Oña as a common fund in
undertaking several transactions or in
business, with the intention of deriving profit to
be shared by them proportionally, such act was
tantamount to actually contributing such
incomes to a common fund and, in effect, they
thereby formed an unregistered partnership
within the purview of the above-mentioned
provisions of the Tax Code.
Before the partition and distribution of the estate
of the deceased, all the income thereof does
belong commonly to all the heirs, obviously,
without them becoming thereby unregistered co-
partners, but it does not necessarily follow that
such status as co-owners continues until the
inheritance is actually and physically distributed
among the heirs, for it is easily conceivable that
after knowing their respective shares in the
partition, they might decide to continue holding
said shares under the common management of
the administrator or executor or of anyone
chosen by them and engage in business on that
basis. Withal, if this were to be allowed, it would
be the easiest thing for heirs in any inheritance
to circumvent and render meaningless Sections
24 and 84(b) of the National Internal Revenue
Code.
or
As already indicated, for tax purposes, the co-
ownership of inherited properties is
automatically converted into an unregistered
partnership the moment the said common
properties and/or the incomes derived
therefrom are used as a common fund with
intent to produce profits for the heirs in
proportion to their respective shares in the
inheritance as determined in a project
partition either duly executed in an
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 12
extrajudicial settlement or approved by the
court in the corresponding testate or
intestate proceeding.
From the moment of such partition, the heirs
are entitled already to their respective
definite shares of the estate and the incomes
thereof, for each of them to manage and
dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly
he becomes liable individually for all taxes in
connection therewith. If after such partition, he
allows his share to be held in common with
his co-heirs under a single management to
be used with the intent of making profit
thereby in proportion to his share, there can
be no doubt that, even if no document or
instrument were executed for the purpose, for
tax purposes, at least, an unregistered
partnership is formed. This is exactly what
happened to petitioners in this case.
(Evanglista was cited in this case)
In connection with the second ground, it is
alleged that, if there was an unregistered
partnership, the holding should be limited to the
business engaged in apart from the properties
inherited by petitioners. In other words, the
taxable income of the partnership should be
limited to the income derived from the
acquisition and sale of real properties and
corporate securities and should not include
the income derived from the inherited
properties.
Even if we were to yield to the decision of this
Honorable Court that the herein petitioners have
formed an unregistered partnership and,
therefore, have to be taxed as such, it might be
recalled that the petitioners in their individual
income tax returns reported their shares of the
profits of the unregistered partnership. We think
it only fair and equitable that the various
amounts paid by the individual petitioners as
income tax on their respective shares of the
unregistered partnership should be deducted
from the deficiency income tax found by this
Honorable Court against the unregistered
partnership.
And since the period for the recovery of the
excess income taxes in the case of herein
petitioners has already lapsed, it would not
seem right to virtually disregard prescription
merely upon the ground that the reason for the
delay is precisely because the taxpayers failed
to make the proper return and payment of the
corporate taxes legally due from them. In
principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons
who are not exactly above suspicion in their
conduct vis-a-vis their tax obligation to the State.

Besides, as already observed earlier, the

income derived from inherited properties may be
considered as individual income of the
respective heirs only so long as the inheritance
or estate is not distributed or, at least,
partitioned, but the moment their respective
known shares are used as part of the common
assets of the heirs to be used in making profits,
it is but proper that the income of such
shares should be considered as the part of
the taxable income of an unregistered
partnership. This, We hold, is the clear intent of
the law.

IN THE THIRD GROUND

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 13


MARIANO PASCUAL, RENATO DRAGON VS
CIR
FACTS:
The distinction between co-ownership and
an unregistered partnership or joint venture
for income tax purposes is the issue in this
petition.
1965, petitioners bought two parcels of land
from Santiago Bernardino, and 1966 bought
another 3 parcels of land from Juan Roque.
The first two parcels of land were sold by
petitioners in 1968 to Marenir Development
Corporation, while the three parcels of land
were sold by petitioners to Erlinda Reyes and
Maria Samson on March 19,1970.
They realized profit 1968 – P165k, while 1970
60,000. The corresponding capital gains taxes
were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said
years.
Then acting BIR Commissioner, petitioners were
assessed and required to pay to a total amount
P107K, and alleged deficiency corporate income
taxes for the years 68 and 70.
Petitioners protested, asserting that they had
availed tax amenities way back 1974.
Respondent Commissioner contention:
petitioners as co-owners in the real estate
transactions formed an unregistered
partnership or joint venture taxable as a
corporation under Section 20(b) and its income
was subject to the taxes prescribed under
Section 24, both of the National Internal
Revenue Code 1 that the unregistered
partnership was subject to corporate income tax
as distinguished from profits derived from the
partnership by them which is subject to
individual income tax; and that the availment of
tax amnesty under P.D. No. 23, as amended,
by petitioners relieved petitioners of their
individual income tax liabilities but did not
relieve them from the tax liability of the
unregistered partnership. Hence, the petitioners
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 14
were required to pay the deficiency income tax
assessed.
In the present case, there is no evidence that
petitioners entered into an agreement to
contribute money, property or industry to a
common fund, and that they intended to
divide the profits among themselves.
Respondent commissioner and/ or his
representative just assumed these conditions to
be present on the basis of the fact that
petitioners purchased certain parcels of land and
became co-owners thereof.
In Evangelista, there was a series of
transactions where petitioners purchased
twenty-four (24) lots showing that the purpose
was not limited to the conservation or
preservation of the common fund or even the
properties acquired by them. The character of
habituality peculiar to business transactions
engaged in for the purpose of gain was
present.
In the instant case, petitioners bought two (2)
parcels of land in 1965. They did not sell the
same nor make any improvements thereon. In
1966, they bought another three (3) parcels of
land from one seller. It was only 1968 when they
sold the two (2) parcels of land after which they
did not make any additional or new purchase.
The remaining three (3) parcels were sold by
them in 1970. The transactions were isolated.
The character of habituality peculiar to
business transactions for the purpose of
gain was not present.
In Evangelista, the properties were leased out
to tenants for several years. The business was
under the management of one of the partners.
Such condition existed for over fifteen (15)
years.
None of the circumstances are present in the
case at bar. The co-ownership started only in
1965 and ended in 1970.
It is evident that an isolated transaction whereby
two or more persons contribute funds to buy
certain real estate for profit in the absence of
other circumstances showing a contrary
intention cannot be considered a partnership.
Persons who contribute property or funds for a
common enterprise and agree to share the
gross returns of that enterprise in proportion to
their contribution, but who severally retain the
title to their respective contribution, are not
thereby rendered partners. They have no
common stock or capital, and no community
of interest as principal proprietors in the
business itself which the proceeds derived.
However, as petitioners have availed of the
benefits of tax amnesty as individual taxpayers
in these transactions, they are thereby relieved
of any further tax liability arising therefrom.
JOSE MIGUEL ANTON VS SPSERNESTO
OLIVA AND CORAAZON OLIVA

A joint purchase of land, by two, does not

constitute a co-partnership in respect
thereto; nor does an agreement to share the
profits and losses on the sale of land create
a partnership; the parties are only tenants in
common
In order to constitute a partnership inter sese
there must be:
(a) An intent to form the same;
(b) generally participating in both profits and
losses;
(c) and such a community of interest, as far as
third persons are concerned as enables each
party to make contract, manage the business,
and dispose of the whole property.
The sharing of returns does not in itself establish
a partnership whether or not the persons sharing
therein have a joint or common right or interest
in the property. There must be a clear intent to
form a partnership, the existence of a juridical
personality different from the individual partners,
and the freedom of each party to transfer or
assign the whole property.
This case is about the obligation to continue
complying with the terms of the agreement
despite the court's declaration that no
partnership exist between the parties.
Respondents Ernesto and Corazon
Oliva[1] (the Olivas) filed an action for
accounting and specific performance with
damages against petitioner spouses Jose
Miguel and Gladys Miriam Anton (the Antons)
before the Regional Trial Court (RTC) of Quezon
City.[2] The Olivas alleged that they entered into
three Memoranda of Agreement (MOA)[3] with
Gladys Miriam, their daughter, and Jose Miguel,
their son-in-law, setting up a business
partnership covering three fast food stores,
known as "Pinoy Toppings" that were to be
established at SM Megamall, SM Cubao, and
SM Southmall. Under the MOAs, the Olivas
were entitled to 30% share of the net profits of
the SM Megamall store and 20% in the cases of
SM Cubao and SM Southmall stores.

In the present case, there is clear evidence of Under the MOA covering SM Megamall:
co-ownership between the petitioners. There
is no adequate basis to support the
1. That the net profits, if any, after
proposition that they thereby formed an
deducting the expenses and
unregistered partnership. The two isolated
payments of the principal and
transactions whereby they purchased properties
interest shall be divided in a seventy
and sold the same a few years thereafter did not
percent (70%) for the SECOND
thereby make them partners. They shared in the
PARTY and thirty percent (30%) to
gross profits as co- owners and paid their capital
the FIRST PARTY;
gains taxes on their net profits and availed of the
tax amnesty thereby. Under the circumstances,
2. That the SECOND PARTY,
they cannot be considered to have formed an
particularly JOSE MIGUEL ANTON,
unregistered partnership which is thereby liable
shall have a free hand in running the
for corporate income tax, as the respondent
above-described business without
commissioner proposes.
any interference from his partners,

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 15

 their agents, representatives, or
assigns and should such interference
happens, the SECOND PARTY has
the right to buy back the share of the
FIRST PARTY less the amounts
already paid on the principal and to
dissolve the partnership agreement.
In case the above amount together
with its corresponding interest had
been fully paid and said interference
shall take place, the SECOND PARTY
shall also be entitled to dissolve the
partnership agreement;
3. That the parties agree to strictly
comply with the terms and conditions
of this agreement
SECOND MOA covering SM Cubao:
a. That the First Party shall be considered
a partner with a 20% share in the
above-mentioned outlet to be set up by
the Second Party;
THIRD MOA covering the SM Southmall.
The Olivas alleged that while the Antons gave
them a total of P2,547,000.00 representing
their monthly shares of the net profits from the
operations of the SM Megamall and SM
Southmall stores, the Antons did not give them
their shares of the net profits from the store at
SM Cubao. Further, Jose Miguel did not render
to them an account of the operations of the three
stores. And, beginning November 1997, the
Antons altogether stopped giving the Olivas their
share in the net profits of the three stores. The
Olivas demanded an accounting of
partnership funds but, in response, Jose
Miguel terminated their partnership
agreements.
Jose Miguel contention: that they never
partnered with the Olivas in the operations of the
three stores. Antons merely borrowed from the
Olivas to finance the opening of those
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 16
stores. Gladys, wife of JM, remitted to the
Olivas amount due even after loans had been
paid. Accounting should have been only for
ascertaining correctness of money paid.
They paid the Olivas in checks, representing
their share in the profits of the business. Gladys
Miriam filed a case for legal separation against
her husband, Jose Miguel, prompting the latter
to terminate their business partnership with
her parents.
RTC: no partnership relation existed between
Olivas and Antons. But Jm had an obligation
to render accounting from the start of the
business.
CA affirmed the RTC decision that no
partnership existed. But the CA modified the
RTC decision and
a) deleted the RTC order that directed the
Antons to get an independent accountant,
approved by the Olivas, to do an accounting of
the operations of the three stores
b) directed the Antons to pay the Olivas the
P240,000.00 loan in connection with the third
MOA and net profits.
C) ordered to furnish copy of monthly sales
reports.
ISSUE:
Whether or not the CA erred in holding that,
notwithstanding the absence of a partnership
between the Olivas and the Antons, the latter
have the obligation to pay the former their
shares of the net profits of the three stores plus
legal interest on those shares until they have
been paid.
HELD:
RTC and CA, that based the terms of MOA,
relationship was a debtor-credito relationship.
The finding is sound since, although the MOA
denominated the Olivas as "partners." the
amounts they gave did not appear to be
capital contributions to the establishment of
the stores. Indeed, the stores had to pay the
amounts back with interests.
Moreover, the MOAs forbade the Olivas from
interfering with the running of the stores.
Toppings" stores at SM Southmall, SM
Cubao, and SM Megamall from
November 1997 until the proper
termination of their Memoranda of
Agreement dated May 2, 1992, May 6,
1993, and April 20, 1995.

It did not matter that the Antons had already

paid for two of the loans and their interests.
Their obligation to share net profits with the
Olivas was not extinguished by such
payment. Indeed, the Antons paid the Olivas
their share of the profits from two stores
although the loans corresponding to them had in
the meantime been paid. Only after Jose
Miguel's marital relation with Gladys Miriam
turned sour in November 1997 did he cease
to pay the Olivas their shares of the profits.

The CA also correctly ruled that, since the

Olivas were mere creditors, not partners, they
had no right to demand that the Antons make an
accounting of the money loaned out to them.
Still, the Olivas were entitled to know from
the Antons how much net profits the three
stores were making annually since the Olivas
were entitled to certain percentages of those
profits. Indeed, the third and second MO A
directed the Antons to provide the Olivas with
copies of the monthly sales reports from the
operations of the stores involved, apparently to
enable them to know how much were due them.

1. The legal interest that petitioner Jose

Miguel Anton shall pay respondent
Ernesto Oliva and the substituted heirs
of respondent Corazon Oliva on their
unpaid shares in the net profits of the
"Pinoy Toppings" stores at SM
Southmall, SM Megamall, and SM
Cubao shall be computed at the rate of
6% per annum; and

2. Petitioner Jose Miguel Anton is to

furnish respondent Ernesto Oliva and
the substituted legal heirs of respondent
Corazon Oliva copies of the monthly
sales reports of all three "Pinoy

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 17

FORMAL REQUIREMENTS FOR
PARTNERSHIP
AURELIO K LITONJUA JR vs EDUARDO
LITONJUA SR
FACTS:
Petitioner and respondent are brothers.
Dispute started when Aurelio filed a suit against
his brother and respondent Yang and several
corporations for specific performance and
accounting.
Aurelio alleged that, since June 1973, he and
Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business
which had expanded thru investment in some
enterprises.
Yang is described in the complaint as
petitioner's and Eduardo's partner in their Odeon
Theater investment. Some material averments:
- Aurelio and Eduardo entered
into joint venture/partnership for
continuation of family business
- Contained in the memorandum
- Agreed that in consideration of
retaining A’s share in the
remaining family businesses,
and contributing his industry to
the continued operation of these
businesses, A will be given
P1Million or 10% equity in all
these businesses, and those
acquired, whatever is higher.
- Acquired assets for 28 years
- The substantial assets of most
of the corporate defendants
consist of real properties
- Sometime in 1992, the
relations between [Aurelio]
and Eduardo became sour so
that [Aurelio] requested for an
accounting and liquidation of
his share in the joint
venture/partnership [but
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 18
these demands for complete
accounting and liquidation
were not heeded
- [Aurelio] has reasonable cause
to believe that Eduardo and/or
the corporate defendants as
well as Bobby [Yang], are
transferring . . . various real
properties of the corporations
belonging to the joint
venture/partnership to other
parties in fraud of [Aurelio].
On December 20, 2002, Eduardo and the
corporate respondents, as defendants a
quo, filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material
allegations of the complaint, more particularly
that portion thereof depicting petitioner and
Eduardo as having entered into a contract of
partnership.
For his part, Yang - who was served with
summons long after the other defendants
submitted their answer ' moved to dismiss on the
ground, inter alia, that, as to him, petitioner has
no cause of action and the complaint does not
state any. [8] Petitioner opposed this motion to
dismiss.
2003, Eduardo, et al., filed a Motion to Resolve
Affirmative Defenses. [9] To this motion,
petitioner interposed an Opposition with ex-
Parte Motion to Set the Case for Pre-trial.
Trial court denied affirmative defenses, except
for Yang , set the case for pre-trial. Same court
denied mortion of Eduardo for reconsideration
and Yang’s motion to dismiss.
Following the submission by the parties of their
respective Memoranda of Authorities, the
appellate court came out with the herein
 A partnership exists when two or more persons
assailed Decision dated March 31, 2004,
agree to place their money, effects, labor, and
finding for Eduardo and Yang, as lead skill in lawful commerce or business, with the
petitioners therein, disposing as follows: understanding that there shall be a proportionate
sharing of the profits and losses between
complaint filed by private respondent [now
them. [20] A contract of partnership is defined
petitioner Aurelio] against all the petitioners [now by the Civil Code as one where two or more
herein respondents Eduardo, et al.] with the persons bound themselves to contribute money,
property, or industry to a common fund with the
court a quo is hereby dismissed . intention of dividing the profits among
themselves. [21] A joint venture, on the other
hand, is hardly distinguishable from, and may be
likened to, a partnership since their elements are
similar,i.e., community of interests in the
Explaining its case disposition, the appellate
business and sharing of profits and losses.
court stated, inter alia, that the alleged Being a form of partnership, a joint venture is
partnership, as evidenced by the actionable generally governed by the law on partnership.

documents, Annex ' A and ' A-1 attached to the

complaint, and upon which petitioner solely
predicates his right/s allegedly violated by
Eduardo, Yang and the corporate defendants a
quo is 'void or legally inexistent.
ISSUE:
whether or not petitioner and respondent
Eduardo are partners in the theatre, shipping
and realty business, as one claims but which
the other denies.

In time, petitioner moved for reconsideration but HELD:

his motion was denied by the CA in its equally
assailed Resolution of December
2004. [18] .
Hence, petitioner's present recourse, on the
contention that the CA erred:
A. When it ruled that there was no
partnership created by the actionable
document because this was not a public
instrument and immovable properties
were contributed to the partnership.
Annex ' A-1 ', on its face, contains typewritten
7, entries, personal in tone, but is unsigned and
undated. As an unsigned document, there
can be no quibbling that Annex ' A-1 does
not meet the public instrumentation
requirements exacted under Article 1771 of
the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving
more than P3,000.00 in money or property,
Annex ' A-1 cannot be presented for
notarization, let alone registered with the
Securities and Exchange Commission (SEC), as
called for under the Article 1772 of the Code.
And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the
matter of validity when immovable property is
contributed to the partnership, the next logical
point of inquiry turns on the nature of petitioner's
contribution, if any, to the supposed partnership.

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 19

Lest it be overlooked, the contract-validating
inventory requirement under Article 1773 of the
Civil Code applies as long real property or
real rights are initially brought into the
partnership. In short, it is really of no moment
which of the partners, or, in this case, who
between petitioner and his brother Eduardo,
contributed immovables. In context, the more
important consideration is that real property was
contributed, in which case an inventory of the
contributed property duly signed by the parties
should be attached to the public instrument, else
there is legally no partnership to speak of.
Petitioner contention: immovables are not
contributed , but acquired after the formation of
supposed partnership. For, as earlier stated,
petitioner himself admitted contributing his share
in the supposed shipping, movie theatres and
realty development family businesses which
already owned immovables even before Annex
' A-1 was allegedly executed.
A partnership may be constituted in any form,
save when immovable property or real rights are
contributed thereto or when the partnership has
a capital of at least P3,000.00, in which case a
public instrument shall be necessary. [25]And if
only to stress what has repeatedly been
articulated, an inventory to be signed by the
parties and attached to the public instrument
is also indispensable to the validity of the
partnership whenever immovable property is
contributed to it.
Indeed, because of the failure to comply with
the essential formalities of a valid contract,
the purported 'partnership/joint venture is
legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally
inexistent contract cannot be the source of
any contractual or legal right.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 20
But even assuming in gratia argumenti that
Annex ' A-1 partakes of a perfected innominate
contract, petitioner's complaint would still be
dismissible as against Eduardo and, more so,
against Yang. It cannot be over-emphasized that
petitioner points to Eduardo as the author of
Annex ' A-1 . Withal, even on this consideration
alone, petitioner's claim against Yang is doomed
from the very start.
'As it were, the only portion of Annex ' A-1 which
could perhaps be remotely regarded as vesting
petitioner with a right to demand from
respondent Eduardo the observance of a
determinate conduct.
Lest it be overlooked, petitioner is the
intended beneficiary of the P1 Million or 10%
equity of the family businesses supposedly
promised by Eduardo to give in the near future.
Any suggestion that the stated amount or the
equity component of the promise was intended
to go to a common fund would be to read
something not written in Annex ' A-1.
In sum then, the Court rules, as did the CA, that
petitioner's complaint for specific performance
anchored on an actionable document of
partnership which is legally inexistent or void or,
at best, unenforceable does not state a cause of
action as against respondent Eduardo and the
corporate defendants.
Surely, Yang could not have become a
partner in, or could not have had any form of
business relationship with, an inexistent
partnership.
- Petitioner asserted in his
complaint that his so-called joint
venture/partnership with
Eduardo was 'for the
continuation of their family
business and common family
funds which were theretofore
 being mainly managed by
Eduardo. [33] But Yang denies term 'partner four (4) times. He made reference
kinship with the Litonjua family to the 'law of joint venture/partnership [being
and petitioner has not disputed
the disclaimer. applicable] to the business relationship '
- How, indeed, could a person be between [him], Eduardo and Bobby [Yang] and
considered a partner when the
document purporting to to his 'rights in all specific properties' of their
establish the partnership joint venture/partnership. Given this
contract did not even mention
his name. consideration, petitioner's right of action
- To establish a valid cause of
against respondents Eduardo and Yang
action, the complaint should
have a statement of fact upon doubtless pivots on the existence of the
which to connect [respondent]
Yang to the alleged partnership partnership between the three of them, as
between [petitioner] and purportedly evidenced by the undated and
respondent [Eduardo], including
their alleged investment in the unsigned Annex 'A-1 . A void Annex 'A-1', as' an
Odeon Theater. A statement of actionable document of partnership, would strip
facts on those matters is pivotal
to the complaint as they would petitioner of a cause of action under the
constitute the ultimate facts
premises. A complaint for delivery and
necessary to establish the
elements of a cause of action accounting of partnership property based on
against ' Yang. NOTHING was
established that would such void or legally non-existent actionable
contractually connect document is dismissible for failure to state of
respondent Yang to the alleged
partenship. action.

ANOTHER ISSUE RAISED: Thus, from a joint

venture/partnership theory which he adopted
and consistently pursued in his complaint,
petitioner embraced the innominate contract
theory.

- whether the actionable

document bears out an
actionable contract ' be
it a partnership, a joint
venture or whatever or
some innominate
contract ' It may be
noted that one kind of
innominate contract is
what is known as du ut
facias (I give that you
may do). [37]

Per the Court's own count, petitioner used in his

complaint the mixed words 'joint
venture/partnership nineteen (19) times and the

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 21

EUFRACIO D. ROJAS vs CONSTANCIO B.
MAGLANA
FACTS:
1955, Maglana and Rojas executed their
Articles of Co-Partnership (Exhibit "A") called
Eastcoast Development Enterprises (EDE) with
only the two of them as partners. The
partnership EDE with an indefinite term of
existence was duly registered on January 21,
1955 with the Securities and Exchange
Commission.
One of the purposes of the duly-registered
partnership was to "apply or secure timber
and/or minor forests products licenses and
concessions over public and/or private forest
lands and to operate, develop and promote such
forests rights and concessions."
A duly registered Articles of Co-Partnership was
filed together with an application for a timber
concession in Davao, which was approved and
timber license was duly issued and became
basis of renewals.
Maglana shall manage business affairs of
partnership, marketing handling of cash and is
authorized to sign all papers and instruments,
while appellant Rojas shall be the logging
superintendent and shall manage logging
operations of the partnership. They will also
share profit and losses.
During the period from January 14, 1955 to April
30, 1956, there was no operation of said
partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas
and Maglana decided to avail of the services
of Pahamotang as industrial partner.
1956, Maglana, Rojas and Agustin Pahamotang
executed their Articles of Co-Partnership (Exhibit
"B" and Exhibit "C") under the firm name
EASTCOAST DEVELOPMENT ENTERPRISES
(EDE). Aside from the slight difference in the
purpose of the second partnership which is to
hold and secure renewal of timber license
instead of to secure the license as in the first
partnership and the term of the second
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 22
partnership is fixed to thirty (30) years,
everything else is the same.
An income was derived from the proceeds of the
logs in the sum of P643,633.07.
1956, Pahamotang, Maglana and Rojas
executed a document entitled "CONDITIONAL
SALE OF INTEREST IN THE PARTNERSHIP,
EASTCOAST DEVELOPMENT ENTERPRISE"
(Exhibits "C" and "D") agreeing among
themselves that Maglana and Rojas shall
purchase the interest, share and
participation in the Partnership of
Pahamotang assessed in the amount of
P31,501.12. It was also agreed in the said
instrument that after payment of the sum of
P31,501.12 to Pahamotang including the
amount of loan secured by Pahamotang in favor
of the partnership, the two (Maglana and
Rojas) shall become the owners of all
equipment contributed by Pahamotang and
the EASTCOAST DEVELOPMENT
ENTERPRISES, the name also given to the
second partnership, be dissolved.
Pahamotang was paid in fun on August 31,
1957. No other rights and obligations
accrued in the name of the second
partnership
After the withdrawal of Pahamotang, the
partnership was continued by Maglana and
Rojas without the benefit of any written
agreement or reconstitution of their written
Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a
management contract with another logging
enterprise, the CMS Estate, Inc. He left and
abandoned the partnership.
Rojas withdrew his equipment from the
partnership, was ttransferred to CMS Estate Inc
by way of chattel mortgage.
1957, Maglana wrote Rojas reminding the latter
of his obligation to contribute, either in cash or in
equipment, to the capital investments of the
partnership as well as his obligation to perform
his duties as logging superintendent.
Rojas then told Maglana he will not be able to
comply with the promised contributions and will
not work as logging superintendent.
Maglana then told Rojas that the latter's share
will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or
dispute.
Rojas took funds from the partnership more
than his contribtuon. Then Maglana notified
Rojas that he dissolved the partnership.
Rojas filed an action before the Court of First
Instance of Davao against Maglana for the
recovery of properties, accounting,
receivership and damages
ISSUE:
The main issue in this case is the nature of
the partnership and legal relationship of the
Maglana-Rojas after Pahamotang retired
from the second partnership.
HELD:
Rojas CONTENTION: insists that the registered
partnership under the firm name of Eastcoast
Development Enterprises (EDE) evidenced by
the Articles of Co-Partnership dated January 14,
1955 (Exhibit "A") has not been novated,
superseded and/or dissolved by the
unregistered articles of co-partnership among
appellant Rojas, appellee Maglana and Agustin
Pahamotang, dated March 4, 1956 (Exhibit "C")
and accordingly, the terms and stipulations of
said registered Articles of Co-Partnership
(Exhibit "A") should govern the relations
between him and Maglana. Upon withdrawal of
Agustin Pahamotang from the unregistered
partnership (Exhibit "C"), the legally constituted
partnership EDE (Exhibit "A") continues to
govern the relations between them and it was
legal error to consider a de facto partnership
between said two partners or a partnership at
will.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 23
- That letter of Maglana did not
legally dissolve the registered
partnership between them
- That appellant Rojas is entitled
to the rights enumerated in Art
1837
- and to the sharing profits
between them of "share and
share alike" as stipulated in the
registered Articles of Co-
Partnership
after careful study, it was not the intention of
the parties to dissolve the first partnership,
upon the constitution of the second one.
Except, for those slight differences.
To all intents and purposes therefore, the First
Articles of Partnership were only amended, in
the form of Supplementary Articles of Co-
Partnership (Exhibit "C") which was never
registered (Brief for Plaintiff-Appellant, p. 5).
Otherwise stated, even during the existence of
the second partnership, all business
transactions were carried out under the duly
registered articles. As found by the trial court, it
is an admitted fact that even up to now, there
are still subsisting obligations and contracts
of the latter.
No rights and obligations accrued in the
name of the second partnership except in
favor of Pahamotang which was fully paid by
the duly registered partnership.
Dissolution of the second partnership did
not affect the first partnership which
continued to exist.
(Maglana wrote Rojas to contribute) This
reminder cannot refer to any other but to the
provisions of the duly registered Articles of Co-
Partnership. As earlier stated, Rojas replied that
he will not be able to comply with the promised
contributions and he will not work as logging
superintendent. By such statements, it is
obvious that Roxas understood what
Maglana was referring to and left no room for
doubt that both considered themselves
governed by the articles of the duly
registered partnership.
Under the circumstances, the relationship of in an amount more than his contribution
Rojas and Maglana after the withdrawal of (Decision, R.A., p. 949).
Pahamotang can neither be considered as a De
In the given situation Maglana cannot be said to
Facto Partnership, nor a Partnership at Will, for
be in bad faith nor can he be liable for damages.
as stressed, there is an existing partnership,
duly registered.
As to the question of whether or not Maglana
can unilaterally dissolve the partnership in
the case at bar, the answer is in the
affirmative.
Hence, as there are only two parties when
Maglana notified Rojas that he dissolved the
partnership, it is in effect a notice of
withdrawal.
Under Article 1830, par. 2 of the Civil Code,
even if there is a specified term, one partner
can cause its dissolution by expressly
withdrawing even before the expiration of the
period, with or without justifiable cause. Of
course, if the cause is not justified or no
cause was given, the withdrawing partner is
liable for damages but in no case can he be
compelled to remain in the firm.

And in whatever way he may view the situation,

the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly
registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be
divided "share and share alike" between the
partners.

But an accounting must first be made and which

in fact was ordered by the trial court and
accomplished by the commissioners appointed
for the purpose.

As to whether Maglana is liable for damages

because of such withdrawal, it will be recalled
that after the withdrawal of Pahamotang, Rojas
entered into a management contract with
another logging enterprise, the CMS Estate,
Inc., a company engaged in the same business
as the partnership. He withdrew his equipment,
refused to contribute either in cash or in
equipment to the capital investment and to
perform his duties as logging superintendent, as
stipulated in their partnership agreement. The
records also show that Rojas not only
abandoned the partnership but also took funds

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 24

ANTONIA TORRES AND EMETERIA BARING
VS CA, MANUEL TORRES
FACTS:
Sisters Antonia Torres and Emeteria Baring,
herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres
for the development of a parcel of land into a
subdivision.
Pursuant to the contract, they executed a Deed
of Sale covering the said parcel of land in favor
of respondent, who then had it registered in his
name.
By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was
to be used for the development of the
subdivision.[4] All three of them also agreed to
share the proceeds from the sale of the
subdivided lots.
The project did not push through, and the
land was subsequently foreclosed by the
bank.
According to petitioners, the project failed
because of "respondent's lack of funds or
means and skills." They add that respondent
used the loan not for the development of the
subdivision, but in furtherance of his own
company, Universal Umbrella Company.
On the other hand, respondent alleged that he
used the loan to implement the Agreement.
Respondent claimed that the subdivision project
failed, however, because petitioners and their
relatives had separately caused the annotations
of adverse claims on the title to the land, which
eventually scared away prospective buyers.
Despite his requests, petitioners refused to
cause the clearing of the claims, thereby forcing
him to give up on the project.
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 25
Subsequently, petitioners filed a criminal case
for estafa against respondent and his wife, who
were however acquitted.
Thereafter, they filed the present civil case
which, upon respondent's motion, was later
dismissed by the trial court
CA DECISION: held that petitioners and
respondent had formed a partnership for the
development of the subdivision. Thus, they
must bear the loss suffered by the partnership in
the same proportion as their share in the profits
stipulated in the contract.
"In the absence of stipulation, the share of each
partner in the profits and losses shall be in
proportion to what he may have contributed,
but the industrial partner shall not be liable for
the losses. As for the profits, the industrial
partner shall receive such share as may be just
and equitable under the circumstances. If
besides his services he has contributed capital,
he shall also receive a share in the profits in
proportion to his capital."
ISSUE:
That CA ERRED in concluding that the
transaction x x x between the petitioners and
respondent was that of a joint
venture/partnership
HELD:
Petitioner denied having formed a partnership
with respondent. They contend that Joint
Venture agreement and the earlier deed of sale,
both of which were the bases of the appellate
court, were void.
Because the agreement entitled them to receive
60 percent of the proceeds from the sale of the
subdivision lots, they pray that respondent pay
them damages equivalent to 60 percent of the
value of the property.
Portions of the Joint Venture:
- That the SECOND PARTY, had
received from the FIRST
PARTY, the necessary amount
of TWENTY THOUSAND
(P20,000.00) pesos, Philippine
currency, for their personal
obligations and this particular
amount will serve as an
advance payment from the
FIRST PARTY for the property
mentioned to be sub-divided
and to be deducted from the
sales.
- That the FIRST PARTY, will
not collect from the SECOND
PARTY, the interest and the
principal amount involving the
amount of TWENTY
THOUSAND (P20,000.00)
Pesos, Philippine Currency, until
the sub-division project is
terminated and ready for sale to
any interested parties, and the
amount of TWENTY
THOUSAND (P20,000.00)
pesos, Philippine currency, will
be deducted accordingly
- That the sales of the sub-
divided lots will be divided
into SIXTY PERCENTUM 60%
for the SECOND PARTY and
FORTY PERCENTUM 40% for
the FIRST PARTY,
- That the intended sub-division
project of the property involved
will start the work and all
improvements upon the
adjacent lots will be negotiated
in both parties['] favor and all
sales shall [be] decided by both
parties.
-
A reading of the terms embodied in the
Agreement indubitably shows the existence
of a partnership pursuant to Article 1767 of
the Civil Code,
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 26
Under the above-quoted Agreement, petitioners
would contribute property to the partnership in
the form of land which was to be developed into
a subdivision; while respondent would give, in
addition to his industry, the amount needed for
general expenses and other costs.
Furthermore, the income from the said project
would be divided according to the stipulated
percentage. Clearly, the contract manifested the
intention of the parties to form a partnership.[11]
Thus, petitioners transferred the title to the
land to facilitate its use in the name of the
respondent. On the other hand, respondent
caused the subject land to be mortgaged, the
proceeds of which were used for the survey
and the subdivision of the land. As noted
earlier, he developed the roads, the curbs and
the gutters of the subdivision and entered into a
contract to construct low-cost housing units on
the property.
Respondent's actions clearly belie petitioners'
contention that he made no contribution to the
partnership. (industry was contributed)
Art 1315
It is undisputed that petitioners are educated
and are thus presumed to have understood the
terms of the contract they voluntarily signed. If it
was not in consonance with their expectations,
they should have objected to it and insisted on
the provisions they wanted.
They contend that since the parties did not
make, sign or attach to the public instrument
an inventory of the real property contributed,
the partnership is void.
We clarify. First, Article 1773 was intended
primarily to protect third persons. This will
result in fraud to those who contract with the
partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist.
Thus, the contract is declared void by the law
when no such inventory is made." The case at
bar does not involve third parties who may be expectation that, should the venture come
prejudiced. into fruition, they [would] get sixty percent
of the net profits."
Second, petitioners themselves invoke the
allegedly void contract as basis for their claim
that respondent should pay them 60 percent of
the value of the property.[13] They cannot in one
breath deny the contract and in another
recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and OSCAR ANGELES AND EMERITA ANGELES
courts will not tolerate, much less approve, such VS SEC OF JUSTICE AND FELINO
practice. MERCADO

In short, the alleged nullity of the partnership will

not prevent courts from considering the Joint FACTS:
Venture Agreement an ordinary contract from
which the parties' rights and obligations to each SPS Angeles filed criminal complaint for estafa
other may be inferred and enforced. against Mercado. Mercado is the brother in law
of the spouses, being married to Emerita
Angeles’ sister Laura.
Partnership Agreement Not the Result
of an Earlier Illegal Contract

the Angeles spouses claimed that in November

Petitioners also contend that the Joint Venture
1992, Mercado convinced them to enter into a
Agreement is void under Article 1422[14] of the
contract of antichresis,5 colloquially known
Civil Code, because it is the direct result of an
as sanglaang-perde, covering eight parcels of
earlier illegal contract, which was for the sale of
land.
the land without valid consideration.

The contract of antichresis was to last for five

This argument is puerile. The Joint Venture
Agreement clearly states that the consideration
for the sale was the expectation of profits
from the subdivision project. Its first
stipulation states that petitioners did not actually
receive payment for the parcel of land sold to
respondent. Consideration, more properly
denominated as cause, can take different forms,
such as the prestation or promise of a thing or
service by another.
In this case, the cause of the contract of sale
consisted not in the stated peso value of the
land, but in the expectation of profits from the
subdivision project, for which the land was
intended to be used.
There was therefore a consideration for the
sale, the [petitioners] acting in the
years with ₱210,000 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.6
After 3 years, Angeles asked for an accounting
from Mercado. Mercado said that the subject
land earned P46, 210 in 1993, he used to buy
more lanzones. Tree bore no fruit in 1994.
Mercado gave no accounting in 1995.
Sps after demanding accounting, had put the
contract of sanglaang-perde over the subject
land under Mercado and his spouse’s names.

ESGUERRA DOCTRINES| PARTNERSHIP CASES| 27

Relevant portion of the contract signed by Juana
Suanzo:
- Na alang-alang sa halagang
DALAWANG DAAN AT
SAMPUNG LIBONG PISO
(₱210,000), salaping gastahin,
na aking tinanggap sa mag[-
]asawa nila G. AT GNG.
FELINO MERCADO
- Na ako at ang mag[-]asawa nila
G. AT GNG. FELINO
MERCADO ay nagkasundo na
ako ay bibigyan nila ng LIMA (5)
na [sic] kaing na lanzones taon-
taon sa loob ng LIMA (5) na [sic]
taon ng aming kasunduang ito.
- Na ako at ang mag[-]asawa nila
G. AT GNG. FELINO
MERCADO ay nagkasundo na
silang mag[-]asawa nila G. AT
GNG. FELINO MERCADO ang
magpapaalis ng dapo sa puno
ng lansones taon-taon [sic] sa
loob ng LIMA (5) [sic] taonng
[sic] aming kasunduang ito.8
In his counter-affidavit, Mercado denied the
Angeles spouses’ allegations. Mercado
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. Existed since 1991, before the
contract of antichresis over the subject land.
As the years passed, Mercado used his and his
spouse’s 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.
RULING OF THE PROVINCIAL
PROSECUTION OFFICE
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
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 28
profit would be divided evenly between Mercado
and the Angeles spouses.
Angeles spouses filed an information for estafa
against Mercado. But the Provincial Prosecution
office dismissed the complaint.
Management became the source of
misunderstanding including the accounting of
profits, which led to further misunderstanding
until it was revealed that the contract with the
orchard owner was only with the name of the
respondent, without the names of the
complainants.
RULING OF THE SECRETARY OF JUSTICE
On appeal, Angeles sps 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 ₱210,000
Decision: failed to prove that deliberately
deceived them in the sanglaang perde
transaction. The document alone failed to
convince the court that there was deceit or false
representation on the part of Mercado that
induced Angeles sps to part with their money.
In addition, we are convinced 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.
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 latter’s representation that the
amount shall be applied to the business of their
partnership.
ISSUE:
WON partnership existed between Angeles
and Mercado even without any documentary
proof to sustain its existence.
HELD:
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave
abuse of discretion when the same is performed
in a capricious or whimsical exercise of
judgment amounting to lack of jurisdiction.
The Angeles spouses fail to convince us that
the Secretary of Justice committed grave
abuse of discretion when he dismissed their
appeal. Moreover, the Angeles spouses
committed an error in procedure when they
failed to file a motion for reconsideration of the
Secretary of Justice’s resolution.
A previous motion for reconsideration before
the filing of a petition for certiorari is
necessary unless: (1) the issue raised is one
purely of law; (2) public interest is involved; (3)
there is urgency; (4) a question of jurisdiction is
squarely raised before and decided by the lower
court; and (5) the order is a patent nullity.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses’ position that there is no
partnership because of the lack of a public
ESGUERRA DOCTRINES| PARTNERSHIP CASES| 29
instrument indicating the same and a lack of
registration with the Securities and Exchange
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 partnership’s 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.
Whether there was
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
[Mercado] satisfactorily explained that the
[Angeles spouses] do not want to be revealed as
the financiers."15
Furthermore, accounting of the proceeds is not a
proper subject for the present case.
For these reasons, we hold that the Secretary of
Justice did not abuse his discretion in dismissing
the appeal of the Angeles spouses.
.