PARTNERSHIP Digests  Atty.
Cochingyan
TAN SEN GUAN & CO. VS. PHILIPPINE TRUST
CO.
Facts: Plaintiff Tan Sen Guan & Co. secured a
judgment for a sum of P21,426 against the Mindoro
Sugar Co. of which the Philippine Trust is the trustee.
The plaintiff entered into an agreement with the
defendant Philippine Trust Co. wherein the former
assigned, transferred, and sold to the latter the full
amount of said judgment against Mindoro Sugar Co.
together with all its rights thereto and the latter
offered satisfactory consideration thereto. The
agreement further stipulated that upon signing of the
agreement, Phil Trust shall pay Tan Sen the sum of
P5000; should the Mindoro Sugar be sold or its
ownership be transferred, an additional P10,000
pesos will be paid to Tan Sen upon perfection of the
sale; in case any other creditor of Mindoro Sugar
obtains in the payment of his credit a greater
proportion than the price paid to Tan Sen, the Phil
Trust shall pay to the latter whatever sum may be
necessary to be proportioned the claim of the
creditor. However, if the Mindoro Sugar is sold to any
person who does not pay anything to the creditors or
pay them equal or less than 70 percent of their
claim, or should the creditors obtain from other
sources the payment of their claim equal to or less
than 70 percent, the Phil Trust will only pay to Tan
Senthe additional sum of P10,000 upon the sale or
transfer of the Mindoro Sugar as above stated. The
properties of Mindoro Sugar were later on sold at
public auction to the Roman Catholic Archbishop of
Manila and base on the agreement plaintiff Tan Sen
brought suit against defendant Phil Trust for the sum
of P10,000.
Defendant’s argument: Only a portion of the
Mindoro Sugar’s properties were sold.
CFI: Absolved the defendant on two grounds: (a) in
the contract, it was only bound as a trustee and not
as an individual; (b) that it has not been proved that
all the properties of the Mindoro Sugar had been
sold.
Issues:
(1) W/N the defendant is not personally
responsible for the claim of the plaintiff
based on the deed of assignment because
of having executed the same in its capacity
as trustee of the properties of the Mindoro
Sugar.
(2) W/N all the properties of the Mindoro Sugar
were sold at public auction to the Roman
Catholic Archbishop of Manila.
Held: SC reversed CFI’s ruling.
(1) The Phil Trust Company in its individual capacity
is responsible for the contract as there was no
express stipulation that the trust estate and not
the trustee should be held liable on the contract
in question. Not only is there no express
stipulation that the trustee should not be held
responsible but the ‘Wherefore’ clause of the
contract states the judgment was expressly
assigned in favor of Phil Trust Company and not
Phil Trust Company, the trustee. It therefore
follows that appellant had a right to proceed
directly against the Phil Trust on its contract and
has no claim against either Mindoro Sugar or the
trust estate.
Partnership & Agency | 2B 2008-2009
(2) Exhibit D (the certificate of sale to Roman
Catholic Archbishop) shows that all properties to
Phil Trust as Trustee were included in the sale.
The only thing reserved from the sale was the
standing crops, and it is reasonable to presume
that they had also been sold between the date
of the sale and the institution of this action.
Where the real estate, the personal property
including animals, and all the bills receivable are
sold, it would be a forced construction of the
contract of agreement to hold that the assets of
the Mindoro Sugar Company had not been sold.
PHIL. AIR LINES, INC. VS. HEALD LUMBER CO.
Facts: Lepanto Consolidated Mines chartered a
helicopter belonging to plaintiff Phil. Air Lines to
make a flight from its base at Nichols Field Airport to
the former’s camp at Manyakan Mountain Province.
The helicopter, with Capt. Gabriel Hernandez and Lt.
Rex Imperial on board, failed to reach the destination
as it collided with defendant’s tramway steel cables
resulting in its destruction and death of the officers.
Plaintiff insured the helicopters and the officers who
piloted the same for P80,000 and P20,000
respectively and as a result of the crash, the
insurance companies paid to the plaintiff the total
indemnity of P120,000. Plaintiff sustained additional
damages totaling P103,347.82 which were not
recovered by insurance. The plaintiff instituted this
action against defendant Heald Lumber Company to
recover the sum paid by the insurance company to
the plaintiff and the additional damages which was
not recovered from the insurance.
Defendant’s argument: Plaintiff has no cause of
action against defendant for if anyone should due
defendant for its recovery, it will only be the
insurance companies.
Plaintiff’s argument: It asserts that the claim of
the said amount of P120,000 is on behalf and for the
benefit of the insurers and shall be held by plaintiff in
trust for the insurers. It is appellant’s theory that,
inasmuch as the loss it has sustained exceeds the
amount of the insurance paid to it by the insurers,
the right to recover the entire loss from the
wrongdoer remains with the insured and so the
action must be brought in its own name as real party
in interest. To the extent of the amount received by
it as indemnity from the insurers, plaintiff would then
be acting as a trustee for them. To support this
contention, appellant cites American authorities.
RTC’s Ruling: The court ordered the plaintiff to
amend its complaint to delete the first allegation that
insurance companies have paid a portion of the
plaintiff’s damages, since the Court believes that the
real parties in interest are the insurance companies
concerned or bring in the insurance companies as
parties plaintiff. And having manifested plaintiff’s
decision not to amend the complaint, such move of
plaintiff amounts to a deletion of the portion objected
to and so the complaint should be deemed limited to
the additional damages.
Issue:
(1) W/N the plaintiff is not the real party in
interest respecting the claim for P120,000.
 PARTNERSHIP Digests  Atty. Cochingyan
Held: SC affirmed the appealed judgment.
(1) In this jurisdiction, we have our own legal
provision which in substance differs from the
American law. Art. 2207 of the NCC provides
that if a property is insured and the owner
receives the indemnity from the insurer the
same is deemed subrogated to the rights of
the insured against the wrongdoer and if the
amount paid by the insurer does not fully
cover the loss, then the aggrieved party is the
one entitled to recover the deficiency. Under
this legal provision, the real party in interest
with regard to the portion of the indemnity
paid is the insurer and not the insured.
(2) Before a person can sue for the benefit of
another under a trusteeship, he must be ‘a
trustee of an express trust.’ The right does not
exist in cases of implied trust, that is, a trust
which may be inferred merely from the acts of
the parties or from other circumstances. Also,
to adopt a contrary rule to what is authorized
by the American statues would be splitting a
cause of action or promoting multiplicity of
suits which should be avoided. Under our
rules, both the insurer and the insured may
join as plaintiffs to press their claims against
the wrongdoer when the same arise out of the
same transaction or event. This is authorized
by section 6, rule 3, of the Rules of Court.
CRISTOBAL VS. GOMEZ
Facts: Epifanio Gomez owned a property which was
sold in a pacto de retro sale to Luis Yangco
redeemable in 5 years, although the period passed
without redemption, the vendee conceded the
vendor the privilege of repurchase. Gomez apply to a
kinsman, Bibiano Bañas, for assistance on a
condition that he will let him have the money if his
brother Marcelino Gomez and his sister Telesfora
Gomez would make themselves responsible for the
loan. The siblings agreed and Bañas advance the
sum of P7000 which was used to repurchase the
property in the names of Marcelino and Telesfora.. A
‘private partnership in participation’ was created
between Marcelino and Telesfora and therein agreed
that the capital of the partnership should consist of
P7000 of which Marcelino was to supply the amount
of P1500 and Telesora the sume of P5500. It was
further agreed that the all the property to be
redeemed shall be named to the two, that Marcelino
should be its manager, that all the income, rent,
produce of the property shall be applied exclusively
to the amortization of the capital employed by the
two parties with its corresponding interest and other
incidental expenses and as soon as the capital
employed, with its interest and other incidental
expenses, shall have been covered, said properties
shall be returned to Epifanio Gomez or his legitimate
children. A year after Epifanio’s death, Telesfora
wanted to free herself from the responsibility which
she had assumed to Bañas and conveyed to
Marcelino her interest and share in the three
properties previously redeemed from Yangco and
both declared dissolved the partnership they
created. With Marcelino as the sole debtor, Bañas
required him to execute a contract of sale of the
three parcels with pacto de retro for the purpose of
securing the indebtedness. Marcelino later on paid
the sum in full satisfaction of the entire claim and
received from Bañas a reconveyance of the three
Partnership & Agency | 2B 2008-2009
parcels. The widow, Paulina Cristobal, and the
children of Epifanio Gomez instituted an action for
the recovery of the three parcels of land from
Marcelino Gomez.
Defendant’s argument: Defendant answered with
a general denial and claimed to be the owner in his
own right of all the property which is the subject of
the action. He further claimed that the trust
agreement was kept secret from Epifanio Gomez,
and that, having no knowledge of it, he could not
have accepted it before the stipulation was revoked.
And that he has the benefit of prescription in his
favor, having been in possession of more than 10
years under the deed which he acquired the sole
right from his sister.
RTC’s ruling: ruled in favor of plaintiffs and found
that the property in question belongs to the plaintiffs,
as co-owners, and ordered the defendant to
surrender the property to them and execute an
appropriate deed of transfer as well as to pay the
cost of the proceeding.
Issue: (1) W/N the dissolution of partnership
between Marcelino and Telesfora destroyed the
beneficial right of Epifanio Gomez in the property.
(2) W/N the partnership agreement of Marcelino
and Telesfora was a donation in favor of
Epifanio or an express trust.
(3) W/N Marcelino Gomez acquired the property
through prescription.
Held: SC declared ownership in favor of plaintiffs.
(1) The fact that one of the two individuals who
have constituted themselves trustees for
the purpose above indicated conveys his
interest in the property to his cotrustee does
not relieve the latter from the obligation to
comply with the trust.
(2) A trust constituted between two contracting
parties for the benefit of a third person is
not subject to the rules governing donations
of real property. The beneficiary of the trust
may demand performance of the obligation
without having formally accepted the
benefit of the trust in a public document,
upon mere acquiescence in the formation of
the trusts and acceptance under the second
par. of article 1257 of the CC. Much energy
has been expanded by the attorneys for the
appellant in attempting to demonstrate
that, if Epifanio at any time had any right in
the property by virtue of the partnership
agreement between Marcelino and Telesfora
such right could be derived as a donation
and that, inasmuch as the donation was
never accepted by Epifanio in a public
document, his supposed interest therein is
unenforceable. The partnership should not
be viewed in light of an intended donation,
but as an express trust.
(3) As against the beneficiary, prescription is
not effective in favor of a person who is
acting as a trustee of a continuing and
subsisting trust. Therefore, Marcelino cannot
acquire ownership over the property
through prescription.
SALAO VS. SALAO
 PARTNERSHIP Digests  Atty. Cochingyan
Facts: After the death of Valentina Ignacio, her estate
was administered by her daughter Ambrosia. It was
partitioned extrajudically and the deed was signed by
her four legal heirs namely her 3 children (Alejandra,
Juan, and Ambrosia) and Valentin Salao, in
representation of his deceased father, Patricio. The
Calunuran fishpond is the property in contention in
this case. Prior to the death of Valentina Ignacio, her
children Juan and Ambrosia secured a torrens title in
their names a 47 ha. fishpond located at Sitio
Calunuran, Lubao, Pampanga. A decree was also
issued in the names of Juan and Ambrosia for the
Pinanganacan fishpond which adjoins the Calunuran
fishpond. A year before Ambrosia’s death, she
donated her one-half share in the two fishponds in
question to her nephew, Juan Salo Jr. He was already
the owner of the other half of the fishponds having
inherited it from his father, Juan Salao Sr. After
Ambrosia died, the heirs of Valentin Salao, Benita
Salao and the children of Victorina Salao, filed a
complaint against Juan Salao Jr. for the
reconveyance to them of the Canluran fishpond as
Valentin Salao’s supposed one – third share in the
145 ha. of fishpond registered in the names of Juan
Salao Sr. and Ambrosia Salao.
Defendant’s argument: Valentin Salao did not
have any interest in the two fishponds and that the
sole owners thereof were his father and his aunt
Ambrosia, as shown in the Torrens titles and that he
was the donee of Ambrosia’s one-half share.
Plaintiff’s argument: Their action is to enforce a
trust which defendant Juan Salao Jr. allegedly
violated. The existence of trust was not definitely
alleged in the plaintiff’s complaint but in their
appellant’s brief.
RTC’s Ruling: There was no community of property
among Juan, Ambrosia and Valentin when the
Calunuran and the Pinanganacan lands were
acquired; that co – ownership over the real
properties of Valentina Ignacio existed among her
heirs after her death in 1914; that the co – ownership
was administered by Ambrosia and that it subsisted
up to 1918 when her estate was partitioned among
her three children and her grandson, Valentin Salao.
It rationalized that Valentin’s omission during his
lifetime to assail the Torrens titles of Juan and
Ambrosia signified that he was not a co-owner of the
fishponds. It did not give credence to the testimonies
of plaintiffs’ witnesses because their memories could
not be trusted and because no strong evidence
supported the declarations. Moreover, the parties
involved in the alleged trust were already dead.
Judgment appealed to CA but the amounts involved
exceeded two hundred thousand pesos, the CA
elevated the case to the SC.
Issue:
(1) W/N plaintiffs’ massive oral evidence
sufficient to prove an implied trust, resulting
or constructive, regarding the two
fishponds.
Held: SC affirmed lower court’s decision.
(1) Plaintiff’s pleading and evidence cannot be
relied upon to prove an implied trust. The
trial court’s firm conclusion that there was
no community of property during the
lifetime of Valentina Ignacio or before 1914
is substantiated by defendant’s
Partnership & Agency | 2B 2008-2009
documentary evidence. There was no
resulting trust in this case because there
never was any intention on the part of Juan,
Ambrosia and Valentin to create any trust.
There was no constructive trust because the
registration of the 2 fishponds in the names
of Juan and Ambrosia was not vitiated by
fraud or mistake. This is not a case where to
satisfy the demands of justice it is
necessary to consider the Calunuran
fishpond as being held in trust by the heirs
of Juan Salao Sr. for the heirs of Valentin
Salao. And even assuming that there was an
implied trust, plaintiffs’ action is clearly
barred by prescription when it filed an
action in 1952 or after the lapse of more
than 40 years from the date of registration.
CARANTES VS. CA
Facts: A proceeding for expropriation was
commenced by the government for the construction
of the Loakan Airport and a portion of Lot 44, which
was originally owned by Mateo Carantes, was needed
for the landing field. The lot was subdivided into Lots
Nos. 44-a (the portion which the government sought
to expropriate), 44-b, 44-c, 44-d and 44-e.
Negotiations were also under way for the purchase
by the government of lots 44-b and 44-c. When
Mateo Carantes died, his son Maximino Carantes was
appointed administrator of the estate and filed a
project of partition of the remaining portion of Lot 44
wherein he listed as the heirs of Mateo Carantes who
were entitled to inherit the estate, himself and his
brothers and sisters. An ‘Assignment of Right to
Inheritance’ was executed by the children of Mateo
and the heirs of Apung Carantes in favor of Maximino
Carantes for a consideration of P1. Maximino sold to
the government lots nos. 44-b and 44-c and divided
the proceeds of the sale among himself and the
other heirs of Mateo. The assignment of right to
inheritance was registered by Maximino and the TCT
in the names of the heirs was cancelled and a new
one was issued in the name of Maximino Carantes as
the sole owner of the remaining portions of lot 44. A
complaint was instituted by the three children of
Mateo and the heirs of Apung Carantes against
Maximino praying that the deed of assignment be
declared null and void and that the remaining
portions of lot 44 be ordered partitioned into six
equal shares and Maximino be accordingly ordered
to execute the necessary deed of conveyance in
favor of the other heirs.
Plaintiffs’ argument: They executed the deed of
assignment only because they were made to believe
by Maximino that the said instrument embodied the
understanding among parties that it merely
authorized the defendant Maximino to convey
portions of lot 44 to the government in their behalf to
minimize expenses and facilitate the transaction and
it was only when they secured a copy of the deed
that they came to know that the same purported to
assign in favor of Maximino their rights to inheritance
from Mateo Carantes.
Defendant’s argument: Filed a motion to dismiss.
The plaintiffs’ cause of action is barred by the statute
of limitations because the deed of assignment was
recorded in the Registry of Property and that
ownership over the property became vested in him
by acquisitive prescription ten years from its
registration in his name of Feb. 21, 1947.
 PARTNERSHIP Digests  Atty. Cochingyan
RTC’s ruling: Ruled in favor of defendant Maximino
Carantes stating that since an action based on fraud
prescribes in four years from the discovery of the
fraud, and in this case the fraud allegedly
perpetrated by defendant must deemed to have
been discovered on march 16, 1940 when the deed
of assignment was registered, the plaintiff’s right of
action had already prescribed when they filed the
action in 1958. And even assuming co-ownership
existed, the same was completely repudiated by the
said defendant by performance pf several acts such
as the execution of deed of sale in favor of the
government in 1939, hence ownership had vested in
the defendant by acquisitive prescription.
CA reversed.
Issue:
(1) W/N the deed of assignment is void ab initio
on the ground of fraud and the action to
annul it has prescribed.
(2) W/N a constructive trust exist making an
action for reconveyance based on
constructive trust imprescriptable.
Held: SC dismissed the complaint and set aside CA’s
decision.
(1) When the consent to a contract was
fraudulently obtained, the contract is
voidable. Fraud or deceit does not render a
contract void ab initio, and can only be a
ground for rendering the contract voidable
or annullable pursuant to article 1390 of the
NCC by a proper action in court. The present
action being one to annul a contract on the
ground of fraud, its prescriptive period is 4
years from the time of discovery of fraud.
The weight og authorities is the effect that
the registration of an instrument in the
Office of the Register of Deeds constitutes a
constructive notice to the whole world, and,
therefore, discovery of fraud is deemed to
have taken place at the time of the
registration. In this case, the deed of
assignment was registered on March 16,
1940. The 4 years period within which the
private respondents could have filed the
present action consequently commenced on
march 16, 1940, and since they filed it only
in September 4, 1958, it follows that the
same is barred by the statute of limitations.
(2) No express trust was created in favor of the
private respondents. If trust there was, it
could only be a constructive trust, which is
imposed by law. In constructive trusts there
is neither promise nor fiduciary relation; the
so called trustee does not recognize any
trust and has no intent to hold the property
for the beneficiary. An action for
reconveyance based on implied or
constructive trust is prescriptable and
prescribes in 10 years. In this case, the ten –
year prescriptive period began on march 16,
1940, when the petitioner registered the
deed of assignment and secured the
cancellation of the certificate of title in the
joint names of the heirs of Mateo Carantes
and, in lieu thereof, the issuance of a new
title exclusively in his name. Since the
present action was commenced only on
Partnership & Agency | 2B 2008-2009
September 4, 1958, the same in barred by
extinctive prescription.
MUNICIPALITY OF VICTORIAS VS. CA
Facts: Norma Leuenberger, respondent, inherited a
parcel of land from her grandmother, Simeona Vda.
de Ditching in 1941. In 1963, she discovered that a
part of the parcel of land was being used by
petitioner Municipality of Victorias as a cemetery. By
reason of the discovery, respondent wrote a letter to
the Mayor of Victorias demanding payment of past
rentals over the land used a cemetery and
requesting delivery of the illegally occupied land by
the petitioner. The Mayor replied that the
municipality bought the land but however refused to
show the papers concerning the sale. Apparently, the
municipality failed to register the Deed of Sale of the
lot in dispute.
Respondent filed a complaint in the Court of
First Instance of Negros Occidental for recovery of
possession of the parcel of land occupied by the
municipal cemetery. In its answer, petitioner
Municipality alleged ownership of the lot having
bought it from Simeona Vda. de Ditching sometime
in 1934. The lower court decided in favor of the
petitioner municipality.
On appeal, petitioner presented an entry in
the notarial register form the Bureau of Records
Management in Manila of a notary public of a sale
purporting to be that of the disputed parcel of land.
Included within it are the parties to the sale, Vda. de
Ditching, as the vendor and the Municipal Mayor of
Victorias in 1934, as vendee. The Court of Appeals
however claimed that this evidence is not a sufficient
Deed of Sale. It therefore reversed the ruling of the
CFI and ordered the petitioner to deliver the
possession of the land in question to respondents.
Issue: W/N the notary public of sale is sufficient to
substantiate the municipality’s claim that it acquired
the disputed land by means of a Deed of Sale. Yes.
Held: The fact that the notary public of sale showed
the nature of the instrument, the subject of the sale,
the parties of the contract, the consideration and the
date of sale, the Court held that it was a sufficient
evidence of the Deed of Sale.
Thus, when Norma inherited the land from
her grandmother, a portion of it has already been
sold by the latter to the Municipality of Victorias in
1934. Her registration of the parcel of land did not
therefore transfer ownership but merely confirmed it.
As the civil code provides, where the land is decreed
in the name of a person through fraud or mistake,
such person is by operation of law considered a
trustee of an implied trust for the benefit of the
persons from whom the property comes.
Consequently, she only held the land in dispute in
trust for the petitioner hence private respondent is in
equity bound to reconvey the subject land to the
cestui que trust, the Municipality of Victorias.
MARIANO VS. DE VEGA
 PARTNERSHIP Digests  Atty. Cochingyan
Facts: Spouses Urbano and Panganiban owned as
conjugal property 29 unregistered parcels of land
during their lifetime. When Urbano died, his
compulsory heirs were the children of Gaudencia, his
child with Panganiban, who are petitioners in this
case, and two other legitimate children, his children
with his second wife, who are the private
respondents in this case.
Petitioners filed a civil case in the CFI for
partition and delivery of possession of certain shares
in the conjugal assets. They contended that private
respondents have excluded them from taking
possession of the whole conjugal property and that
the latter appropriated to themselves the products
coming from the parcels of land. The court ruled in
favor of the private respondents claiming that the
action of the petitioners has already prescribed for
the reason that an implied or constructive trust
prescribes in ten years.
Issue: W/N there is an implied or constructive trust
granted by the petitioners in favor of the
respondents. No.
Held: The Court ruled that the present case does not
fall under the rules of implied trust. Considering the
fact that the parties in this case inherited the land
from the same ancestor, Urbano, both parties are
clearly co-owners of the disputed properties. This
case is therefore governed by the rules on co-
ownership. Under the civil code, prescription does
not run against a co-owner or a co-heir so long as he
expressly or impliedly recognizes the co-ownership.
In view of their lack of a clear repudiation of
the co-ownership, private respondents cannot
acquire the share of the petitioners by prescription.
HEIRS OF CANDELARIA VS. ROMERO
Facts: Parties to this case are the heirs of Emilio
Candelaria as plaintiff and Luisa Romero, and the
heirs of Lucas as defendants.
Emilio and Lucas Candelaria bought a lot on
an installment basis. Lucas paid the first two
installments but because of sickness which caused
him to be bedridden, he sold his share to his brother
Emilio who continued to pay the purchase price until
the obligation to pay had been fully satisfied. The
TCT was however issued under the name of Lucas.
Nevertheless, Lucas acknowledges that he merely
held the title in trust for his brother with the
understanding that “the necessary documents of
transfer will be made later” and this fact was known
not only to him but also to the defendants. However
upon his death, his heirs refused to reconvey the lot
to plaintiff despite repeated demands.
Plaintiff brought an action in the CFI for a
complaint for reconveyance of real property. The
lower court however dismissed the case on the
ground that an express trust, and not an implied
trust, was created and that the action had already
prescribed.
Issue: What kind of trust was created? Express or
implied trust? Implied trust.
Partnership & Agency | 2B 2008-2009
Held: Where the grantee takes the property under
an agreement to convey to another on certain
conditions, a trust results for the benefit of such
other or his heirs. It is also the rule that there is an
implied trust when a person purchases land with his
own money and takes conveyance thereof in the
name of another. In such a case, the property is held
on a resulting trust in favor of the one furnishing the
consideration for the transfer. This kind of trust is
from equity and arises by implication or operation of
law.
In the present case, it is apparent that
Emilio furnished the consideration intending to obtain
a beneficial interest in the property in question.
Having supplied the money, it is presumed that he
intended to purchase the lot for his own benefit.
Moreover, by entering into an agreement with Emilio
that “the necessary documents of transfer will be
made later,” Lucas acknowledged the he merely held
the property in trust for his brother with the
understanding that it will eventually be conveyed to
the plaintiff’s predecessor in interest. Lastly, by
acknowledging the presence of trust, the plaintiff’s
action cannot be said to have been barred by lapse
of time. The case is therefore remanded for further
proceedings.
LAUREANO VS. STEVENSON
Facts: In 1912, Felix Laureano sold to Eugenio
Kilayco a piece of property situated in the City of
Iloilo, and such land was then registered in the
latter’s name. Adjoining such property was another
property belonging to Laureano.
When the cadastral survey was initiated in Iloilo in
1914, Kilayco made proper representations to
confirm the title to his property. Thereafter, title was
issued to him, but later, for some unknown reason,
the certificate was ordered cancelled and a new one
was issued. Then, presumably by mistake, the title
was made to include not only Kilayco’s property but
property belonging to his neighbor, Laureano. The
final decree to his effect was issued in 1916.
Creditors of Kilayco, becoming aware of the
existence of the title to the property, instituted
actions and obtained writs of execution in May 1922.
The sale of the property was set for October 1922. All
the while, Laureano had done nothing to protect his
interests in the property. However, he claims to
have been absent in Spain at the time of the hearing
in the cadastral case and to have known nothing of
it.
On June 1922, Laureano filed a case against Kilayco
to obtain a judgment, declaring him to be the owner
of the parcels of land mistakenly included in the
latter’s title, and ordering the cancellation of the
certificate of title theretofore issued in the name of
Kilayco.
Issue: When property is acquired through mistake,
can the real owner recover such property by virtue of
implied trust?
Trial Court: Since the creditors were not parties to
the action, the cancellation of the annotations on the
certificate of title in favor of the creditors of Kilayco
cannot be sustained.
 PARTNERSHIP Digests  Atty. Cochingyan
Held: It is proper to issue the injunction sought by
the petitioners to stop the sale of the property at
public auction, to annul the levies made on the
property, to obtain the cancellation in the registry of
property of the annotations made, and to secure a
new title for the petitioner without these
encumbrances.
It is important to note that:
1. Kilayco never laid a claim to the property;
2. The two lots covered by the certificate were
mistakenly registered in the name of
Kilayco; and
3. The court did not have jurisdiction to
confirm the title of the two lots for the
reason that no petition for title was filed, no
trial was held, no evidence was presented,
and no judgment was rendered regarding
these two lots in the land registration
proceedings.
Kilayco was, in effect, merely holding the title of the
property in trust of Laureano. The creditors of
Kilayco could acquire no higher or better right than
Kilayco had in the property, which, in this case, was
nothing. Hence, Laureano can rightfully recover the
two parcels of land included in the title of Kilayco
through mistake.
GONZALES v. IAC
Facts: The land in dispute is registered in the name
of Fausto Soy. In 1941, Fausto sold 253 sq. m. to
Francisco Landingin. In 1954, pursuant to a Deed of
Donation executed by Fausto, Antonio Soy (son of
Fausto) and Gregoria Miranda (wife) sold 240 sq. m.
to Juanito Gonzales and Coronacion Ganaden. In
January 1960, Fausto sold another 240 sq. m. to
Gonzales and Ganaden and two days later, a TCT was
issued in favor of Gonzales, indicating his share as
co-owner of 480 sq. m. and Fausto Soy, 240 sq. m. In
1965, Fausto sold another 140 sq. m. to the Gonzales
and Ganaden.
April 1965, Respondents Rosita Lopez, Gavino
Cayabyab, Agueda and Felipa Ubando, Pedro
Soriano, Teosidia Lopez and Federico Ballesteros
(nieces and nephews of Fausto) filed the instant
complaint for partition against Fausto Soy. On the
same day they filed a notice of lis pendens and had it
annotated on the OCT. Fausto answered and
contested plaintiffs claims, asserting exclusive title in
his name. Fausto countered that the questioned land
was never registered in the names of his parents
Eugenio and Ambrosia, and that he had been the
registered owner of the premises since 1932.
On the basis of evidence adduced ex-parte, the Trial
Court held that respondents and Fausto were co-
owners of the lot and ordered the partition thereof.
Parties were enjoined to partition amongst
themselves and were to submit the same to the
lower court for confirmation. Upon execution, the
sheriff was unable to effect apportionment due to a
3rd party claim of Juanito and Coronacion Gonzales,
stating that they were registered owners of 480 sq.
m. of the disputed land. The sheriff noted the various
Partnership & Agency | 2B 2008-2009
improvements petitioners had introduced
(apartment, residential house and piggery). Trial
court allowed petitioners to intervene as
indispensable parties, vacating its previous judgment
and granting a new trial.
Trial Court: There is no proof to show that
petitioners are co-owners of the property in question
because the land has long been covered by an OCT
since 1932 in the name of their predecessor in
interest, Fausto Soy.
CA: Resolved in favor of respondents, declaring that
the sale to intervenor-petitioners did not terminate
the trust relationship between the appellants and the
appellees. The sale in favor of petitioners shall be
enforced against the ¼ share of respondents as heirs
of Fausto.
Issue: Was the disputed land held in trust by Fausto
Soy for his sisters, Emilia, Cornelia and Anastacia
(mothers of herein respondents)?
Ruling: CA decision reversed, order for partition
dismissed.
Fausto, being predecessor-in-interest, had appeared
to be the registered owner of the lot for more than
30 years and his dominical rights can no longer be
challenged. Any insinuation as to the existence of an
implied or constructive trust should not be allowed.
Even assuming there was an implied trust,
respondents attempt at reconveyance is barred by
prescription, which in this case is 10 years, the
period reckoned from the issuance of the adverse
title to the property which operates as a constructive
notice.
The assertion of adverse title, which was an explicit
indication of repudiation of the trust for the purpose
of the statute of limitations, took place when the OCT
was issued in the name of Fausto Soy in 1932, to the
exclusion of his 3 sisters.
Even if there were no repudiation, the rule is that an
action to enforce an implied trust may be
circumscribed not only by prescription but also by
laches—in which case, repudiation is not required.
Respondents had literally slept on their rights
presuming they had any and can no longer dispute
the conclusive and incontrovertible character of
Fausto’s title as they are deemed to have acquiesced
therein.
ADAZA V. CA
Facts: In 1953, Victor Adaza Sr. executed a Deed of
Donation, covering the disputed land in this case,
located in Sinonok, Zamboanga del Norte in favor of
Respondent Violeta. The land being disposable public
land had been held and cultivated by Victor, Sr. With
the help of her brother, Horacio, Violeta filed a
homestead application over the land and a free
patent was issued in 1956. An OCT was issued in
1960. In 1962, Violeta and husband, Lino obtained a
loan from PNB by executing a mortgage on the land,
while Homero Adaza, brother of Violeta remained
administrator of the same.
 PARTNERSHIP Digests  Atty. Cochingyan
In 1971, Horacio invited his brothers and sisters for a
family gathering where he asked Violeta to sign a
Deed of Waiver with respect to the property in
Sinonok. The Deed stated that the land was owned in
common by Violeta and Horacio even though the
OCT was in her name only. The Deed also provided
for the waiver, transfer and conveyance of Violeta to
Horacio of ½ of the property and its improvements.
Violeta and Horacio signed the Deed with Homero as
a witness.
A few months later, Violeta and husband Lino filed a
complaint for annulment of the Deed of waiver and
for damages against Horacio and wife Felisa. The
complaint alleged that (1) she was absolute owner of
the land by virtue of an unconditional donation
executed by her father in her favor; (2) she was
registered owner; (3) she signed the Deed of waiver
because of fraud, misrepresentation and undue
influence; and (4) because of such malicious acts,
she is entitled to damages from Horacio.
Trial Court: Declared Deed of Waiver as valid and
binding upon Violeta, that Horacio was co-owner of
½ of the land, and odering Violeta to pay Horacion
the proceeds of his share.
CA: Reversed Trial court decision, declaring that
though the deed was signed voluntarily, such Deed
was without consideration or cause because the land
had been unconditionally donated to Violeta alone.
Issue: Who owns the disputed parcel of land?
Ruling: Petition granted.
Deed of donation had a crossed-out provision: That
the donee shall share ½ of the entire property with
one of her brothers and sisters after the death of the
donor.
The record is bereft of any indication of any evil
intent or malice on the part of Homero, Victor, Jr. and
Teresita (siblings of Violeta) that would suggest
deliberate collusion against Violeta. Their father had
executed the Deed of Donation with the
understanding that the same would be divided
between Horacio and Violeta and that Violeta had
signed the Deed of Waiver freely and voluntarily.
Victor Adaza, Sr. left 4 parcels of land divided among
the 6 children through the practice of having the
lands acquired by him titled to the name of one of his
children.
The property involved in the instant case is owned in
common by Violeta and brother, Horacio even
though the OCT was only in her name. She held half
of the land in trust for petitioner Horacio—implied
trust based on Article 1449 of the Civil Code:
There is also an implied trust when a donation is
made to person but It appears that although the
legal estate is transmitted to the donee, he
nevertheless is either to have no beneficial interest
of only a part thereof.
The doctrine of laces is not to be applied
mechanically as between near relatives.
ARMAMENTO V. GUERRERO
Partnership & Agency | 2B 2008-2009
Facts: This case involves an action for reconveyance
or for the declaration of an implied trust on Lot No.
974 and for damages.
The disputed land was the subject of 2 Patent
Applications: (1) Free patent filed by Defendant on
Aug 1 1958, issued Jul 1961, OCT issued Feb 1962
and (2) Homestead Patent filed by Plaintiff on Jul 7
1959, approved Jan 1964.
Plaintiff Armamento alleges that he is the possessor-
actual occupant of and Homestead applicant over the
disputed lot. Upon following up his application, he
was shocked to discover that Defendant Guerrero,
through fraud and misrepresentation obtained a Free
Patent over the same land, by falsely stating that he
had continuously possessed the lot since July 1945 or
prior thereto, when in truth defendant was never in
possession.
In his Answer, Guerrero denies that he was not in
possession claiming that he had been in occupation
of said lot and even authorized a certain Macario
Caangay to administer the same while he was
termporarily away for missionary work in Cagayan de
Oro.
Trial Court: Dismissed the case on the following
grounds: (a) Plaintiff has no personality to file the
action for reconveyance—the proper party being the
Republic of the Philippines; (b) Plaintiff has no
cause of action in the absence of privity of contract
between parties; (c) defendant’s title has become
indefeasible and cannot be cancelled; and (d) even
if based on fraud, the action has prescribed.
Issues: Is plaintiff’s action for reconveyance
justified? Was there a trust created?
Ruling: After the lapse of one year, a decree of
registration is no longer open to review or attack,
although its issuance is attended with fraud.
However, an action for reconveyance is still available
for the aggrieved party if the property has not yet
passed to an innocent purchaser for value. This is
exactly what plaintiff has done.
Plaintiff has not been able to prove fraud and
misrepresentation because of the trial court
dismissal. While plaintiff is not the “owner” of the
land, so that, strictly speaking, he has no personality
to file this application, he pleads for equity and
invokes the doctrine of implied trust under Art.
1456 of the Civil Code: If property is acquired
through mistake or fraud, the person obtaining it is,
by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the
property comes.
The doctrine of implied trust may be made to
operate in plaintiff’s favor, assuming that he can
prove his allegation that defendant had acquired
legal title by fraud.
A constructive trust is a trust raised by construction
of law or arising by operation of law. If a person
obtains legal title to property by fraud or
concealment, courts of equity will impress upon the
title a so-called constructive trust in favor of the
defrauded part.
 PARTNERSHIP Digests  Atty. Cochingyan
Action for reconveyance has not prescribed—the
prescriptive period being 10 years. (Title obtained
1962, Suit commenced 1967)
Case is remanded to CFI Cotobato.
RAMOS v RAMOS
Facts: Spouses Martin Ramos and Candida were
survived by three legitimate children: Jose, Agustin
and Granada. Martin was also survived by 7 natural
children. A special proceeding was instituted for the
settlement of the estate of said spouses. Rafael,
brother of Martin was appointed administrator. A
project of partition was submitted and the conjugal
hereditary estate was appraised at P74,984.93. It
consisted of 18 parcels of land, some head cattle and
advances to the legitimate children. It was agreed in
the project of partition that Jose and Agustin would
pay the cash adjudications to their natural siblings.
Only the sum of P 37, 492.46 of the P74k
represented the estate of Martin. 1/3 thereof was the
free portion out of which the shares of the natural
children were to be taken: each would get P1,785.35.
The project of partition as well as the intervention of
Timoteo as guardian of the five minor heirs was
approved by the court. Later on, Judge Nepomuceno
asked the administrator to submit a report showing
that the shares have been delivered to the heirs as
required which the siblings acknowledged in a
manifestation. The Himalayan cadastre (8 lots)
involved in this case were registed in equal shares in
the names of Jose’s widow, Gregoria and her
daughter Granada.
The Plaintiff’s (natural children) contend that while
they were growing up, they had been well supported
by Jose and Agustin as they had been receiving their
shares from the produce of the Haciendas in varied
amounts over the years. Even after the death of Jose,
Gregoria had continued giving them money but had
stopped in 1951 by reason that lessee Lacson was
not able to pay the lease rental. No accounting had
ever been made to them by Jose nor Gregoria. Upon
the survey of the land, they did not intervene, as Jose
and Agustin promised that said lands shall be
registered in the names of the heirs. They did not
know that the intestate proceedings were instituted
for the distribution of the estate of their father.
Neither did they have any knowledge that a guardian
was assigned to represent their minor siblings,
considering that Modesto and Miguel who were
claimed to be such were no longer minors at the time
of the partition. They never received their share in
the estate of their father. Plaintiffs later on
discovered that the property had a Torrens title in
the name of Gregoria and her daughter when
Modesto’s children had inquired from the Register of
Deeds. Petitioners now bring the present suit for the
reconveyance of the subject parcels of land in their
favor.
Petitioners claim that in effect, Gregoria and
daughter are holding their shares in trust which was
denied by defendants. Defendants alledge res
judicata and prescription.
LOWER COURT: Dismissed the complaint on the
basis of res judicata as their shares were already
settled in the intestate proceedings. No deed of trust
was alledged and proven.
Partnership & Agency | 2B 2008-2009
Plaintiff’s appealed saying that they were grievously
prejudiced by the partition and thus res judicata
should not bar their action.
SC: The plaintiffs have not proven any express trusts
neither have they specified the kind of implied trust
contemplated in their action. Either way, such action
may be barred by laches.
In the cadastral proceedings, Jose and wife claimed
the 8 lots of the plaintiffs. After the death of Jose, the
said lots were adjudicated to his widow and
daughter. In 1932 Gregoria leased the said lots to
Yulo, who in 1934 transferred his lease rights over
Hacienda Calazato to Bonin and Olmedo, husband of
plaintiff Atanacia. Bonin and Olmedo in 1935 sold
their lease rights over Hacienda Calaza to Consing.
Those transactions prove that the heirs of Jose had
repudiated any trust which was supposedly
constituted over Hacienda Calaza in favor of the
plaintiffs.
The period of extinctive prescription is 10 years.
Atanacia, Modesto and Manuel, could have brought
the action to annul the partition. Maria and Emiliano
were both born in 1896. They reached the age of 21
in 1917 and could have brought the action from that
year.
The instant action was filed only in 1957. As to
Atanacia, Modesto and Manuel, the action was filed
43 years after it accrued and, as to Maria and
Emiliano, the action was filed 40 years after it
accrued. The delay was inexcusable. The instant
action is unquestionably barred by prescription and
res judicata.
It was anomalous that the manifestation should
recite that they received their shares from their
administrator, when in the project of partition it was
indicated that said shares shall be received in cash
from brothers Jose and Agustin. Thus due to this
irregularities as well as those of the intestate
proceedings, the plaintiffs contend that the partition
was not binding on them (except for Timoteo who
considered himself bound by the partition). They ask
that the case be remanded to the lower court for the
determination and adjudication of their rightful
shares.
However, due to the fact that the plaintiffs slept on
their rights, the courts can no longer afford them
relief
VARSITY HILLS, INC v NAVARRO
Facts: The present action began from a previous
civil case wherein a petition was filed by herein
respondents Mejia as heirs of Quintin Mejia and by
Elpidio Tiburcio as assignee of a portion of the estate
left by the latter as plaintiff against petitioners
Tuason et. al. The complaint alleged that Quintin
Mejia had obtained a Spanish title to the land and
that he and his successors in interest had occupied
the land without interruption until they were forcibly
rejected therefrom and their houses demolished in
1934 through a writ of execution. In 1914, the
defendants Tuason had obtained a decree of
registration covering 35,403 hectares and that they
had fraudulently and insidiously included plaintiff’s
 PARTNERSHIP Digests  Atty. Cochingyan
land in the area covered by the Certificate of
Transfer by inserting fake and false technical
descriptions. UP et al. as subsequent acquirers
whose titles are derived from the original fraudulent
certificates should likewise be annulled.
Herein Petitioners contend that the decision in a civil
case wherein the Respondents were declared as
without title to the land and ejected by a writ of
execution was affirmed by the Supreme Court. The
Petitioners contend in the present case that the
causes of action averred by the Respondents were
barred by the LRA and the statute of limitations over
51 years having elapsed since the decree of
registration was issued, barred by laches as 32 years
have elapsed since the ejectment and that the court
had no jurisdiction to review and revise the decree of
registration. They also maintain as affirmative
defenses that they had in possession for over 30
years of the land thus acquiring title by acquisitive
prescription and that claims for ownership were
extinguished by the decree and that they are
purchasers for value and in good faith of the lands
standing in their names. A motion to dismiss was
filed yet was denied by the lower court. The
Petitioners resorted to the SC for a special
proceeding for writs of certiorari and prohibition thus
the trial court was enjoined from proceeding with the
trial until further orders.
Mejia and Tiburcio claim that appeal in due time was
the proper remedy.
Issue: Can the present action prosper based on
claims of implied/constructive trust?
SC: The court below gravely abused its discretion in
denying petitioners motion to dismiss based on their
affirmative defenses. The action by Tiburcio and
Mejias was already barred by res judicata and
extinctive prescription. A previous case was decided
wherein Quintin Mejia had been found without title
and thus ejected. The action in the court below was
definitely barred as while the present respondents
were not parties to the cause which Quintin Mejia
was such a party, the final judgment against him
concludes and bars his predecessors and privies as
well. Since the respondents failed to file a petition for
review of the decree within one year after the entry
thereof despite claims that there was fraud in the
inclusion of their land in the title, they are barred by
the LRA. However if the fraud had been committed
after the issuance of the decree, they should have
pleaded when Quintin was made a defendant in Civil
Case 4420. Nevertheless, their cause of action is
barred by res judicata. With or without judgment
against Quintin, their action had been
extinguished by the lapse of 30 years from the
time he was ejected from the land in question.
An action to recover is also foreclosed by the
statute of limitations. Actions on implied trusts
are extinguished by laches or prescription of
10 years. Respondents have presented no cause of
action. The lower court by denying the motion to
dismiss constituted GADLEJ since they prolonged a
litigation that was unmeritorious on its face.
GERONA v DE GUZMAN
Facts: Petitioner Gerona heirs are the legitimate
children of Domingo Gerona and Placida de Guzman.
Partnership & Agency | 2B 2008-2009
Placida was a legitimate daughter of Marcelo de
Guzman and his first wife Teodora de la Cruz. After
the death of Teodora, Marcelo married Camila
Ramos. Their children are herein respondents de
Guzman heirs. Marcelo died some time in
Septermber 1945 and respondents executed a deed
of extra-judicial settlement of his estate. They
fraudulently stipulated therein that they were the
only surviving heirs of Marcelo although knowing that
petitioners were also his forced heirs. They were able
to cause the transfer the certificates of 7 parcels of
land each in their names. The petitioners discovered
the fraud only the year before the institution of the
case. Petitioners seek to annul the extra-judicial
settlement as well as have their shares in the said
properties reconveyed to them.
Contentions: Defendants argue that Placida de
Guzman was not entitled to share in the estate of
Marcelo as she was an illegitimate child and that the
action of the Petitioners is barred by the statute of
limitations.
Rulings:
TRIAL COURT: The trial court dismissed the case
after finding that Placida was a legitimate child of
Marcelo and that the properties described herein
belonged to the conjugal partnership of Marcelo and
Camila. It also ruled that Petitioners action had
already prescribed.
CA: affirmed ruling of the trial court
Contentions: Petitioners assert that since they are
co-heirs of Marcelo, the action for partition is not
subject to the statue of limitations; that if affected,
the period of 4 years did not begin to run until
discovery of the fraud. They claim that the fraud
done by respondents took place in 1956 or 1957 and
that it had not prescribed when the present action
was commenced.
SC: The rule holds true only when the defendants do
not hold the property in question under an adverse
title. The statute of limitations operates from the
time the adverse title is asserted by the possessor of
the property.
The defendants excluded the petitioners from the
estate of Marcelo when they executed the deed of
extra-judicial settlement claiming that they are the
sole heirs thus setting up an adverse title to the
estate.
An action for reconveyance of real property based
upon a constructive or implied trust, resulting from
fraud may be barred by the statute of limitations and
the action may only be filed within 4 years from the
discovery of the fraud. In the case at bar, the
discovery was made on June 25, 1948 when the deed
was filed with the Register of Deeds and new
certificates of title were issued in the names of the
respondents exclusively. Plaintiff’s complaint was not
filed until November 4, 1958 or more than 10 years
after.
Ignacio Gerona as well as Maria Concepcion attained
the age of majortity in 1948 thus had 4 years from
date of discovery within which to file an action.
Francisco and Delfin attained the age of majority in
1952 and 1954, thus had 2 years after removal of
 PARTNERSHIP Digests  Atty. Cochingyan
“legal incapacity” within which to commence their
action.
CALADIAO v VDA DE BLAS
FACTS: Prudencio Limpin sold, ceded, and transferred
to Simeon Blas an unregistered fishpond for the
P4440 with the right to repurchase the property
within one year from Sept. 30, 1932 and with the
express stipulation that the sale would automatically
become absolute and irrevocable if no repurchase
was made within the agreed period. Maxima Santos,
(Blas’ wife) took over upon the death of Blas and
paid taxes until 1955. The fishpond together with the
other properties was adjudicated to her by the court
in an estate proceeding. Despite such, Limpin
obtained a judicial registration of the fishpond in
favor of his conjugal partnership with Caladiao and
secured a new title in their names. A TCT was issued
in the name of Caladiao when Limpin died. Unaware
of such, Santos Vda de Blas applied for the
registration of the fishpond which was adjudicated to
her as it was proven that Limpin sold the property to
Blas and had failed to repurchase the same. While
this registration case was pending, Caladiao filed a
complaint for the return of the fishpond and the
annulment of the sale a retro executed by Limpin.
This was however, dismissed. The court ordered an
issuance of decree in favor of Vda de Blas but
subsequently dismissed the proceedings in finding
that the said fishpond was registered previously in
favor of Limpin. Rosalina Santos substituted Maxima
upon death.
CFI: in favor of Santos, ordered reconveyance and
was awarded P3000.
CA: affirmed.
Defendants claim that the action for reconveyance
had prescribed as it was filed more than 20 years
since Limpin had acquired a CTC in their name over
the fishpond.
SC: The existence of a decree of registration in favor
of one party is no bar to an action to compel
reconveyance of the property to the true owner,
which is an action in personam, even if such action
be instituted after the year fixed by Section 38 of the
LRA as a limit to the review of the registration
decree, provided it is shown that the registration is
wrongful and the property sought to be reconveyed
has not passed to an innocent third party holder for
value.
Limpin obtained the decree of registration
fraudulently and in utter bad faith thus he and his
heirs may be compelled to reconvey it to the true
owner. The registration of the property did not annul
the conveyance in favor of Blas and after the
registration, the Limpins held the property in trust for
the true owners.
The application for registration was in bad faith, with
the result that the certificate of title issued to Limpin
in 1934 was in law issued to and held by him in
behalf and in trust for the benefit of Blas. Under the
old code of civil procedure, prescription does not
apply to “continuing and subsisting trusts”; so that
actions against a trustee to recover trust property
held by him are imprescriptible. Actions for the
Partnership & Agency | 2B 2008-2009
reconveyance of property wrongfully registered are
of this category.
The possession of the property has been with Blas
and his successors since the sale thus, their action
cannot be deemed extinguished by prescription as
under the old civil procedure, an action by the
vendee of real property in possession thereof to
obtain the conveyance of it is not subject to
prescription.
DIAZ, ET.AL. VS. GORRICHO AND AGUADO
Facts: Spouses Francisco Diaz and Maria Sevilla
owned two parcels of lots (Lots Nos. 1941 and 3073)
in Cabanatuan. Sometime later, Francisco died, and
the properties were left in the hands of her wife and
three children.
Sometime in 1935, the appellee Carmen Gorricho
filed an action against Maria Sevilla and in
connection therewith, a writ of attachment was
issued upon the shares of the latter in the two
parcels of land. Since Maria Sevilla failed to redeem
it within one year, a final deed of sale in favor of
Carmen Gorricho was issued. In the said deed,
however, the sheriff conveyed to Gorricho the whole
of the two parcels instead of only the half-interest of
Maria Sevilla therein. Pursuant to the said deed,
Carmen Gorricho obtained the titles of the two
parcels of land in her name in the year 1937, and has
been possessing the said lands as owner ever since.
In 1952, the children of Maria Sevilla (who died a
year before) filed an action against the respondents
to compel the latter to execute in their favor a deed
of reconveyance over an undivided one-half interest
of the lots in question, which the respondents were
allegedly holding in trust for them. The respondents
raised the defense that the petitioners’ action has
long prescribed.
Issue: Do implied trust prescribe or may they be
defeated by laches?
Ruling of the CFI of Nueva Ecija: While a
constructive trust in plaintiff’s favor arose when
Gorricho took advantage of the error of the provincial
yepquestion and obtained title in herself, the action
of the plaintiff was, however, barred by laches and
prescription.
Petitioners: The disputed property was acquired by
Gorricho through an error of the provincial sheriff;
that having been acquired through error, it was
subject to an implied trust, as provided by Article
1456 of the New Civil Code; and therefore, since the
trust is continuing and subsisting, the appellants may
compel reconveyance of the property despite the
lapse of time, specially because prescription does not
run against titles registered under Article 496.
Held: The petitioners are in error in believing that
like express trusts, such constructive trusts may not
be barred by lapse of time. The American law on
trusts has always maintained a distinction between
express trusts created by intention of parties, and
the implied/constructive trusts that are exclusively
created by law, the later not being trusts in their
technical sense. The express trusts disable the
trustee from acquiring for his own benefit the
 PARTNERSHIP Digests  Atty. Cochingyan
property committed to his management or
custody, at least while he does not openly
repudiate the trust, and makes such
repudiation known to the beneficiary or cestui
que trust.
Also, in express trusts, the delay of the
beneficiary is directly attributable to the
trustee who undertakes to hold the property
for the former, or who is linked to the
beneficiary by confidential or fiduciary
relations. The trustee’s possession is, therefore,
not adverse to the beneficiary, until and unless the
latter is made aware that the trust has been
repudiated.
But in constructive trusts, there is neither promise
nor fiduciary relation. The so-called trustee does
not recognize any trust and has no intent to
hold for the beneficiary; therefore, the latter is
not justified in delaying action to recover his
property. It is his fault if he delays; hence, he
may be estopped by his own laches.
Thus, the judgment of dismissal (of the CFI) should
be upheld, because the petitioners’ cause of action
to attack the deed and cancel the transfer
certificates of title issued to the respondents accrued
from the year of issuance and recording, 1937, and
the petitioners have allowed 15 years to elapse
before taking remedial action in 1952. Under the old
Code of Civil Procedure, in force at the time, the
longest period of extinctive prescription was only 10
years.
EVANGELISTA, ET. AL. VS. COLLECTOR OF
INTERNAL REVENUE, ET. AL.
Facts: The petitioners borrowed from their father
PhP59,140.00 which amount together with their
personal monies was used by them for the purpose
of buying and selling real properties. From 1943 to
1944, they bought 24 parcels of land (including the
improvements thereon) on four different occasions.
In 1945, they appointed their brother Simeon to
manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefore;
in default of such payment, to bring suits against the
defaulting tenant; and to endorse and deposit all
notes and checks for them. In 1948, their net rental
income amounted to PhP12,615.35.
On September 1954, the respondent Collector of
Internal Revenue demanded the payment of (1)
income tax on corporations, (2) real estate dealer’s
fixed tax, and (3) corporation residence tax for the
years 1945-1949, computed according to the
assessments made on their properties.
Because of this, the petitioners filed a case against
the respondents in the Court of Tax Appeals, praying
that the decision of the respondent contained in its
letter of demand be reversed and that they be
absolved from the payment of the taxes in question.
Issue: Whether the petitioners are subject to the
tax on corporations, real estate dealer’s fixed tax,
and corporation residence tax.
Court of Tax Appeals: The petitioners are liable.
(No explanation for such in the case)
Partnership & Agency | 2B 2008-2009
Petitioners: They are mere co-owners, not co-
partners, 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.
Held: The petitioners are liable to pay the tax on
corporations provided for in Sec. 24 of the
Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code. According to Sec.
84 of the same statute, “the term ‘corporation’
includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts,
associations or insurance companies, but does not
include duly registered general co-partnerships.”
Also, Article 1767 of the Civil Code provides:
“By the contract of partnership, two or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.” Pursuant to
this article, the essential elements of a
partnership are two, namely: (1) an agreement to
contribute money, property or industry to a common
fund; and (2) intent to divide the profits among the
contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, the
petitioners have agreed to, and did, contribute
money and property to a common fund. Also, it can
be said that their purpose was to engage in real
estate transactions for monetary gain and then
divide the same among themselves because: (1)
they created the common fund purposely; (2) they
invested the same, not merely in one transaction,
but in a series of transactions; (3) the parcels of land
that they bought were not devoted to residential
purposes, or to other personal uses of the petitioners
but were leased separately to several persons; (4)
the properties have been under the management of
one person, namely Simeon Evangelista, making the
affairs relative to the said properties appear to have
been handled as if the same belonged to a
corporation or business enterprise operated for
profit; and (5) the petitioners have not testified or
introduced any evidence, either on their purpose in
creating the set up already adverted to, or on the
causes for its continued existence.
Hence, the petitioners herein constitute a
partnership, and in so far as the National Internal
Revenue Code is concerned, they are subject to the
income tax for corporations.
I. As regards to the residence tax for
corporations provided Sec. 2 of
Commonwealth Act No. 4651, the terms
“corporation” and “partnership” are used in
both statutes with substantially the same
meaning. Consequently, petitioners are
subject, also, to the residence tax for
corporations.
1
Entities liable to residence tax—Every
corporation, no matter how created or
organized, whether domestic or resident
foreign, engaged in or doing business in the
Philippines shall pay an annual residence tax of
five pesos and an annual additional tax, which
in no case, shall exceed one thousand pesos,
in accordance with the following schedule: * * *
 PARTNERSHIP Digests  Atty. Cochingyan
II. Lastly, the records show that the petitioners
have habitually engaged in leasing the
properties for a period of 12 years, and that
the yearly gross rentals of the said
properties from 1945 to 1948 ranged from
PhP9,599.00 to PhP 17,453.00. Thus, they
are subject to the tax provided in Section
193 (q) of our National Internal Revenue
Code, for “real estate dealers,” inasmuch
as, pursuant to Section 194 (s) thereof:
“Real estate dealers include any person engaged
in the business of buying, selling, exchanging,
leasing, or renting property of his own account as
principal and holding himself out as full ro 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. * * *”
YULO V. YANG CHIAO SENG
Facts: Yang Chiao Seng proposed to form a
partnership with Rosario Yulo to run and operate a
theatre on the premises occupied by Cine Oro, Plaza
Sta. Cruz, Manila, the principal conditions of the offer
being (1) Yang guarantees Yulo a monthly
participation of P3,000 (2) partnership shall be for a
period of 2 years and 6 months with the condition
that if the land is expropriated, rendered
impracticable for business, owner constructs a
permanent building, then Yulo’s right to lease and
partnership even if period agreed upon has not yet
expired; (3) Yulo is authorized to personally conduct
business in the lobby of the building; and (4) after
Dec 31, 1947, all improvements placed by
partnership shall belong to Yulo but if partnership is
terminated before lapse of 1 and ½ years, Yang shall
have right to remove improvements. Parties
established, “Yang and Co. Ltd.”, to exist from July 1,
1945 – Dec 31, 1947.
In June 1946, they executed a supplementary
agreement extending the partnership for 3 years
beginning Jan 1, 1948 to Dec 31, 1950.
The land on which the theater was constructed was
leased by Yulo from owners, Emilia Carrion and Maria
Carrion Santa Marina for an indefinite period but that
after 1 year, such lease may be cancelled by either
party upon 90-day notice. In Apr 1949, the owners
notified Yulo of their desire to cancel the lease
contract come July. Yulo and husband brought a civil
action to declare the lease for a indefinite period.
Owners brought their own civil action for ejectment
upon Yulo and Yang.
CFI: Two cases were heard jointly; Complaint of Yulo
and Yang dismissed declaring contract of lease
terminated.
CA: Affirmed the judgment.
In 1950, Yulo demanded from Yang her share in the
profits of the business. Yang answered saying he had
to suspend payment because of pending ejectment
suit.
Yulo filed present action in 1954, alleging the
existence of a partnership between them and that
Yang has refused to pay her shares.
Partnership & Agency | 2B 2008-2009
Defendant’s Position: The real agreement
between plaintiff and 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
property.
Trial Court: Dismissal. It is not true that a
partnership was created between them because
defendant has not actually contributed the sum
mentioned in the Articles of Partnership or any other
amount. The agreement is a lease because plaintiff
didn’t share either in the profits or in the losses of
the business as required by Art 1769 (CC) and
because plaintiff was granted a “guaranteed
participation” in the profits belies the supposed
existence of a partnership.
Issue: Was the agreement a contract a lease or a
partnership?
Ruling: Dismissal. 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) the intention on
the part of the partners to divide the profits among
themselves (Article 1761, CC)
Plaintiff did not furnish the supposed P20,000 capital
nor did she furnish any help or intervention in the
management of the theatre. Neither has she
demanded from defendant any accounting of the
expenses and earnings of the business. She was
absolutely silent with respect to any of the acts that
a partner should have done; all she did was to
receive her share of P3,000 a month which cannot be
interpreted in any manner than a payment for the
use of premises which she had leased from the
owners.
ESTANISLAO, JR. VS. COURT OF APPEALS
Facts: The petitioner and private respondents are
brothers and sisters who are co-owners of certain
lots at the in Quezon City which were then being
leased to SHELL. They agreed to open and operate a
gas station thereat to be known as Estanislao Shell
Service Station with an initial investment of
PhP15,000.00 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 executed by them on April 11, 1966. The
respondents agreed to help their brother, petitioner
therein, by allowing him to operate and manage the
gasoline service station of the family. 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 co-managing the business with petitioner
from May 1966 up to February 1967.
On May 1966, the parties entered into an Additional
Cash Pledge Agreement with SHELL wherein it was
reiterated that the P15,000.00 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.”
 PARTNERSHIP Digests  Atty. Cochingyan
For sometime, the petitioner submitted financial
statement regarding the operation of the business to
the private respondents, but thereafter petitioner
failed to render subsequent accounting. Hence , the
private respondents filed a complaint against the
petitioner praying among others that the latter be
ordered:
(1) To execute a public document embodying
all the provisions of the partnership
agreement they entered into;
(2) To render a formal accounting of the
business operation veering the period from
May 6, 1966 up to December 21, 1968, and
from January 1, 1969 up to the time the
order is issued and that the same be subject
to proper audit;
(3) To pay the plaintiffs their lawful shares and
participation in the net profits of the
business; and
(4) To pay the plaintiffs attorney’s fees and
costs of the suit.
Issue: Can a partnership exist between members of
the same family arising from their joint ownership of
certain properties?
Trial Court: The complaint (of the respondents) was
dismissed. But upon a motion for reconsideration of
the decision, another decision was rendered in favor
of the respondents.
CA: Affirmed in toto
Petitioner: The CA erred in interpreting the legal
import of the Joint Affidavit vis-à-vis the Additional
Cash Pledge Agreement. Because of the stipulation
cancelling and superseding the Joint Affidavit,
whatever partnership agreement there was in said
previous agreement had thereby been abrogated.
Also, the CA erred in declaring that a partnership was
established by and among the petitioner and the
private respondents as regards the ownership and /or
operation of the gasoline service station business.
Held: There is no merit in the petitioner’s contention
that because of the stipulation cancelling and
superseding the previous joint affidavit, whatever
partnership agreement there was in said previous
agreement had thereby been abrogated. Said
cancelling provision was necessary for the Joint
Affidavit speaks of P15,000.00 advance rental
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 P15,000.00 hence the
need to provide in the subsequent document that it
“cancels and supercedes” the previous none.
Indeed, it is true that the latter document is silent as
to the statement in the Join Affidavit that the value
represents the “capital investment” of the parties in
the business and it speaks of the 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 their policy if in the agreement it should be
stated that the business is a partnership with private
respondents and not a sole proprietorship of the
petitioner.
Partnership & Agency | 2B 2008-2009
Furthermore, there are other evidences in the record
which show that there was in fact such partnership
agreement between parties. The petitioner
submitted to the private respondents periodic
accounting of the business and gave a written
authority to the private respondent Remedios
Estanislao to examine and audit the books of their
“common business” (aming negosyo). The
respondent Remedios, on the other hand, assisted in
the running of the business. Indeed, the parties
hereto formed a partnership when they bound
themselves to contribute money in a common fund
with the intention of dividing the profits among
themselves.
IN THE MATTER OF THE PETITION FOR
AUTHORITY TO CONTINUE USE OF THE FIRM
NAME ‘OZAETA, ROMULO, ETC.
Facts: Two petitions were filed, one by the surviving
partners of Atty. Herminio Ozaeta and the other by
the surviving partners of Atty. Alexander Sycip
praying that they be allowed to continue using the
names of partners who had passed away in their firm
names. Both petitions were consolidated.
Petitioners Arguments:
• Under the law, a partnership is not prohibited
from continuing its business under a firm name
which includes the name of a deceased
partner. In fact, art. 1840 of the civil code
explicitly sanctions the practice.
• In regulating other professions, such as
accountancy and engineering, the legislature
has authorized the adoption of firm names
without any restriction as to the use, in such
firm name, of the name of the deceased
partner, the legislative authorization given to
those engaged in the practice of accountancy –
a profession requiring the same degree of trust
and confidence in respect of clients as that
implicit in the relationship of attorney and
client – to acquire and use a trade name,
strongly indicates that there us no fundamental
policy that is offended by the continued use by
a firm of professionals of a firm name which
included the name of a deceased partner, at
least where such firm name has acquired the
characteristics of a ‘trade name’
• The Canon of Professional Ethics are not
transgressed by the continued use of the name
of a deceased partner in the firm name of a law
partnership as declared by Canon 33 adopted
by American Bar Association declaring that
‘The continued use of the name of a deceased
or former partner when permissible by local
custom, is not unethical, but care should be
taken that no imposition or deception is
practiced through this use.’
• There is no possibility of imposition or
deception because the deaths of their
respective deceased partners were well –
publicized in all newspapers of general
circulation for several days.
• No local custom prohibits the continued use of
a deceased partner’s name in a professional
firm name; and
 PARTNERSHIP Digests  Atty. Cochingyan
• The continued use of a deceased partner’s
name in the firm name of law partnerships has
been consistently allowed by U.S. Courts and is
an accepted practice in legal profession of
most countries in the world.
Issue: Whether or not a firm name engaged in the
legal profession should continue using the name of
partners who had passed away.
SC ruling: No.
• The use in partnership names of the names of
deceased partners will run counter to Article
1825 of the CC which provides that names in a
firm name of a partnership must either be those
of living partners and, in the case of non –
partners, should be living persons who can be
subjected to liability. In fact, art. 1825 prohibits
a third person from including his name in the
firm name under pain of assuming the liability of
a partner. The heirs of a deceased partner in a
law firm cannot be held liable as the old
members to the creditors of a firm particularly
where they are non-lawyers. With regard to art.
1840, it treats more of a commercial partnership
with a good will to protect rather than a
professional partnership, with no saleable good
will but whose reputation depends on the
personal qualifications of its individual members.
Thus, it has been held that a saleable goodwill
can exist only in a commercial partnership and
cannot arise in a professional partnership
consisting of lawyers.
• A partnership for the practice of law cannot be
likened to partnerships formed by other
professionals or for business. For one thing, the
law on accountancy specifically allows the use of
a trade name in connection with the practice of
accountancy. ‘A partnership for the practice of
law is not a legal entity. It is a mere relationship
or association for a particular purpose.’ It is not a
partnership formed for the purpose of carrying in
a trade or business or of holding property. Thus,
it has been stated that the used of an assumed
or trade name in law practice is improper.
• The right to practice law is not a natural or
constitutional right but is in the nature of a
privilege or franchise. It is limited to persons of
good moral character with special qualifications
duly ascertained and certified. The right does
not only presuppose in its possessor integrity,
legal standing and attainment but also the
exercise of a special privilege, highly personal
and partaking of the nature of a public trust.
• The continued use of a deceased or former
partner’s name in the firm names of law
partnerships not sanctioned by local custom due
to the possibility of deception upon the public
where the name of a deceased partner continues
to be used. The possibility of deception upon the
public, real or consequential, where the name of
a deceased partner continues to be used cannot
be ruled out. A person in search of legal counsel
might be guided by the familiar ring of a
distinguished name appearing in a firm title. In
addition, there’s no local custom within our
jurisdiction that sanctions the practice of
continued use of a deceased partner’s name.
Courts take no judicial notice of custom. A local
custom as a source of right cannot be
considered by a court of justice unless such
Partnership & Agency | 2B 2008-2009
custom is properly established by competent
evidence like any other fact. Merely because
something is done as a matter of practice does
not mean that Courts can rely on the same for
purposes of adjudication as a juridical custom.
Juridical custom must be differentiated from
social custom. The former can supplement
statutory law or be applied in the absence of
such statute. Not so with the latter.
BASTIDA VS. MENZI CO.
Facts: Menzi Co. was organized in 1921 for the
purpose of importing and selling general
merchandise, including fertilizers and fertilizer
ingredients. Sometime in November of that year, the
plaintiff, who had had some experience in mixing and
selling fertilizer, went to see Toehl, the manager of
the sundries department of Menzi & Co. (through
which the fertilizer business was carried out) and told
him that he had a written contract with the Philippine
Sugar Centrals Agency for 1,250 tons of mixed
fertilizers, and that he could obtain other contracts,
including one from Calamba Sugar Estates for 450
tons, but that he did not have the money to buy the
ingredients to fill the order and carry on the
business. He offered to assign to Menzi & Co. his
contract with Phil Sugar Centrals Agency and to
supervise the mixing of the fertilizer and to obtain
other orders for 50 % of the net profit that Menzi &
Co., Inc., might derive therefrom. J. M. Menzi (gen.
manager of Menzi & Co.) accepted the offer. The
agreement between the parties was verbal and was
confirmed by the letter of Menzi to the plaintiff on
January 10, 1922.
Menzi & Co. continued to carry on its fertilizer
business under this arrangement with the plaintiff. It
ordered ingredients from the US and other countries,
and the interest on the drafts for the purchase of
these materials was charged to the business as a
part of the cost of the materials. The mixed
fertilizers were sold by Menzi & Co. between January
19 and April 1, 1922 under its “Corona” brand.
Pursuant to the verbal agreement, the defendant
corporation on April 27, 1922 entered into a written
contract with the plaintiff, marked Exhibit A, which is
the basis of the present action. Still, the fertilizer
business as carried on in the same manner as it was
prior to the written contract, but the net profit that
the plaintiff herein shall get would only be 35%. The
intervention of the plaintiff was limited to supervising
the mixing of the fertilizers in the bodegas of Menzi.
The trademarks used in the sale of the fertilizer were
registered in the Bureau of Commerce & Industry in
the name of Menzi & Co., Inc. and the fees were paid
by that company.
Prior to the expiration of the contract (April 27,
1927), the manager of Menzi notified the plaintiff
that the contract for his services would not be
renewed. Subsequently, when the contract expired,
Menzi proceeded to liquidate the fertilizer business in
question. The plaintiff refused to agree to this. It
argued, among others, that the written contract
entered into by the parties is a contract of general
regular commercial partnership, wherein Menzi was
the capitalist and the plaintiff the industrial partner.
Issue: Is the relationship between the petitioner and
Menzi that of partners?
 PARTNERSHIP Digests  Atty. Cochingyan
Held: The relationship established between the
parties was not that of partners, but that of employer
and employee, whereby the plaintiff was to receive
35% of the net profits of the fertilizer business of
Menzi in compensation for his services for
supervising the mixing of the fertilizers. Neither the
provisions of the contract nor the conduct of the
parties prior or subsequent to its execution justified
the finding that it was a contract of co-partnership.
The written contract was, in fact, a continuation of
the verbal agreement between the parties, whereby
the plaintiff worked for the defendant corporation for
one-half of the net profits derived by the corporation
form certain fertilizer contracts.
According to Art. 116 of the Code of Commerce,
articles of association by which two or more persons
obligate themselves to place in a common fund any
property, industry, or any of these things, in order to
obtain profit, shall be commercial, no matter what it
class may be, provided it has been established in
accordance with the provisions of the Code.
However in this case, there was no common fund.
The business belonged to Menzi & Co. The plaintiff
was working for Menzi, and instead of receiving a
fixed salary, he was to receive 35% of the net profits
as compensation for his services. The phrase in the
written contract “en sociedad con”, which is used as
a basis of the plaintiff to prove partnership in this
case, merely means “en reunion con” or in
association with.
It is also important to note that although Menzi
agreed to furnish the necessary financial aid for the
fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray at its
own expense the cost of securing the necessary
credit.
OÑA VS. COMMSSIONER OF INTERNAL REVENUE
Facts: Lorenzo Oña and his five children are the
surviving heirs of Julia Buñales. Lorenzo, the
surviving spouse was appointed administrator of
Julia’s estate. He submitted the project of partition
which was approved by the court and since 3 of the 5
children were still minors, he was appointed by the
court as guardian of said minors. Despite the
approval of the project of partition, no attempt was
made to divide the properties therein listed and
remained under the management of Lorenzo who
used said properties in business by leasing or selling
them and investing the income derived therefrom
and proceeds form the sales thereof in real
properties and securities. Respondent CIR decided
that petitioners formed an ‘unregistered partnership’
and therefore subject to corporate tax pursuant to
Sec. 24 of the Tax Code. Accordingly he assessed
against the petitioners the amounts of P8,092.00 and
P13.899.00 as corporate income taxes for 1955 and
1956 respectively. Petitioners protested against the
assessment and asked for reconsideration which was
denied.
Petitioners’ Argument: Petitioners are considered
as co – owners of the properties inherited by them
from the deceased Julia Buñales and the profits
derived from transactions involving the same, they
cannot be considered as an unregistered partnership
and cannot be subject to corporate tax.
Partnership & Agency | 2B 2008-2009
Issue: W/N petitioners are deemed to have formed
an unregistered partnership subject to tax under
sections 24 and 84(b) of the National Internal
Revenue code.
Ruling: YES
• For tax purposes, the co – ownership of
inherited properties is automatically converted
into unregistered partnership the moment the
said common properties and/or incomes
derived therefrom are use as a common fund
with the intent to produce profits for the heirs
in proportion to their respective shares in the
inheritance as determined in a project
partition. This is because from the moment of
such partition, the heirs are entitled already to
their respective definite shares of 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.
• 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
know 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 part of the taxable
income of an unregistered partnership.
• For purposes of the tax on corporations, the
National Internal Revenue Code, includes
partnerships with the exception only of duly
registered general co-partnerships within the
purview of the term ‘corporation.’
LYONS VS. ROSENSTOCK
Facts: During his lifetime, Henry Elser got engaged
in the real estate business. Petitioner Lyons, on the
other hand, joined Elser in some of his ventures and
they equally divided profits gained from these. In
1919, Lyons needed to go back to the United States
for a year and a half and by reason of which he
executed a general power of attorney in favor of
Elser, empowering the latter to manage and dispose
the properties owned by them.
In 1920, Elser was drawn to a piece of land,
the San Juan Estate, and he perceived an opportunity
to develop it into a suburban community. The Estate
was offered by its owners for P570,000 with an initial
payment of P150,000. In May 1920, Elser wrote a
letter to Lyons inducing the latter to join him in this
venture and to likewise supply the means necessary
for the fulfillment of this project. In the meantime,
Elser raised P120,000 from his own funds and loaned
P50,000 from Uy Siolong to pay for the initial
payment. However in order to obtain the loan he had
to give a personal note signed by himself, by his
other associates and by the Fidelity and Surety
 PARTNERSHIP Digests  Atty. Cochingyan
Company. Then again, in order to obtain the
signature of the Fidelity and Surety Company Elser
had to execute a mortgage on one of the properties
owned by him and Lyons on Carriedo Street.
Lyons replied to the letter of Elser only in
July 1920 and he expressed in it his unwillingness to
join the latter in this venture. Because of this Elser
relieved the Carriedo property of the encumbrance
which he had placed upon it and requested the
Fidelity and Surety Company to allow him to
substitute another property for it. However the
release of the old mortgage and the recording of the
new were never registered because in September
1920, when Lyons returned to Manila, he allowed the
mortgage to remain on the Carriedo property. But in
January 1921, Elser was able to pay the note
executed by him to Uy Siolong which enabled the
release of the Carriedo Property.
Issue: W/N Lyons, as half owner of the Carriedo
property, involuntarily became the owner or a co-
partner of an undivided interest in the San Juan
Estate, which was acquired partly by the money
obtained through an encumbrance placed on the
Carriedo property. No.
Held: Under our law, a trust does not necessarily
attach with respect to property acquired by a person
who uses money belonging to another. In the case at
bar, there was clearly no general relation of
partnership between Lyons and Elser and the most
that can be said is that they had been co-participants
in various transactions involving real estate. It is
clear the Elser, in buying the San Juan Estate, was
not acting for any partnership composed for himself
and Lyons, especially that the latter expressly
communicated his desire not to participate in this
venture. Lastly, it should be noted that no money
belonging to Lyons or any partnership composed by
Lyons and Elser was in fact used by the latter in the
purchase of the San Juan Estate.
FERNANDEZ VS. DE LA ROSA
Facts: On the part of plaintiff Fernandez, he claims
that he entered into a verbal agreement with
defendant De la Rosa to form a partnership for the
purchase of cascoes with the undertaking that the
defendant will buy the cascoes and that each partner
will furnish such amount as he could, while the
profits will be divided proportionately. Plaintiff
furnished P300 for casco No. 1515 and P825 for
casco No. 2089, both of which were placed under the
name of the defendant only. In April 1900, the
parties undertook to draw up articles of their
partnership for the purpose of embodying it in an
authentic document. The agreement however did not
materialize because defendant proposed articles
which were materially different from their verbal
agreement, and he was also unwilling to include
casco No. 2089 in the partnership. Because the
cascoes were under the management of the
defendant, the plaintiff demanded an accounting
over it to which the defendant refused claiming that
no partnership existed between them.
De la Rosa, on the other hand, admits that
he desired to form a partnership with the plaintiff but
denies that any agreement was ever consummated.
Moreover, he denied receiving any money furnished
Partnership & Agency | 2B 2008-2009
by plaintiff for casco No. 1515, but claims that he
merely borrowed the P300 on his individual account
from the bakery business in which plaintiff was a co-
partner. And as for the P825 furnished by the
plaintiff, the defendant claims that it was actually for
casco No. 1515 and not for casco No. 2089. He also
added that the repairs made on the two cascoes
were exclusively borne by him, and that he returned
a sum of P1,125 to plaintiff with an express
reservation on his part of all his rights as a partner.
Issue: a) W/N a partnership existed between the
parties. Yes.
b) W/N the partnership was terminated when the
defendant returned the P1,125 to plaintiff. No.
Held: a) The essential points upon which the minds
of the parties must meet in a contract of partnership
are 1) mutual contribution and 2) joint interest in the
profits.
The fact that the defendant received money
furnished by the plaintiff for the purpose of using it to
purchase the cascoes establishes the first element of
the partnership, mutual contribution to a common
stock. For the second element, the fact that the
formation of partnership had been a subject of
negotiation between them, even before the purchase
of the first casco, and that both parties intended to
purchase the cascoes in common satisfies the
requirement that there should be an intention on the
part of both parties to share the profits. With these, a
complete and perfect contract of partnership was
entered into by the parties.
It must be noted however that this
partnership was subject to a suspensive condition
which is the execution of a written agreement
regarding the distribution of profits, character of
partnership, etc. But since the defendant actually
purchased the cascoes, it would seem that the
partnership already existed. And as furthermore
provided by the Civil Code, a written agreement was
not necessary in order to give efficacy to the verbal
agreement of the partnership because the
contributions of the partners to the partnership were
not in the form of immovables.
b) During trial, the court was able to prove that
plaintiff actually furnished some amount for the
repair of the cascoes and that it was presumed that a
profit has been obtained by the defendant prior to
the return of the money. With these, the return of the
P1,125 fell short of the amount which the plaintiff
has actually contributed to the partnership. For these
reasons, the acceptance by the plaintiff of the
amount returned by the defendant did not have the
effect of terminating the legal existence of the
partnership by converting it into a societas leonina.
The court also proved that there was no
intention on the part of the plaintiff, in accepting the
money, to relinquish his rights as a partner. On the
contrary he notified defendant that he waived none
of his rights in the partnership. Also the lack of
recognition on the part of the defendant of the
plaintiff’s right in the partnership property and in the
profits does not give the former the right to force a
dissolution upon the later upon the terms which the
plaintiff is unwilling to accept. A partnership
therefore existed between the two and cascoes No.
1515 and 2089 are partnership properties.
 PARTNERSHIP Digests  Atty. Cochingyan
WOODHOUSE VS. HALILI
Facts: Defendant Halili informed Woodhouse,
plaintiff, of his desire to invest half a million dollars in
the bottling and distribution of Mission Soft Drinks.
Woodhouse then relayed this message to Mission Dry
Corporation of Los Angeles, USA. Mission Dry
Corporation then gave plaintiff a thirty day option on
exclusive bottling and distribution rights in the
Philippines (Exhibit J).
Thereafter, plaintiff and defendant entered
into a written agreement with the ff. pertinent
provisions: 1) they shall organize a partnership for
the bottling and distributing of Mission soft drinks,
with plaintiff, Woodhouse, as industrial partner or
manager, and defendant, Halili, as capitalist;
2)defendant was to decide matters of general policy
regarding the business, while plaintiff was to attend
the operation and development of the bottling plant;
3) plaintiff was to secure Mission soft drinks franchise
for and in behalf of the proposed partnership; and 4)
plaintiff was to receive 30 percent of the net profits
of the business. This contract was signed and the
parties to this case then went to the United States to
finalize the franchising agreement. Mission Dry
Corporation then granted the defendant the
exclusive right, license, and authority to produce,
bottle, distribute and sell Mission beverages in the
Philippines.
When both parties went back to the
Philippines, the bottling plant began its operation. At
first, plaintiff was given advances, on account of the
profits, and allowances which however ceased after
two months. Moreover, when plaintiff demanded that
the partnership papers be executed, defendant
refused to do so and instead suggested that they just
enter into a settlement. As no settlement was
reached, the plaintiff filed a complaint in the CFI.
In the CFI, plaintiff asks for execution of the
contract of partnership, accounting of the profits and
a share thereof of 30 percent. Defendant on his
defense claims that plaintiff misrepresented himself
that he was about to become the owner of an
exclusive bottling franchise when in fact franchise
was exclusively given to defendant, and that the
plaintiff failed to contribute to the exclusive franchise
of the partnership. CFI ordered defendant to render
an accounting of the profits of the business and to
pay plaintiff 15 percent thereof. But it held that the
execution of the contract could not be enforced and
the defense of fraud was not proved. Unsatisfied with
this ruling, both parties appealed to the SC.
Issue: a) W/N plaintiff falsely represented that he had
an exclusive franchise to bottle Mission beverages.
Yes. b) W/N this false representation amounts to
fraud and may annul the agreement to form a
partnership
Held: a) As found by the SC, Exhibit J was used by
plaintiff as an instrument with which to bargain with
the defendant and to close a deal with him, because
if plaintiff claimed that all he had was an option to
exclusively bottle and distribute Mission soft drinks in
the Philippines, he would have probably lost the deal
itself. This is further supported by the fact that when
defendant learned that plaintiff did not have an
exclusive franchise, he reduced plaintiff’s
participation in the profit to 15 percent, to which the
plaintiff agreed.
Partnership & Agency | 2B 2008-2009
b) Article 1270 of the Spanish Civil Code
distinguished two kinds of fraud, causal fraud, which
may be a ground for the annulment of a contract,
and the incidental fraud, which only renders the
party who employs it liable for damages.
As founded by the SC the
misrepresentation of plaintiff does not amount to
causal fraud because it was not the principal
inducement that led the plaintiff to enter into the
partnership agreement. As it was already noted, both
parties expressly agreed that they shall form a
partnership.
Lastly, the SC upheld the ruling of the trial
court that the defendant may not be compelled
against his will to carry out the partnership. The law
recognizes the individual’s freedom or liberty to do
an act he has promised to do or not to do it as he
pleases.
ROJAS VS. MAGLANA
FACTS: Maglana and Rojas executed their Articles of
Co-partnership called “Eastcoast Development
Enterpises” which had an indefinite term of existence
and was registered with the SEC and had a Timber
License. One of the EDE’s purposes was to apply or
secure timber and/or private forest lands and to
operate, develop and promote such forests rights
and concessions. M shall manage the business affairs
while R shall be the logging superintendent. All
profits and losses shall be divided share and share
alike between them.
Later on, the two availed the services of Pahamotang
as industrial partner and executed another articles of
co-partnership with the latter. The purpose of this
second partnership was to hold and secure renewal
of timber license and the term of which was fixed to
30 years.
Still later on, the three executed a conditional sale of
interest in the partnership wherein M and R shall
purchase the interest, share and participation in the
partnership of P. It was also agreed that after
payment of such including amount of loan secured
by P in favor of the partnership, the two shall become
owners of all equipment contributed by P. After this,
the two continued the partnership without any
written agreement or reconstitution of their articles
of partnership.
Subsequently, R entered into a management
contract with CMS Estate Inc. M wrote him re: his
contribution to the capital investments as well as his
duties as logging superintendent. R replied that he
will not be able to comply with both. M then told R
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. R took funds from the
partnership more than his contribution. M notified R
that he dissolved the partnership. R filed an action
against M for the recovery of properties and
accounting of the partnership and damages.
CFI: the partnership of M and R is after P retired is
one of de facto and at will; the sharing of profits and
losses is on the basis of actual contributions; there is
no evidence these properties were acquired by the
 PARTNERSHIP Digests  Atty. Cochingyan
partnership funds thus it should not belong to it;
neither is entitled to damages; the letter of M in
effect dissolved the partnership; sale of forest
concession is valid and binding and should be
considered as M’s contribution; R must pay or turn
over to the partnership the profits he received from
CMS and pay his personal account to the partnership;
M must be paid 85k which he should’ve received but
was not paid to him and must be considered as his
contribution.
ISSUE: what is the nature of the partnership and
legal relationship of M-R after P retired from the
second partnership? May M unilaterally dissolve the
partnership?
SC: There was no intention to dissolve the first
partnership upon the constitution of the second as
everything else was the same except for the fact that
they took in an industrial partner: they pursued the
same purposes, the capital contributions call for the
same amounts, all subsequent renewals of Timber
License were secured in favor of the first partnership,
all businesses were carried out under the registered
articles.
M and R agreed to purchase the interest, share and
participation of P and after, they became owners of
the equipment contributed by P. Both considered
themselves as partners as per their letters. It is not a
partnership de facto or at will as it was existing and
duly registered. The letter of M dissolving the
partnership is in effect a notice of withdrawal and
may be done by expressly withdrawing even before
expiration of the period with or without justifiable
cause. As to the liquidation of the partnership it shall
be divided “share and share alike” after an
accounting has been made.
R is not entitled to any profits as he failed to give the
amount he had undertaken to contribute thus, had
become a debtor of the partnership.
M cannot be liable for damages as R abandoned the
partnership thru his acts and also took funds in an
amount more than his contribution.
ORTEGA VS CA
FACTS: The law firm of R,L,S and C was duly
registered in the Mercantile Registry and
reconstituted with the SEC. There were several
amendments to its articles of partnership.
Respondent-Appellees senior and junior partners
associated themselves together. Ortega informed
them through a letter that he is retiring from the firm
of Bito, Misa and Lozada regarding the liquidation of
his participation in it. He later on filed with the SICD a
petition for dissolution and liquidation of partnership.
Hearing Officer: said withdrawal of O did not
dissolve the law partnership and both parties to the
case are enjoined to abide by the provisions of the
Agreement re: the liquidation of the shares of any
retiring or withdrawing partner.
SEC: reversed the decision ruling that the withdrawal
had in fact dissolved the partnership of BML as a
partnership at will, the law firm can be dissolved by
any partner at anytime by his withdrawal regardless
Partnership & Agency | 2B 2008-2009
of good faith or bad faith. Remanded the case to the
HO to determine rights and obligations of parties.
CA: affirmed in toto the SEC decision and that there
is no need for the appointment of a receiver as no
sufficient proof had been shown to indicate that the
partnership assets were in any such danger of being
lost, removed or materially impaired.
ISSUES: whether it was a partnership at will;
whether M’s withdrawal dissolved the partnership;
whether such withdrawal was made in bad faith.
SC: It was a partnership at will as it had not fixed a
specified period for its undertaking.
It may be dissolved at will by any of the partners but
if it was done in bad faith, such partner shall be liable
for damages. Upon dissolution, the partnership
continues and its legal personality is retained until
the complete winding up of its business culminating
in its termination. The liquidation of assets is
governed by the CC but an agreement between
parties is binding upon them.
It was not done out of bad faith as it was spurred by
an interpersonal conflict among the partners.
ANGELES VS SEC of JUSTICE
Facts: Angeles spouses filed a criminal complaint of
estafa against Mercado as they claim that M
convinced them to enter into a contract of
antichresis covering 8 parcels of land. Said contract
was to last for 5 years with PHP210k as
consideration. It was agreed that M was to administer
the lands and complete the paperwork. After 3 years,
the A spouses asked for an accounting. M explained
that the land earned PHP46k + in 1993, trees bore
no fruit in 1994 and had not given and accounting in
1995. Only after this demand had they discovered
that M had put the contract of antichresis over the
land under his and his spouse’s names.
M insists that there exists an industrial partnership
between him and his spouse as industrial partners
and the A spouses as financiers. This had existed
since 1991 before the contract of antichresis over the
land. M used his earnings as part of the business
capital which he entered into, under his name, in
behalf of the A spouses. M attached bank receipts
showing deposits in behalf of E. Angeles and
contracts under his name for the A spouses. O.
Angeles stated that there was a written industrial
partnership agreement wherein capital would come
from A spouses while profit would be divided evenly
between M and the A spouses.
PROVINCIAL PROSECUTION: dismissed estafa
complaint
On appeal to the SOJ, the A spouses insist that the
document evidencing the contract of antichresis was
executed in the name of the M spouses instead of
the A spouses. This document alone proves M’s
misappropriation of their PHP210k.
SOJ: Dismissed appeal. A spouses failed to show
sufficient proof that M deliberately deceived them in
the antichresis transaction. The document alone in
the name of the M spouses failed to convince the SOJ
 PARTNERSHIP Digests  Atty. Cochingyan
that there was deceit of false representation on the
part of M to induce the A spouses to part with their
money. [A partnership truly existed and it is clear
from the fact that they contributed money to a
common fund and divided the profits among
themselves. M was able to make deposits for the
account of A spouses, these represented their share
in the profits of their business venture. During the
barangay conciliation A spouses acknowledged their
joint business ventures with M.] There is no estafa
when money is delivered by a partner to his co-
partner on the representation that such shall be
applied to the business of their partnership.
ISSUES: whether a partnership existed even without
documentary proof; whether there was a
misappropriation by M of the proceeds; whether a
filing information of estafa should be ordered.
SC: The A spouses contributed money to the
partnership and not to the land. Mere failure to
register the contract of partnership with SEC does
not invalidate it as long as it has the essential
requisites of a contract. Registration is mere notice
to third parties. A spouses admit to facts that prove
existence of a partnership: a contract showing an
industrial partnership, contribution of money and
industry to a common fund, and division of profits
between A spouses and M.
M satisfactorily explained that the documents were in
his name as the A spouses do not want to be
revealed as financiers. A spouses were not able to
prove that there was deceit or false representation
on his part for them to part with their money.
Accounting of proceeds not proper subject in this
case. SOJ did not abuse his discretion in dismissing
the appeal of the A spouses.
TORRES VS. COURT OF APPEALS
Facts: Petitioners Antonia Torres and Emeteria
Baring entered into a Joint Venture Agreement (JVA)
with respondent Manuel Torres for the development
of a parcel of land into a subdivision. The executed a
Deed of Sale in favor of respondent, who had it
registered in his name. Respondent mortgaged the
property to Equitable and obtained a P40,000 loan to
be used for the subdivision dev’t. Petitioners and
Respondent agreed to share the proceeds form the
sale of the subdivided lots. The project did not push
through and the land was foreclosed. Petioners filed
a criminal case of estafa against respondent and his
wife, alleging that the project failed because of
respondent’s lack of funds or means and skills and
because respondent used the loan to fund his
company, Universal Umbrella Co. Respondent
alleged that that he used the loan to effect a survey
over the lots, secure city council approval, construct
curbs, roads and gutters and enter in to a contract
with an engineering firm to build houses all at an
expense of P85,000. Respondents were acquitted
from the criminal case and petitioners filed the
present civil case. The trial court dismissed the case,
but the same, on appeal, was remanded for further
proceedings.
CA: Petitioners and Respondents had formed a
partnership for the subdivision dev’t. They must bear
the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in
Partnership & Agency | 2B 2008-2009
the contract (Art. 1797). In the absence of stipulation
the share of each partner in profits and losses shall
be in proportion to what he may have contributed
BUT the industrial partner shall not be liable for
losses. As for profits, the industrial partner shall
receive such share as may be just and equitable. If
besides his services he contributed capital, he shall
also receive a share in the profits proportionate to
his capital.
Petitioners: JVA and partnership is void under
Art 1773, because the parties didn’t make, sign or
attach to the public instrument and inventory of the
real property. JVA is void under Art 1422 because
it is the direct result of an earlier illegal contract
which was for the sale of the land without valid
consideration. Respondent is liable for failure to
implement the project.
ISSUE: Should the partnership be declared void?
SC: Petition Denied. CA Affirmed.
The Agreement indubitably shows the existence of a
partnership pursuant to Art. 1767. Petitioners would
contribute land, respondents would provide the
industry and expenses and the income would be
divided.
Contracts bind the parties to the stipulations and
necessary consequences. Courts are not authorized
the extricate parties from the consequences of their
acts should the stipulations turn out to be financially
disadvantageous.
Art 1773 was intended primarily to protect 3rd
persons who may be defrauded when contracting
with the partnership. The case at bar does not
involve 3rd parties who may be prejudiced.
Petitioners invoke the allegedly void contract to
claim for 60% of the value of the property thus they
can’t deny the contract in one breath and in another
recognize it. The courts may consider the JVA as an
ordinary contract from which the parties’ rights and
obligations may be inferred and enforced.
JVA is not void under Art 1422. The consideration for
the sale was the expectation of profits from the
project—60% of which would go to petitioners.
PIONEER INSURANCE & SURETY CORP VS. CA
Facts: Petitioner Jacob Lim, owner-operator of
Southern Airlines (SAL) entered in to a contract with
Japan Domestic Airlines (JDA) for the sale and
purchase of 2 aircrafts and 1 set of spare parts for
$109k to be paid in installments. Pioneer Insurance
as surety executed and issued its surety bond in
favor of JDA on behalf of its principal Lim for the
balance. Border Machinery and Heavy Equip. Co.
(BorMaHeCo), Francisco and Modesto Cervantes and
Maglana gave some funds used in the purchase or
aircrafts and spare parts as contribution to new
corporation proposed by Lim to expand his airline
business. They executed 2 indemnity agreements
stipulating that the indemnitors principally agree and
bind themselves solidarily to indemnify, hold and
save Pioneer from damages, losses, costs, taxes,
 PARTNERSHIP Digests  Atty. Cochingyan
penalties, etc. which Pioneer may incur from
becoming surety. Lim, (acting under SAL), executed
in favor of pioneer a deed of chattel mortgage as
security, stipulating that Lim was to transfer and
convey to the surety the 2 aircrafts. Lim defaulted on
installment payments and JDA asked Pioneer to pay,
which Pioneer did in the amount of P298k. Pioneer
filed for extrajudicial foreclosure of chattel mortgage
(to which Cervanteses and Maglana filed a 3rd party
claim alleging co-ownership over aircrafts) and
judicial foreclosure with writ of prelim attachment
against Lim, Cervanteses, Bormaheco and Maglana.
Trial Court held that Lim was liable and dismissed
Pioneer’s claim against all other defendants.
CA: Pioneer reinsured its risk of liability under the
surety bond in favor of JDA and collected proceeds of
such reinsurance. Pioneer is no longer real party in
interest to institute action as it does not stand to be
benefited.
ISSUES: IS Pioneer a real party in interest?
Was there a de facto partnership created among
Cervantes, Maglana and Lim as a result of their
failure to incorporate?
SC: Petitioner is not the real party in interest and has
no cause of action against respondents. Pioneer,
having foreclosed the chattel mortgage on the planes
and spare parts no longer has any further action
against defendants as indemnitors to recover any
unpaid balance of the price.
Persons who attempt but fail to form a corporation
and who carry on business under the corporate name
occupy the position of partners inter se. HOWEVER,
such relation does not necessarily exist, for
ordinarily, persons cannot be made to assume the
relation of partners as between themselves when
their purpose is that no partnership shall exist. In the
instant case, it is clear that Lim never intended to
form a corporation with respondents despite his
representations to them, giving credence to the
cross-claims of respondents saying that they were
induced and lured to make contributions to a
proposed corporation which was never formed
because petitioner reneged on their agreement.
No de facto partnership was created among the
parties which would entitle the petitioner to a
reimbursement of the supposed losses of the
proposed corporation. Petitioner was acting on his
own and not in behalf of his other would be
incorporators in transacting the sale of aircrafts and
spare parts.
LIM TONG LIM VS. PHILIPPINE FISHING GEAR
INDUSTRIES INC
FACTS: On behalf of “Ocean Quest Fishing Corp”
Antonio Chua and Peter Yao entered into a contract
with Phil. Fishing Gear (PFGI) for the purchase of
fishing nets. They claimed they were engaged in a
business venture with petitioner Lim who was not a
signatory to the agreement. Chua and Yao failed to
pay for the nets and floats. PFGI filed a collection suit
against Chua, Yao and Lim as general partners
alleging that Ocean Quest was nonexistent. Chua
Partnership & Agency | 2B 2008-2009
filed a Manifestation admitting liability and
requesting reasonable time to pay. Yao filed an
answer waiving his right to cross-ex and present
evidence. Lim filed an answer with counterclaim and
crossclaim. Trial Court ordered sale of nets at auction
which were bought by PFGI. Trial Court ruled that a
partnership existed between Lim, Chua and Yao
based on testimonies, Compromise Agreement,
declaration of ownership of fishing boats.
CA: Lim was a partner of Chua and Yao in a fishing
business and may be liable for the fishing nets and
floats purchased for partnership’s use.
ISSUE: Whether by their acts, Lim Chua and Yao
could be deemed to have entered into a partnership
SC: Petition denied. CA affirmed.
There existed a partnership between Chua, Yao and
Lim pursuant to Art 1767 based on factual findings of
the lower courts which established that they had
decided to engage in a fishing business for which
they bought boats worth P3.35M financed by a loan
from Jesus Lim, Lim’s brother. In the Compromise
Agreement, they were to pay the loan with the
proceeds of the sales of the boats and losses or
excess were to be divided equally. The boats,
purchase and repair financed by borrowed money fell
under “common fund”. Contribution to such fund
need not be cash or fixed assets—it could be
an intangible like credit or industry. The
partnership extended not only to purchase of the
boat but also to the nets and floats.
The Compomise Agreement was not the sole basis of
the partnership. It was but an embodiment of the
relationship extant among the parties prior to
execution. Petitioner was a partner and not merely a
lessor as he entered into a business agreement with
Chua and Yao in which debts were undertaken to
finance the acquisition and upgrading of vessels to
be used in their fishing business. The boat, F/B
Lourdes, though registered in Lim’s name was an
asset of the of the partnership.
Petitioner benefited from the use of the nets found
inside the boat. Those acting on behalf of a
corporation and those benefited by it, knowing it to
be without valid existence are held liable as general
partners. Technically, Lim did not act on behalf of a
corporation. However, having reaped the benefits of
the contract entered into by persons whom he
previously had an existing relationship, he is
deemed part of the association and covered by the
scope of the doctrine of corporation by estoppel.
A 3rd party who knowing an association to be
uinincorporated, nonetheless treated it as a
corporation and received benefits from it, may be
barred from denying its corporate existence in a suit
brought against the corporation.
CAMPOS RUEDA & CO. VS. PACIFIC
COMMERCIAL CO. ET. AL.
Facts: This case involves the application by the
petitioner for a judicial decree adjudging itself
insolvent. The limited partnership of Campos Rueda
& Co. was, and is, indebted to Pacific Commercial
Co., the Asiatic Petroleum Co. and the International
 PARTNERSHIP Digests  Atty. Cochingyan
Banking Corporation in various sums amounting to
not less than Php1000.00, payable in the Philippines,
which were not paid more than thirty days prior to
the date of their filing of the application for
involuntary insolvency. The lower court denied the
petition because it was not proven, nor alleged, that
the members of the aforesaid firm were insolvent at
the time of the application was filed; and that as said
partners are personally and solidarily liable for the
consequences of the transaction of partnership, it
cannot be adjudged insolvent so long as the partners
are not alleged and proven to be insolvent. From
this judgment, the petitioners appeal to the Supreme
Court.
Issue: Whether or not a limited partnership, such as
the petitioner, which has failed to pay its obligations
with three creditors for more than thirty days, may
be held to have committed an act of insolvency, and
thereby be adjudged insolvent against its will.
Held: In the Philippines, a limited partnership duly
organized in accordance with law has a personality
distinct from that of its members. If it commits an
act of bankruptcy, such as that of failing for more
than 30 days to pay debts amounting to
PhP1000.000 or more, it may be adjudged insolvent
on the petition of three of its creditors although its
members may not be insolvent. Under our
Insolvency Law, one of the acts of bankruptcy upon
which an adjudication of involuntary insolvency is
predicated is the failure of a partnership to pay its
obligations with three creditors for a period of more
than 30 days.
On the contrary, some courts of the United States
have held that a partnership may not be adjudged
insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others
have maintained a contrary view. Nevertheless, it
must be borne in mind that under American common
law, partnerships have no juridical personality
independent from that of its members.
Therefore, it having been proven that the partnership
Campos Rueda & Co. failed for more than 30 days to
pay its obligations to the herein respondents, the
partnership have the right to a judicial decree
declaring the involuntary insolvency of said
partnership.
AGUILA, JR. VS. CA
Facts: The petitioner herein is the manager of A.C.
Aguila & Sons, Co., a partnership engaged in lending
activities, while the private respondent and her late
husband were the registered owners of a house and
lot, covered by a transfer certificate of title.
Sometime in 1991, the private respondent and A.C.
Aguila & Sons, Co., represented by the petitioner,
entered into a Memorandum of Agreement. In this
agreement, a deed of absolute sale shall be executed
by the private respondent in favor of A.C. Aguila &
Sons, Co., giving the former an option to repurchase
and obliging the same to deliver peacefully the
possession of the property to A.C. Aguila & Sons, Co.,
within 15 days after the expiration of the said 90
days grace period.
When the private respondent failed to redeem the
property within the grace period, the petitioner
Partnership & Agency | 2B 2008-2009
caused the cancellation of the transfer certificate of
title under the private respondent’s name and the
issuance of a new certificate of title in the name of
A.C. Aguila & Sons, Co. Subsequently, the private
respondent was asked to vacate the premises,
however she refused. Because of this refusal, A.C.
Aguila & Sons, Co. filed an ejectment case against
her.
The MTC ruled in favor of A.C. Aguila & Sons, Co., on
the ground that the private respondent did not
redeem the subject property before the expiration of
the 90-day period provided in the MOA. She filed an
appeal before the RTC, but failed again. Then, she
filed a petition for declaration of nullity of a deed of
sale with the RTC. She alleged that the signature of
her husband on the deed of sale was a forgery
because he was already to be dead when the deed
was supposed to have been executed. It appears
however that the she filed a criminal complaint for
falsification against the petitioner.
RTC: DENIED. The plaintiff never questioned
receiving from A.C. Aguila & Sons, Co. the sum of
P200,000.00 representing her loan from the
defendant. Common sense dictates that an
established lending and realty firm like Aguila would
not part with Php200,000.00 to the spouses, who are
virtual strangers to it, without simultaneous
accomplishment and signing of all the required
documents, more particularly the Deed of Absolute
Salem to protect its interest.
CA: REVERSED. The transaction between the parties
is indubitably an equitable mortgage. Considering
that the private respondent (vendor) was paid the
price which is unusually inadequate (240 sq. m.
subdivision lot for only Php200,000.00 in the year
1991), has retained possession of the property and
has continued paying real taxes over the subject
property.
Petitioner:
1. He is not the real party in interest but A.C.
Aguila & Sons, Co.;
2. The judgment in the ejectment case is a bar
to the filing of the complaint for declaration
of nullity of a deed of sale in this case; and
3. The contract between the parties is a pacto
de retro sale and not an equitable
mortgage.
Held: The petition is meritorious. A real party in
interest is one who would be benefited or injured by
the judgment, or who is entitled to the avails of the
suit. Moreover, under Article 1768 of the New Civil
Code, a partnership “has a juridical personality
separate and distinct from that of each of the
partners.” The partners cannot be held liable for the
obligations of the partnership unless it is shown that
the legal fiction of a different juridical personality is
being used for fraudulent, unfair, or illegal purposes.
In this case, the private respondent ahs not shown
that A.C. Aguila & Sons, Co., as a separate juridical
entity, is being used for fraudulent, unfair or illegal
purposes. Moreover, the title to the subject property
is in the name of A.C. Aguila & Sons, Co. and the
MOA was executed between the private respondent,
with the consent of her husband, and A.C. Aguila &
Sons, Co., represented by the petitioner. Hence, it is
 PARTNERSHIP Digests  Atty. Cochingyan
the partnership, not its officers or agents, which
should be impleaded in any litigation involving
property registered in its name.
We cannot understand why both the RTC and the CA
sidestepped this issue when it was squarely raised
before them by the petitioner. The court’s
conclusion is that the petitioner is not the real party
in interest against whom this action should be
prosecuted. It is unnecessary to discuss the other
issues raised by him in his appeal.
United States vs. Clarin
Facts: Pedro Larin had an agreement to form a
partnership and the divide the profits equally to
Pedro Tarug, Eusebia Clarin, and Carlos De Guzman.
Larin delivered to Tarug P172, as his contribution to
the partnership, to buy and sell mangoes. Tarug,
Clarin, and De Guzman were able to obtain P203
from the business of buying and selling mangoes but
the three did not comply with the terms of the
contract of delivering 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 which the trial court
sentenced the defendant to six months arresto
mayor and return Pedro Larin P172 and P30.50 which
is his share of the profits. The defendant appealed.
Issue: W/N a partner in a partnership may be
charged with estafa. – NO.
Held: The failure on the part of the industrial
partners to return to the capitalist partner the capital
brought into the partnership by the latter is not an
act constituting the crime of estafa as defined in the
RPC.
When Larin put the P172 into the
partnership which her formed with Tarug et. al., 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 one of his three partners to return
the his capital to him, but upon the partnership of
which he himself formed part, or if it were to be done
by one of the three specifically, it would be Tarug,
who according to the evidence was the person who
received the money directly from Larin.
The P172 having been received by the
partnership, the business commenced and profits
accrued, the action that lies with the partner who
furnishes 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.
Partnership & Agency | 2B 2008-2009
Villareal vs. Ramirez
Facts: Petitioners Luzviminda Villareal, Carmelito
Jose and Jesus Jose formed a partnership for the
operation of a restaurant and catering business
under the name Aquarius Food House and Catering
Services. Villareal was appointed general manager
while Carmelito Jose was the operations manager.
Respondent Donaldo Ramirez joined as partner later
on, his capital contribution of P250,000 was paid by
his parents, respondents Cesar and Carmelita
Ramirez. Jesus Jose decided to withdrew from the
partnership and his capital contribution of P250,000
was refunded to him in cash by agreement of the
partners. Without prior knowledge of respondents,
petitioners closed down the restaurant due to
increased rental and deposited the restaurant’s
furniture and equipments to respondents’ house for
storage. The respondent spouses wrote the
petitioners that they no longer want to continue their
partnership or in reopening the restaurant and that
they were accepting the latter’s offer to return their
capital contribution. Several demand letters were
sent but the same were left unheeded. The spouses
Ramirez’ filed a complaint for a collection of sum of
money from petitioners.
RTC’s Ruling: Ruled that parties had voluntarily
entered into a partnership which could be dissolved
at any time. Petitioners clearly intended to dissolve it
when they stopped operating the restaurant and held
them liable to pay respondent his capital contribution
of P250,000, attorney’s fee and cost of suit.
CA Ruling: Although respondents had no right to
demand the return of their capital contribution, the
partnership was nonetheless dissolved when
petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave
a proper accounting of the partnership accounts for
liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the
CA computed their liabilities, petitioners were made
liable to respondents in the amount of P253,114.00.
Issue: W/N petitioners are liable to respondents for
the latter’s share in the partnership and W/N the CA’s
computation as to the respondents’ share is correct.
Held: We hold that respondents have no right to
demand from petitioners the return of their equity
share. Except as managers of the partnership,
petitioners did not personally hold its equity or
assets. ‘The partnership has a juridical personality
separate and distinct from that of each of the
partners.’ Since the capital was contributed to the
partnership, not the petitioners, it is the partnership
that must refund the equity of the retiring partners.
And since it is the partnership, as a separate
and distinct entity, that must refund the shares of
 PARTNERSHIP Digests  Atty. Cochingyan
the partners, the amount to be refunded is
necessarily limited to its total resources. In other
words, it can only pay out what it has which consists
of all its assets. However, before the partners can be
paid their shares, the creditors of the partnership
must first be compensated. After all the creditors
have been paid, whatever is left of the partnership
assets becomes available for the payment of the
partners’ shares.
CA’s computation of the amount to be
refunded to respondents as their share was
erroneous as the exact amount of refund equivalent
to respondents’ share in the partnership cannot be
determined until all the partnership assets will have
been liquidated, sold and converted to cash, and all
partnership creditors, if any, paid. No liquidation of
assets is made.
EVANGELISTA & CO. VS. ABAD SANTOS
Facts: A co - partnership was formed under the
name of ‘Evangelista & Co.’ Its articles of co-
partnership was later on amended to include Estrella
Abad Santos (a judge in a City Court in Manila) as an
industrial partner. She subsequently filed a suit
against the partnership to pay her the share of the
profits owing to her. She alleged that the partnership
is paying dividends to the partners except her. The
partners denied that Abad Santos was an industrial
partner and that the articles of co – partnership do
not express the true agreement of the parties and
that Abad Santos was a mere profit sharer, not a
partner.
Issue: W/N Abad Santos is a partner.
Held: Yes, Abad Santos is a partner.
The partners are estopped from denying the
articles of partnership because they admitted its
genuiness and due execution. Even if it were
erroneous, they failed to assail it for 8 years. Such
failure shows their assent to the said articles.
In addition, the partners alleged that being
a judge, she cannot be an industrial partner since
industrial partners are not allowed to engage in
another business or profession. The SC held that
such allegation has no merit because Abad Santos
complied with her obligation to the partnership. The
partners also failed to exercise their right of
exclusion for 9 years. This shows that the argument
of engaging in another profession is a mere
afterthought and that the partnership actually
allowed Abad Santos to exercise her profession.
(Please take note of Art. 1789 of Civil Code: 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.)
LITTON VS. HILL
Partnership & Agency | 2B 2008-2009
Facts: Litton sold to Ceron, a partner in a
partnership called ‘Hill & Ceron,’ lumber mining
claims for P1870 less half percent proliferage. Litton
received only P720 leaving a balance of P1150. He
then sued the partnership. The partnership now
contends that it is not bound by Ceron’s acts
because the other partners did not consent to such
sale. It was stated in the articles of co – partnership
that a contract can be signed by only one partner,
provided that other partners consented to it.
Issue: W/N the partnership is bound by Ceron’s acts?
Held: Yes. It is true that Ceron needs consent of the
partners to bind the partnership. But such agreement
between partners does not affect third persons who,
acting in good faith, had no knowledge of it. The SC
held that a third person has no duty to inquire the
authority of a person held out in public to be a
partner by a partnership. A contrary interpretation to
the contrary will cause hindrance in transactions.
(Note Art. 1818 [par.1]: Every partner is an agent
of the partnership for the purpose of its business,
and the act of every partner, including the execution
in the partnership name of any instrument, for
apparently carrying on in the usual way the business
of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact
no authority to act for the partnership in the
particular matter, and the person with whom he is
dealing has knowledge of the fact that he has no
such authority.)
GOQUIOLAY, ET. AL. VS. SYCIP, ET. AL.
Facts: Tan Sin An and Antonio Goquiolay entered
into a general commercial partnership which was to
last for 10 years for the purpose of dealing in real
estate. The agreement lodged upon Tan Sin An the
sole management of the partnership affairs and his
co – partner, Goquiolay, has no voice or participation
in the management of the affairs of the co –
partnership. They further agreed upon that in the
event of the death of any of the partners at any time
before the expiration of the term, the co –
partnership shall not be dissolved but will have to be
continued and the deceased partner shall be
represented by his heirs or assigns in the said co –
partnership. A general power of attorney (GPA) was
executed by Goquiolay in favor of Tan Sin An which
included buy, sell, alienate and convey properties of
the partnership as well as obtain loans as he may
deem advisable for the best interest of the co –
partnership. With the authority of the GPA, the
partnership through Tan Sin An purchased 3 parcels
of land which was mortgaged to La Urbana Sociedad
and another 46 parcels of land which which were
purchased by Tan Sin An in his individual capacity,
and assumed mortgaged debt thereon. The
downpayment for the 46 parcels of land was
advanced by Yutivo and Co. The two separate
obligations were consolidated in an instrument
executed by the partnership and Tan Sin An,
whereby the entire 49 lots were mortgaged in favor
of the Banco Hipotecario de Filipinas (as successor to
La Urbana). When Tan Sin An died, his wife Kong
Chia Pin was appointed administratix of the intestate
estate of her deceased husband. Repeated demands
for payment were made by Banco Hipotecario on the
partnership and on Tan Sin An which was initially
paid by Yutivo and Co. and Sing Yee Cuan and Co. (at
 PARTNERSHIP Digests  Atty. Cochingyan
the request of Yutivo and Co.) The mortgage was
eventually cancelled. Now Yutivo and Sing Yee Cuan
Company filed their claims in the intestate
proceedings of Tan Sin An. Kong Chai Pin filed a
petition with the probate court for authority to sell all
the 49 parcels of land to Washington Sycip and Betty
Lee for the purpose primarily of settling the aforesaid
debts of her husband and the partnership. The court
ordered the execution of deed of sale in favor of
Sycip and Lee in consideration of P37,000.00 and
assuming payment of the claims filed by Yutivo & Co.
and Sing Yee Co. Later, Sycip and Lee executed in
favor of the Insular Dev’t. Co. a deed of transfer
covering said 49 parcels of land.
Upon learning the sale, the surviving
partner Goquiolay filed a petition to set aside the
decision of the probate court and annul the sale of
the parcels of land by Kong Chai Pin in favor of Sycip
and Lee and their subsequent conveyance in favor of
Insular Devt. Co. in so far as the 3 lots owned by the
partnership is concerned. Kong Chai Pin averred the
validity of the sale as successor partner, in lieu of the
late Tan Sin An. The complaint was dismissed by the
lower court and appeal was directly taken to the SC
by Goquiolay.
Issue: 1. W/N Kong Chai Pin acquired the managerial
rights of her late husband Tan Sin An – NO.
2. W/N there was a valid sale of property to Sycip
and Lee – YES.
3. W/N the consent of the other partner was
necessary to perfect the sale of the partnership
properties to Sycip and Betty – NO.
Held: 1. The right of exclusive management
conferred upon Tan Sin An, being premised upon
trust and confidence, was a mere personal right that
terminated upon Tan’s demise. The provision in the
articles of partnership stating that the deceased
partner shall be represented by his heirs could not
have referred to the managerial rights given to Tan
Sin An but it more appropriately relates to the
succession in the propriety interest of each partner
(heir becomes limited partner only).
2. However, consonant with the articles of co –
partnership providing for the continuation of the firm
notwithstanding the death of one of the partners, the
heir of the deceased, by never repudiating or
refusing to be bound under said provision, became
individual partner with Goquiolay upon Tan’s demise.
By allowing Kong Chai Pin to retain control of the
partnership properties from 1942 to 1949, Goquiolay
is estopped from denying her legal representation of
the partnership, with the power to bind it with proper
contracts. By authorizing the widow of the managing
partner to manage partnership property (which a
limited partner could not be authorized to do), the
other general partner recognized her as a general
partner, and is now in estoppel to deny her position
as a general partner, with authority to administer
and alienate partnership property.
3. Strangers dealing with a partnership have the
right to assume, in the absence of restrictive clauses
in the co – partnership agreement, that every
general partner has the power to bind the
partnership and has the requisite authority from his
co – partners.
Partnership & Agency | 2B 2008-2009
IDOS VS. CA
Facts:
Irma Idos, petitioner, formed a short-lived
partnership with Eddie Alarilla, respondent, for a
leather tanning business. Upon the business’
liquidation, it had receivables and stocks worth
P1,800,000. For the share of Alarilla, Idos issued four
post-dated checks of which only three out of four
checks were encashed. This impelled Alarilla to file
for a BP 22 case against Idos when the latter refused
to pay the value of the check after the former has
demanded for it.
On her defense, Idos claimed that the check
served only as an “assurance” of Alarilla’s share in
the partnership and that it was not supposed to be
deposited until the stocks have been sold. This was
refuted by Alarilla and subsequently Idos was
convicted by the trial court of the offense charged.
The CA affirmed the decision of the trial court.
Issue: W/N Idos violated BP 22? No
Held: One of the elements of the offense penalized
under BP 22 is “the making, drawing and issuance of
any check to apply for any account or for value.” In
this case Idos showed enough evidence that the
check was to be funded from receivables to be
collected and goods to be sold by the partnership.
First, only one of the fours check were not encashed
and second, even Alarilla himself admitted that there
was no consideration for the issuance of the check.
Hence the check in question was not issued for any
debt of or any account due and payable by the
petitioner.
Moreover, Idos and Alarilla were still in the
“winding up” of the affairs of the partnership hen the
check was issued as evidenced by the fact that they
still had to sell the goods on hand and collect the
receivables from debtors. As provided by the Civil
Code: winding-up is the process of settling business
affairs after dissolution, i.e. collecting of assets
previously demandable; termination is the point in
time after all the partnership affairs have been
wound up. Thus, since that partnership has not been
terminated, the petitioner and private complainant
remained as co-partners. The check was thus issued
by the petitioner to complainant as would a partner
to another and not as payment from a debtor to a
creditor. Idos did not violate BP 22.
VILLAREAL VS. RAMIREZ
Facts:
In 1984, Villareal, Carmelito Jose and Jesus
Jose formed a partnership with a capital of P750,000
for the operation of a restaurant and catering
business. Respondent Ramirez joined as a partner in
the business with the capital contribution of
P250,000. In 1987, Jesus Jose withdrew from the
partnership and within the same time, Villareal and
Carmelito Jose, petitioners closed the business
without prior knowledge of respondents.
 PARTNERSHIP Digests  Atty. Cochingyan
In March 1987, respondents wrote a letter to
petitioners stating that they were no longer
interested in continuing the partnership and that
they were accepting the latter’s offer to return their
capital contribution. This was left unheeded by the
petitioners, and by reason of which respondents filed
a complaint in the RTC.
RTC ruled that the parties had voluntarily
entered into a partnership, which could be dissolved
at any time, and this dissoution was showed by the
fact that petitioners stopped operating the
restaurant.
On appeal, CA upheld RTC’s decision that
the partnership was dissolved and it added that
respondents had no right to demand the return of
their capital contribution. However since petitioners
did not give the proper accounting for the liquidation
of the partnership, the CA took it upon itself to
compute their liabilities and the amount that is
proper to the respondent. The computation of which
was:
(capital of the partnership – outstanding
obligation) / remaining partners =
amount due to private respondent
Issue: W/N petitioners are liable to respondents for
the latter’s share in the partnership? Nope.
Held: Respondents have no right to demand from
petitioner the return of their equity share. As found
by the court petitioners did not personally hold its
equity or assets. “The partnership has a juridical
personality separate and distinct from that of each of
the partners.” Since the capital was contributed to
the partnership, not to petitioners, it is the
partnership that must refund the equity of the
retiring partners. However, before the partners can
be paid their shares, the creditors of the partnership
must first be compensated. Therefore, the exact
amount of refund equivalent to respondents’ one-
third share in the partnership cannot be determined
until all the partnership assets will have been
liquidated and all partnership creditors have been
paid.
CA’s computation of the amount to be
refunded to respondents as their share was thus
erroneous.
CLAUDIO VS. ZANDUETA
Facts: Petitioners Claudio, Goyena and Flores
organized the “Cotabato & Cagayan Mining
Association” (Association) together with the
respondents Neuffer, Meyer, Skiles, Araneta and
Cowper. The respondents in this case filed in CFI a
civil case no. 51510 for the dissolution of the
Association. One of their prayers was for the court to
appoint a receiver to take charge of the properties of
the association after its dissolution. The court thrugh
Judge Zandueta granted the prayer of the
respondents in civil case 51510 and appointed J.C.
Cowper as a receiver even if the latter was not made
a party to the case.
Partnership & Agency | 2B 2008-2009
Issue: Whether or not Judge Zandueta exceeded his
jurisdiction and abused his discretion when he
appointed the receiver in civil case 51510? No.
Held: In order that a receiver may be appointed in a
case, an application under oath must be filed,
alleging all the facts necessary to convince the court
to grant the same, for the purpose of preserving the
property which is the subject of litigation and
protecting thereby the rights of all the parties
interested therein. Moreover the consequences or
effects of such appointment should be considered in
order to avoid causing irreparable injustice or injury.
In the complaint for the application of the
appointment of the receiver, it was evident that the
plaintiff did not include the 279 members of the
Association nor did they show that they were acting
on behalf of the interest of the Association. Therefore
the judge exceeded his jurisdiction and abused his
discretion because he should have required the
inclusion therein of the necessary members of the
Association. Moreover, he should have also
considered the fact that in the respondents’
pleadings, they did not bring the action for
themselves and in the name of the Association, or for
the benefit of the other members, or for the persons
who might be affected by the remedy applied for.
SINGSONG v ISABELLA SAWMILL
Facts: Defendants Garibay, Margarita Saldajeno and
Tubungbanua entered into a contract of partnership
under the firm name ‘Isabela Sawmill’. Said
partnership owed unpaid balances to plaintiffs.
A civil case for the dissolution was filed by the
spouses Saldajeno against Isabela Sawmill, Garibay
and Tubungbanua. Later on said parties entered into
a memorandum agreement wherein Garibay and
Tubungbanua have bound themselves to answer for
any and all obligations of the defunct partnership to
its creditors and third persons. Defendants Garibay
and Tubungbanua did not divide the assets and
properties of the “Isabella Sawmill” between them,
but they continued the business of said partnership
under the same firm name.
The remaining partners executed an “Assignment of
Rights with Chattel Mortgage” in favor of Saldajeno
in order to secure the performance of their
obligations. However, since they defaulted in their
payment a judgment was rendered in favor of
Saldejano which caused the foreclosure of the CM.
The Provincial Sheriff published notices that he would
sell at a public auction certain properties (of the
partnership) mortgaged by Garibay and
Tubungbanua in favor of Saldejano and later on
executed a sale in the latter’s favor, selling for 38K
the assets of the partnership. Saldejano in turn sold
to Pan Oriental lumber company for 45K part of the
said properties she had bought at the public auction.
The plaintiffs, in a civil action, sought to restrain the
Sheriff from proceeding with the sales and to have
the chattel mortgage declared null and void in fraud
of creditors. Defendant M. Saldajeno claims that all
the plaintiffs save for Oppan are creditors of Garibay
and Tubungbanua and not of the defunct partnership
and that said creditors had knowledge and notice
that the former partnership had been dissolved.
 PARTNERSHIP Digests  Atty. Cochingyan
The trial court ruled in favor of the plaintiffs thus, the
herein defendants appealed. The court ruled that
there was no CM over the properties as such were
owned by the partnership and that the plaintiffs have
a preferred right over it as against Saldejano. As
such, the latter must pay the plaintiffs the respective
amounts for which the partnership is indebted to
them. Garibay and Tubungbanua are also liable to
pay to the plaintiffs whatever amount that they may
not collect from Saldajeno. The defendants appealed
to the CA but the latter transferred the records of the
case to the SC.
SC: The remaining partners did not terminate the
business of the partnership. It is expressly stipulated
in the memorandum agreement that the remaining
partners had constituted themselves as the
partnership entity, the “Isabella Sawmill”. There was
no liquidation of the assets of the partnership. The
remaining partners continued doing business of the
partnership in the name of “Isabella Sawmill”. They
used the properties of the partnership. The
properties mortgaged to M. Saldajeno by the
remaining partners belonged to the partnership. It
does not appear that the withdrawal of M. Saldajeno
was 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 doing business in the name of “Isabela
sawmill” could be enforced against the properties of
said partnership. The judicial foreclosure executed in
favor of Saldajeno did not relieve her from liability to
the creditors of the partnership. Technically speaking
the partnership was dissolved by the withdrawal of
Saldajeno but not terminated and it continued doing
business through the two remaining partners.
The plaintiffs were prejudiced in their rights by the
execution of the chattel mortgage over the
properties of the partnership in favor of Saldajeno by
the remaining partners and they had a right to file
the action to nullify the chattel mortgage in question.
The spouses Saldejano have a right to be reimbursed
whatever amounts they shall pay the appellees by
their Garibay and Tubungbanua as in the
memorandum agreement, they undertook to release
Saldejano from any obligation of the partnership to
third persons.
YU VS. NLRC
Facts: Yu was formerly the Assistant General
Manager of a registered partnership, Jade Mountain.
The partnership was originally composed of Bendal
siblings as general partners and others who were
limited partners. The partnership business consisted
of exploiting marble deposit found on the land of the
Cruz spouses by virtue of a memorandum
agreement. Yu was hired by virtue of a Partnership
Resolution as Assistant General Manager with a
monthly salary. He, however, only received half of his
monthly salary since he had accepted the promise of
the partners that the balance would be paid when
the firm shall have secured additional operating
funds from abroad. Yu managed the operations and
finances of the business, had overall supervision of
the workers at the marble quarry and took charge of
the preparation of papers relation to the exportation
of the firm’s products.
Without knowledge of Yu, the general partners
transferred their interests while some of the limited
Partnership & Agency | 2B 2008-2009
partners sold and transferred their interests in the
partnership to respondents Co and Zapanta.
Respondents continued to use the old firm name but
moved the firm’s main office. A supplement to the
memorandum agreement relating to the operation of
the marble quarry was entered into with the Cruz
spouses. The actual operations of the business
continued as before. All the employees continued
working in the business. Yu, however, was informed
by Co that he had bought the business from the
original partners and that it was up to him to decide
whether or not he was responsible for the obligations
of the old partnership including Yu’s salary. Yu was
no longer allowed to work for the business and his
salary remained unpaid.
Yu filed a complaint for illegal dismissal and recovery
of unpaid salary against the partnership, Co and
other partners. Defendants contended that the new
partnership never hired Yu as an employee. The
labor arbiter found in favor of Yu and decreed his
reinstatement and payment of unpaid salaries as
well as backwages. The NLRC reversed the decision,
ruling that the new partnership had not retained Yu
in his original position and there was no law requiring
the new partnership to absorb the employees of the
old partnership. The claim for unpaid wages must be
asserted against the old partners but they have not
been served with summons.
Issues: Whether the old partnership had been
extinguished and replaced by a new partnership. If a
new partnership was created could Yu assert his
rights under his employment contract as against it?
SC: The acquisition by the new partners of 82% of
the partnership interest was enough to constitute a
new partnership. However, dissolution does not
automatically result in the termination of the legal
personality of the old partnership. The legal
personality of the expiring partnership persists for
the limited purpose of winding up and closing of the
affairs of the partnership. The new partnership
simply took over the business enterprise owned by
the preceding partnership and continued using the
old name without winding up the business affairs of
the latter, paying off its debts, liquidating and
distributing its assets and the re-assembling the
assets and opening a new business enterprise.
Therefore, not only the retiring partners 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 creditors of the old
partnership are also the creditors of the new. Yu is
entitled to enforce his claim for unpaid salaries, as
well as other claims relating to his employment with
the previous partnership, against the new one.
The non-retention of Yu did not constitute unlawful or
unjust termination as the new partnership is entitled
to hire new managers. The new partnership had Co
as its own new manager and the basis for Yu’s
termination was redundancy.
Yu is entitled to his unpaid wages and separation
pay.
AMES V. DOWNING (N.Y. Surr. Cit.)
[TAKEN FROM CLV BLOG] Bautista quoted from
the New York decision in Ames v. Downing, 1 Brad.
 PARTNERSHIP Digests  Atty. Cochingyan
(N.Y. Surr. Cit.) 321,[4] to describe the origin and
development of limited partnerships, thus --
The system of limited partnership, which was
introduced by statute into this state, and
subsequently very generally adopted in many other
states of the Union, was borrowed from the French
Code. (3 Kent. 36; Code de Commerce, 12, 23, 24.)
Under the name of la societe en commandite, it has
existed in France from most authentic commercial
records, and in the early mercantile regulations of
Maseilles and Montpelier. In the vulgar latinity of the
middle ages it was styled commanda, and in Italy
accomenda. In the states of Pisa and Florence, it is
recognized so far back as the year 1166; also in the
ordinance of Louise-le Hutin, of 1315; the statutes of
Marseilles, 1253; of Geneva, of 1588. In the middle
ages it was one of the most frequent combinations of
trade, and was the basis of the active and widely
extended commerce of the opulent maritime cities of
Italy. It contributed largely to the support of the great
and prosperous trade carried on along the shores of
the Mediterranean, was known in Laguedoc,
Provence, and Lombardy, entered into most of the
industrial occupations and pursuits of the age, and
even traveled under the protection of the arms of the
Crusaders to the city of Jerusalem. At a period when
capital was in the hands of nobles and clergy, who,
from pride of caste, or cannonical regulations, could
not engage directly in trade, it afforded the means of
secretly embarking in commercial enterprises, and
reaping the profits of such lucrative pursuits, without
personal risk; and thus the vast wealth, which
otherwise could have lain dormant in the coffers of
the rich, became the foundation, by means of this
ingenious idea, of the great commerce which made
princes of the merchants, elevated to the trading
class, and brought the Commons into position as an
influential estate in the Commonwealth. Independent
of the interest naturally attaching to the history of a
mercantile contract, of such ancient origin, but so
recently introduced where the general partnership,
known to the common law has hitherto existed alone,
I have been led to refer to the facts just stated, for
the purpose of showing that the special partnership
is, in fact, no novelty, but an institution of
considerable antiquity, well known, understood and
regulated. Ducange defines it to be: "Societas
mercatorem qua uni sociorum tota negotiationis cura
commendatur, certis conditionibus." It was always
considered a proper partnership, societas, with
certain reserves and restrictions; and in the
ordinance of Louis XIV., of 1793, it is ranked as a
regular partnership. In the Code of Commerce it is
classed in the same manner. I may add, as an
important fact, for the explanation of the distinction
to which I shall shortly advert, that the French Code
permits a special partnership, of which the capital
may be divided into shares, or stock, transmissible
from hand to hand. In such a case, the death of the
special partner does not dissolve the firm, the
creation of transmissible shares being a proof that
the association is formed respectu negotii, and not
respectu peronsarum; but even in such a partnership
the death of the general partner effects a dissolution,
unless it is expressly stipulated otherwise. But, says
M. Troplong, in would be wrong to extend the rule
that a partnership, of which the capital is divided into
transmissible shares, is not dissolved by the death of
a stockholder, to a special partnership, the capital of
which is not so divided. The statute of New York
recognizes only the latter kind of partnership, the
names of the parties being required to be registered,
and any change in the name working a dissolution,
and turning the firm into a general partnership. Such
Partnership & Agency | 2B 2008-2009
a partnership has always been held to be dissolved
by the death of the special partner. *** The
partnership remains under the dominion of the
common law. It has created between the special and
general partner a tie, which is not subjected to the
caprice of unforseen changes; it has produced
mutual relations of confidence, which the general
partner cannot be forced to extend to strangers.
COMMISSIONER OF INTERNAL REVENUE VS.
SUTER
Facts: In 1947, A limited partnership, “William J.
Suter ‘Morcoin’ Co., Ltd.”, was formed with William
Suter as general partner, Julia Spirig and Gustav
Carlson as limited partners, each contributing to the
partnership. In 1948, Suter married Spirig and
thereafter, Carlson sold his share in the partnership
to Suter and his wife. The limited partnership had
been filing its income tax returns (ITRs) as a
corporation w/o objection from the CIR. Later in an
assessment, the CIR consolidated the income of the
firm and the individual incomes of partner-spouses
resulting in a determination of a deficiency income
tax against Suter. Suter protested and requested
cancellation and withdrawal but was denied by the
CIR. Suter appealed to the Court of Tax Appeals w/c
reversed CIR’s decision.
Issues:
(1) Should the corporate personality of the
partnership be disregarded for income tax purposes
since partner-spouses form a single taxable unit?
(2)Was the partnership dissolved after the marriage
of partner-spuses and subsequent sale of Carlson of
his participation in the partnership?
Held: CTA decision affirmed. The limited partnership
was not a universal partnership but a particular one.
A universal partnership requires either that the
object of the association be all the present property
of the partners, as contributed by them to the
common fund, or else “all that the partners may
acquire by their industry or work during the
existence of the partnership”. In the instant case, all
of the contributions were fixed sums of money and
neither of them were industrial partners. Thus it was
not a partnership that spouses were forbidden to
enter under the 1889 Civil Code.
The capital contributions of partner-spouses were
separately owned and contributed by them before
their marriage; and after they were joined in
wedlock, such contributions remained their
respective separate property under the Spanish Civil
Code. Thus, the individual interest of each did not
become common property of both after their
marriage.
In this case the limited partnership is not a mere
business conduit of the partner-spouses; it was
organized for legitimate business purposes, The
change in its membership brought about by the
marriage is not a ground for withdrawing the
partnership from coverage under §24 of the tax code
 PARTNERSHIP Digests  Atty. Cochingyan
requiring it to pay income tax. What is taxable is the
income of both spouses in their individual capacities.

JO CHUNG CANG vs. PACIFIC COMMERCIAL Co.

Facts: In an insolvency proceedings of petitioner-

establishment, “Sociedad Mercantil, Teck Seing &
Co., Ltd.”, creditors, Pacific Commercial and others
filed a motion with the Court to declare the individual
partners parties to the proceeding, for each to file an
inventory, and for each to be adjudicated as
insolvent debtors.

Issue: What is the nature of the mercantile

establishment, Teck Seing & Co., Ltd.?

Held: The contract of partnership established a

general partnership.

By process of elimination, Teck Seing & Co., Ltd. Is

not a corporation nor an accidental partnership (joint
account association).

To establish a limited partnership, there must be, at

least, one general partner and the name of at least
one of the general partners must appear in the firm
name. This requirement has not been fulfilled. Those
who seek to avail themselves of the protection of
laws permitting the creation of limited partnerships
must the show a substantially full compliance with
such laws. It must be noted that all the requirements
of the Code have been met w/ the sole exception of
that relating to the composition of the firm name.

The legal intention deducible from the acts of the

parties controls in determining the existence of a
partnership. If they intend to do a thing w/c in law
constitutes a partnership, they are partners although
their very purpose was to avoid the creation of such
relation. Here the intention of the persons making
up, Teck Seing & Co., Ltd. Was to establish
partnership w/c they erroneously denominated as a
limited partnership.

Partnership & Agency | 2B 2008-2009