1.

FULL TEXT (Article 1768)

Evangelista VS CIR
GR. No. 112675, Jan. 25,1999

This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista,
for review of a decision of the Court of Tax Appeals, the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax,
real estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in
accordance with the respondent's assessment for the same in the total amount of
P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is
hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of P59,1400.00 which
amount together with their personal monies was used by them for the purpose of
buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an
area of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00;
this property has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with
an aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00;
this property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of
4,353 sq. m. including improvements thereon for P108,825.00. This property has an
assessed value of P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m.
including improvements thereon for P237,234.34. This property has an assessed value
of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon
Evangelista to 'manage their properties with full power to lease; to collect and receive
rents; to issue receipts therefor; in default of such payment, to bring suits against the
defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to
endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners had
the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including December, 1945, the total
amount collected as rents on their real properties was P9,599.00 while the expenses
amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of
which amount was deducted in the sum of P16,288.27 for expenses thereby leaving
them a net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which
amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a net
rental income of P12,615.35.

It further appears that on September 24, 1954 respondent Collector of Internal Revenue
demanded the payment of income tax on corporations, real estate dealer's fixed tax and
corporation residence tax for the years 1945-1949, computed, according to assessment made
by said officer, as follows:

INCOME TAXES

1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge and

compromise

P6,157.0
9

REAL ESTATE DEALER'S FIXED TAX

1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

RESIDENCE TAXES OF CORPORATION

1945

P38.75

1946

38.75

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.3
4.

Said letter of demand and corresponding assessments were delivered to petitioners on

December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals,
with a prayer that "the decision of the respondent contained in his letter of demand dated
September 24, 1954" be reversed, and that they be absolved from the payment of the taxes
in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the
respondent, and a petition for reconsideration and new trial having been subsequently denied,
the case is now before Us for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for
in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real estate dealers
fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the
terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the
pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding taxable year from all
sources by every corporation organized in, or existing under the laws of the Philippines,
no matter how created or organized but not including duly registered general copartnerships (compaias colectivas), a tax upon such income equal to the sum of the
following: . . .

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, properly, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to
divide the profits among the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in acting as they
did. Upon consideration of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not
property inherited by them pro indiviso. They created it purposely. What is more
they jointly borrowed a substantial portion thereof in order to establish said common
fund.
2. They invested the same, not merely not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944,
they purchased 21 lots for P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944),
they got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions
undertaken, as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not limited to
the conservation and preservation of the aforementioned common fund or even of the
property acquired by the petitioners in February, 1943. In other words, one cannot but
perceive a character of habitually peculiar to business transactions engaged in the
purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal
uses, of petitioners herein. The properties were leased separately to several persons,
who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person,
namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts,
to bring suits, to sign letters and contracts, and to indorse and deposit notes and
checks. Thus, the affairs relative to said properties have been handled as if the same
belonged to a corporation or business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact,
over fifteen (15) years, since the first property was acquired, and over twelve (12)
years, since Simeon Evangelista became the manager.
6. 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.
They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt

on the existence of said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and, hence, those cases
are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence
of the acts performed by them, a legal entity, with a personality independent of that of its
members, did not come into existence, and some of the characteristics of partnerships are
lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our Internal Revenue Code
includes "partnerships" among the entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships which constitute precisely one of
the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b)
of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual requirements of the
law on partnerships, in order that one could be deemed constituted for purposes of the tax on
corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among
other, joint accounts, (cuentas en participation)" and "associations," none of which has a legal
personality of its own, independent of that of its members. Accordingly, the lawmaker could
not have regarded that personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" which are possessed of the aforementioned personality have been
expressly excluded by law (sections 24 and 84 [b] from the connotation of the term
"corporation" It may not be amiss to add that petitioners' allegation to the effect that their
liability in connection with the leasing of the lots above referred to, under the management of
one person even if true, on which we express no opinion tends to increase the similarity
between the nature of their venture and that corporations, and is, therefore, an additional
argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently
from "partnerships". By specific provisions of said laws, such "corporations" include
"associations, joint-stock companies and insurance companies." However, the term
"association" is not used in the aforementioned laws.
. . . in any narrow or technical sense. It includes any organization, created for the
transaction of designed affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its members or participants change, and
the affairs of which, like corporate affairs, are conducted by a single individual, a
committee, a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-stock
corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law'
trust, and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which is
not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens
Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it includes
not only a partnership as known at common law but, as well, a syndicate, group,
pool, joint venture or other unincorporated organizations which carries on any business
financial operation, or venture, and which is not, within the meaning of the Code, a

trust, estate, or a corporation. . . (7A Merten's Law of Federal Income taxation, p. 789;
emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation, p.
562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships with the exception only of duly registered general copartnerships within the
purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are subject to the income tax
for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465
provides in part:
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: . . .
The term 'corporation' as used in this Act includes joint-stock company, partnership,
joint account (cuentas en participacion), association or insurance company, no matter
how created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24 and 84
(b) of our National Internal Revenue Code (commonwealth Act No. 466), and that the latter
was approved on June 15, 1939, the day immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it is apparent that 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.
Lastly, the records show that petitioners have habitually engaged in leasing the properties
above mentioned for a period of over twelve years, and that the yearly gross rentals of said
properties from June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to
the tax provided in section 193 (q) of our National Internal Revenue Code, for "real estate
dealers," inasmuch as, pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding
himself out as a full or part time dealer in real estate or as an owner of rental property
or properties rented or offered to rent for an aggregate amount of three thousand pesos
or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs
against the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.

1. DIGST
Evangelista VS CIR
GR. No. 112675, Jan. 25,1999
FACTS:
Petitioners borrowed sum of money from their father and together with their own
personal funds they used said money to buy several real properties. They then appointed
their brother (Simeon) as manager of the said real properties with powers and authority to
sell, lease or rent out said properties to third persons. They realized rental income from the
said properties for the period 1945-1949.
On September 24, 1954 respondent Collector of Internal Revenue demanded the
payment of income tax on corporations, real estate dealer's fixed tax and corporation
residence tax for the years 1945-1949. The letter of demand and corresponding assessments
were delivered to petitioners on December 3, 1954, whereupon they instituted the present
case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained
in his letter of demand dated September 24, 1954" be reversed, and that they be absolved
from the payment of the taxes in question. CTA denied their petition and subsequent MR and
New Trials were denied. Hence this petition.
ISSUE:
Whether or not petitioners have formed a partnership and consequently, are subject to
the tax on corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise
known as the National Internal Revenue Code, as well as to the residence tax for corporations
and the real estate dealers fixed tax.
HELD:
YES. The essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide
the profits among the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among themselves, because of the
following observations, among others: (1) Said common fund was not something they found
already in existence; (2) They invested the same, not merely in one transaction, but in a
series of transactions; (3) The aforesaid lots were not devoted to residential purposes, or to
other personal uses, of petitioners herein.

Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to leave no
room for doubt on the existence of said intent in petitioners herein.
For purposes of the tax on corporations, our National Internal Revenue Code, includes
these partnerships with the exception only of duly registered general co-partnerships
within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said Code is concerned and are subject to the
income tax for corporations.

2. FULL TEXT
Tocao VS CA
GR. No. 127405, Oct. 4, 2000
The inherent powers of a Court to amend and control its processes and orders so as to make
them conformable to law and justice includes the right to reverse itself, especially when in its
honest opinion it has committed an error or mistake in judgment, and that to adhere to its
decision will cause injustice to a party litigant. 1
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated October 4, 2000. They maintain that there was no
partnership between petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the
other hand; and that the latter being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that, indeed, petitioner
Belo acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed by
respondent's own witness, Elizabeth Bantilan, during her cross-examination. Furthermore,
Bantilan testified that it was Peter Lo who was the company's financier. Thus:
Q
- You mentioned a while ago the name William Belo. Now, what is the role of
William Belo with Geminesse Enterprise?
A
- William Belo is the friend of Marjorie Tocao and he was the guarantor of the
company.
Q

What do you mean by guarantor?

A
- He guarantees the stocks that she owes somebody who is Peter Lo and he acts
as guarantor for us. We can borrow money from him.
Q

You mentioned a certain Peter Lo. Who is this Peter Lo?

Peter Lo is based in Singapore.

What is the role of Peter Lo in the Geminesse Enterprise?

He is the one fixing our orders that open the L/C.

You mean Peter Lo is the financier?

Yes, he is the financier.

Q
- And the defendant William Belo is merely the guarantor of Geminesse
Enterprise, am I correct?
A

Yes, sir2

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be
recalled that the business relationship created between petitioner Tocao and respondent Anay
was an informal partnership, which was not even recorded with the Securities and Exchange
Commission. As such, it was understandable that Belo, who was after all petitioner Tocao's
good friend and confidante, would occasionally participate in the affairs of the business,
although never in a formal or official capacity. 3 Again, respondent's witness, Elizabeth
Bantilan, confirmed that petitioner Belo's presence in Geminesse Enterprise's meetings was
merely as guarantor of the company and to help petitioner Tocao. 4
Furthermore, no evidence was presented to show that petitioner Belo participated in the
profits of the business enterprise. Respondent herself professed lack of knowledge that
petitioner Belo received any share in the net income of the partnership. 5 On the other hand,
petitioner Tocao declared that petitioner Belo was not entitled to any share in the profits of
Geminesse Enterprise.6 With no participation in the profits, petitioner Belo cannot be deemed
a partner since the essence of a partnership is that the partners share in the profits and
losses.7
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise,
respondent had no cause of action against him and her complaint against him should
accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be deemed in bad
faith for failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and
that, accordingly, her claim for damages should be barred to that extent. We do not agree.
Given the circumstances surrounding private respondent's sudden ouster from the partnership
by petitioner Tocao, her act of withholding whatever stocks were in her possession and control
was justified, if only to serve as security for her claims against the partnership. However,
while we do not agree that the same renders private respondent in bad faith and should bar
her claim for damages, we find that the said sum of P208,250.00 should be deducted from
whatever amount is finally adjudged in her favor on the basis of the formal account of the
partnership affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is
PARTIALLY GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the
complaint, docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The
sum of P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall
be held liable to pay respondent after the normal accounting of the partnership affairs.

2. DIGEST
Tocao VS CA
GR. No. 127405, Oct. 4, 2000
FACTS:
Private respondent Nenita A. Anay met petitioner William T. Belo, then the vicepresident for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter
into a joint venture with her for the importation and local distribution of kitchen cookwares.
Under the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for sales.
The parties agreed that Belo's name should not appear in any documents relating to
their transactions with West Bend Company. Anay having secured the distributorship of
cookware products from the West Bend Company and organized the administrative staff and
the sales force, the cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's name.
The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo's assurances that he was sincere, dependable and honest
when it came to financial commitments.

On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to
the Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise. Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. Anay still received her five percent (5%)
overriding commission up to December 1987. The following year, 1988, she did not receive
the same commission although the company netted a gross sales of P 13,300,360.00. On
April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140 The trial court held that there was indeed an "oral partnership agreement
between the plaintiff and the defendants. The Court of Appeals affirmed the lower courts
decision.
ISSUE:
Whether the parties formed a partnership
HELD:
Yes, the parties involved in this case formed a partnership
The Supreme Court held that to be considered a juridical personality, a partnership must fulfill
these requisites:
(1) two or more persons bind themselves to contribute money, property or industry to a
common fund; and
(2) intention on the part of the partners to divide the profits among themselves. It may be
constituted in any form; a public instrument is necessary only where immovable property or
real rights are contributed thereto.
This implies that since a contract of partnership is consensual, an oral contract of
partnership is as good as a written one. In the case at hand, Belo acted as capitalist while
Tocao as president and general manager, and Anay as head of the marketing department and
later, vice-president for sales. Furthermore, Anay was entitled to a percentage of the net
profits of the business. Therefore, the parties formed a partnership.
3. FULL TEXT
Aguila Jr. VS CA
GR. No. 127347, Nov. 25, 1990
This is a petition for review on certiorari of the decision 1 of the Court of Appeals, dated
November 29, 1990, which reversed the decision of the Regional Trial Court, Branch 273,
Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed the petition for
declaration of nullity of a deed of sale filed by private respondent Felicidad S. Vda. de Abrogar
against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending
activities. Private respondent and her late husband, Ruben M. Abrogar, were the registered
owners of a house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina,
Metro Manila. On April 18, 1991, private respondent, with the consent of her late husband,
and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of
Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property
from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed
of Absolute Sale shall be executed by the FIRST PARTY conveying the property to the SECOND

PARTY for and in consideration of the sum of Two Hundred Thousand Pesos (P200,000.00),
Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said
property within a period of ninety (90) days from the execution of this memorandum of
agreement effective April 18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND
PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said
property within a period of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully
the possession of the property to the SECOND PARTY within fifteen (15) days after the
expiration of the said 90 day grace period
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or
whatever claims on the property nor shall cause the annotation of say claim at the back of the
title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership
of the property and shall defend the rights of the SECOND PARTY against any party whom may
have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the account of
the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND
PARTY after the expiration of the 15-day grace period given in paragraph 3 above, the FIRST
PARTY shall pay an amount equivalent to Five Percent of the principal amount of TWO
HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as and for rentals and
liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety
(90) days period above-mentioned, this memorandum of agreement shall be deemed
cancelled and the Deed of Absolute Sale, executed by the parties shall be the final contract
considered as entered between the parties and the SECOND PARTY shall proceed to transfer
ownership of the property above described to its name free from lines and encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale,
3 dated June 11, 1991, wherein private respondent, with the consent of her late husband, sold
the subject property to A.C. Aguila & Sons, Co., represented by petitioner, for P200,000,00. In
a special power of attorney dated the same day, April 18, 1991, private respondent
authorized petitioner to cause the cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co., in the event she failed to redeem
the subject property as provided in the Memorandum of Agreement. 4

Private respondent failed to redeem the property within the 90-day period as provided
in the Memorandum of Agreement. Hence, pursuant to the special power of attorney
mentioned above, petitioner caused the cancellation of TCT No. 195101 and the issuance of a
new certificate of title in the name of A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C.
Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises within
15 days after receipt of the letter and surrender its possession peacefully to A.C. Aguila &
Sons, Co. Otherwise, the latter would bring the appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch 76,
Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial Court ruled in
favor of A.C. Aguila & Sons, Co. on the ground that private respondent did not redeem the

subject property before the expiration of the 90-day period provided in the Memorandum of
Agreement. Private respondent appealed first to the Regional Trial Court, Branch 163, Pasig,
Metro Manila, then to the Court of Appeals, and later to this Court, but she lost in all the
cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale with
the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She
alleged that the signature of her husband on the deed of sale was a forgery because he was
already dead when the deed was supposed to have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for falsification
against petitioner with the Office of the Prosecutor of Quezon City which was dismissed in a
resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they
could not personally appear before Notary Public Lamberto C. Nanquil on June 11, 1991
because her husband, Ruben Abrogar, died on May 8, 1991 or one month and 2 days before
the execution of the Deed of Absolute Sale, while the plaintiff was still in the Quezon City
Medical Center recuperating from wounds which she suffered at the same vehicular accident
on May 8, 1991, cannot be sustained. The Court is convinced that the three required
documents, to wit: the Memorandum of Agreement, the Special Power of Attorney, and the
Deed of Absolute Sale were all signed by the parties on the same date on April 18, 1991. It is
a common and accepted business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real estate for various reasons,
foremost of which is the evasion of taxes and surcharges. The plaintiff never questioned
receiving the sum of P200,000.00 representing her loan from the defendant. Common sense
dictates that an established lending and realty firm like the Aguila & Sons, Co. would not part
with P200,000.00 to the Abrogar spouses, who are virtual strangers to it, without the
simultaneous accomplishment and signing of all the required documents, more particularly
the Deed of Absolute Sale, to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED
DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and
defendant-appellee is indubitably an equitable mortgage. Article 1602 of the New Civil Code
finds strong application in the case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually
inadequate. The property is a two hundred forty (240) sq. m. lot. On said lot, the residential
house of plaintiff-appellant stands. The property is inside a subdivision/village. The property is
situated in Marikina which is already part of Metro Manila. The alleged sale took place in 1991
when the value of the land had considerably increased.

For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square
meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that plaintiffappellant is obliged to deliver peacefully the possession of the property to the SECOND PARTY
within fifteen (15) days after the expiration of the said ninety (90) day grace period.
Otherwise stated, plaintiff-appellant is to retain physical possession of the thing allegedly
sold.

In fact, plaintiff-appellant retained possession of the property sold as if they were still the
absolute owners. There was no provision for maintenance or expenses, much less for payment
of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the
property sold. It is well-known that payment of taxes accompanied by actual possession of
the land covered by the tax declaration, constitute evidence of great weight that a person
under whose name the real taxes were declared has a claim of right over the land.
It is well-settled that the presence of even one of the circumstances in Article 1602 of the New
Civil Code is sufficient to declare a contract of sale with right to repurchase an equitable
mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually
inadequate, has retained possession of the subject property and has continued paying the
realty taxes over the subject property, (circumstances mentioned in par. (1) (2) and (5) of
Article 1602 of the New Civil Code), it must be conclusively presumed that the transaction the
parties actually entered into is an equitable mortgage, not a sale with right to repurchase. The
factors cited are in support to the finding that the Deed of Sale/Memorandum of Agreement
with right to repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was executed by
reason of the loan extended by defendant-appellee to plaintiff-appellant. The amount of loan
being the same with the amount of the purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of debt, now deemed to be
repurchase price: the transaction shall then be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a pactum
commissorium which is clearly prohibited by Article 2088 of the New Civil Code. Article 2088
of the New Civil Code reads:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1)
that there should be a pledge or mortgage wherein a property is pledged or mortgaged by
way of security for the payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged and mortgaged
in the event of non-payment of the principal obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant
secured by a mortgage on the property of plaintiff-appellant. The loan was payable within
ninety (90) days, the period within which plaintiff-appellant can repurchase the property.
Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the P30,000.00 excess is the
interest for the loan extended. Failure of plaintiff-appellee to pay the P230,000.00 within the
ninety (90) days period, the property shall automatically belong to defendant-appellee by
virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum commissorium.
Therefore, the deed of sale should be declared void as we hereby so declare to be invalid, for
being violative of law.
xxx xxx xxx

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET
ASIDE. The questioned Deed of Sale and the cancellation of the TCT No. 195101 issued in

favor of plaintiff-appellant and the issuance of TCT No. 267073 issued in favor of defendantappellee pursuant to the questioned Deed of Sale is hereby declared VOID and is hereby
ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of Marikina is hereby
ordered REINSTATED. The loan in the amount of P230,000.00 shall be paid within ninety (90)
days from the finality of this decision. In case of failure to pay the amount of P230,000.00
from the period therein stated, the property shall be sold at public auction to satisfy the
mortgage debt and costs and if there is an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co.,
against which this case should have been brought; (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 A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale
and not an equitable mortgage as held by the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed,
provided that every action must be prosecuted and defended in the name of the real party in
interest. 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. 7 This ruling is now embodied in Rule 3, 2 of the 1997
Revised Rules of Civil Procedure. Any decision rendered against a person who is not a real
party in interest in the case cannot be executed. 8 Hence, a complaint filed against such a
person should be dismissed for failure to state a cause of action. 9
Under Art. 1768 of the 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. 10 In this case, private
respondent has 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 Memorandum of Agreement was executed
between private respondent, with the consent of her late husband, and A.C. Aguila & Sons,
Co., represented by petitioner. Hence, it is the partnership, not its officers or agents, which
should be impleaded in any litigation involving property registered in its name. A violation of
this rule will result in the dismissal of the complaint. 11 We cannot understand why both the
Regional Trial Court and the Court of Appeals sidestepped this issue when it was squarely
raised before them by petitioner.

Our conclusion that petitioner is not the real party in interest against whom this action should
be prosecuted makes it unnecessary to discuss the other issues raised by him in this appeal.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint
against petitioner is DISMISSED.

3. DIGEST (Identity Separate and Distinct)

Aguila Jr. VS CA
GR. No. 127347, Nov. 25, 1990
FACTS:
In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement
with a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan was for P200k. To
secure the loan, the spouses mortgaged their house and lot located in a subdivision. The
terms of the loan further stipulates that in case of non-payment, the property shall be
automatically appropriated to the partnership and a deed of sale be readily executed in favor
of the partnership. She does have a 90 day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn over the
property and so the firm filed an ejectment case against her (wherein she lost). She also failed
to redeem the property within the period stipulated. She then filed a civil case against Alfredo
Aguila, manager of the firm, seeking for the declaration of nullity of the deed of sale. The RTC
retained the validity of the deed of sale. The Court of Appeals reversed the RTC. The CA ruled
that the sale is void for it is a pactum commissorium sale which is prohibited under Art. 2088
of the Civil Code (note the disparity of the purchase price, which is the loan amount, with the
actual value of the property which is after all located in a subdivision).

ISSUE:
Whether or not the case filed by Felicidad shall prosper.

HELD:
No. Unfortunately, the civil case was filed not against the real party in interest. As
pointed out by Aguila, he is not the real party in interest but rather it was the partnership A.C.
Aguila & Sons, Co. The Rules of Court provide that every action must be prosecuted and
defended in the name of the real party in interest. 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. Any
decision rendered against a person who is not a real party in interest in the case cannot be
executed. Hence, a complaint filed against such a person should be dismissed for failure to
state a cause of action, as in the case at bar.
Under Art. 1768 of the 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, Felicidad has
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. It is the partnership, not its officers or agents, which should
be impleaded in any litigation involving property registered in its name. A violation of this rule
will result in the dismissal of the complaint.

4. FULL TEXT
Pascual VS CIR
GR. No. 78133, Oct. 18. 1988
The distinction between co-ownership and an unregistered partnership or joint venture for
income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al.
and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first
two parcels of land were sold by petitioners in 1968 toMarenir Development Corporation,
while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on
March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of
P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The
corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the
tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana,
petitioners were assessed and required to pay a total amount of P107,101.70 as alleged
deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had
availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years
1968 and 1970, petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its
income was subject to the taxes prescribed under Section 24, both of the National Internal
Revenue Code 1 that the unregistered partnership was subject to corporate income tax as
distinguished from profits derived from the partnership by them which is subject to individual
income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual income tax liabilities but did not relieve
them from the tax liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as
CTA Case No. 3045. In due course, the respondent court by a majority decision of March 30,
1987, 2 affirmed the decision and action taken by respondent commissioner with costs
against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered
partnership was in fact formed by petitioners which like a corporation was subject to
corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering
the circumstances of this case, although there might in fact be a co-ownership between the
petitioners, there was no adequate basis for the conclusion that they thereby formed an
unregistered partnership which made "hem liable for corporate income tax under the Tax
Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of
the respondent court:
A.
IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING
EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B.
IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT
AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN
BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP
EXISTS.

C.
IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D.
IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT
OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in
Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which together with
their own personal funds they used in buying several real properties. They appointed their
brother to manage their properties with full power to lease, collect, rent, issue receipts, etc.
They had the real properties rented or leased to various tenants for several years and they
gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded
the payment of income tax on a corporation, among others, from them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations provided
for in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real estate dealers'
fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the
terms corporation and partnership as used in sections 24 and 84 of said Code, the pertinent
parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by
every corporation organized in, or existing under the laws of the Philippines, no matter how
created or organized but not including duly registered general co-partnerships (companies
collectives), a tax upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participation), associations or insurance
companies, but does not include duly registered general co-partnerships (companies
colectivas).

Article 1767 of the Civil Code of the Philippines 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: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to
divide the profits among the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in acting as they
did. Upon consideration of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, because:
1.
Said common fund was not something they found already in existence. It was not a
property inherited by them pro indiviso. They created it purposely. What is more they jointly
borrowed a substantial portion thereof in order to establish said common fund.
2.
They invested the same, not merely in one transaction, but in a series of transactions.
On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21
lots for P18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another
real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transcations undertaken, as well as the
brief interregnum between each, particularly the last three purchases, is strongly indicative of
a pattern or common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by petitioners in February,
1943. In other words, one cannot but perceive a character of habituality peculiar to business
transactions engaged in for purposes of gain.
3.
The aforesaid lots were not devoted to residential purposes or to other personal uses,
of petitioners herein. The properties were leased separately to several persons, who, from
1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the
lots are still being so let, for petitioners do not even suggest that there has been any change
in the utilization thereof.
4.
Since August, 1945, the properties have been under the management of one person,
namely, Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus,
the affairs relative to said properties have been handled as if the same belonged to a
corporation or business enterprise operated for profit.
5.
The foregoing conditions have existed for more than ten (10) years, or, to be exact,
over fifteen (15) years, since the first property was acquired, and over twelve (12) years,
since Simeon Evangelists became the manager.
6.
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. They did
not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt
on the existence of said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and, hence, those cases
are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and that they intended to divide
the profits among themselves. Respondent commissioner and/ or his representative just
assumed these conditions to be present on the basis of the fact that petitioners purchased
certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four
(24) lots showing that the purpose was not limited to the conservation or preservation of the

common fund or even the properties acquired by them. The character of habituality peculiar
to business transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the
same nor make any improvements thereon. In 1966, they bought another three (3) parcels of
land from one seller. It was only 1968 when they sold the two (2) parcels of land after which
they did not make any additional or new purchase. The remaining three (3) parcels were sold
by them in 1970. The transactions were isolated. The character of habituality peculiar to
business transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The business was
under the management of one of the partners. Such condition existed for over fifteen (15)
years. None of the circumstances are present in the case at bar. The co-ownership started
only in 1965 and ended in 1970.

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code lays down
the rule for determining when a transaction should be deemed a partnership or a coownership. Said article paragraphs 2 and 3, provides;
(2)
Co-ownership or co-possession does not itself establish a partnership, whether such coowners or co-possessors do or do not share any profits made by the use of the property;
(3)
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;

From the above it appears that the fact that those who agree to form a co- ownership share or
do not share any profits made by the use of the property held in common does not convert
their venture into a partnership. Or the sharing of the gross returns does not of itself establish
a partnership whether or not the persons sharing therein have a joint or common right or
interest in the property. This only means that, aside from the circumstance of profit, the
presence of other elements constituting partnership is necessary, such as the clear intent to
form a partnership, the existence of a juridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest in the property by one with the
consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp.
635-636)
It is evident that an isolated transaction whereby two or more persons contribute funds to buy
certain real estate for profit in the absence of other circumstances showing a contrary
intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the
gross returns of that enterprise in proportion to their contribution, but who severally retain the
title to their respective contribution, are not thereby rendered partners. They have no
common stock or capital, and no community of interest as principal proprietors in the
business itself which the proceeds derived. (Elements of the Law of Partnership by Flord D.
Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor
does an agreement to share the profits and losses on the sale of land create a partnership;
the parties are only tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L.
Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty,
holding as tenants in common, and to divide the profits of disposing of it, the brother and the

other not being entitled to share in plaintiffs commission, no partnership existed as between
the three parties, whatever their relation may have been as to third parties. (Magee vs. Magee
123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same;
(b) generally participating in both profits and losses; (c) and such a community of interest, as
far as third persons are concerned as enables each party to make contract, manage the
business, and dispose of the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50
III 470.)
The common ownership of property does not itself create a partnership between the owners,
though they may use it for the purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management, and use of such property and the
application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
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.
In the present case, there is clear evidence of co-ownership between the petitioners. There is
no adequate basis to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased properties and sold the
same a few years thereafter did not thereby make them partners. They shared in the gross
profits as co- owners and paid their capital gains taxes on their net profits and availed of the
tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to
have been formed, since there is no such existing unregistered partnership with a distinct
personality nor with assets that can be held liable for said deficiency corporate income tax,
then petitioners can be held individually liable as partners for this unpaid obligation of the
partnership p. 7 However, as petitioners have availed of the benefits of tax amnesty as
individual taxpayers in these transactions, they are thereby relieved of any further tax liability
arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax
Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby
rendered relieving petitioners of the corporate income tax liability in this case, without
pronouncement as to costs.
4. DIGEST
Pascual VS CIR
GR. No. 78133, Oct. 18. 1988
FACTS:
Petitioners bought two (2) parcels of land and a year after, they bought another three
(3) parcels of land. Petitioners subsequently sold the said lots in 1968 and 1970, and realized
net profits. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974
by availing of the tax amnesties granted in the said years. However, the Acting BIR
Commissioner assessed and required Petitioners to pay a total amount of P107,101.70 as
alleged deficiency corporate income taxes for the years 1968 and 1970. Petitioners protested
the said assessment asserting that they had availed of tax amnesties way back in 1974. In a
reply, respondent Commissioner informed petitioners that in the years 1968 and 1970,

petitioners as co-owners in the real estate transactions formed an unregistered partnership or

joint venture taxable as a corporation under Section 20(b) and its income was subject to the
taxes prescribed under Section 24, both of the National Internal Revenue Code that the
unregistered partnership was subject to corporate income tax as distinguished from profits
derived from the partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of
their individual income tax liabilities but did not relieve them from the tax liability of the
unregistered partnership. Hence, the petitioners were required to pay the deficiency income
tax assessed.
ISSUE:
Should be the petitioner be treated as an unregistered partnership or a co-ownership
for the purposes of income tax?
HELD:
The Petitioners are simply under the regime of co-ownership and not under
unregistered partnership.
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 (Art. 1767, Civil Code of the Philippines). In the present case, there is no
evidence that petitioners entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide the profits among themselves.
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.
Hence, there is no adequate basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions whereby they purchased properties
and sold the same a few years thereafter did not thereby make them partners. They shared in
the gross profits as co- owners and paid their capital gains taxes on their net profits and
availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to
have formed an unregistered partnership which is thereby liable for corporate income tax, as
the respondent commissioner proposes.

5. FULL TEXT
Pascual VS CIR
GR. No. 78133, Oct. 18. 1988