1. AFISCO INSURANCE CORPORATION V. CAG.R. NO. 112675 JAN. 25, 1999

Facts: Pursuant to “reinsurance treaties,” a number of local

insurance firms formed themselves into a “pool” in order to facilitate the handling of business contracted with a non resident foreign reinsurance company.

After assessing their submitted financial statement, the BIR Commissioner required them to pay deficiency taxes on the ground that they have formed an unregistered partnership taxable as a corporation

AFISCO: there was no partnershipo The reinsurance policies were written by

them individually and separatelyo Their liability was limited to the extent of

their allocated share in the original risks thus reinsured

o They did not share the same risk or solidary liability

o There was no common fundo The executive board of the pool did not

exercise control and management of its funds, unlike the board of directors of a corporation

o The pool or clearing house was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself

CA: a partnership was formedIssue:

WON the pool or clearing house was a partnership or association subject to tax as a corporation

Held: Yes, it is. The Philippine legislature included in the concept of

corporations those entities that resembled them such as unregistered partnerships and associations.

o Parenthetically, the NLRC’s inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act of 1997, which amended the Tax Code

SC: the term partnership includes syndicate, group, pool, joint venture and other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on (Evangelista v. Collector of Internal Revenue)

Art. 1767 of the Civil Code: requisite of a contract of partnership

o Two or more persons mutually contribute to a common fund

o With the intention to divide the profits among themselves

Meanwhile, an association implies associates who enter into a joint enterprise for the transaction of business

Where several local insurance ceding companies enter into pool agreement or an association that would handle all the insurance business covered under their quota-share reinsurance treaty and surplus reinsurance treaty with a non-resident foreign reinsurance company, the resulting pool having a common fund, and functions through an executive board, and its work in indispensable, beneficial and economically useful to the business of the ceding companies and the foreign firm, such circumstances indicate a partnership or an association covered by Sec. 24 of the NIRC

2. LIM VS. PHILIPPINE FISHING GEAR INDUSTRIES INC. GR 136448, 3 NOVEMBER 1999

FACTS: Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him. The three agreed to purchase two fishing boats but since they do not have the money they borrowed from one Jesus Lim the brother of Lim Tong Lim. Subsequently, they again borrowed money for the purchase of fishing nets and other fishing equipments. Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing Corporation” (OQFC) and they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to more than P500k. However, they were unable to pay PFGI and hence were sued in their own names as Ocean Quest Fishing Corporation is a non-existent corporation. Chua admitted his liability while Lim Tong Lim refused such liability alleging that Chua and Yao acted without his knowledge and consent in representing themselves as a corporation. ISSUE: Whether Lim Tong Lim is liable as a partner HELD: Yes. It is apparent from the factual milieu that the three decided to engage in a fishing business. Moreover, their Compromise Agreement had revealed their intention to pay the loan with the proceeds of the sale and to divide equally among them the excess or loss. The boats and equipment used for their business entails their common fund. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. The principle of corporation by estoppel cannot apply in the case as Lim Tong Lim also benefited from the use of the nets in the boat, which was an asset of the partnership. Under the law on estoppel, those acting in behalf of a corporation and those benefited by it, knowing it to be without valid existence are held liable as general partners. Hence, the question as to whether such was legally formed for unknown reasons is immaterial to the case.

3. GATCHALIAN VS CIRApril 29 1939 | GR No 45425 |Plaintiffs-appellants: Jose Gatchalian, et al Defendant-appellee: Collector of Internal Revenue

QUICKIE:

Jose Gatchalian and 14 others, put up money totaling Php 2.00 in order to buy a sweepstakes ticket for the same amount. They won, and were assessed an income tax of Php 1,499.94, equal to 3 percent of the Php 50,000 prize. They paid under protest. In requesting for a refund, they admit that a partnership would be liable for the income tax, but contend that what they formed was a community of property, instead of a partnership. Upon this contention, it was Held: Each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of Php 50,000. Upon their winning, Gatchallian appeared in the PCSO, in his capacity as co-partner, and collected the prize. The PCSO issued the check in favor of Jose Gatchalian and company, which check was collected by Gatchalian. All these repel the idea that they organized and formed a community of property only. The partnership they formed is the one bound to pay the income tax.

FACTS:

Jose Gatchalian, with 14 others, residents of Pulilan, Bulacan, in order to enable them to purchase one sweepstakes ticket valued at Php 2.00, subscribed and paid therefor varying

amounts totalling Php 2.00. They purchased the ticket and the same was registered in the name of Jose Gatchalian and Company. The ticket won the third prize in the draw, in the amount of Php 50,000. Gatchalian was required by income tax examiner Alfredo David to file the corresponding income tax return, and made an assessment against Jose Gatchalian & Company requesting the sum of Php 1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan. They requested an exemption, but the Collector denied plaintiff’s request, and also reiterated his demand. After their failure to pay, a warrant of distraint and levy against their properties was issued by the Collector. They paid under protest Php 601.51 as part of the tax and penalties to the municipal treasurer. They also requested to be allowed to pay the rest by monthly installments. This request was granted after filing of a bond to secure performance of each installment (each at Php 118.70 a month). They formally protested and requested a refund, but the same was denied and overruled by the Collector. When they failed to pay the monthly installments according to the terms and conditions of the bond filed by them, the Collector ordered the municipal treasurer of Pulilan to execute within five days the warrant of distraint and levy previously issued. In order to avoid any more annoyance and embarrassment, they paid under protest to the municipal treasurer of Pulilan the sum of Php 1,260.93 representing the unpaid balance. They formally protested and requested for refund once more, and were again overruled and denied by the Collector. On appeal, the CFI affirmed.

ISSUES/ HELD:

WON what they formed was a partnership or a co-ownership. PARTNERSHIP!

Whether they should pay the tax collectively or whether the latter should be prorated among them and paid individually. COLLECTIVELY!

RATIO: There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax under the law1. But according to the stipulated facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of Php 50,000 (article 1665, Civil Code2). The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippine Charity

1 Section 10 of Act No. 2833, last amended by section 2 of Act No. 3761 2 Now Art 1767 of the New Civil Code, which states: “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. Xxx”

Sweepstakes, in his capacity as co-partner, as such collected the prize, the office issued the check for Php 50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the same check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only. Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay the income tax which the defendant collected. There is no merit in plaintiffs’

contention that the tax should be prorated among them and paid individually, resulting in their exemption from the tax.

JUDGMENT: Affirmed.

NOTES: Characteristics of Partnership not necessarily present in Co-ownership (my observation only): The parties contribute to a common fund with the intention of dividing the profits among themselves Co-partners act in their capacity as such and in the name of the partnership Income tax is to be paid by the partnership created

4. ARBES VS POLISTICO

FACTS: This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer, directors and secretary of said association. By agreement of the parties, the court appointed a commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co. The commissioner rendered his report, showing a balance of the cash on hand in the amount of P24,607.80. The trial court in accepting the report, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said plaintiffs. There is no question that "Turnuhan Polistico & Co." is an unlawful partnership, but the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, particularly the second paragraph, which provides: “When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.”

ISSUE: WHETHER OR NOT A CHARITABLE INSTITUTION IS A NECESSARY PARTY IN THIS CASE.

RULING:

NO, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. Hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case. In so ruling, the court had the occasion of explaining the scope and spirit of the provision of Article 1666 of the Civil Code (now Article 1770 of the New Civil Code). With regard to Contributions of an Illegal Partnership: the court holds that –

(1) The partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action since said contract does not exist in the eyes of the law, the purpose from which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any consideration; for

which reason he is not bound to return it and he who has paid in his share is entitled to recover it.

(2) Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed profits, shows that in consequences of said exclusion, the general law must be followed, and hence the partners should reimburse the amount of their respective contributions.

(3) Any other solution is immoral, and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them, by denying to the partners the action to demand them.

With regard to Profits of an Illegal Partnership: the court holds that – (1) The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action. (2) Profits earned in the course of the partnership, because they do not constitute or represent the partner's contribution but are the result of the industry, business or speculation which is the object of the partnership, and therefor, in order to demand the proportional part of the said profits, the partner would have to base his action on the contract which is null and void, since this partition or distribution of the profits is one of the juridical effects thereof. (3) Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it.

5. P&M CATTLE V HOLLER

FACTS:

P&M Cattle sought and was denied recovery for losses incurred in 1974 under an alleged "oral joint venture agreement" to purchase, lease and sell livestock.

Holler, was given judgment for $2,219.40 on a counterclaim.

In 1971, Holler was looking for someone to pasture cattle on the his land at $3.00 per head per month. One of two partners in the P&M Cattle partnership expressed an interest and invited Holler to talk.

The 1971 agreement was orally renewed for the years 1972, 1973 and 1974. Plaintiff and defendant each realized substantial returns in the first three years but in 1974 there was not enough realized from the sale of cattle to pay first costs and a loss resulted. Plaintiff insists that the defendant is bound to pay it $44,500.00 representing one-half of the total cash loss in the sum of $89,000.00. The defendant personally expended first costs for expenses (salt) over and above the amount received from sale of cattle in the sum of $3,967.76. Through an admitted error of defendant's counsel, along with a misunderstanding by defendant, only one-half of those expenses were claimed by defendant. When the error became apparent at or near the close of evidence, they elected not to amend the defendant's claim first made. The contract clearly states that plaintiff was to "furnish money for * * * salt.

The parties never discussed nor is there any mention in the contract of what would happen if the cattle sold at a loss. Nor was any mention made of reimbursement or credit to the defendant for the value of his services and pasture or grass he contributed, in the event cattle sold at a loss.

A broad overview of the entire record suggests that this case involves only a contract in which plaintiff agreed to put up the money and defendant agreed to put up grazing land and grass, along with services, with a view to profit to both, each to bear their own losses. Before confirming that position, we must examine the law of joint ventures.

ISSUE:

Whether the parties to this appeal were parties to a joint venture or partnership agreement to share losses as well as profits from a cattle purchase, feed and sell operation.

HELD:

In the case before us there was no express agreement to form a partnership. True, there was an agreement but nowhere in that document is there anywhere mentioned the term partnership. Nor is there anywhere mentioned any sharing of losses, which is normally concomitant with a sharing of profits in a partnership.3 While § 17-201(4) creates an inference, that inference is not conclusive. See the many cases annotated in 6 U.L.A. (Master Edit. 1969 with pocketpart), Uniform Partnership Act, § 7, note 47.

We find in Wyoming two cases which reflect the usual holdings that division of profits has little significance by itself. In Dunn v. Gilbert, 1927, 36 Wyo. 249, 254 P. 121, it was held that the use of the expression "fifty-fifty" and an understanding to split the profits do not necessarily mean a joint adventure but such expression must be construed in the light of surrounding facts and circumstances. In State v. Bemis, 1926, 34 Wyo. 218, 241, 242 P. 802, 809, the principal witness put up the money to buy and pay shipping costs of a carload of apples. The defendant was to share in the profits by arranging their sale. They sold at a loss and defendant kept all the money. In a prosecution for embezzlement, the defendant claimed a right to retain the funds by reason of a partnership. This court spoke approvingly of the principle that when a business is limited to a single venture, there must be pretty clear evidence of an intent to create a partnership relationship and an understanding for division of profits may only be considered in connection with the whole transaction.

Since we cannot look at the face of the instrument here and determine whether there is a partnership, it is necessary that we examine into the complete relationship between plaintiff and defendant. We can in such a circumstance go outside its four corners to test the claim of a would-be partner and look at what the parties did and how they treated the arrangement between them. The contemporary construction of a contract by acts of the parties is entitled to serious consideration by the court whose duty it becomes to determine its meaning. First Nat. Bank of Green River v. Ennis, 1932, 44 Wyo. 497, 14 P.2d 201, reh. den., 45 Wyo. 165, 15 P.2d 1111, West's Wyoming Digest Contracts. The reason for that view rests in the fact that the parties are less liable to have been mistaken as to the meaning of their contract while harmonious relations existed and during that period a practical and real construction would be in effect reflective of their true intentions and not interpretations ventured during the heat of litigation. Denio Milling Co. v. Malin,1917, 25 Wyo. 143, 165 P. 1113.

In the first place, the agreement is not labeled a "partnership agreement" nor is the term "partnership" anywhere mentioned within its terms. The plaintiff was itself a partnership made up of two ranchers well acquainted with that arrangement, one of whom drew the contract. From its inception, then, none of the parties ever identified it as such. The pact was conceived in an atmosphere created by defendant's desire to sell grass. The division of losses was never discussed between the parties until the plaintiff delivered the bad news to the defendant following fall cattle sales in 1974. No partnership federal income tax

return in any of the years 1971-74 was prepared and submitted to the Internal Revenue Service of the United States. On

[559 P.2d 1024]the income tax returns made by the plaintiff during the period in question, the part of profits paid to the defendant was carried as a business expense listed as "contract feeding." The defendant included such payments on his individual income tax return as a sale of "crops," nor were the cattle grazed on his place by the defendant carried on defendant's income tax return livestock inventory. The livestock were carried on plaintiff's partnership income tax returns. On the check given by plaintiff to defendant in 1973, for defendant's share of profits at the end of the season, it was shown as being for "pasture."

Within the framework of the Uniform Partnership Act, we find rules available to the trial judge to determine that there was no partnership. The division of profits was only a measure — a standard of payment by plaintiff to defendant in discharge of a debt for services and grass under § 17-201(4)(a) or in payment to defendant for wages of an employee in caring for the cattle while on his ranch and rent to him as landlord for his pasture under § 17-201(4)(b) or sale of grass as personal property under § 17-201(4)(e) or through a combination of those lettered subsections for wages and rent or sale of property. We need not determine precisely what it was as long as outside the pale of partnership. We are satisfied that no partnership was intended. The agreement was only an apparatus to pay defendant for his grass and services and we return to its terms after reconnoitering the outer regions.

Whether or not there is a joint venture is a question of fact and preeminently one for the finder of fact. Robinson Transportation Company v. Hawkeye-Security Insurance Company, Wyo. 1963, 385 P.2d 203; Hoge v. George, supra. The trial judge found for the defendant and we see substantial evidence to support that result. The trial judge could not from the facts before him, nor can we, put together a joint adventure or partnership agreement for the plaintiff.

Since the issue as to whether or not there was a joint venture or partnership is a question of fact for the trial judge, we have examined the evidence in a light most favorable to the prevailing party, as we must, and have resolved all conflicts in testimony and exhibits for the appellee. Crockett v. Lowther, Wyo. 1976, 549 P.2d 303; West's Wyoming Digest, Appeal and Error. The trial judge's finding was generally for the defendant. In the absence of special findings of fact, this reviewing court must consider that the trial court's judgment carries with it every finding of fact supported by the evidence. Hendrickson v. Heinze,Wyo. 1975, 541 P.2d 1133; West's Wyoming Digest, Appeal and Error. A judgment will be affirmed on any legal ground appearing from the record. Zitterkopf v. Roussalis, Wyo. 1976, 546 P.2d 436; West's Wyoming Digest, Appeal and Error. We use a lot of publication space repeating these appeal basics but they must be constantly kept in mind in that they have appreciable effect in diminishing an appellant's fortunes in this court.

Affirmed.

6. MURPHY VS STEVENS

7. ONA VS CIR

F: In 1944 Lorenzo Ona was appointed administrator of the estate of his late wife Julia Bunales. The administrator submitted the project of partition, which was approved by the court. However, there was no attempt was made to divide the properties among his 5 children. Instead, the properties remained under the management of Lorenzo who used the said properties in business by leasing or selling them and investing the income derived therefrom.In the years 1944 to 1954, respondent CIR did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that CIR considered them as having formed an

unregistered partnership.

I: W/N an unregistered partnership was formed.

H: Yes. It is admitted that all profits from these ventures

were divided among petitioners proportionately in accordance with their respective shares in the inheritance.

From the moment petitioners allowed not only the incomes from their respective shares but even the properties themselves to be used by Lorenzo as a common fund in undertaking several transactions or business, with the intention of deriving profit to be shared by them proportionately, such act was tantamount to actually contributing such incomes to a common fund and, in effect they thereby formed an unregistered partnership taxable by law.

8. OBILLOS VS. CIR

(Profit merely incidental)F: This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired from their father. Commissioner of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code]

I: W/N an unregistered partnership was formed.

H:No. Their original purpose was to divide the lots for residential

purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership.

The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later.

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

9. PASCUAL VS. CIR

F: The petitioners Pascual and dragon bought 5 parcels of land. The first 2 were sold in 1968, while the remaining 3 were sold in 1970. Petitioners paid the corresponding capital gains taxes on both sales availing the tax amnesties way back in 1974. However, the CIR assessed and required petitioners to pay corporate income taxes for the said years. Respondent insisted that in both years, petitioners as co-owners in the real estate transactions formed an unregistered partnership taxable as corporation.

I: W/N petitioners formed a partnership in both transactions.

H: No. There is no evidence that the petitioners entered

into an agreement to contribute money, property or industry in a common fund, and that they intended to

divide the profits among themselves. Respondent CIR just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof.

The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present.

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.

10. STERN V. DEPARTMENT OF REVENUE

Decided May 7, 1974.

The facts and legal issues of this case are strikingly similar to those in our recent decision in Skaar v. Department of Revenue (1973), 61 Wis. 2d 93, 211 N. W. 2d 642, certiorari denied, 94 Sup. Ct. 1611, 40 L. Ed. 2d 111. Although the writer of this opinion and Mr. Justice ROBERT W. HANSEN dissented, the majority opinion is the law of the case, controls here, and compels a reversal of the judgment of the trial court.

The only significant differences between the two cases are that the present action involves an interior decorating business and Skaar involved a farming operation, and that here respondent claims reliance on his accountant and in Skaar reliance was on the attorney. In both cases:

"The sole issue is whether the Wisconsin tax appeals commission erred in affirming the Department of Revenue's denial of the taxpayer's application for abatement of the additional income tax assessment by concluding that, as a matter of law, no bona fide partnership existed." Skaar, supra, page 97.

In Skaar, this court stated at pages 98, 99:

"Since Wisconsin has adopted the Uniform Partnership Act, we must initially look there for guidance. Sec. 178.03 (1), Stats., defines a partnership as an `association of 2 or more persons to carry on as co-owners a business for profit.' More specifically, it is recognized *510 that four elements need be met so as to qualify as a partnership. Initially, the contracting parties must intend to form a bona fide partnership and accept the legal requirements and duties emanating therefrom. Secondly, there must exist a community of interest in the capital employed. Thirdly, there must be an equal voice in the management of the partnership. Finally, there must be a sharing and distribution of profits and losses. Applying these elements to the case at bar, we hold that a bona fide partnership was not created. While the taxpayers may have desired to create a marital financial relationship similar to a partnership, it is clear they did not intend to create a bona fide partnership."

Similarly, applying the facts in the present case, we are forced to reach the same conclusion.

The record shows that respondent and his wife had a very close relationship and that they carried over this relationship, into the business operation. This relationship however, stems from their marriage and their desire to hold all property jointly and not from any business motive. This is not sufficient to satisfy the law, as this court held in Skaar, supra.

In Anderson v. Anderson (1972), 54 Wis. 2d 666, 669, 196 N. W. 2d 727, this court stated:

"The burden of proving the existence of a partnership rests with

respondent. Morris v. Resnick (1955), 268 Wis. 410, 415, 67 N. W. 2d 848. Sec. 178.03 (1), Stats., defines the term partnership as `an association of 2 or more persons to carry on as co-owners a business for profit.' The receipt of a share of those profits is deemed prima facie evidence that a person is a partner in the business. Sec. 178.04 (4). However, under sec. 178.04 (2), a partnership will not be implied merely because of common ownership of property, whether or not profits are shared by the co-owners. Schleicker v. Krier (1935), 218 Wis. 376, 379, 261 N. W. 413. As stated in 68 C. J. S., Partnership, p. 435, sec. 20 c (2):

"`A mere community of interest in property, such as exists between tenants in common or joint tenants of real or personal property, does not make such owners partners *511 or raise a presumption that a partnership exists, and this is so even though they cooperate in making improvements on their property and in realizing and sharing the profits or the losses and expenses arising therefrom.

"`The adoption of an assumed name, as a convenient mode of designating all the joint owners, in transactions relating to the common property, does not change the legal relationship of the several owners, with respect to the common property, from a tenancy in common to one of partnership....'"

By the Court.Judgment reversed.

NOTES[*] Motion for rehearing denied, with costs, on June 28, 1974.

11. HEIRS OF JOSE LIM VS JULIET VILLA LIM

In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a partnership agreement with Jimmy Yu and Norberto Uy. The three contributed P50,000.00 each and used the funds to purchase a truck to start their trucking business. A year later however, Jose Lim died. The eldest son of Jose Lim, Elfledo Lim, took over the trucking business and under his management, the trucking business prospered. Elfledo was able to but real properties in his name. From one truck, he increased it to 9 trucks, all trucks were in his name however. He also acquired other motor vehicles in his name.

In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack. Elfledo’s wife, Juliet Lim, took over the properties but she intimated to Jimmy and the heirs of Norberto that she could not go on with the business. So the properties in the partnership were divided among them.

Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do an accounting of all income, profits, and properties from the estate of Elfledo Lim as they claimed that they are co-owners thereof. Juliet refused hence they sued her.

The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the partnership that Jose Lim formed with Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim was the partner and not Elfledo Lim. The heirs testified that Elfledo was merely the driver of Jose Lim.

ISSUE: Who is the “partner” between Jose Lim and Elfledo Lim?

HELD: It is Elfledo Lim based on the evidence presented regardless of Jimmy Yu’s testimony in court that Jose Lim was the partner. If Jose Lim was the partner, then the partnership would have been dissolved upon his death (in fact, though the SC did not say so, I believe it should have been dissolved upon Norberto’s death in 1993). A partnership is dissolved upon the death of the partner. Further, no evidence was presented as to the articles of partnership or contract of partnership between Jose, Norberto and Jimmy. Unfortunately, there is none in this case, because the alleged partnership was never formally

organized.

But at any rate, the Supreme Court noted that based on the functions performed by Elfledo, he is the actual partner.

The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto:

1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership;

2.) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein;

3.) all of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo;

4.) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business; and

5.) none of the heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As repeatedly stressed in the case of Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and registered in the names of Elfledo and Juliet formed part of the estate of Jose, having been derived from Jose’s alleged partnership with Jimmy and Norberto.

Elfledo was not just a hired help but one of the partners in the trucking business, active and visible in the running of its affairs from day one until this ceased operations upon his demise. The extent of his control, administration and management of the partnership and its business, the fact that its properties were placed in his name, and that he was not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent that the other partners only contributed in the initial capital but had no say thereafter on how the business was ran. Evidently it was through Elfredo’s efforts and hard work that the partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by acting as the bookkeeper sans salary.

12. LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs.LAMBERTO T. CHUA, respondent.

FACTS Lamberto Chua alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane LPG. For business convenience, Lamberto and Jacinto allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER, under the name of Jacinto as a sole proprietorship. Both Lamberto and Jacinto contributed P100,000.00 to the partnership, with the intention that the profits would be equally divided between them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy, sister-in-law of Lamberto. Upon Jacinto’s death in the later part of 1989, his daughter, Lilibeth took over the operations of Shellite without Lamberto’s consent. Despite Lamberto’s repeated demands for accounting, she failed to comply. On June 22m 1992, Lamberto filed a complaint against Lilibeth with the RTC. RTC decided in favor of Lamberto. Lilibeth questions the correctness of the finding that a partnership existed between Lamberto and Jacinto. In the

absence of any written document to show such partnership between Lamberto and Jacinto, Lilibeth argues that these courts were proscribed from hearing the testimonies of Lamberto and his witness, Josephine, to prove the alleged partnership three (3) years after Jacinto’s death. To support the argument, Lilibeth invokes the “DEAD MAN’S STATUTE OR SURVIVORSHIP RULE” under Sec. 23, Rule 130. Lilibeth thus implores this Court to rule that the testimonies of Lamberto and his alter ego, Josephine, should not have been admitted to prove certain claims against a deceased person (Jacinto).

ISSUE Whether or not the “DEAD MAN’S STATUTE” applies to this case so as to render inadmissible Lamberto’s testimony and that if his witness, Josephine.

HELD No. The “Dead Man’s Statute” provides that if one party to the alleged transaction is precluded from testifying by death, insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own contradicted and unexplained account of the transaction.Lilibeth filed a compulsory counterclaim against Lamberto in their answer before the RTC, and with the filing of their counterclaim, Lilibeth herself effectively removed this case from the ambit of the “Dead Man’s Statute”. Well entrenched is the rule that when it is the executor or administrator or representatives of the estate that sets up the counterclaim, Lamberto, may testify to occurrences before the death of the deceased to defeat the counterclaim. Moreover, as defendant in the counterclaim, Lamberto is not disqualified from testifying as to matters of fact occurring before the death of the deceased, said action not having been bought against but by the estate or representatives of the deceased.The testimony of Josephine is not covered by the “Dead Man’s Statute” for the simple reason that she is not “a party or assignor of a party to a case or persons in whose behalf a case is prosecuted”. Lamberto offered the testimony of Josephine to establish the existence of the partnership between Lamberto and Jacinto. Lilibeth’s insistence that Josephine is the alter ego of Lamberto does not make her an assignor because of the term “assignor” of a party means “assignor of a cause of action which has arisen, and not the assignor of a right assigned before any cause of action has arisen”. Plainly then, Josephine is merely a witness of Lamberto, latter being the plaintiff.Lilibeth’s reliance alone on the “Dead Man’s Statue” to defeat Lamberto’s claim cannot prevail over the factual findings that a partnership was established between Lamberto and Jacinto. Based not only on the testimonial evidence, but the documentary evidence as well, they considered the evidence for Lamberto as sufficient to prove the formation of a partnership, albeit an informal one.

13. AURELIO LITONJUA JR VS EDUARDO LITONJUA SR. ET AL

Business Organization – Partnership, Agency, Trust – Partnership, how formed

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the latter is allowing Aurelio to manage their family business (if Eduardo’s away) and in exchange thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum was subsequently made for the said partnership agreement. The memorandum this time stated that in exchange of Aurelio, who just got married, retaining his share in the family business (movie theatres, shipping and land development) and some other immovable properties, he will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater.

In 1992 however, the relationship between the brothers went

sour. And so Aurelio demanded an accounting and the liquidation of his share in the partnership. Eduardo did not heed and so Aurelio sued Eduardo.

ISSUE: Whether or not there exists a partnership.

HELD: No. The partnership is void and legally nonexistent. The documentary evidence presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership.

The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that said letter does not meet the public instrumentation requirements exacted under Article 1771 (how partnership is constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, said letter cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of Aurelio’s contribution, if any, to the supposed partnership.

The Memorandum is also not a proof of the partnership for the same is not a public instrument and again, no inventory was made of the immovable property and no inventory was attached to the Memorandum. Article 1773 of the Civil Code requires that if immovable property is contributed to the partnership an inventory shall be had and attached to the contract.