G.R. L-68118 Obillos v. CIR
bought two lots with
Facts:
In 1973, Jose Obillos completed payment on two lots
located in Greenhills, San Juan. The next day, he
transferred his rights to his four children for them to
build their own residences. The Torrens title would show
that they were co-owners of the two lots. However, the
petitioners resold them to Walled City Securities
Corporation and Olga Cruz Canda for P313k or P33k for
each of them. They treated the profit as capital gains and
paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate
income tax of their shares, as this entire assessment is
based on the alleged partnership under Article 1767 of
the Civil Code; simply because they contributed each to
buy the lots, resold them and divided the profits among
them.
But as testified by Obillos, they have no intention to
form the partnership and that it was merely incidental
since they sold the said lots due to high demand of
construction. Naturally, when they sell them as co-
partners, it will result to the share of profits. Further,
their intention was to divide the lots for residential
purposes.
Issue:
Was there a partnership, hence, they are subject to
corporate income taxes?
Court Ruling:
Not necessarily. As Article 1769 (3) of the Civil Code
provides: the sharing of gross returns does not in 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 unmistakeable intention to form a partnership
or joint venture.
In this case, the Commissioner should have investigated
if the father paid donor's tax to establish the fact that
there was really no partnership.
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS,
ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and
COURT OF TAX APPEALS, respondents.
AQUINO, J.:
Facts:
1
On March 2, 1973 Jose Obillos, Sr.
areas of 1,124 and 963 square metersof located at
Greenhills, San Juan, Rizal. The next day he transferred
his rights to his four children, the petitioners, to enable
them to build their residences. The Torrens titles issued
to them showed that they were co-owners of the two
lots.
In 1974, or after having held the two lots for more than a
year, the petitioners resold them to the Walled City
Securities Corporation and Olga Cruz Canada for the
total sum of P313,050. They derived from the sale a total
profit of P134, 341.88 or P33,584 for each of them. They
treated the profit as a capital gain and paid an income tax
on one-half thereof or of P16,792.
In April, 1980, the Commissioner of Internal Revenue
required the four petitioners to pay corporate income tax
on the total profit of P134,336 in addition to individual
income tax on their shares thereof.The petitioners are
being held liable for deficiency income taxes and
penalties totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital gains already
paid by them.
The Commissioner acted on the theory that the four
petitioners had formed an unregistered partnership or
joint venture The petitioners contested the assessments.
Two Judges of the Tax Court sustained the same. Hence,
the instant appeal.
Issue:
Whether or not the petitioners had indeed formed a
partnership or joint venture and thus liable for corporate
tax.
Held:
The Supreme Court held that the petitioners should not
be considered to have formed a partnership just because
they allegedly contributed P178,708.12 to buy the two
lots, resold the same and divided the profit among
themselves. To regard so would result in oppressive
taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be
obviated.
As testified by Jose Obillos, Jr., they had no such
intention. They were co-owners pure and simple. To
consider them as partners would obliterate the
distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by
reason of that isolated transaction.
*Article 1769(3) of the Civil Code provides that "the
sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint
venture.*
Their original purpose was to divide the lots for
residential purposes. If later on they found it not feasible
to build their residences on the lots because of the high
cost of construction, then they had no choice but to resell
the same to dissolve the co-ownership. The division of
the profit was merely incidental to the dissolution of the
co-ownership which was in the nature of things a
temporary state. It had to be terminated sooner or later.
They did not contribute or invest additional ' capital to
increase or expand the properties, nor was there an
unmistakable intention to form partnership or joint
venture.
WHEREFORE, the judgment of the Tax Court is
reversed and set aside. The assessments are cancelled.
No costs.
All co-ownerships are not deemed unregistered
partnership.Co-Ownership who own properties which
produce income should not automatically be considered
partners of an unregistered partnership, or a corporation,
within the purview of the income tax law. To hold
otherwise, would be to subject the income of all
Co-ownerships of inherited properties to the tax on
corporations, inasmuch as if a property does not produce
an income at all, it is not subject to any kind of income
tax, whether the income tax on individuals or the income
tax on corporation.
As compared to other cases:
Commissioner of Internal Revenue, L-19342, May 25,
1972, 45 SCRA 74, where after an extrajudicial
settlement the co-heirs used the inheritance or the
incomes derived therefrom as a common fund to produce
profits for themselves, it was held that they were taxable
as an unregistered partnership.
This case is different from Reyes vs. Commissioner of
Internal Revenue, 24 SCRA 198, where father and son
purchased a lot and building, entrusted the
administration of the building to an administrator and
divided equally the net income, and from Evangelista vs.
Collector of Internal Revenue, 102 Phil. 140, where the
three Evangelista sisters bought four pieces of real
property which they leased to various tenants and
derived rentals therefrom. Clearly, the petitioners in
these two cases had formed an unregistered partnership.
Obillos v CIR G.R. No. L-68118 October 29, 1985
FACTS: 1. On March1973 Jose Obillos, Sr. completed
payment on two lots located at Greenhills, San Juan,
Rizal. The next day he transferred his rights to his four
children, the petitioners, to enable them to build their
residences. The company sold the two lots to petitioners
for P178,708.12 on March 13 2. In 1974, the petitioners
resold them to the Walled City Securities Corporation
and Olga Cruz Canda for the total sum of P313,050.
They derived from the sale a total profit of P134,341.88
or P33,584 for each of them. They treated the profit as a
capital gain and paid an income tax on one-half thereof
2
or of P16,792. 3. In April 1980, the CIR required the
four petitioners to pay corporate income tax on the total
profit of P134,336 in addition to individual income tax
on their shares thereof. The petitioners are being held
liable for deficiency income taxes and penalties totalling
P127,781.76 on their profit of P134,336, in addition to
the tax on capital gains already paid by them. 4. 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 (Collector of Internal Revenue vs.
Batangas Trans. Co., 102 Phil. 822).
ISSUE: Whether or not the petitioners had created an
unregistered partnership.
HELD: NO. To regard the petitioners as having formed a
taxable unregistered partnership would result in
oppressive taxation and confirm the dictum that the
power to tax involves the power to destroy. That
eventuality should be obviated. As testified by Jose
Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners
would obliterate the distinction between a co-ownership
and a partnership. The petitioners were not engaged in
any joint venture by reason of that isolated transaction.
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. In the instant case, what the Commissioner
should have investigated was whether the father donated
the two lots to the petitioners and whether he paid the
donor's tax (See Art. 1448, Civil Code). We are not
prejudging this matter. It might have already prescribed.
Case Digest: Reyes vs. CIR (24 SCRA 198)
Under: Tax Updates
Thursday, Jan. 06 2011
FACTS: 1. Petitioners Florencio and Angel Reyes, father
and son, purchased a lot and building for P 835,000.00.
2. The amount of P 375,000.00 was paid. 3. The balance
of P 460,000.00 was left, which represents the mortgage
obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed
by the vendees. 4. The initial payment of P 375,000.00
was shared equally by the petitioners. 5. At the time of
the purchase, the building was leased to various
tenants, whose rights under the lease contracts with the
original owners, the purchaser, petitioners herein,
agreed to respect. 6. Petitioners divided equally the
income of operation and maintenance. 7. The gross
income from rentals of the building amounted to about
P 90,000.00 annually. 8. An assessment was made
against petitioners by the CIR. 9. The assessment sought
to be reconsidered was futile. 10. On appeal to the
Court of Tax Appeals, the CTA ruled that petitioners are
liable for the income tax due from the partnership
formed by petitioners.
ISSUE: Are petitioners subject to the tax on
corporations provided for in the National Internal
Revenue Code?
HELD: After referring to another section of the NIRC,
which explicitly provides that the term corporations
includes partnerships and then to Article 1767
of the Civil Code of the Philippines, defining what a
contract of partnership is, the opinion goes on to state
that the essential elements of a partnership are
two, namely: a) an agreement to contribute money,
property or industry to a common fund; and b) intent to
divide the profits among the contracting parties. The
first element is undoubtedly present in the case, 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, it was determined
that their purpose was to engage in real estate
transaction for monetary gain and then divide the same
among themselves, hence taxable.
Bastida vs Menzi
Facts:
Bastida offered to assign to Menzi & Co. his contract
with Phil Sugar Centrals Agency and to supervise the
mixing of the fertilizer and to obtain other orders for 50
% of the net profit that Menzi & Co., Inc., might derive
therefrom. J. M. Menzi (gen. manager of Menzi & Co.)
accepted the offer. The agreement between the parties
was verbal and was confirmed by the letter of Menzi to
the plaintiff on January 10, 1922.
Pursuant to the verbal agreement, the defendant
corporation on April 27, 1922 entered into a written
contract with the plaintiff, marked Exhibit A, which is
the basis of the present action. Still, the fertilizer
business as carried on in the same manner as it was
prior to the written contract, but the net profit that the
plaintiff herein shall get would only be 35%. The
intervention of the plaintiff was limited to supervising
the mixing of the fertilizers in the bodegas of Menzi.
Prior to the expiration of the contract (April 27, 1927),
the manager of Menzi notified the plaintiff that the
contract for his services would not be renewed.
Subsequently, when the contract expired, Menzi
proceeded to liquidate the fertilizer business in
question. The plaintiff refused to agree to this. It
argued, among others, that the written contract entered
into by the parties is a contract of general regular
commercial partnership, wherein Menzi was the
capitalist and the plaintiff the industrial partner.
Issue: Is the relationship between the petitioner and
Menzi that of partners?
Held:
The relationship established between the parties was
not that of partners, but that of employer and
employee, whereby the plaintiff was to receive 35% of
the net profits of the fertilizer business of Menzi in
compensation for his services for supervising the mixing
of the fertilizers. Neither the provisions of the contract
nor the conduct of the parties prior or subsequent to its
execution justified the finding that it was a contract of
co-partnership. The written contract was, in fact, a
continuation of the verbal agreement between the
parties, whereby the plaintiff worked for the defendant
corporation for one-half of the net profits derived by
the corporation form certain fertilizer contracts.
According to Art. 116 of the Code of Commerce, articles
of association by which two or more persons obligate
themselves to place in a common fund any property,
industry, or any of these things, in order to obtain profit,
shall be commercial, no matter what it class may be,
provided it has been established in accordance with the
provisions of the Code. However in this case, there was
no common fund. The business belonged to Menzi &
Co. The plaintiff was working for Menzi, and instead of
receiving a fixed salary, he was to receive 35% of the net
profits as compensation for his services. The phrase in
the written contract en sociedad con, which is used as
a basis of the plaintiff to prove partnership in this case,
merely means en reunion con or in association with.
It is also important to note that although Menzi agreed
to furnish the necessary financial aid for the fertilizer
business, it did not obligate itself to contribute any fixed
sum as capital or to defray at its own expense the cost
of securing the necessary credit.
HEIRS OF TAN ENG KEE vs.CA
3
HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740, G.R. No.
126881, October 3, 2000
FACTS:
After the second World War, Tan EngKee and Tan Eng
Lay, pooling their resources and industry together,
entered into a partnership engaged in the business of
selling lumber and hardware and construction supplies.
They named their enterprise "Benguet Lumber" which
they jointly managed until Tan EngKee's death.
Petitioners herein averred that the business prospered
due to the hard work and thrift of the alleged partners.
However, they claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the partnership
"Benguet Lumber" into a corporation called "Benguet
Lumber Company." The incorporation was purportedly a
ruse to deprive Tan EngKee and his heirs of their rightful
participation in the profits of the business. Petitioners
prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the
equal division of the net assets of Benguet Lumber. The
RTC ruled in favor of petitioners, declaring that Benguet
Lumber is a joint venture which is akin to a particular
partnership. The Court of Appeals rendered the assailed
decision reversing the judgment of the trial court.
ISSUE: Whether the deceased Tan EngKee and Tan Eng
Lay are joint adventurers and/or partners in a business
venture and/or particular partnership called Benguet
Lumber and as such should share in the profits and/or
losses of the business venture or particular partnership
RULING:
There was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads
submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for
the duration of the partnership. There was even no
attempt to submit an accounting corresponding to the
period after the war until Kee's death in 1984. It had no
business book, no written account nor any
memorandum for that matter and no license
mentioning the existence of a partnership. Also, the trial
court determined that Tan EngKee and Tan Eng Lay had
entered into a joint venture, which it said is akin to a
particular partnership. A particular partnership is
distinguished from a joint adventure, to wit:(a) A joint
adventure (an American concept similar to our joint
accounts) is a sort of informal partnership, with no firm
name and no legal personality. In a joint account, the
4
participating merchants can transact business under
their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is
limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination
maycontinue for a number of years; a partnership
generally relates to a continuing business of various
transactions of a certain kind. A joint venture
"presupposes generally a parity of standing between the
joint co-ventures or partners, in which each party has an
equal proprietary interest in the capital or property
contributed, and where each party exercises equal
rights in the conduct of the business. The evidence
presented by petitioners falls short of the quantum of
proof required to establish a partnership. In the absence
of evidence, we cannot accept as an established fact
that Tan EngKee allegedly contributed his resources to a
common fund for the purpose of establishing a
partnership. Besides, it is indeed odd, if not unnatural,
that despite the forty years the partnership was
allegedly in existence, Tan EngKee never asked for an
accounting. The essence of a partnership is that the
partners share in the profits and losses .Each has the
right to demand an accounting as long as the
partnership exists. A demand for periodic accounting is
evidence of a partnership. During his lifetime, Tan
EngKee appeared never to have made any such demand
for accounting from his brother, Tang Eng Lay. We
conclude that Tan EngKee was only an employee, not a
partner since they did not present and offer evidence
that would show that Tan EngKee received amounts of
money allegedly representing his share in the profits of
the enterprise. There being no partnership, it follows
that there is no dissolution, winding up or liquidation to
speak of.
Heirs of Tan Eng Kee vs Court of Appeals
June 30, 2012 1 comment
Business Organization Partnership, Agency, Trust
Periodic Accounting Profit Sharing
Benguet Lumber has been around even before World
War II but during the war, its stocks were confiscated by
the Japanese. After the war, the brothers Tan Eng Lay
and Tan Eng Kee pooled their resources in order to
revive the business. In 1981, Tan Eng Lay caused the
conversion of Benguet Lumber into a corporation called
Benguet Lumber and Hardware Company, with him and
his family as the incorporators. In 1983, Tan Eng Kee
died. Thereafter, the heirs of Tan Eng Kee demanded for
an accounting and the liquidation of the partnership.
Tan Eng Lay denied that there was a partnership
between him and his brother. He said that Tan Eng Kee
was merely an employee of Benguet Lumber. He
showed evidence consisting of Tan Eng Kees payroll; his
SSS as an employee and Benguet Lumber being the
employee. As a result of the presentation of said
evidence, the heirs of Tan Eng Kee filed a criminal case
against Tan Eng Lay for allegedly fabricating those
evidence. Said criminal case was however dismissed for
lack of evidence.
ISSUE: Whether or not Tan Eng Kee is a partner.
HELD: No. There was no certificate of partnership
between the brothers. The heirs were not able to show
what was the agreement between the brothers as to
the sharing of profits. All they presented were
circumstantial evidence which in no way proved
partnership.
It is obvious that there was no partnership whatsoever.
Except for a firm name, there was no firm account, no
firm letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and
no time fixed for the duration of the partnership. There
was even no attempt to submit an accounting
corresponding to the period after the war until Kees
death in 1984. It had no business book, no written
account nor any memorandum for that matter and no
license mentioning the existence of a partnership.
In fact, Tan Eng Lay was able to show evidence that
Benguet Lumber is a sole proprietorship. He registered
the same as such in 1954; that Kee was just an
employee based on the latters payroll and SSS
coverage, and other records indicating Tan Eng Lay as
the proprietor.
Also, the business definitely amounted to more
P3,000.00 hence if there was a partnership, it should
have been made in a public instrument.
But the business was started after the war (1945) prior
to the publication of the New Civil Code in 1950?
Even so, nothing prevented the parties from complying
with this requirement.
Also, the Supreme Court emphasized that for 40 years,
Tan Eng Kee never asked for an accounting. The essence
of a partnership is that the partners share in the profits
and losses. Each has the right to demand an accounting
as long as the partnership exists. Even if it can be
5
speculated that a scenario wherein if excellent
relations exist among the partners at the start of the
business and all the partners are more interested in
seeing the firm grow rather than get immediate returns,
a deferment of sharing in the profits is perfectly
plausible. But in the situation in the case at bar, the
deferment, if any, had gone on too long to be plausible.
A person is presumed to take ordinary care of his
concerns. A demand for periodic accounting is evidence
of a partnership which Kee never did.
The Supreme Court also noted:
In determining whether a partnership exists, these rules
shall apply:
(1) Except as provided by Article 1825, persons who are
not partners as to each other are not partners as to
third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of 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 which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of payment
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF
APPEALS and BENGUET LUMBER COMPANY, represented
by its President TAN ENG LAY, respondents, G.R. No.
126881, October 3, 2000 Following the death of Tan Eng
Kee, the common-law spouse of the decedent, joined by
their children collectively known as herein petitioners
HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY for accounting, liquidation and
winding up of the alleged partnership formed after
World War II between Tan Eng Kee and Tan Eng Lay.
Facts: The complaint alleged that after the second
World War, Tan Eng Kee and Tan Eng Lay, pooling their
resources and industry together, entered into a
partnership engaged in the business of selling lumber
and hardware and construction supplies. They named
their enterprise "Benguet Lumber" which they jointly
managed until Tan Eng Kee's death. Petitioners claimed
that Tan Eng Lay and his children caused the conversion
of the partnership "Benguet Lumber" into a corporation
called "Benguet Lumber Company." Petitioners prayed
for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the
equal division of the net assets of Benguet Lumber. The
RTC ruled in favor of petitioners, declaring that Benguet
Lumber is a joint venture which is akin to a particular
partnership. The Court of Appeals rendered the assailed
decision reversing the judgment of the trial court. Issue:
Whether or not Tan Eng Kee and Tan Eng Lay were
partners in Benguet Lumber. Held: NO. The trial court
determined that Tan Eng Kee and Tan Eng Lay had
entered into a joint venture, which it said is akin to a
particular partnership. A particular partnership is
distinguished from a joint adventure, to wit: (a) A joint
adventure (an American concept similar to our joint
accounts) is a sort of informal partnership, with no firm
name and no legal personality. In a joint account, the
participating merchants can transact business under
their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is
limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may
continue for a number of years; a partnership generally
relates to a continuing business of various transactions
of a certain kind. A joint venture "presupposes generally
a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary
interest in the capital or property contributed, and
where each party exercises equal rights in the conduct
of the business." A review of the record persuades us
that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required
to establish a partnership. Unfortunately for petitioners,
Tan Eng Kee has passed away. Only he, aside from Tan
Eng Lay, could have expounded on the precise nature of
the business relationship between them. In the absence
of evidence, we cannot accept as an established fact
that Tan Eng Kee allegedly contributed his resources to a
6
common fund for the purpose of establishing a
partnership. Besides, it is indeed odd, if not unnatural,
that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the
partners share in the profits and losses. Each has the
right to demand an accounting as long as the
partnership exists. A demand for periodic accounting is
evidence of a partnership. During his lifetime, Tan Eng
Kee appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay. We conclude
that Tan Eng Kee was only an employee, not a partner.
Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to
speak, since they did not present and offer evidence
that would show that Tan Eng Kee received amounts of
money allegedly representing his share in the profits of
the enterprise. There being no partnership, it follows
that there is no dissolution, winding up or liquidation to
speak of. Hence, the petition must fail.
Hrs. of Tan Eng Kee v. CA, 341 SCRA 740
Facts:
Tan Eng Kee (Kee) and Tan Eng Lay (Lay) are brothers.
After the death of Kee, his common-law spouse and
children (Heirs), filed a suit against Lay for accounting,
liquidation and winding up of the alleged partnership
formed after World War II between Tan Eng Kee and Tan
Eng Lay. Petitioners amended their complaint
impleading private respondent herein BENGUET
LUMBER COMPANY, as represented by Lay. They alleged
that after WW II, Kee and Lay, pooled their resources
and industry together, and entered into a partnership
engaged in the business of selling lumber and hardware
and construction supplies. They named their enterprise
"Benguet Lumber" which they jointly managed until Tan
Eng Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of
the alleged partners. However, they claimed that in
1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a
corporation called "Benguet Lumber Company." The
incorporation was purportedly a ruse to deprive Tan Eng
Kee and his heirs of their rightful participation in the
profits of the business. Petitioners prayed for accounting
of the partnership assets, and the dissolution, winding
up and liquidation thereof, and the equal division of the
net assets of Benguet Lumber.
Issues: Was there a partnership between Kee and Lay?
Are the petitioner heirs entitled to accounting of the
partnership assets?
Ruling:
No, there was no partnership. The SC affirmed the CAs
ruling that Benguet Lumber was in the form of a sole
proprietorship.
The best evidence to determine if partnership existed
would have been the contract of partnership itself, or
the articles of partnership but there is none The Court
then determined whether a partnership existed based
purely on circumstantial evidence. The evidence
presented by petitioners falls short of the quantum of
proof required to establish a partnership.
Firstly, there is no evidence that Kee contributed his
resources to a common fund for the purpose of
establishing a partnership. Unfortunately for petitioners,
Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the
business relationship between them. The testimonies to
that effect of petitioners' witnesses is directly
controverted by Tan Eng Lay. It should be noted that it is
not with the number of witnesses wherein
preponderance lies; the quality of their testimonies is to
be considered. None of petitioners' witnesses could
suitably account for the beginnings of Benguet Lumber
Company. Tan Eng Lay consistently testified that he had
his business and his brother had his, that it was only
later on that his said brother, Tan Eng Kee, came to work
for him. Be that as it may, co-ownership or co-
possession (specifically here, of the G.I. sheets) is not an
indicium of the existence of a partnership.
Secondly, it is indeed odd, if not unnatural, that despite
the forty years the partnership was allegedly in
existence, Tan Eng Kee never asked for an accounting.
The essence of a partnership is that the partners share
in the profits and losses. Each has the right to demand
an accounting as long as the partnership exists. A
demand for periodic accounting is evidence of a
partnership.During his lifetime, Tan Eng Kee appeared
never to have made any such demand for accounting
from his brother, Tang Eng Lay.
Thirdly, Lay presented payrolls as evidence that Kee was
a mere employee of the business. Article 1769 of the
Civil Code provides:
In determining whether a partnership exists, these rules
shall apply:
(1) Except as provided by Article 1825, persons who are
not partners as to each other are not partners as to
third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property;
7
(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 which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is a prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of payment
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
In the light of the aforequoted legal provision, we
conclude that Tan Eng Kee was only an employee, not a
partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to
speak, since they did not present and offer evidence
that would show that Tan Eng Kee received amounts of
money allegedly representing his share in the profits of
the enterprise. Petitioners failed to show how much
their father, Tan Eng Kee, received, if any, as his share in
the profits of Benguet Lumber Company for any
particular period. Hence, they failed to prove that Tan
Eng Kee and Tan Eng Lay intended to divide the profits
of the business between themselves, which is one of
the essential features of a partnership.
Finally, petitioners claim the alleged partnership from
this set of circumstances: that Tan Eng Lay and Tan Eng
Kee were commanding the employees; that both were
supervising the employees; that both were the ones
who determined the price at which the stocks were to
be sold; and that both placed orders to the suppliers of
the Benguet Lumber Company. They also point out that
the families of the brothers Tan Eng Kee and Tan Eng Lay
lived at the Benguet Lumber Company compound, a
privilege not extended to its ordinary employees.
Where circumstances taken singly may be inadequate to
prove the intent to form a partnership, nevertheless,
the collective effect of these circumstances may be such
as to support a finding of the existence of the parties'
intent. Yet, in the case at bench, even the aforesaid
circumstances when taken together are not persuasive
indicia of a partnership. They only tend to show that Tan
Eng Kee was involved in the operations of Benguet
Lumber, but in what capacity is unclear. We cannot
discount the likelihood that as a member of the family,
he occupied a niche above the rank-and-file employees.
He would have enjoyed liberties otherwise unavailable
were he not kin, such as his residence in the Benguet
Lumber Company compound. He would have moral, if
not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision.
It may even be that among his duties is to place orders
with suppliers. Again, the circumstances proffered by
petitioners do not provide a logical nexus to the
conclusion desired; these are not inconsistent with the
powers and duties of a manager, even in a business
organized and run as informally as Benguet Lumber
Company.
There being no partnership, it follows that there is no
dissolution, winding up or liquidation to speak of.
Hence, the petition must fail.
In other words, no partnership because
1. No common funds
2. No asking for accounting
3. No shares or talks of how much Kee was to get
from the partnership profits
4. Supervising, determing price at which stocks
were to be sold, placing order to supplies, and living in
the company compound does not make one a partner
as in the case at bar, Kee was the brother so it is was a
privilege for him to be given special treatment than
regular rank and file employees. Nevertheless, he
remains one.
Tocao and Belo vs Court of Appeals and Anay
July 8, 2012 No comments
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Business Organization Partnership, Agency, Trust
Dissolution of the Partnership
William Belo introduced Nenita Anay to his girlfriend,
Marjorie Tocao. The three agreed to form a joint
venture for the sale of cooking wares. Belo was to
contribute P2.5 million; Tocao also contributed some
cash and she shall also act as president and general
manager; and Anay shall be in charge of marketing. Belo
and Tocao specifically asked Anay because of her
experience and connections as a marketer. They agreed
further that Anay shall receive the following:
10% share of annual net profits
6% overriding commission for weekly sales
30% of sales Anay will make herself
2% share for her demo services
They operated under the name Geminesse Enterprise,
this name was however registered as a sole
proprietorship with the Bureau of Domestic Trade under
Tocao. The joint venture agreement was not reduced to
writing because Anay trusted Belos assurances.
8
The venture succeeded under Anays marketing
prowess.
But then the relationship between Anay and Tocao
soured. One day, Tocao advised one of the branch
managers that Anay was no longer a part of the
company. Anay then demanded that the company be
audited and her shares be given to her.
ISSUE: Whether or not there is a partnership.
HELD: Yes, even though it was not reduced to writing,
for a partnership can be instituted in any form. The fact
that it was registered as a sole proprietorship is of no
moment for such registration was only for the
companys trade name.
Anay was not even an employee because when they
ventured into the agreement, they explicitly agreed to
profit sharing this is even though Anay was receiving
commissions because this is only incidental to her
efforts as a head marketer.
The Supreme Court also noted that a partner who is
excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due
upon the dissolution of the partnership as well as
damages or share in the profits realized from the
appropriation of the partnership business and goodwill.
An innocent partner thus possesses pecuniary interest
in every existing contract that was incomplete and in the
trade name of the co-partnership and assets at the time
he was wrongfully expelled.
An unjustified dissolution by a partner can subject him
to action for damages because by the mutual agency
that arises in a partnership, the doctrine of delectus
personae allows the partners to have the power,
although not necessarily the right to dissolve the
partnership.
Tocaos unilateral exclusion of Anay from the
partnership is shown by her memo to the Cubao office
plainly stating that Anay was, as of October 9, 1987, no
longer the vice-president for sales of Geminesse
Enterprise. By that memo, petitioner Tocao effected her
own withdrawal from the partnership and considered
herself as having ceased to be associated with the
partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the
business.

TOCAO V. COURT OF APPEALS 342 SCRA 20 (2000)
Facts: Petitioner William T. Bello introduced private
respondent Nenita Anay to petitioner Tocao, who
conveyed her desire to enter into a joint venture with
her for the importation and local distribution of kitchen
cookwares. Belo acted the capitalist, Tocao as president
and general manager, and Anay as head of the
marketing department (considering her experience and
established relationship with West Bend Company,c a
manufacturer of kitchen wares in Wisconsin, U.S.A) and
later, vice-president for sales. 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 same was not reduced to
writing on the strength of Belos assurances. Later,
Anay was able to secure the distributorship of cookware
products from the West Bend Company. They operated
under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocaos name.
Anay attended distributor/dealer meetings with West
Bend Company with the consent of Tocao. Due to
Anays excellent job performance she was given a
plaque of appreciation. Also, in a memo signed by Belo,
Anay was given 37% commission for her personal sales
"up Dec 31/87, apart from the 10% share in profits.
On October 9, 1987, Anay learned that Marjorie Tocao
terminated her as 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. Belo did not answer. 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 P13,300,360.00. On April 5, 1988, Nenita A.
Anay filed a complaint for sum of money with damages
against Tocao and Belo before the RTC of Makati. She
prayed that she be paid (1) P32,00.00 as unpaid
overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages,
and (3) P100,000.00 as exemplary damages. The plaintiff
also prayed for an audit of the finances of Geminesse
Enterprise from the inception of its business operation
until she was illegally dismissed to determine
her ten percent (10%) share in the net profits. She
further prayed that she be paid the five percent (5%)
overriding commission on the remaining 150
West Bend cookware sets before her dismissal.
However, Tocao and Belo asserted that the alleged
agreement was not reduced to writing nor ratified,
hence, unenforceable, void, or nonexistent. Also, they
denied the existence of a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole
proprietorship of Marjorie Tocao. Belo also contended
that he merely acted as a guarantor of Tocao and denied
contributing capital. Tocao, on the other hand, denied
that they agreed on a ten percent (10%) commission on
the net profits. Both trial court and court of appeals
ruled that a business partnership existed and ordered
the defendants to pay.
Issue: Whether or not a partnership existed YES
Ratio: 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.
Private respondent Anay contributed her expertise in
the business of distributorship of cookware to the
partnership and hence, under the law, she was the
industrial or managing partner. Petitioner Belo had an
proprietary interest. He presided over meetings
regarding matters affecting the operation of the
business. Moreover, his having authorized in writing
giving Anay 37% of the proceeds of her personal sales,
could not be interpreted otherwise than that he had a
proprietary interest in the business. This is inconsistent
with his claim that he merely acted as a guarantor. If
indeed he was, he should have presented documentary
evidence. Also, Art. 2055 requires that a guaranty must
be express and the Statute of Frauds requires that it
must be in writing. Petitioner Tocao was also a capitalist
in the partnership. She claimed that she herself
financed the business. The business venture operated
under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners
and private respondent. First, Anay had a voice in the
management of the affairs of the cookware
distributorship and second, Tocao admitted that Anay,
like her, received only commissions and transportation
and representation allowances and not a fixed salary. If
Anay was an employee, it is difficult to believe that they
recieve the same income. Also, the fact that they
operated under the name of Geminesse
9
BUSORG CASE DIGESTS Atty. Charlie Mendoza 2
Enterprise, a sole proprietorship, is of no moment. Said
business name was used only for practical reasons - it
was utilized as the common name for petitioner
Tocaos various business activities, which included
the distributorship of cookware. The partnership exists
until dissolved under the law. Since the partnership
created by petitioners and private respondent has no
fixed term and is therefore a partnership at will
predicated on their mutual desire and consent, it may
be dissolved by the will of a partner. Petitioners
Tocaos unilateral exclusion of private respondent
from the partnership is shown by her memo to the
Cubao office plainly stating that private respondent was,
as of October 9, 1987, no longer the vice-president for
sales of Geminesse Enterprise. By that memo, petitioner
Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to
be associated with the partnership in the carrying on of
the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of
the business. The partnership among petitioners and
private respondent is ordered dissolved, and the parties
are ordered to effect the winding up and liquidation of
the partnership pursuant to the pertinent provisions of
the Civil Code. Petitioners are ordered to pay Anay s
10% share in the profits, after accounting, 5% overriding
commission for the 150 cookware sets available for
disposition since the time private respondent was
wrongfully excluded from the partnership by petitioner,
overriding commission on the total production, as well
as moral and exemplary damages, and attorney s
fees.
G.R. No. L-10510 March 17, 1961 M. MC
CONNEL vs. THE COURT OF APPEALS #18
FACTS: Park Rite Co., Inc., a Philippine corporation,
leased from Rafael Perez Rosales y Samanillo a vacant
lot on Juan Luna street (Manila) which it used for
parking motor vehicles for a consideration.It turned out
that in operating its parking business, the corporation
occupied and used not only the Samanillo lot it had
leased but also an adjacent lot belonging to the
respondents-appellees Padilla, without the owners'
knowledge and consent. When the latter discovered the
truth, they demanded payment for the use and
occupation of the lot. The corporation (then controlled
by petitioners Cirilo Parades and Ursula Tolentino, who
had purchased and held 1,496 of its 1,500 shares)
disclaimed liability, blaming the original incorporators,
McConnel, Rodriguez and Cochrane. Whereupon, the
lot owners filed against it a complaint for forcible entry
in the Municipal Court of Manila on 7 October 1947
(Civil Case No. 4031). Judgment was rendered ordering
the Park Rite Co., Inc. to pay P7,410.00 plus legal
interest as damages from April 15, 1947 until return of
the lot. Upon execution, the corporation was found
without any assets other than P550.00 deposited in
Court and there remained a balance of P11,182.50
outstanding and unsatisfied. The judgment creditors
then filed suit against the corporation and its past and
present stockholders, to recover from them, jointly and
severally, the unsatisfied balance of the judgment,
ISSUE: whether the individual stockholders maybe held
liable for obligations contracted by the corporation,
RULING: this Court has already answered the question
in the affirmative wherever circumstances have shown
that the corporate entity is being used as an alter ego
or business conduit for the sole benefit of the
stockholders, or else to defeat public convenience,
justify wrong, protect fraud, or defend crime \. There is
also no doubt in our mind that the corporationwas a
mere alter ego or business conduit of the defendants
Cirilo Pared es and Ursula Tolentino, and before them
the defendants M. McConnel, W. P. Cochrane, and
Ricardo Rodriguez. The evidence clearly shows that
these persons completely dominated and controlled
the corporation and that the functions of the
corporation were solely for their benefits. The facts thus
found can not be varied by us, and conclusively show
that the corporation is a mere instrumentality of the
individual stockholder's, hence the latter must
individually answer for the corporate obligations.
YULO V. YANG CHIAO SENG
Facts: Yang Chiao Seng proposed to form a partnership
with Rosario Yulo to run and operate a theatre on the
premises occupied by Cine Oro, Plaza Sta. Cruz, Manila,
the principal conditions of the offer being (1) Yang
guarantees Yulo a monthly participation of P3,000 (2)
partnership shall be for a period of 2 years and 6
months with the condition that if the land is
expropriated, rendered impracticable for business,
owner constructs a permanent building, then Yulos
right to lease and partnership even if period agreed
upon has not yet expired; (3) Yulo is authorized to
personally conduct business in the lobby of the building;
and (4) after Dec 31, 1947, all improvements placed by
partnership shall belong to Yulo but if partnership is
terminated before lapse of 1 and years, Yang shall
have right to remove improvements. Parties established,
Yang and Co. Ltd., to exist from July 1, 1945 Dec 31,
10
1947. In June 1946, they executed a supplementary
agreement extending the partnership for 3 years
beginning Jan 1, 1948 to Dec 31, 1950. The land on
which the theater was constructed was leased by Yulo
from owners, Emilia Carrion and Maria Carrion Santa
Marina for an indefinite period but that after 1 year,
such lease may be cancelled by either party upon 90-
day notice. In Apr 1949, the owners notified Yulo of
their desire to cancel the lease contract come July. Yulo
and husband brought a civil action to declare the lease
for a indefinite period. Owners brought their own civil
action for ejectment upon Yulo and Yang. CFI: Two cases
were heard jointly; Complaint of Yulo and Yang
dismissed declaring contract of lease terminated. CA:
Affirmed the judgment. In 1950, Yulo demanded from
Yang her share in the profits of the business. Yang
answered saying he had to suspend payment because of
pending ejectment suit. Yulo filed present action in
1954, alleging the existence of a partnership between
them and that Yang has refused to pay her shares.
Defendants Position: The real agreement between
plaintiff and defendant was one of lease and not of
partnership; that the partnership was adopted as a
subterfuge to get around the prohibition contained in
the contract of lease between the owners and the
plaintiff against the sublease of the property. Trial Court:
Dismissal. It is not true that a partnership was created
between them because defendant has not actually
contributed the sum mentioned in the Articles of
Partnership or any other amount. The agreement is a
lease because plaintiff didnt share either in the profits
or in the losses of the business as required by Art 1769
(CC) and because plaintiff was granted a guaranteed
participation in the profits belies the supposed
existence of a partnership.
Issue: Was the agreement a contract a lease or a
partnership?
Ruling: Dismissal. The agreement was a sublease not a
partnership. The following are the requisites of
partnership: (1) two or more persons who bind
themselves to contribute money, property or industry to
a common fund; (2) the intention on the part of the
partners to divide the profits among themselves (Article
1761, CC) Plaintiff did not furnish the supposed P20,000
capital nor did she furnish any help or intervention in
the management of the theatre. Neither has she
demanded from defendant any accounting of the
expenses and earnings of the business. She was
absolutely silent with respect to any of the acts that a
partner should have done; all she did was to receive her
share of P3,000 a month which cannot be interpreted in
11
any manner than a payment for the use of premises
which she had leased from the owners.
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
FRANCISCA EVANGELISTA, petitioners, vs.THE
COLLECTOR OF INTERNAL REVENUE and THE COURT OF
TAX APPEALS, respondents.G.R. No. L-9996, October 15,
1957
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
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.
Evangelista, et al. v. CIR, GR No. L-9996, October 15,
1957
Facts:
Herein petitioners seek a review of CTAs decision
holding them liable for income tax, real estate dealers
tax and residence tax. As stipulated, petitioners
borrowed from their father a certain sum for the
purpose of buying real properties. Within February 1943
to April 1994, they have bought parcels of land from
different persons, the management of said properties
was charged to their brother Simeon evidenced by a
document. These properties were then leased or rented
to various tenants.
On September 1954, CIR demanded the payment
of income tax on corporations, real estate dealers fixed
tax, and corporation residence tax to which the
petitioners seek to be absolved from such payment.
Issue: Whether petitioners are subject to the tax on
corporations.
Ruling:
The Court ruled that with respect to the tax on
corporations, the issue hinges on the meaning of the
terms corporation and partnership as used in
Section 24 (provides that a tax shall be levied on every
corporation no matter how created or organized except
general co-partnerships) and 84 (provides that the term
corporation includes among others, partnership) of the
NIRC. Pursuant to Article 1767, NCC (provides for the
concept of partnership), its essential elements are: (a)
an agreement to contribute money, property or industry
to a common fund; and (b) intent to divide the profits
among the contracting parties.
It is of the opinion of the Court that the first element is
undoubtedly present for petitioners have agreed to, and
12
did, contribute money and property to a common fund.
As to the second element, the Court fully satisfied that
their purpose was to engage in real estate transactions
for monetary gain and then divide the same among
themselves as indicated by the following circumstances:
1. The common fund was not something they found
already in existence nor a property inherited by them
pro indiviso. It was created purposely, jointly borrowing
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. The number
of lots acquired and transactions undertake 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. In other words, one cannot but perceive a
character of habitually peculiar to business transactions
engaged in the purpose of gain;
3. Said properties were not devoted to residential
purposes, or to other personal uses, of petitioners but
were leased separately to several persons;
4. They were under the management of one person
where 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. Existed for more than ten years, or, to be exact,
over fifteen years, since the first property was acquired,
and over twelve 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.
The collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent
in petitioners herein.
Also, petitioners argument that their being mere
co-owners did not create a separate legal entity was
rejected because, according to the Court, the tax in
question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from
"partnerships". When the NIRC 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. The qualifying expression found in
Section 24 and 84(b) 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. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the
existence of the partnerships therein referred to. For
purposes of the tax on corporations, NIRC includes
these partnerships - with the exception only of duly
registered general co partnerships - within the purview
of the term "corporation." It is, therefore, clear 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 CA No. 465), it is analogous to that of section 24
and 84 (b) of the NIRC. 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.
Finally, on the issues of being liable for real estate
dealers tax, they are also liable for the same because
the records show that they have habitually engaged in
leasing said properties whose yearly gross rentals
exceeds P3,000.00 a year.
LORENZO T. OA and HEIRS OF JULIA BUALES, namely:
RODOLFO B. OA, MARIANO B. OA, LUZ B. OA,
VIRGINIA B. OA and LORENZO B. OA, JR.,
vs. THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342, May 25, 1972
FACTS:
Julia Buales died leaving as heirs her surviving spouse,
Lorenzo T. Oa and her five children. A civil case was
instituted in the CFI of Manila for the settlement of her
estate. Oa, the surviving spouse, was appointed
administrator of the estate of said deceased. He
submitted the project of partition, which was approved
by the Court. Because three of the heirs, namely, Luz,
Virginia and Lorenzo, Jr, all surnamed Oa, were still
minors when the project of partition was approved,
Lorenzo Oa, their father and administrator of the
estate filed a petition with the CFI of Manila for the
appointment as guardian of said minors. The Court
appointed him guardian of the persons and property of
the aforenamed minors. The heirs have undivided
interest in 10 parcels of land, 6 houses and money from
the War Damage Commission.
Although the project of partition was approved by the
Court, no attempt was made to divide the properties
and the properties remained under the management of
Lorenzo Oa who used said properties in business by
leasing or selling them and investing the income derived
13
therefrom and proceeds from the sales thereof in real
properties and securities.
CIR decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate
income tax, pursuant to Section 24, in relation to
Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners corporate income taxes for 1955
and 1956. Petitioners protested against the assessment
and asked for reconsideration of the ruling of
respondent that they have formed an unregistered
partnership. Finding no merit in petitioners' request, CIR
denied it.
ISSUE:
WON petitioners formed an unregistered partnership.
RULING:
Yes, petitioners formed an unregistered partnership.
Supreme Court held that that instead of actually
distributing the estate of the deceased among
themselves pursuant to the project of partition
approved in 1949, the properties remained under the
management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and
investing the income derived therefrom and the
proceeds from the sales thereof in real properties and
securities.
It is thus incontrovertible that petitioners did not,
contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is
admitted that during the material years herein involved,
some of the said properties were sold at considerable
profit, and that with said profit, petitioners engaged,
thru Lorenzo T. Oa, in the purchase and sale of
corporate securities. It is likewise admitted that all the
profits from these ventures were divided among
petitioners proportionately in accordance with their
respective shares in the inheritance.
As already indicated, for tax purposes, the co-ownership
of inherited properties is automatically converted into
an unregistered partnership the moment the said
common properties and/or the incomes derived
therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a
project partition either duly executed in an extrajudicial
settlement or approved by the court in the
corresponding testate or intestate proceeding., the
petitioners formed an unregistered partnership.
Among the reasons for holding the appellants therein to
be unregistered co-partners for tax purposes, that their
common fund "was not something they found already in
existence" and that "it was not a property inherited by
them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that
ergo, in all instances where an inheritance is not actually
divided, there can be no unregistered co-partnership.
LORENZO OA V CIR
29
JAN
GR No. L -19342 | May 25, 1972 | J. Barredo
Facts:
Julia Buales died leaving as heirs her surviving spouse,
Lorenzo Oa and her five children. A civil case was
instituted for the settlement of her state, in which Oa
was appointed administrator and later on the guardian
of the three heirs who were still minors when the
project for partition was approved. This shows that the
heirs have undivided interest in 10 parcels of land, 6
houses and money from the War Damage Commission.
Although the project of partition was approved by the
Court, no attempt was made to divide the properties
and they remained under the management of Oa who
used said properties in business by leasing or selling
them and investing the income derived therefrom and
the proceeds from the sales thereof in real properties
and securities. As a result, petitioners properties and
investments gradually increased. Petitioners returned
for income tax purposes their shares in the net income
but they did not actually receive their shares because
this left with Oa who invested them.
Based on these facts, CIR decided that petitioners
formed an unregistered partnership and therefore,
subject to the corporate income tax, particularly for
years 1955 and 1956. Petitioners asked for
reconsideration, which was denied hence this petition
for review from CTAs decision.
Issue:
W/N there was a co-ownership or an unregistered
partnership
14
W/N the petitioners are liable for the deficiency
corporate income tax
Held:
Unregistered partnership. The Tax Court found that
instead of actually distributing the estate of the
deceased among themselves pursuant to the project of
partition, the heirs allowed their properties to remain
under the management of Oa and let him use their
shares as part of the common fund for their ventures,
even as they paid corresponding income taxes on their
respective shares.
Yes. For tax purposes, the co-ownership of inherited
properties is automatically converted into an
unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits
for the heirs in proportion to their respective shares in
the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or
intestate proceeding. The reason is simple. From the
moment of such partition, the heirs are entitled already
to their respective definite shares of the estate and the
incomes thereof, for each of them to manage and
dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to
be held in common with his co-heirs under a single
management to be used with the intent of making profit
thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were
executed, for the purpose, for tax purposes, at least, an
unregistered partnership is formed.
For purposes of the tax on corporations, our National
Internal Revenue Code includes these partnerships
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 Mertens Law of Federal Income Taxation, p. 562 Note
63; emphasis ours.)
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. Judgment affirmed.
Ona vs. CIR Facts: Julia Buales died leaving as heirs her
surviving spouse, Lorenzo Oa and her fve children. A
civil case was instituted for the settlement of her state,
in which Oa was appointed administrator and later on
the guardian of the three heirs who were still minors
when the project for partition was approved. his shows
that the heirs have undivided ! interest in "# parcels of
land, $ houses and mone% from the &ar 'amage
(ommission. Although the project of partition was
approved )% the (ourt, no attempt was made to divide
the properties and the% remained under the
management of Oa who used said properties in )
usiness )% leasing or selling them and investing the
income derived therefrom and the proceeds from the
sales thereof in real properties and securities. As a
result, petitioners* properties and investments graduall
% increased. +etitioners returned for income ta,
purposes their shares in the net income )ut the% did
not actuall% receive their shares )ecause this left with
Oa who invested them. Based on these facts, (-.
decided that petitioners formed an unregistered
partnership and therefore, su)ject to the corporate
income ta,, particularl% for %ears "/00 and "/0$.
+etitioners as1ed for reconsideration, which was denied
hence this petition for review from (A*s decision. Issue:
&23 there was a co4ownership or an unregistered
partnership &23 the petitioners are lia)le for the
defcienc% corporate income ta, Held: Unregistered
partnership. he a, (ourt found that instead of actuall%
distri)uting the estate of the deceased among
themselves pursuant to the project of partition, the
heirs allowed their properties to remain under the
management of Oa and let him use their shares as part
of the common fund for their ventures, even as the%
paid corresponding income ta,es on their respective
shares. Yes. 5or ta, purposes, the co4ownership of
inherited properties is automaticall% converted into an
unregistered partnership the moment the said common
properties and2or the incomes derived therefrom are
used as a common fund with intent to produce profts
for the heirs in proportion to their respective shares in
the inheritance as determined in a project partition
either dul% e,ecuted in an e,trajudicial settlement or
approved )% the court in the corresponding testate or
intestate proceeding. he reason is simple. 5rom the
moment of such partition, the heirs are entitled alread%
to their respective defnite shares of the estate and the
incomes thereof, for each of them to manage and
dispose of as e,clusivel% his own without the
intervention of the other heirs, and, accordingl%, he )
15
ecomes lia)le individuall% for all ta,es in connection
therewith. -f after such partition, he allows his share to )
e held in common with his co4heirs under a single
management to )e used with the intent of ma1ing proft
there)% in proportion to his share, there can be no
doubt that, even if no document or instrument ere e!
ecuted, for the purpose, for ta! purposes, at least, an
unregistered partnership is formed. 5or purposes of the
ta, on corporations, our 3ational -nternal .evenue (ode
includes these partnerships 6 he term 7partnership8
includes a s%ndicate, group, pool, joint venture or other
unincorporated organization, through or by means of
which any business, fnancial operation, or venture is
carried on9 with the e,ception onl% of dul% registered
general co4partnerships 6 within the purview of the
term 7corporation.8 -t is, therefore, clear to our mind
that petitioners herein constitute a partnership, insofar
as said (ode is concerned, and are su)ject to the income
ta, for corporations. "udgment a#rmed.
X
Heirs of Jose Lim vs Juliet Villa Lim
Business Organization Partnership, Agency, Trust
Partner Periodic Accounting Profit Sharing
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. Elfledos 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 Yus 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 Norbertos 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.
16
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
Joses 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 Elfredos
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.
Heirs of Jose Lim vs. Lim ( Trucking Business ) F:
Petitioners insists that Jose Lim was the partner of
Norberto and Jimmy and not Elfledo (late husband of
respondent) and therefore all the properties acquired
by Elfledo and respondent form part of the estate of
Jose, having been derived from the alleged partnership.
I: W/N Elfledo is a partner of the said trucking company.
H: The court applying 1769 of the Civil Code held
that Elfledo is a partner. Cresencia Lim testified that jose
gave Elfledo 50k, as share in the partnership, on a date
that coincided with the payment of the initial capital of
the partnership Elfledo ran the affairs of the
partnership, wielding absolute control, power and
authority, without intervention or opposition
whatsoever of the petitioners herein; All the properties
particularly the 9 trucks of the partnership were
registered in the name of Elfledo. 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; None of the
petitioners, as heirs of Jose, the alleged partner,
demanded periodic accounting from Elfledo during his
lifetime. P11M under its owner's account plus any of
its income that is left in the project, in addition to its
actual mining claim. Meanwhile, petitioner's
contribution would consist of its expertise in the
management and operation of mines, as well as the
manager's account which is comprised of P11M in funds
and property and petitioner's "compensation" as
manager that cannot be paid in cash. The mining
suffered serious loses which ended business of both
parties evidenced by their execution of a compromise
agreement. The CIR assessed Philex Mining for tax
deficiencies. It stressed that Philex entered into a
partnership with Baguio Gold. Petitioner denied the
allegations of the CIR and maintained that its advances
of money and property to Baguio Gold were in a nature
of a loan as evidenced by the compromise agreement.
I: W/N Philex and Baguio Mining formed partnership. H:
Yes. The parties entered into the compromise
agreements as a consequence of the dissolution of their
business relationship. It did not define that relationship
or indicate its real character. The relationship of the
parties may be gleaned upon the power of attorney
document entered between the 2. An examination of
the "Power of Attorney" reveals that a partnership or
joint venture was indeed intended by the parties. Under
a 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. The term compensation
found in the said document could not be deemed as
wages. It is impossible for a
Agad v. Mabato
G.R. No. L-24193 June 28, 1968
Chief Justice Concepcion
Facts:
Agad alleged in his complaint that he and
Mabato were partners in a fishpond business pursuant
to a public instrument,
o That he contributed P1k to its capital, with the
right to receive 50% of the profits
o That Mabato, who handled the partnership
funds, had yearly rendered accounts of its operations
o That Mabato failed and refused to render
account for the years 1957-1963
o That he prayed that Mabato be ordered to give
him his share of the profits of such partnership plus
attorneys fees, as well as the dissolution of the
partnership
Mabato denied the existence of the partnership
on the ground that the contract therefore had not been
perfected because Agad failed to give his P1k
contribution to the capital
o He filed a motion to dismiss on the ground of
lack of cause of action
TC: motion to dismiss granted public
instrument declared null and void
o No inventory of the fishpond has been attached
to the public instrument pursuant to Art. 1773
Issue:
17
WON immovable property or real rights have
been contributed to the alleged partnership, thus
allowing the application of Art. 1773.
Held:
No immovable property or real rights have been
contributed in the alleged partnership.
Art. 1771: A partnership may be constituted in
any form, except where immovable property or real
rights are contributed thereto, in which case a public
instrument shall be necessary.
Art. 1773: A contract of partnership is void, whenever
immovable property is contributed thereto, if inventory
of said property is not made, signed by the parties and
attached to the public instrument.
The public instrument presented showed that it
was the operation of a fishpond and not the
engagement in a fishpond business that was the
purpose established between Agad and Mabato.
o Neither contributed a fishpond nor a real right
to any fishpond
o Their contributions were limited to the sum of
P1k each
Agad vs Mabato
Facts: Petitioner Mauricio Agad claims that he and
defendant Severino Mabato are partners in a fishpond
business to which they contributed P1000 each. As
managing partner, Mabato yearly rendered the accounts
of the operations of the partnership. However, for the
years 1957-1963, defendant failed to render the
accounts despite repeated demands. Petitioner filed a
complaint against Mabato to which a copy of the public
instrument evidencing their partnership is attached.
Aside from the share of profits (P14,000) and attorneys
fees (P1000), petitioner prayed for the dissolution of the
partnership and winding up of its affairs.
Mabato denied the existence of the partnership alleging
that Agad failed to pay hisP1000 contribution. He then
filed a motion to dismiss on the ground of lack of cause
of action. The lower court dismissed the complaint
finding a failure to state a cause of action predicated
upon the theory that the contract of partnership is null
and void, pursuant to Art. 1773 of our Civil Code,
because an inventory of the fishpond referred in said
instrument had not been attached thereto.
Art. 1771. A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if inventory
of said property is not made, signed by the parties; and
attached to the public instrument.
Issue: Whether or not immovable property or real rights the ground that the contract
have been contributed to the partnership. therefor had not been
Held: Based on the copy of the public instrument perfected, despite the execution of
attached in the complaint, the partnership was Annex "A", because Agad had
established to operate a fishpond", and not to "engage allegedly failed to give his
in a fishpond business. Thus, Mabatos contention that P1,000 contribution to the
it is really inconceivable how a partnership engaged in partnership capital. Mabato prayed,
the fishpond business could exist without said fishpond therefore, that the complaint be
property (being) contributed to the partnership is dismissed; that Annex "A" be
without merit. Their contributions were limited to declared void ab initio; and that
P1000 each and neither a fishpond nor a real right Agad be sentenced to pay
thereto was contributed to the partnership. actual, moral and exemplary
Therefore, Article 1773 of the Civil Code finds no damages, as well as attorney's
application in the case at bar. Case remanded to the fees. Mabato filed a motion
lower court for further proceedings. to dismiss, upon the ground
that the complaint states no
ACTS: Plaintiff alleges that he and cause of action and that the
defendant Severino Mabato lower court had no jurisdiction
are pursuant to a public over the subject matter of the
instrument dated August 29, 1952 case, because it involves
" partners in a principally the PARTNERSHIP [1st SET]
fishpond business, to the 2 (DIONNE) || D2014
capital of which Agad contributed determination of rights over public
P1,000, with the right to receive lands. After due hearing, the
50% of the profits. That from court issued the order appealed
1952 up to and including from, granting the motion to
1956, Mabato who handled the dismiss the complaint for failure
partnership funds, had yearly to state a cause of action.
rendered accounts of the This conclusion was predicated
operations of the partnership; and upon the theory that the
that, despite repeated demands, contract of partnership is null and
Mabato had failed and void, pursuant to Art. 1773
refused to render accounts for the of our Civil Code, because
years 1957 to 1963. Agad prayed in an inventory of the
his complaint against Mabato fishpond referred in said instrument
and Mabato & Agad had not been attached
Company, filed on June 9, 1964, thereto.
that judgment be rendered
sentencing Mabato to pay ISSUES: The issue hinges on whether
him (Agad) the sum of or not "immovable property
P14,000, as his share in the or real rights" have been
profits of the partnership for contributed to the partnership under
the period from 1957 to 1963, consideration.
in addition to P1,000 as
attorney's fees, and ordering HELD: NO. (Mabato alleged and the
the dissolution of the lower court held that the answer
partnership, as well as the should be in the affirmative,
winding up of its affairs by a because "it is really
receiver to be appointed. In inconceivable how a partnership
his answer, Mabato engaged in the fishpond
admitted the formal allegations of business could exist without said
the complaint and denied the fishpond property (being) contributed
existence of said partnership, upon to the partnership." But...)
18
RATIO/RULING: The Court said that it for Manuel) said parcel of land is to be developed as a
should be noted, however, that, subdivision.
as stated in Annex "A" the
partnership was established "to Manuel then had the title of the land transferred in his
operate a fishpond", not name and he subsequently mortgaged the property. He
to "engage in a fishpond used the proceeds from the mortgage to start building
business". Moreover, none of roads, curbs and gutters. Manuel also contracted an
the partners contributed either engineering firm for the building of housing units. But
a fishpond or a real due to adverse claims in the land, prospective buyers
right to any fishpond. Their were scared off and the subdivision project eventually
contributions were limited to the failed.
sum of P1,000 each. The
operation of the fishpond mentioned The sisters then filed a civil case against Manuel for
in Annex "A" was the damages equivalent to 60% of the value of the property,
purpose of the partnership. which according to the sisters, is whats due them as per
Neither said fishpond nor a real the contract.
right thereto was contributed to
the partnership or became The lower court ruled in favor of Manuel and the Court
part of the capital thereof, of Appeals affirmed the lower court.
even if a fishpond or
a real right thereto could The sisters then appealed before the Supreme Court
become part of its assets. - - - - where they argued that there is no partnership between
DISPOSITION: WHEREFORE, we find that them and Manuel because the joint venture agreement
said Article 1773 of the Civil Code is void.
is not in point and that,
the order appealed from should ISSUE: Whether or not there exists a partnership.
be, as it is hereby set
aside and the case remanded HELD: Yes. The joint venture agreement the sisters
to the lower court for further entered into with Manuel is a partnership agreement
proceedings, with the costs of whereby they agreed to contribute property (their land)
this instance against defendant-- which was to be developed as a subdivision. While on
appellee, Severino Mabato. It the other hand, though Manuel did not contribute
is so ordered. VOTE: Reyes, capital, he is an industrial partner for his contribution
J.B.L., Dizon, Makalintal, Zaldivar, for general expenses and other costs. Furthermore, the
Sanchez, Castro, Angeles and income from the said project would be divided
Fernando, JJ., concur. according to the stipulated percentage (60-40). Clearly,
CONCURRING/DISSENTING OPINION: None. the contract manifested the intention of the parties to
form a partnership. Further still, the sisters cannot
ADDITIONAL NOTES: invoke their right to the 60% value of the property and
at the same time deny the same contract which entitles
them to it.
Antonia Torres vs Court of Appeals
At any rate, the failure of the partnership cannot be
Business Organization Partnership, Agency, Trust blamed on the sisters, nor can it be blamed to Manuel
Sharing of Loss in a Partnership Industrial Partner (the sisters on their appeal did not show evidence as to
Manuels fault in the failure of the partnership). The
In 1969, sisters Antonia Torres and Emeteria Baring sisters must then bear their loss (which is 60%). Manuel
entered into a joint venture agreement with Manuel does not bear the loss of the other 40% because as an
Torres. Under the agreement, the sisters agreed to industrial partner he is exempt from losses.
execute a deed of sale in favor Manuel over a parcel of
land, the sisters received no cash payment from Manuel G.R. No. 134559 December 9, 1999
but the promise of profits (60% for the sisters and 40%

19
ANTONIA TORRES, assisted by her husband, ANGELO
TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
Facts:
Petitioners Torres and Baring entered into a joint
venture agreement with Respondent Torres for the
development of a parcel of land into a subdivision. They
executed a Deed of Sale covering the said parcel of land
in favor of respondent Manual Torres, who then had it
registered in his name. By mortgaging the property,
respondent Manuel Torres obtained from Equitable
Bank a loan of P40,000, which was supposed to be used
for the development of subdivision as per the JVA.
However, the project did not push through and the land
was subsequently foreclosed by the bank.
Petitioners Antonia Torres alleged that it was due to
respondents lack of funds/skills that caused the project
to fail, and that respondent use the loan in the
furtherance of his own company. On the otherhand,
respondent Manuel Torres alleged that he used the loan
to implement the JVA surveying and subdivision of
lots, approval of the project, advertisement, and
construction of roads and the likes, and that he did all of
these for a total of P85,000.
Petitioners filed a case for estafa against respondent but
failed. They then instituted a civil case. CA held that the
two parties formed a partnership for the development
of subdivision and as such, they must bear the loss
suffered by the partnership in the same proportion as
their share in profits. Hence, the petition.
Issue #1:
Whether or not the transaction between petitioner and
respondent was that of joint venture/partnership.
Held:
Yes. There formed a partnership between the two on
the basis of joint-venture agreement and deed of sale. A
reading of the terms of agreement shows the existence
of partnership pursuant to Art 1767 of 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. In the
20
agreement, petitioners would contribute property to
the partnership in the form of land which was to be
developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for
general expenses and other costs. Furthermore, the
income from the said project would be divided
according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form
a partnership.
Issue #2:
Whether or not the deed of sale between the two was
valid.
Held:
No. Petitioners were wrong in contending that the JVA is
void under Article 1422[14] of the Civil Code, because it
is the direct result of an earlier illegal contract, which
was for the sale of the land without valid consideration.
The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits
from the subdivision project. Its first stipulation states
that petitioners did not actually receive payment for the
parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different
forms, such as the prestation or promise of a thing or
service by another.
In this case, the cause of the contract of sale consisted
not in the stated peso value of the land, but in the
expectation of profits from the subdivision project, for
which the land was intended to be used. As explained
by the trial court, the land was in effect given to the
partnership as petitioners participation therein. There
was therefore a consideration for the sale, the
petitioners acting in the expectation that, should the
venture come into fruition, they would get sixty percent
of the net profits.
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 Eduardos
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 Aurelios 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.
CIR VS. SUTER
FACTS:A limited partnership named William J. Suter
'Morcoin' Co., Ltd was formed 30September 1947 by
William J. Suter as the general partner, and Julia Spirig
andGustav Carlson. They contributed, respectively,
P20,000.00, P18,000.00 andP2,000.00. it was also duly
registered with the SEC. On 1948 Suter and Spirig
gotmarried and in effect Carlson sold his share to the
couple, the same was alsoregistered with the SEC. The
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limited partnership had been filing its income tax
returns as acorporation, without objection by the herein
petitioner, Commissioner of InternalRevenue, until in
1959 when the latter, in an assessment, consolidated
the incomeof the firm and the individual incomes of the
partners-spouses Suter and Spirigresulting in a
determination of a deficiency income tax against
respondent Suter inthe amount of P2,678.06 for 1954
and P4,567.00 for 1955.
ISSUE:Whether or not the limited partnership has been
dissolved after the marriageof Suter and Spirig and
buying the interest of limited partner Carlson.
RULING:No, the limited partnership was not dissolved
.A husband and a wife may not enter into a contract of
generalcopartnership, because under the Civil Code,
which applies in the absence of express provision in the
Code of Commerce, persons prohibited from
makingdonations to each other are prohibited from
entering into universal partnerships. (2Echaverri 196) It
follows that the marriage of partners necessarily brings
about thedissolution of a pre-existing partnership.
What the law prohibits was when the spouses entered
into a generalpartnership. In the case at bar, the
partnership was limited
CIR VS. SUTER FACTS:A limited partnership named
William J. Suter 'Morcoin' Co., Ltd was formed
30September 1947 by William J. Suter as the general
partner, and Julia Spirig andG u s t a v C a r l s o n . T h e
ycontributed,respectively,P20,000.0
0 , P 1 8 , 0 0 0 . 0 0 a n d P2,000.00. it was also duly
registered with the SEC. On 1948 Suter and Spirig gotm
a r r i e d a n d i n effect Carlson sold his share to the
couple, the same was a l s o registered with the SEC. T h
elimitedpartnershiphadbeenfilingitsi
n c o m e t a x r e t u r n s a s a corporation, without
objection by the herein petitioner, Commissioner of
InternalRevenue, until in 1959 when the latter, in an
assessment, consolidated the incomeof the firm and the
individual incomes of the partners-spouses Suter and
Spirigresulting in a determination of a deficiency income
tax against respondent Suter inthe amount of P2,678.06
for 1954 and P4,567.00 for 1955.
ISSUE:Whether or not the limited partnership has been
dissolved after the marriageof Suter and Spirig and
buying the interest of limited partner Carlson.
RULING:No, the limited partnership was not dissolved .
Ahusbandandawifemaynotenterintoac
o n t r a c t o f g e n e r a l copartnership, because u nder
the Civil Code, which applies in the absence of expre ss
provision in the Code of Commerce, persons prohibited
f r o m m a k i n g donations to each other are
prohibited from entering into universal partnerships.
(2Echaverri 196) It follows that the marriage of partners
necessarily brings about thedissolution of a pre-existing
partnership. W h a t t h e l a w p r o h i b i t s w a s w h
enthespousesenteredintoageneral
partnership. In the case at bar, the partnership was
limited
COMMISSIONER OF INTERNAL REVENUE VS. WILLIAM J
SUTER AND THE COURT OF TAX APPEALS GR No. L-
25532 FEBRUARY 28, 1969 FACTS: On 30 September
1947, a limited partnership named William J. Suter
Morcoin Co. Ltd was formed by William Suter, as the
general partner, and Julia Spirig and Gustay Carlson, as
limited partners. The parties contributed, respectively
Php 20,000, Php 18,000 and Php 2,000 to the
partnership. The firm engaged in the importation,
marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement
machines, their parts and accessories. Suter and Spirig
got married in 1948. On 18 December 1948 sold his
share in the partnership to Suter and his wife which was
duly recorded with the SEC. The limited partnership had
been filing its income tax returns as corporation,
without objection by CIR. In 1959, CIR assessed the
consolidated income of the firm and the individual
incomes of the partners-spouses and determined a
deficiency income tax in the amount of Php 2678.06 and
Php 4567.00 for 1955. Suter appealed to the Court of
Tax Appeals after having denied of his request for
cancellation and withdrawal of the assessment. CTA
reversed the decision on 11 November 1965. CIR filed a
petition for review
ISSUE: Whether or not the partnership was dissolved
after the marriage of the partners, William J. Suter and
Julia Spirig Suter, and the subsequent sale to them by
Gustay Carlson of his participation consequently
disregarding the juridical personality of the partnership
for tax purposes
RULING: No. The partnership was not dissolved. The
respondent company was not a universal partnership
but a particular one. As appears from Articles 1674 and
1675 of the Spanish Civil Code of 1889, a universal
partnership requires either that the object of the
association be all the present property of the partners,
as contributed by them to the contributed by them to
the common fund, or else all that the partners ma
acquire by their industry or work during the existence of
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the partnership. Respondent Company was not such a
universal partnership since the contributions of the
partners were fixed sums of money and neither one of
them was an industrial partner. It follows that
respondent company was not a partnership that
spouses were forbidden to enter by Article 1677 of the
Civil Code of 1889. Nor could the subsequent marriage
of the partners operate to dissolve it, such marriage not
being one of the caused provided for that purpose
either by the Spanish Civil Code or the Code of
Commerce. The change in membership, brought about
by the marriage of the partners and their subsequent
acquisition of all interest therein si no groud fro
withdrawing the partnership from the coverage of Sec
24 of the tax code, requiring it to pay income tax.
G.R. No. L-25532 February 28, 1969 petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, WILLIAM J.
SUTER and THE COURT OF TAX APPEALS, respondents. A
limited partnership, named "William J. Suter 'Morcoin'
Co., Ltd.," was formed in 1947 by William J. Suter as the
general partner, and Julia Spirig and Gustav Carlson, as
the limited partners. The partners contributed,
respectively, P20,000.00, P18,000.00 and P2,000.00 to
the partnership. The firm engaged, among other
activities, in the importation, marketing, distribution
and operation of automatic phonographs, radios,
television sets and amusement machines, their parts
and accessories. In 1948, however, general partner
Suter and limited partner Spirig got married and,
thereafter, limited partner Carlson sold his share in the
partnership to Suter and his wife. The limited
partnership had been filing its income tax returns as a
corporation. In 1959, the Commissioner, in an
assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Suter
and Spirig resulting in a determination of a deficiency
income tax against respondent Suter. ISSUES: (a)
Whether or not the corporate personality of the William
J. Suter "Morcoin" Co., Ltd. should be disregarded for
income tax purposes, considering that respondent
William J. Suter and his wife, Julia Spirig Suter actually
formed a single taxable unit; and (b) Whether or not the
partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig
Suter and the subsequent sale to them by the remaining
partner, Gustav Carlson, of his participation of P2,000.00
in the partnership for a nominal amount of P1.00. SC:
(a) CIR has evidently failed to observe the fact that the
partnership was not a universal partnership, but a
particular one. A universal partnership requires either
that the object of the association be all the present
property of the partners, as contributed by them to the
common fund, or else "all that the partners may acquire
by their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions
of the partners were fixed sums of money, P20,000.00
by William Suter and P18,000.00 by Julia Spirig and
neither one of them was an industrial partner. It follows
that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by
Article 1677 of the Civil Code of 1889. The appellant's
view, that by the marriage of both partners the
company became a single proprietorship, is equally
erroneous. The capital contributions of partners William
J. Suter and Julia Spirig were separately owned and
contributed by them before their marriage; and after
they were joined in wedlock, such contributions
remained their respective separate property under the
Spanish Civil Code (Article 1396): The following shall be
the exclusive property of each spouse: (a) That which is
brought to the marriage as his or her own; .... Thus, the
individual interest of each consort in the partnership did
not become common property of both after their
marriage in 1948. The change in its membership,
brought about by the marriage of the partners and their
subsequent acquisition of all interest therein, is no
ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to
pay income tax. The code (NIRC) taxes a limited
partnership on its income, but not a general
copartnership (compaia colectiva), because it is in the
case of compaias colectivas that the members, and not
the firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly
registered general partnership. (b) The fi rm was not a
universal partnership, but a particular one. It follows
that the partnership was not one that A and B were
forbidden to enter under Article 1677. (now Art. 1782.)
Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of
the causes provided for that purpose by law.

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