Beruflich Dokumente
Kultur Dokumente
Same; Same; Same; Words and Phrases; Schedular Same; Same; Same; Same; Words and Phrases;
Approach, Defined.—Schedular approach is a system “Income Tax-payers,” Defined; The Tax Code, in
employed where the income tax treatment varies and levying the tax, adopts the most comprehensive tax
made to depend on the kind or category of taxable situs of nationality and residence of the taxpayer and
income of the taxpayer. of the generally accepted and internationally
recognized income taxable base.—We can well
Same; Same; Same; Same; Global Treatment, appreciate the concern taken by petitioners if perhaps
Defined.—Global treatment is a system where the tax we were to consider Republic Act No. 7496 as an
treatment views indifferently the tax base and generally entirely independent, not merely as an amendatory,
treats in common all categories of taxable income of piece of legislation. The view can easily become
the taxpayer. myopic, however, when the law is understood, as it
should be, as only forming part of, and subject to, the
whole income tax concept and precepts long obtaining
Same; Same; Same; Separation of Powers; With the
under the National Internal Revenue Code. To
legislature primarily lies the discretion to determine the
elaborate a little, the phrase “income taxpayers” is an
nature (kind), object (purpose), extent (rate), coverage
all embracing term used in the Tax Code, and it
(subjects) and situs (place) of taxation, and the
practically covers all persons who derive taxable
Supreme Court cannot freely delve into those
income. The law, in levying the tax, adopts the most
matters.—Petitioner gives a fairly extensive discussion
comprehensive tax situs of nationality and residence of
on the merits of the law, illustrating, in the process,
the taxpayer (that renders citizens, regardless of
what he believes to be an imbalance between the tax
residence, and resident aliens subject to income tax
liabilities of those covered by the amendatory law and
liability on their income from all sources) and of the
those who are not. With the legislature primarily lies the
generally accepted and internationally recognized
discretion to determine the nature (kind), object
income taxable base (that can subject non-resident
(purpose), extent (rate), coverage (subjects) and situs
aliens and foreign corporations to income tax on their
(place) of taxation. This court cannot freely delve into
income from Philippine sources). In the process, the
those matters which, by constitutional fiat, rightly rest
Code classifies taxpayers into four main groups,
on legislative judgment. Of course, where a tax
namely: (1) Individuals, (2) Corporations, (3) Estates
measure becomes so unconscionable and unjust as to
under Judicial Settlement and (4) Irrevocable Trusts
amount to confiscation of property, courts will not
(irrevocable both as to corpus and as to income).
hesitate to strike it down, for, despite all its plenitude,
the power to tax cannot override constitutional
proscriptions. This stage, however, has not been Same; Same; Same; Same; Partnerships under the
demonstrated to have been reached within any Tax Code, Classified; Ordinarily, partnerships are
appreciable distance in this controversy before us. subject to income tax which are by law assimilated to
be within the context of, and so legally contemplated
as, corporations.—Partnerships are, under the Code,
Same; Same; Same; Due Process; The due process
either “taxable partnerships” or “exempt partnerships.”
clause may correctly be invoked only when there is a
Ordinarily, partnerships, no matter how created or
clear contravention of inherent or constitutional
organized, are subject to income tax (and thus alluded
limitations in the exercise of the tax power.—Having
to as “taxable partnerships”) which, for purposes of the
arrived at this conclusion, the plea of petitioner to have
above categorization, are by law assimilated to be
the law declared unconstitutional for being violative of
within the context of, and so legally contemplated as,
due process must perforce fail. The due process
corporations. Except for few variances, such as in the
clause may correctly be invoked only when there is a
application of the “constructive receipt rule” in the
clear contravention of inherent or constitutional
derivation of income, the income tax approach is alike
limitations in the exercise of the tax power. No such
to both juridical persons.
transgression is so evident to us.
Same; Same; Same; Same; SNIT is not intended or
envisioned to cover corporations and partnerships
which are independently subject to the payment of Commercial Co., 44 Phil. 916, No. 18703 August 28,
income tax.—Obviously, SNIT is not intended or 1922
envisioned, as so correctly pointed out in the
discussions in Congress during its deliberations on G. PARTNERSHIP IS A PERSON ENTITLED TO
Republic Act 7496, aforequoted, to cover corporations CONSTITUTIONAL RIGHTS
and partnerships which are independently subject to
the payment of income tax. 2. LIMITATIONS ON PRINCIPLE OF SEPARATE
JURIDICAL PERSONALITY.
Same; Same; Same; Same; “Exempt partnerships” are
not similarly identified as corporations nor even A. PARTNERS ARE CO-OWNERS OF
considered as independent taxable entities for income PARTNERSHIP PROPERTIES ARTICLE
tax purposes.—“Exempt partnerships,” upon the other 1811.
hand, are not similarly identified as corporations nor
even considered as independent taxable entities for
Article 1811. A partner is co-owner with his partners of
income tax purposes. A general professional
specific partnership property.
partnership is such an example. Here, the partners
themselves, not the partnership (although it is still
obligated to file an income tax return [mainly for The incidents of this co-ownership are such that:
administration and data]), are liable for the payment of
income tax in their individual capacity computed on (1) A partner, subject to the provisions of this
their respective and distributive shares of profits. In the Title and to any agreement between the
determination of the tax liability, a partner does so as partners, has an equal right with his partners to
an individual, and there is no choice on the matter. In possess specific partnership property for
fine, under the Tax Code on income taxation, the partnership purposes; but he has no right to
general professional partnership is deemed to be no possess such property for any other purpose
more than a mere mechanism or a flow-through entity without the consent of his partners;
in the generation of income by, and the ultimate
distribution of such income to, respectively, each of the (2) A partner's right in specific partnership
individual partners. property is not assignable except in connection
with the assignment of rights of all the partners
Same; Same; Same; Same; Section 6 of Revenue in the same property;
Regulation No. 2-93 consistent with the Tax Code as
modified by Republic Act No. 7496.—Section 6 of (3) A partner's right in specific partnership
Revenue Regulation No. 2-93 did not alter, but merely property is not subject to attachment or
confirmed, the above standing rule as now so modified execution, except on a claim against the
by Republic Act No. 7496 on basically the extent of partnership. When partnership property is
allowable deductions applicable to all individual income attached for a partnership debt the partners, or
taxpayers on their non-compensation income. There is any of them, or the representatives of a
no evident intention of the law, either before or after the deceased partner, cannot claim any right under
amendatory legislation, to place in an unequal footing the homestead or exemption laws;
or in significant variance the income tax treatment of
professionals who practice their respective professions (4) A partner's right in specific partnership
individually and of those who do it through a general property is not subject to legal support under
professional partnership. Tan vs. Del Rosario, Jr., 237 article 291. (n)
SCRA 324, G.R. No. 109289, G.R. No. 109446
October 3, 1994 B. PARTNERS MAY INDIVIDUALLY
DISPOSE OF REAL PROPERTY OF THE
F. IT MAY BE DECLARED INSOLVENT EVEN PARTNERSHIP EVEN WHEN IN
IF THE PARTNERS ARE NOT PARTNERSHIP NAME ARTICLE 1819
G.R. No. L-18703 August 28, 1922 Article 1819. Where title to real property is in the
partnership name, any partner may convey title to such
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA property by a conveyance executed in the partnership
& CO., S. en C., appellee, name; but the partnership may recover such property
vs. unless the partner's act binds the partnership under the
PACIFIC COMMERCIAL CO., ASIATIC provisions of the first paragraph of article 1818, or
PETROLEUM CO., and INTERNATIONAL BANKING unless such property has been conveyed by the
CORPORATION,petitioners-appellants. grantee or a person claiming through such grantee to
a holder for value without knowledge that the partner,
INVOLUNTARY INSOLVENCY; LIMITED in making the conveyance, has exceeded his authority.
PARTNERSHIP; ACT OF BANKRUPTCY;
SOLVENCY OF PARTNERS.—In the Philippines a Where title to real property is in the name of the
limited partnership duly organized in accordance with partnership, a conveyance executed by a partner, in
law has a personality distinct from that of its members; his own name, passes the equitable interest of the
and if it commits an act of bankruptcy, such as that of partnership, provided the act is one within the authority
failing for more than thirty days to pay debts amounting of the partner under the provisions of the first
to P1,000 or more, it may be adjudged insolvent on the paragraph of article 1818.
petition of three of its creditors although its members
may not be insolvent. Campos Rueda & Co. vs. Pacific Where title to real property is in the name of one or
more but not all the partners, and the record does not
disclose the right of the partnership, the partners in (3) The assets shall be applied in the order of
whose name the title stands may convey title to such their declaration in No. 1 of this article to the
property, but the partnership may recover such satisfaction of the liabilities.
property if the partners' act does not bind the
partnership under the provisions of the first paragraph (4) The partners shall contribute, as provided
of article 1818, unless the purchaser or his assignee, by article 1797, the amount necessary to
is a holder for value, without knowledge. satisfy the liabilities.
Where the title to real property is in the name of one or (5) An assignee for the benefit of creditors or
more or all the partners, or in a third person in trust for any person appointed by the court shall have
the partnership, a conveyance executed by a partner the right to enforce the contributions specified
in the partnership name, or in his own name, passes in the preceding number.
the equitable interest of the partnership, provided the
act is one within the authority of the partner under the (6) Any partner or his legal representative shall
provisions of the first paragraph of article 1818. have the right to enforce the contributions
specified in No. 4, to the extent of the amount
Where the title to real property is in the name of all the which he has paid in excess of his share of the
partners a conveyance executed by all the partners liability.
passes all their rights in such property. (n)
(7) The individual property of a deceased
C. PARTNERS ARE PERSONALLY LIABLE partner shall be liable for the contributions
FOR PARTNERSHIP DEBTS AFTER specified in No. 4.
EXHAUSTION OF PARTNERSHIP
ASSETS ARTICLE 1816, 1817, 1824, 1839 (8) When partnership property and the
individual properties of the partners are in
Article 1816. All partners, including industrial ones, possession of a court for distribution,
shall be liable pro rata with all their property and after partnership creditors shall have priority on
all the partnership assets have been exhausted, for the partnership property and separate creditors on
contracts which may be entered into in the name and individual property, saving the rights of lien or
for the account of the partnership, under its signature secured creditors.
and by a person authorized to act for the partnership.
However, any partner may enter into a separate (9) Where a partner has become insolvent or
obligation to perform a partnership contract. (n) his estate is insolvent, the claims against his
separate property shall rank in the following
Article 1817. Any stipulation against the liability laid order:
down in the preceding article shall be void, except as
among the partners. (n) (a) Those owing to separate creditors;
Article 1824. All partners are liable solidarily with the (b) Those owing to partnership
partnership for everything chargeable to the creditors;
partnership under articles 1822 and 1823. (n)
(c) Those owing to partners by way of
Article 1839. In settling accounts between the partners contribution. (n)
after dissolution, the following rules shall be observed,
subject to any agreement to the contrary:
Facts: Ortega, then a senior partner in the law firm ISSUE:1. Whether or not there was a partnership that
Bito, Misa, and Lozada withdrew in said firm. He filed existed between the parties.
with SEC a petition for dissolution and liquidation of
partnership. SEC en banc ruled that withdrawal of Misa 2. Whether the properties that were commonly used in
from the firm had dissolved the partnership. Reason: the operation of Allied Air Freight belonged to the
since it is partnership at will, the law firm could be alleged partnership business.
dissolved by any partner atanytime, such as by
withdrawal therefrom, regardless of good faith or bad RULING: Article 1767 of the New Civil Code defines
faith, since nopartner can be forced to continue in the the contract of partnership: Art. 1767. By the contract
partnership against his will. of partnership two or more persons bind themselves to
contribute money, property, or industry to a common
Issue: 1. WON the partnership of Bito, Misa & Lozada fund, with the intention of dividing the proceeds among
(now Bito, Lozada, Ortega & Castillo)is a partnership at themselves. A cursory examination of the evidences
will; 2. WON the withdrawal of Misa dissolved the presented no proof that a partnership, whether oral or
partnership regardlessof his good or bad faith; written had been constituted. In fact, those movables
brought by the plaintiff for the use in the operation of
Held: 1. Yes. The partnership agreement of the firm the business remain registered in her name. While
provides that ‖[t]he partnership shallcontinue so long there may have been co-ownership or co-possession
as mutually satisfactory and upon the death or legal of some items and/or any sharing of proceeds by way
incapacity of one of the partners, shall be continued by of advances received by both plaintiff and the
the surviving partners.‖ 2. Yes. Any one of the partners defendant, these are not indicative and supportive of
may, at his sole pleasure, dictate a dissolution of the the existence of any partnership between them. Art.
1769 par. 2 provides: Co-ownership or co-possession
does not of itself establish a partnership, whether such The RTC rendered judgment in favor of Antonieta and
co-owners or co-possessors do or do not share any Federico. On appeal, the CA set the RTC Decision.
profits made by the use of the property” Besides, the Petitioner filed a petition for review to the SC.
alleged profit was a difference found after valuating the
assets and not arising from the real operation of the ISSUE: Did the CA err in ruling that petitioners are
business. In accounting procedures, strictly, this could not entitled to profits over the businesses not
not be profit but a net worth. listed in the Acknowledgement?
JARANTILLA V. JARANTILLA (G.R. NO. 154486; HELD: There is a co-ownership when an undivided
DECEMBER 1, 2010) thing or right belongs to different persons. It is a
partnership when two or more persons bind
CASE DIGEST: FEDERICO JARANTILLA, JR., themselves to contribute money, property, or
Petitioner, v. ANTONIETA JARANTILLA, industry to a common fund, with the intention of
BUENAVENTURA REMOTIGUE, substituted by dividing the profits among themselves.
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA
and TOMAS JARANTILLA, Respondents. The common ownership of property does not itself
create a partnership between the owners, though they
FACTS: The spouses Andres Jarantilla and may use it for the purpose of making gains; and they
FelisaJaleco were survived by eight children: Federico may, without becoming partners, agree among
Sr., Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael themselves as to the management, and use of such
and Antonieta. Petitioner Federico Jarantilla, Jr. is the property and the application of the proceeds therefrom.
grandchild of the late Jarantilla spouses by their son
Federico Jarantilla, Sr. and his wife Leda Jamili. Under Article 1767 of the Civil Code, there are two
Petitioner also has two other brothers: Doroteo and essential elements in a contract of partnership: (a) an
Tomas Jarantilla. The Jarantilla heirs extrajudicially agreement to contribute money, property or industry to
partitioned amongst themselves the real properties of a common fund; and (b) intent to divide the profits
their deceased parents. With the exception of the real among the contracting parties.
property adjudicated to PacitaJarantilla, the heirs also
agreed to allot the produce of the said real properties It is not denied that all the parties in this case have
for the years 1947-1949 for the studies of Rafael and agreed to contribute capital to a common fund to be
AntonietaJarantilla. able to later on share its profits. They have admitted
this fact, agreed to its veracity, and even submitted one
Sps. Rosita Jarantilla and Vivencio Deocampo entered common documentary evidence to prove such
into an agreement with the spouses Buenaventura partnership - the Acknowledgement of Participating
Remotigue and ConchitaJarantilla to provide mutual Capital.
assistance to each other by way of financial support to
any commercial and agricultural activity on a joint The Acknowledgement of Participating Capital is a duly
business arrangement. This proved to be successful as notarized document voluntarily executed by Conchita
they were able to establish a manufacturing and Jarantilla-Remotigue and Buenaventura Remotigue in
trading business, acquire real properties, and construct 1957. Petitioner does not dispute its contents and is
buildings, among other things. The same ended in actually relying on it to prove his participation in the
1973 upon their voluntary dissolution. partnership. Article 1797 of the Civil Code provides:
The spouses Buenaventura and ConchitaRemotigue Art. 1797. The losses and profits shall be distributed in
executed a document Acknowledgement of conformity with the agreement. If only the share of each
Participating Capital stating the participating capital of partner in the profits has been agreed upon, the share
of their co-owners as of the year 1952, with of each in the losses shall be in the same proportion.
AntonietaJarantillas stated as eight thousand pesos
(P8,000.00) and Federico Jarantilla, Jr.s as five In the absence of stipulation, the share of each partner
thousand pesos (P5,000.00). in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner
The controversy started when Antonieta filed a shall not be liable for the losses.
complaint against Buenaventura, Cynthia, Doroteo and
Tomas, for the accounting of the assets and income of The petitioner himself claims his share to be 6%, as
the co-ownership, for its partition and the delivery of stated in the Acknowledgement of Participating
her share corresponding to eight percent (8%), and for Capital. However, petitioner fails to realize that this
damages. She alleged that the initial contribution of document specifically enumerated the businesses
property and money came from the heirs inheritance, covered by the partnership: Manila Athletic Supply,
and her subsequent annual investment of seven Remotigue Trading in Iloilo City and Remotigue
thousand five hundred pesos (P7,500.00) as additional Trading in Cotabato City. Since there was a clear
capital came from the proceeds of her farm. agreement that the capital the partners contributed
went to the three businesses, then there is no reason
Respondents denied having formed a partnership. to deviate from such agreement and go beyond the
They did not deny the existence and validity of the stipulations in the document. Therefore, the Court of
"Acknowledgement of Participating Capital" and in fact Appeals did not err in limiting petitioners share to the
used this as evidence to support their claim that assets of the businesses enumerated in the
Antonietas 8% share was limited to the businesses Acknowledgement of Participating Capital.
enumerated therein. Petitioner Federico Jr joined his
aunt Antonieta and likewise asserted his share in the In Villareal v. Ramirez, the Court held that since a
supposed partnership. partnership is a separate juridical entity, the shares to
be paid out to the partners is necessarily limited only to supported Antonieta’s claims and asserted that he too
its total resources. was entitled to six percent (6%) of the supposed
partnership in the same manner as Antonieta was.
***
ISSUE: Whether or not the partnership subject of the
The petitioner further asserts that he is entitled to Acknowledgement of Participating Capital funded the
respondents properties based on the concept of trust. subject real properties.
He claims that since the subject real properties were
purchased using funds of the partnership, wherein he HELD: Under Article 1767 of the Civil Code, there are
has a 6% share, then "law and equity mandates that he two essential elements in a contract of partnership: (a)
should be considered as a co-owner of those an agreement to contribute money, property or industry
properties in such proportion." to a common fund; and (b) intent to divide the profits
among the contracting parties. The first element is
As a rule, the burden of proving the existence of a trust undoubtedly present in the case at bar, for, admittedly,
is on the party asserting its existence, and such proof all the parties in this case have agreed to, and did,
must be clear and satisfactorily show the existence of contribute money and property to a common fund.
the trust and its elements. While implied trusts may be Hence, the issue narrows down to their intent in acting
proved by oral evidence, the evidence must be as they did. It is not denied that all the parties in this
trustworthy and received by the courts with extreme case have agreed to contribute capital to a common
caution, and should not be made to rest on loose, fund to be able to later on share its profits. They have
equivocal or indefinite declarations. Trustworthy admitted this fact, agreed to its veracity, and even
evidence is required because oral evidence can easily submitted one common documentary evidence to
be fabricated. prove such partnership - the Acknowledgement of
Participating Capital. The petitioner himself claims his
The petitioner has failed to prove that there exists a share to be 6%, as stated in the Acknowledgement of
trust over the subject real properties. Aside from his Participating Capital. However, petitioner fails to
bare allegations, he has failed to show that the realize that this document specifically enumerated the
respondents used the partnerships money to purchase businesses covered by the partnership: Manila Athletic
the said properties. Even assuming arguendo that Supply, Remotigue Trading in Iloilo City and
some partnership income was used to acquire these Remotigue Trading in Cotabato City. Since there was
properties, the petitioner should have successfully a clear agreement that the capital the partners
shown that these funds came from his share in the contributed went to the three businesses, then there is
partnership profits. After all, by his own admission, and no reason to deviate from such agreement and go
as stated in the Acknowledgement of Participating beyond the stipulations in the document. There is no
Capital, he owned a mere 6% equity in the partnership. evidence that the subject real properties were assets
of the partnership referred to in the Acknowledgement
DENIED of Participating Capital. Petition denied.
JARANTILLA, JR. vs. JARANTILLA 636 SCRA 299, Binglangawa vs. Constantino, 109 Phil 168
G.R. No. 154486, December 1, 2010, Leonardo-De
Castro, J.: p
Facts: Petitioners were the owners of parcel of land.
They appoint the respondent as their exclusive agent
FACTS: The present case stems from the to develop and sell the area. As compensation, the
complaintfiled by Antonieta Jarantilla against respondent shall receive a commission and
Buenaventura Remotigue, Cynthia Remotigue, percentage for the collection. There was a breached of
Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas contract of agency on the part of petitioners rendering
Jarantilla, for the accounting of the assets and income the respondent to file a complaint to pay the
of the co-ownership, for its partition and the delivery of respondent of the unpaid balances. Petitioners
her share corresponding to eight percent (8%), and for promised to pay their liability and the respondent
damages. Antonieta claimed that in 1946, she had consented to the settlement but to no avail. While the
entered into an agreement with the defendants to case was pending, respondent filed with the ROD
engage in business through the execution of a notice of lis pendens; involving rights and interest and
document denominated as "Acknowledgement of claims for services and damages. The ROD requested
Participating Capital”. Antonieta also alleged that she the petitioners to surrender the owner‘s copy of CTC.
had helped in the management of the business they When petitioners registered the absolute deed of sale
co-owned without receiving any salary. Antonieta in favor of Santos, the ROD made the annotations of
further claimed co-ownership of certain properties (the lis pendens. The petitioners sought for the cancellation
subject real properties) in the name of the defendants of the lis pendens which the lower courts granted. The
since the only way the defendants could have courts ruled that the action of respondent is purely a
purchased these properties were through the claim of money. The respondents contends that the
partnership as they had no other source of income. The commission and collection made by him, as well as the
respondents did not deny the existence and validity of advancements, converted him into partner.
the "Acknowledgement of Participating Capital" and in
fact used this as evidence to support their claim that
Issue: Is the respondent a partner?
Antonieta’s 8% share was limited to the businesses
enumerated therein. The respondents denied using the
partnership’s income to purchase the subject real Held: No. Respondent was only an appointed agent. In
properties. During the course of the trial at the RTC, fact he expressly said in his complaint that the
petitioner Federico Jarantilla, Jr., who was one of the petitioners were indebted to him for the unpaid balance
original defendants, entered into a compromise and consented to the settlement. The advances made
agreement17 with Antonieta Jarantilla wherein he by the respondent were never considered as
contribution to make him a partner. In fact, after the However, in London Assur. Corp. v. Drennen, Minn., 6
liquidation at the time of the termination of the agency, S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688, such a
the whole balance was considered petitioner‘s debts relation does not necessarily exist, for ordinarily
which appellant consented. persons cannot be made to assume the relation of
partners, as between themselves, when their purpose
Pioneer Insurance vs. Court of Appeals, 175 scra is that no partnership shall exist and it should be
668 implied only when necessary to do justice between the
parties; thus, one who takes no part except to
Facts: Jacob S. Lim was engaged in the airline subscribe for stock in a proposed corporation which is
business as owner-operator of Southern Air Lines never legally formed does not become a partner with
(SAL) a single proprietorship. One time, Japan other subscribers who engage in business under the
Domestic Airlines (JDA) and Lim entered into and name of the pretended corporation, so as to be liable
executed a sales contract for the sale and purchase of as such in an action for settlement of the alleged
two (2) DC-3A Type aircrafts and one (1) set of partnership and contribution (Ward v. Brigham, 127
necessary spare parts for the total agreed price of US Mass. 24). In the instant case, it was found during trial
$109,000.00 to be paid in installments. Pioneer that the petitioner received the amount of P151,000.00
Insurance and Surety Corporation as surety executed representing the participation of Bormaheco and Atty.
and issued its Surety Bond in favor of JDA, in behalf of Constancio B. Maglana in the ownership of the subject
its principal, Lim, for the balance price of the aircrafts airplanes and spare parts. The record shows that
and spare parts. It appears that Border Machinery and defendant Maglana gave P75,000.00 to petitioner
Heavy Equipment Company, Inc. (Bormaheco), Jacob Lim thru the Cervanteses in order to incorporate
Francisco and Modesto Cervantes (Cervanteses) and his airline in accordance with their agreement and
Constancio Maglana (respondents in both petitions) proceeded to acquire the planes on his own account.
contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were However, petitioner denied their claims of such.
supposed to be their contributions to a new corporation Doctrinal pronouncement in Pioneer Insurance: When
proposed by Lim to expand his airline business. During parties come together intending to form a Corporation,
these transactions, Lim executed two(2) separate but failed to do so, then the Following Rules may apply:
indemnity agreements in favor of Pioneer, one signed (a) Parties who had intended to participate or actually
by Maglana and the other jointly signed by Lim for SAL, participated in the business affairs of the proposed
Bormaheco and the Cervanteses. On June 10, 1965, corporation would be considered as partners under a
Lim doing business under the name and style of SAL de facto partnership, and would be liable as such in an
executed in favor of Pioneer as deed of chattel action for settlement of partnership obligations; -While-
mortgage as security for the latter's suretyship in favor (b) Parties who took no part except to subscribe to
of the former. It was stipulated therein that Lim transfer shares of stock in a proposed corporation, do not
and convey to the surety the two aircrafts. Lim in an become partners with other subscribers who engaged
undertaking promised to incorporate his airline in in business under the name of the pretended
accordance with their agreement and proceeded to corporation, and are not liable for action for settlement
acquire the planes on his own account. Since then, Lim of the alleged partnership contribution.
has refused, failed and still refuses to set up the
corporation or return the money of Maglana and the KILOS BAYAN VS GUINONA
others upon demand. Lim defaulted on his subsequent GR No. 113375, May 5 1994, 232 SCRA 110
installment payments prompting JDA to request
payments from the surety, Pioneer. Pioneer then filed FACTS: Pursuant to Section 1 of the charter of the
a petition for the extrajudicial foreclosure of the said PCSO (R.A. No. 1169, as amended by B.P. Blg. 42)
chattel mortgage. Pioneer filed an action for judicial which grants it the authority to hold and conduct
foreclosure with an application for a writ of preliminary "charity sweepstakes races, lotteries and other similar
attachment against Lim and respondents, activities," the PCSO decided to establish an on- line
Cervanteses, Bormaheco and Maglana. After trial on lottery system for the purpose of increasing its revenue
the merits, a decision was rendered holding Lim liable base and diversifying its sources of funds. After
to pay Pioneer but dismissed Pioneer's complaint learning that the PCSO was interested in operating an
against all other defendants. on-line lottery system, the Berjaya Group Berhad, "a
multinational company and one of the ten largest public
Issues: 1. Was the failure to incorporate in effect companies in Malaysia, and who has been long
created a de facto partnership which would allow engaged in lottery operations in Asia, became
petitioner to be reimbursed from the losses incurred? interested to offer its services and resources to PCSO.
2. What legal rules govern the relationship of co- As an initial step, Berjaya Group Berhad (through its
investors‘ Jacob S. Lim, Bormacheco, Fransico, individual nominees) organized with some Filipino
Cervantes and Maglana whose agreement was to do investors in March 1993 a Philippine corporation
business as a Corporation but failed to do so? known as the Philippine Gaming Management
Corporation (PGMC), which was intended to be the
Ruling: No. The Supreme Court held that no de facto medium through which the technical and management
partnership was created among the parties which services required for the project would be offered and
would entitle the petitioner to a reimbursement of the delivered to PCSO.
supposed losses of the proposed corporation. In some
cases, it is ordinarily held that persons who attempt, Before August 1993, the PCSO formally issued a
but fail, to form a corporation and who carry on Request for Proposal (RFP) for the Lease Contract of
business under the corporate name occupy the an on-line lottery system for the PCSO. The bids
position of partners inter se (Lynch v. Perryman, 119 submitted by PGMC were evaluated by the Special
P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Pre-Qualification Bids and Awards Committee
(SPBAC) for the on-line lottery and its Bid Report was
thereafter submitted to the Office of the President. On association or joint venture with any person,
21 October 1993, the Office of the President association, company or entity, whether domestic or
announced that respondent PGMC may finally operate foreign.” There is undoubtedly a collaboration between
the country's on-line lottery system and that the PCSO and PGMC and not merely a contract of lease.
corresponding implementing contract would be The relations between PCSO and PGMC cannot be
submitted for final clearance and approval by the Chief defined simply by the designation they used, i.e., a
Executive. contract of lease. Pursuant to the wordings of their
agreement, PGMC at its own expense shall build,
On 4 November 1993, KILOSBAYAN sent an open operate, and manage the network system including
letter to Presidential Fidel V. Ramos strongly opposing its facilities needed to operate a nationwide online
the setting up to the on-line lottery system on the basis lottery system. PCSO bears no risk and all it does is to
of serious moral and ethical considerations. Petitioners provide its franchise – in violation of its charter.
also submit that the PCSO cannot validly enter into the Necessarily, the use of such franchise by PGMC is a
assailed Contract of Lease with the PGMC because it violation of Act No. 3846.
is an arrangement wherein the PCSO would hold and
conduct the on-line lottery system in "collaboration" or LITONJUA v. LITONJUA (Dec 13, 2005)
"association" with the PGMC, in violation of Section
1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, OCTRINE: A Partnership must be in a public document
which prohibits the PCSO from holding and conducting if: 1) Immoveable Property and Real Rights contributed
charity sweepstakes races, lotteries, and other similar to it. a. If it involves immoveable property, inventory of
activities "in collaboration, association or joint venture such is needed signed by the par tners. (else VOID) 2)
with any person, association, company or entity, It involves capital P 3,000 (must be filed in the SEC)
foreign or domestic." Petitioner seeks to prohibit and NATURE: Petition for review on certiorari
restrain the implementation of the "Contract of Lease" PONENTE: Garcia, J.
executed by the Philippine Charity Sweepstakes Office
(PCSO) and the Philippine Gaming Management FACTS: Aurelio (Petitioner) and Eduardo Litonjua are
Corporation (PGMC) in connection with the on- line brothers. Aurelio alleges that he had a partnership with
lottery system, also known as "lotto." his brother Eduardo evidenced by a private
memorandum (unsigned) executed by Eduardo which
ISSUE: Whether or not the oppositions made by the said he was giving 10% of the equity or 1 m illion pesos,
petitioner was valid. and that they would work together in maintaining the
family business. A third person Yang was also alleged
HELD: The Court agrees with the petitioners and the to be a member in the joint venture a nd partnership.
challenged Contract of Lease executed by respondent Here Aurelio files for an action of Specific Performance
PCSO and respondent PGMC is declared to be against his partners, to render an accounting and give
contrary to law and invalid. The preliminary issue on him his share of the profits.
the locus standi of the petitioners which was raised by
the respondents should be resolved in their favor. The ISSUES: W/N there is a Valid Partnership?
Court finds this petition to be of transcendental
importance to the public. The issues it raised are of HELD: No, the contract was void or at most
paramount public interest and of a category even unenforceable. RATIO/RULING: The supposed
higher than those involved in many of the aforecited contract of partnership was evidenced by a private
cases. The ramifications of such issues immeasurably memorandum (unsigned), in which Eduardo expressed
affect the social, economic, and moral well-being of the his desire to train his brother, and promising him a 10%
people even in the remotest barangays of the country share or 1 million pesos. The supposed contract is
and the counter-productive and retrogressive effects of void, for being contrary to Articles 1771, 1772, and 177
the envisioned on-line lottery system are as staggering 3 of the Civil Code. The memorandum, on its face,
as the billions in pesos it is expected to raise. The legal contains typewritten entries, personal in tone, but is
standing then of the petitioners deserves recognition unsigned and undated. As an unsigned document,
and, in the exercise of its sound discretion, this Court there can be no quibbling that 1) The memorandum
hereby brushes aside the procedural barrier which the does not meet the public instrumentation requirements
respondents tried to take advantage of. exacted under Article 1771 of the Civil Code. 2)
Moreover, being unsigned and doubtless referring to a
On the substantive issue regarding the provision in partnership involving more than P3,00 0.00 in money
Section 1 of R.A. No. 1169, as amending by B.P. Blg. or property, The Memorandum cannot be presented for
42, is indisputably clear with respect to its franchise or notarization, let alone registered with the Securities
privilege "to hold and conduct charity sweepstakes and Exchange Commission (SEC), as called for under
races, lotteries and other similar activities." Meaning, the Article 1772 of the Code. 3) And inasmuch as the
the PCSO cannot exercise it "in collaboration, inventory requirement under the succeeding Article
association or joint venture" with any other party. Thus, 1773 goes into the matter of validity when immovable
the challenged Contract of Lease violates the property is contributed to the partnership, the next
exception provided for in paragraph B, Section 1 of logical point of inquiry turns on the nature of petitioner‘s
R.A. No. 1169, as amended by B.P. Blg. 42, and is, contribution, if any, to the supposed partnership.
therefore, invalid for being contrary to law. Petitioner, then goes on to allege that, assuming
arguendo, that the contract was not one of partnership
=FROM OTHER DIGEST that the same actually established an innominate
contract and was a source of actionable rights. Court
ruled even as a innominate contract, it would be void
On issues 2, 3, and 4, Section 1 of R.A. No. 1169, as
as in violation of the statute of frauds. (Being it‘s
amended by B.P. Blg. 42, prohibits the PCSO from
performance was to be done 1 year after perfection of
holding and conducting lotteries “in collaboration,
the contract.) DISPOSITION: Petition is DENIED ruling returned by the partners, because it only deals with the
of the CA AFFIRMED. disposition of the profits; but the fact that said
contributions are not included in the disposal
G.R. No. 31057 September 7, 1929 ADRIANO prescribed profits, shows that in consequences of said
ARBES, ET AL., plaintiffs-appellees, vs. VICENTE exclusion, the general law must be followed, and hence
POLISTICO, ET AL., defendants-appellants. the partners should reimburse the amount of their
Digested By: Kathy Florence Baldonado respective contributions. (3) Any other solution is
immoral, and the law will not consent to the latter
FACTS: This is an action to bring about liquidation of remaining in the possession of the manager or
the funds and property of the association called administrator who has refused to return them, by
"Turnuhan Polistico & Co." The plaintiffs were denying to the partners the action to demand them.
members or shareholders, and the defendants were
designated as president-treasurer, directors and With regard to Profits of an Illegal Partnership: the
secretary of said association. By agreement of the court holds that – (1) The article cited above permits
parties, the court appointed a commissioner to no action for the purpose of obtaining the earnings
examine all the books, documents, and accounts of made by the unlawful partnership, during its existence
"Turnuhan Polistico & Co. The commissioner rendered as result of the business in which it was engaged,
his report, showing a balance of the cash on hand in because for the purpose, the partner will have to base
the amount of P24,607.80. The trial court in accepting his action upon the partnership contract, which is to
the report, rendered judgment, holding that the annul and without legal existence by reason of its
association "Turnuhan Polistico & Co." is unlawful, and unlawful object; and it is self evident that what does not
sentencing the defendants jointly and severally to exist cannot be a cause of action. (2) Profits earned in
return the amount of P24,607.80, as well as the the course of the partnership, because they do not
documents showing the uncollected credits of the constitute or represent the partner's contribution but
association, to the plaintiffs in this case, and to the rest are the result of the industry, business or speculation
of the members of the said association represented by which is the object of the partnership, and therefor, in
said plaintiffs. There is no question that "Turnuhan order to demand the proportional part of the said
Polistico & Co." is an unlawful partnership, but the profits, the partner would have to base his action on the
appellants allege that because it is so, some charitable contract which is null and void, since this partition or
institution to whom the partnership funds may be distribution of the profits is one of the juridical effects
ordered to be turned over, should be included, as a thereof. (3) Furthermore, it would be immoral and
party defendant. The appellants refer to article 1666 of unjust for the law to permit a profit from an industry
the Civil Code, particularly the second paragraph, prohibited by it.
which provides: “When the dissolution of an unlawful
partnership is decreed, the profits shall be given to EUFEMIA EVANGELISTA, MANUELA
charitable institutions of the domicile of the partnership, EVANGELISTA, and FRANCISCA EVANGELISTA,
or, in default of such, to those of the province.” petitioners, vs. THE COLLECTOR OF INTERNAL
REVENUE and THE COURT OF TAX APPEALS,
ISSUE: WHETHER OR NOT A CHARITABLE respondents. G.R. No. L-9996, October 15, 1957
INSTITUTION IS A NECESSARY PARTY IN THIS
CASE. Facts: Petitioners borrowed sum of money from their
father and together with their own personal funds they
RULING: NO, no charitable institution is a necessary used said money to buy several real properties. They
party in the present case of determination of the rights then appointed their brother (Simeon) as manager of
of the parties. The action which may arise from said the said real properties with powers and authority to
article, in the case of unlawful partnership, is that for sell, lease or rent out said properties to third persons.
the recovery of the amounts paid by the member from They realized rental income from the said properties for
those in charge of the administration of said the period 1945-1949. On September 24, 1954
partnership, and it is not necessary for the said parties respondent Collector of Internal Revenue demanded
to base their action to the existence of the partnership, the payment of income tax on corporations, real estate
but on the fact that of having contributed some money dealer's fixed tax and corporation residence tax for the
to the partnership capital. Hence, the charitable years 1945-1949. The letter of demand and
institution of the domicile of the partnership, and in the corresponding assessments were delivered to
default thereof, those of the province are not necessary petitioners on December 3, 1954, whereupon they
parties in this case. In so ruling, the court had the instituted the present case in the Court of Tax Appeals,
occasion of explaining the scope and spirit of the with a prayer that "the decision of the respondent
provision of Article 1666 of the Civil Code (now Article contained in his letter of demand dated September 24,
1770 of the New Civil Code). With regard to 1954" be reversed, and that they be absolved from the
Contributions of an Illegal Partnership: the court holds payment of the taxes in question. CTA denied their
that – (1) The partner who limits himself to demanding petition and subsequent MR and New Trials were
only the amount contributed by him need not resort to denied. Hence this petition.
the partnership contract on which to base his action
since said contract does not exist in the eyes of the law, Issue: Whether or not petitioners have formed a
the purpose from which the contribution was made has partnership and consequently, are subject to the tax on
not come into existence, and the administrator of the corporations provided for in section 24 of
partnership holding said contribution retains what Commonwealth Act. No. 466, otherwise known as the
belongs to others, without any consideration; for which National Internal Revenue Code, as well as to the
reason he is not bound to return it and he who has paid residence tax for corporations and the real estate
in his share is entitled to recover it. (2) Our Code does dealers fixed tax.
not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be
Held: YES. The essential elements of a partnership Lim Tong Lim vs. Philippine Fishing, 317 SCRA 728
are two, namely: (a) an agreement to contribute
money, property or industry to a common fund; and (b) Facts: On behalf of "Ocean Quest Fishing
intent to divide the profits among the contracting Corporation," Antonio Chua and Peter Yao entered into
parties. a Contract for the purchase of fishing nets of various
sizes from the Philippine Fishing Gear Industries, Inc.
The first element is undoubtedly present in the case at (herein respondent). They claimed that they were
bar, for, admittedly, petitioners have agreed to, and did, engaged in a business venture with Petitioner Lim
contribute money and property to a common fund. Tong Lim, who however was not a signatory to the
Upon consideration of all the facts and circumstances agreement. The buyers, however, failed to pay for the
surrounding the case, we are fully satisfied that their fishing nets and the floats; hence, private respondents
purpose was to engage in real estate transactions for filed a collection suit against Chua, Yao and Petitioner
monetary gain and then divide the same among Lim Tong Lim with a prayer for a writ of preliminary
themselves, because of the following observations, attachment. The suit was brought against the three in
among others: (1) Said common fund was not their capacities as general partners, on the allegation
something they found already in existence; (2) They that "Ocean Quest Fishing Corporation" was a
invested the same, not merely in one transaction, but nonexistent corporation. On November 18, 1992, the
in a series of transactions; (3) The aforesaid lots were trial court rendered its Decision, ruling that Philippine
not devoted to residential purposes, or to other Fishing Gear Industries was entitled to the Writ of
personal uses, of petitioners herein. Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent. It ruled
Although, taken singly, they might not suffice to that a partnership among Lim, Chua and Yao was
establish the intent necessary to constitute a formed based on a compromised agreement providing
partnership, the collective effect of these that after selling their 4 vessels and the nets they will
circumstances is such as to leave no room for doubt on divide the excess into three (3). Lim appealed asserting
the existence of said intent in petitioners herein. For that no partnership existed among them. He disclaims
purposes of the tax on corporations, our National any direct participation in the purchase of the nets,
Internal Revenue Code, includes these partnerships — alleging that the negotiations were conducted by Chua
with the exception only of duly registered general and Yao only, and that he has not even met the
copartnerships — within the purview of the term representatives of the respondent company, invoking
"corporation." It is, therefore, clear to our mind that the doctrine of Corporation by estoppel.
petitioners herein constitute a partnership, insofar as
said Code is concerned and are subject to the income Issue: 1.Was there a Contract of Partnership formed
tax for corporations. between, Lim, Chua and Yao? 2. What is the Doctrine
of Corporation by estoppel? Will it apply in this case?
LIM TONG LIM VS PHIL FISHING GEAR FACTS: On
behalf of ―Ocean Fishing Corporation‖, Antonio Chua Ruling: 1. Yes, there was a partnership formed. The
& Peter Yao entered into a Contract for the purchase Supreme Court held that under Art. 1767 of the Civil
of fishing nets from the respondent. They claimed that Code — By the contract of partnership, two or more
they were engaged in a business venture w/ Lim Tong persons bind themselves to contribute money,
Lim (petitioner), who however was not a signatory to property, or industry to a common fund, with the
the agreement. They failed to pay the fishing nets and intention of dividing the profits among themselves. In
the floats; hence, Philippine Fishing Gear filed a the case at bar, from the factual findings of both lower
collection suit against Chua, Yao and Lim Tong Lim. courts, it is clear that Chua, Yao and Lim had decided
The Suit was brought against the three in their to engage in a fishing business, which they started by
capacities as general partners, on the allegation that buying boats worth P3.35 million, financed by a loan
Ocean Quest was a non-existent corporation as shown secured from Jesus Lim who was petitioner's brother.
by a Certification from the Securities and Exchange In their Compromise Agreement, they subsequently
Commission. revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally
ISSUE: Whether a general partnership is formed among them the excess or loss. Moreover, it is clear
between Chua, Yao and Lim. YES that the partnership extended not only to the purchase
of the boat, but also to that of the nets and the floats.
RULING: Given the preceding facts, it is clear that 2. Sec. 21 of the Corporation Code of the Philippines
there was, among petitioner, Chua and Yao, a provides: Sec. 21. Corporation by estoppel. — All
partnership engaged in the fishing business. They persons who assume to act as a corporation knowing
purchased the boats, which constituted the main it to be without authority to do so shall be liable as
assets of the partnership, and they agreed that the general partners for all debts, liabilities and damages
proceeds from the sales and operations thereof would incurred or arising as a result thereof: Provided
be divided among them. Lim, Chua and Yao decided however, That when any such ostensible corporation is
to form a corporation. Although it was never legally sued on any transaction entered by it as a corporation
formed for unknown reasons, this fact alone does not or on any tort committed by it as such, it shall not be
preclude the liabilities of the three as contracting allowed to use as a defense its lack of corporate
parties in representation of it. Clearly, under the law on personality. Although, petitioner insists that the
estoppel, those acting on behalf of a corporation and doctrine of corporation by estoppel only applies to
those benefited by it, knowing it to be without valid those who dealt in the name of the ostensible
existence, are held liable as general partners. corporation (Ocean Quest Fishing Corp.) should be
held liable. Since his name does not appear on any of
the contracts and since he never directly transacted
with the respondent corporation, ergo, he cannot be
held liable.
The Supreme Court in applying the doctrine of institutions, and building and loan associations xxx. In
Corporation by estoppel held that The doctrine of Evangelista v. Collector of Internal Revenue the Court
corporation by estoppel may apply to the alleged held that Section 24 covered in its definition these
corporation and to a third party. In the first instance, an unregistered partnerships and even associations or
unincorporated association, which represented itself to joint accounts, which had no legal personalities apart
be a corporation, will be estopped from denying its from their individual members. The Court said that the
corporate capacity in a suit against it by a third person term partnership includes a syndicate, group, pool,
who relied in good faith on such representation. On the joint venture or other unincorporated organization,
other hand, a third party who, knowing an association through or by means of which any business, financial
to be unincorporated, nonetheless treated it as a operation, or venture is carried on. Article 1767 of the
corporation and received benefits from it, may be Civil Code recognizes the creation of a contract of
barred from denying its corporate existence in a suit partnership when two or more persons bind
brought against the alleged corporation. In such case, themselves to contribute money, property, or industry
all those who benefited from the transaction made by to a common fund, with the intention of dividing the
the ostensible corporation, despite knowledge of its profits among themselves. Its requisites are: (1) mutual
legal defects, may be held liable for contracts they contribution to a common stock, and (2) a joint interest
impliedly assented to or took advantage of. In the case in the profits. Meanwhile, an association implies
at bar, petitioner as considered to be a third party who, associates who enter into a joint enterprise for the
benefited from the use of the nets found inside F/B transaction of a business. In the case before us, the
Lourdes, the boat which has earlier been proven to be companies entered into a Pool Agreement or an
an asset of the partnership. Technically, it is true that association that would handle all the insurance
petitioner did not directly act on behalf of the businesses covered under their quota-share
corporation. However, having reaped the benefits of reinsurance treaty and surplus reinsurance treaty with
the contract entered into by persons with whom he Munich. The following unmistakably indicates a
previously had an existing relationship, he is deemed partnership or an association covered by Section 24 of
to be part of said association and is covered by the the NIRC: (1) The pool has a common fund, consisting
scope of the doctrine of corporation by estoppel of money and other valuables that are deposited in the
name and credit of the pool. This common fund pays
AFISCO Insurance Corporation vs CA GR NO. for the administration and operation expenses of the
112675 January 25, 1999 pool. (2) The pool functions through an executive
board, which resembles the board of directors of a
Facts: The petitioners are 41 local non-life insurance corporation, composed of one representative for each
corporations. Upon their issuance of Erection, of the ceding companies. (3) True, the pool itself is not
Machinery Breakdown, Boiler Explosion and a reinsurer and does not issue any insurance policy;
Contractors All Risk insurance policies, the petitioners however, its work is indispensable, beneficial and
entered into a Quota Share Reinsurance Treaty and a economically useful to the business of the insurance
Surplus Reinsurance Treaty with the foreign insurance companies and Munich, because without it they would
corporation, Munchener Ruckversicherungs- not have received their premiums. The insurance
Gesselschaft (Munich). The reinsurance treaties companies share in the business ceded to the pool and
required petitioners to form a pool which was created in the expenses according to a Rules of Distribution
on the same day. Subsequently, the pool of insurers annexed to the Pool Agreement. Profit motive or
submitted a financial statement and filed an business is, therefore, the primordial reason for the
“Information Return of Organization Exempt from pools formation. As aptly found by the CTA: “The fact
Income Tax” for the year ending in 1975, on the basis that the pool does not retain any profit or income does
of which, it was assessed by the Commissioner of not obliterate an antecedent fact that of the pool being
Internal Revenue a deficiency in corporate taxes in the used in the transaction of business for profit. It is
amount of P1,843,273.60, and withholding taxes in the apparent, and petitioners admit, that their association
amount of P1,768,799.39 and P89,438.68 on or coaction was indispensable to the transaction of the
dividends paid to Munich and to the petitioners, business. If together they have conducted business,
respectively. The petitioners filed a protest which the profit must have been the object as, indeed, profit was
Commissioner of Internal Revenue denied. The Court earned. Though the profit was apportioned among the
of Tax Appeals affirmed this decision. Concurrently, members, this is only a matter of consequence, as it
the CA ruled that the pool of insurers was considered implies that profit actually resulted.” Thus, the petition
as a partnership taxable as a corporation, and that the is DENIED and the Resolutions of the Court of Appeals
latter’s collection of premiums on behalf of its members are hereby AFFIRMED.
was taxable income.
FERNANDEZ VS. DELA ROSA
Issue: Whether or not the pool is a partnership whose
dividends are subject to tax. Facts: On the part of plaintiff Fernandez, he claims that
he entered into a verbal agreement with defendant De
Held: The SC sustained the ruling of the Court of la Rosa to form a partnership for the purchase of
Appeals that the pool is taxable as a corporation. cascoes with the undertaking that the defendant will
Section 24 of the NIRC, provides: SEC. 24. Rate of tax buy the cascoes and that each partner will furnish such
on corporations. -- (a) Tax on domestic corporations. - amount as he could, while the profits will be divided
- A tax is hereby imposed upon the taxable net income proportionately. Plaintiff furnished P300 for casco No.
received during each taxable year from all sources by 1515 and P825 for casco No. 2089, both of which were
every corporation organized in, or existing under the placed under the name of the defendant only. In April
laws of the Philippines, no matter how created or 1900, the parties undertook to draw up articles of their
organized, but not including duly registered general co- partnership for the purpose of embodying it in an
partnership (compaias colectivas), general authentic document. The agreement however did not
professional partnerships, private educational materialize because defendant proposed articles
which were materially different from their verbal partnership property and in the profits does not give the
agreement, and he was also unwilling to include casco former the right to force a dissolution upon the later
No. 2089 in the partnership. Because the cascoes upon the terms which the plaintiff is unwilling to accept.
were under the management of the defendant, the A partnership therefore existed between the two and
plaintiff demanded an accounting over it to which the cascoes No. 1515 and 2089 are partnership properties.
defendant refused claiming that no partnership existed
between them. De la Rosa, on the other hand, admits Gatchalian vs.Collector of Internal Revenue GR L-
that he desired to form a partnership with the plaintiff 45425
but denies that any agreement was ever
consummated. Moreover, he denied receiving any FACTS: Jose Gatchalian along with 14 others bonded
money furnished by plaintiff for casco No. 1515, but together to purchase a sweeptakes ticket in the amount
claims that he merely borrowed the P300 on his of Ps 2.00 and registered the same as Jose Gatchalian
individual account from the bakery business in which and Co. This ticket has eventually won 3rd prize
plaintiff was a copartner. And as for the P825 furnished amounting to Ps 50,000.00 which they divided in
by the plaintiff, the defendant claims that it was actually accordance with their aliquot share in the cost of the
for casco No. 1515 and not for casco No. 2089. He also ticket. Gatchalian receiving Ps 4425 for his Ps .18 cost.
added that the repairs made on the two cascoes were A month after winning the ticket they were assessed by
exclusively borne by him, and that he returned a sum the Collector of Internal Revenue for the payment of
of P1,125 to plaintiff with an express reservation on his Income Tax of their unregistered partnership
part of all his rights as a partner. requesting them to pay Ps 1,499.94. They replied that
that they merely formed a co-ownership not
Issue: a) W/N a partnership existed between the Partnership and requested the CIR that they be
parties. exempted from paying such assessed income tax.
They also submitted evidence of payment of income
HELD: Yes. a) The essential points upon which the tax by each of them for their corresponding individual
minds of the parties must meet in a contract of taxable pertaining to their share in the winnings.
partnership are 1) mutual contribution and 2) joint However it was denied by the CIR. Demand letter
interest in the profits. The fact that the defendant ensued until it resulted to the issuance of Warrant of
received money furnished by the plaintiff for the distraint and levy on the property of the petitioner.
purpose of using it to purchase the cascoes Through the the 2 co-owner of Gatchalian they paid a
establishes the first element of the partnership, mutual portion of the tax assessed amounting to Ps 602.51 to
contribution to a common stock. For the second avoid the embargo of the property and promised to pay
element, the fact that the formation of partnership had the balance in installments guaranteed by 2 solvent
been a subject of negotiation between them, even persons as required by the CIR. The payment was
before the purchase of the first casco, and that both made under protest and petitioner filed for request for
parties intended to purchase the cascoes in common refund at the same time. The protest was overruled and
satisfies the requirement that there should be an the demand for refund was denied. Another warrant for
intention on the part of both parties to share the profits. distraint and levy on the property was issued for failure
With these, a complete and perfect contract of to pay the monthly installments. Finally the balance
partnership was entered into by the parties. It must be was paid Ps 1,260.93 which includes legal interest and
noted however that this partnership was subject to a penalties. Again a formal protest and request for refund
suspensive condition which is the execution of a written was filed and was denied. Petitioners elevated the
agreement regarding the distribution of profits, matter to SC requesting refund of amount of Ps
character of xpartnership, etc. But since the defendant 1,863.44 and legal interest hereon.
actually purchased the cascoes, it would seem that the
partnership already existed. And as furthermore
ISSUE: Whether or not Petitioners formed Co-
provided by the Civil Code, a written agreement was
Ownership or Unregistered Partnership when they
not necessary in order to give efficacy to the verbal
purchased the winning sweepstakes ticket?
agreement of the partnership because the
contributions of the partners to the partnership were
not in the form of immovables. RULING: SC ruled that when they bonded together
and contributed to the cost of the ticket they formed an
ISSUE: b) W/N the partnership was terminated when Unregistered Partnership. For they contributed money
the defendant returned the P1,125 to plaintiff. No. or property into a common fund which they invest in the
ticket and when it won, they divided the profit among
Held: b) During trial, the court was able to prove that themselves.
plaintiff actually furnished some amount for the repair
of the cascoes and that it was presumed that a profit Jose Gatchalian, et.al. plaintiffs-appellants, vs. The
has been obtained by the defendant prior to the return Collector of Internal Revenue, defendant-appellee.
of the money. With these, the return of the P1,125 fell
short of the amount which the plaintiff has actually
contributed to the partnership. For these reasons, the
acceptance by the plaintiff of the amount returned by A distraint warrant is a document served by the
the defendant did not have the effect of terminating the sheriff that indicates the amount of overdue taxes,
legal existence of the partnership by converting it into the due date and instructions prohibiting the
a societas leonina. The court also proved that there removal or destruction of any property within the
was no intention on the part of the plaintiff, in accepting business.
the money, to relinquish his rights as a partner. On the
contrary he notified defendant that he waived none of Facts: Plaintiffs purchased, in the ordinary course of
his rights in the partnership. Also the lack of recognition business, from one of the duly authorized agents of the
on the part of the defendant of the plaintiff’s right in the National CharitySweepstakes Office one ticket for the
sum of two pesos (P2), said ticket was registered in the
name of Jose Gatchalian and Company. The ticket
won one of the third-prizes in the amount of
P50,000. Jose Gatchalian was required to file the
corresponding income tax return covering the prize
won. Defendant-Collector made an
assessment against Jose Gatchalian and Co.
requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan.
Plaintiffs, however through counsel made a request for
exemption. It was denied. Plaintiffs failed to pay the
amount due, hence a warrant of distraint and levy was
issued. Plaintiffs paid under protest a part of the tax
and penalties to avoid the effects of the warrant. A
request that the balance be paid by plaintiffs in
installments was made. This was granted on the
condition that a bond be filed. Plaintiffs failed in their
installment payments. Hence a request for execution of
the warrant of distraint and levy was made. Plaintiffs
paid under protest to avoid the execution. A claim for
refund was made by the plaintiffs, which was
dismissed, hence the appeal.