Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.

FACTS: It was established that Lim Tong Lim requested Peter Yao to engage in
commercial fishing with him and one Antonio Chua. The three agreed to purchase two
fishing boats but since they do not have the money they borrowed from one Jesus Lim
(brother of Lim Tong Lim). They again borrowed money and they agreed to purchase
fishing nets and other fishing equipment. Now, Yao and Chua represented themselves as
acting in behalf of “Ocean Quest Fishing Corporation” (OQFC) they contracted with
Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to
more than P500k.
They were however unable to pay PFGI and so they were sued in their own names
because apparently OQFC is a non-existent corporation. Chua admitted liability and
asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued that
he’s not liable because he was not aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao
and Lim had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds
of the sale of the boats, and to divide equally among them the excess or loss. These
boats, the purchase and the repair of which were financed with borrowed money, fell
under the term “common fund” under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be
imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the
nets found in his boats, the boat which has earlier been proven to be an asset of the
partnership. Lim, Chua and Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not preclude the liabilities of
the three as contracting parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to
be without valid existence, are held liable as general partners.

FERNANDEZ vs. DE LA ROSA

FACTS: Fernandez alleges that in January, 1900, he entered into a verbal agreement
with Dela Rosa to form a partnership for the purchase of cascoes and the carrying on of
the business of letting the same for hire in Manila, and Dela Rosa is to buy the cascoes
and each partner to furnish for that purpose such amount of money as he could, the
profits to be divided proportionately; Fernandez furnished Dela Rosa sums to purchase
and repair cascoes, the latter taking the titles in his own name; that in April the parties
undertook to draw up articles of partnership for the purpose of embodying the same in
an authentic document, but that the defendant having proposed a draft of such articles
which differed materially from the terms of the earlier verbal agreement, and being
unwillingly to include the 2nd casco in the partnership, they were unable to come to any
understanding and no written agreement was executed; that the defendant having in the
meantime had the control and management of the two cascoes, the plaintiff made a
demand for an accounting upon him, which the defendant refused to render, denying
the existence of the partnership altogether.
Dela Rosa admits that the project of forming a partnership in the casco business in
which he was already engaged to some extent individually was discussed between
himself and the plaintiff in January, 1900, but he denies that any agreement was ever
consummated. He denies that the plaintiff furnished any money in January, 1900, for
the purchase of the first casco, or for repairs on the same, but claims that he borrowed
300 pesos on his individual account in January from the bakery firm, consisting of the
plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which he admits he
received from the Fernandez March 5, he claims was for the purchase of the first casco,
which he alleged was bought March 12, and he alleges that he never received anything
from the defendant toward the purchase of the 2nd casco. He claims to have paid,
exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second one.
ISSUE:
(1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a result of the act of the defendant
in receiving back the 1,125 pesos?
HELD:
(1) “Partnership is a contract by which 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.” (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. If the contract contains these two elements the partnership
relation results, and the law itself fixes the incidents of this relation if the parties fail to
do so. (Civil Code, secs. 1689, 1695.)
We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the cascoes
in question. This establishes the first element of the contract, namely, mutual
contribution to a common stock. The second element, namely, the intention to share
profits, appears to be an unavoidable deduction from the fact of the purchase of the
cascoes in common, in the absence of any other explanation of the object of the parties
in making the purchase in that form, and, it may be added, in view of the admitted fact
that prior to the purchase of the first casco the formation of a partnership had been a
subject of negotiation between them.
It is thus apparent that a complete and perfect contract of partnership was entered into
by the parties. This contract, it is true, might have been subject to a suspensive
condition, postponing its operation until an agreement was reached as to the respective
participation of the partners in the profits, the character of the partnership as collective
or en comandita, and other details, but although it is asserted by counsel for the
defendant that such was the case, there is little or nothing in the record to support this
claim, and that fact that the defendant did actually go on and purchase the boat, as it
would seem, before any attempt had been made to formulate partnership articles,
strongly discountenances the theory.
The execution of a written agreement was not necessary in order to give efficacy to the
verbal contract of partnership as a civil contract, the contributions of the partners not
having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)
The special provision cited, requiring the execution of a public writing in the single case
mentioned and dispensing with all formal requirements in other cases, renders
inapplicable to this species of contract the general provisions of article 1280 of the Civil
Code.
2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the
money returned to him by the defendant after the definitive failure of the attempt to
agree upon partnership articles. The amount returned fell short, in our view of the facts,
of that which the plaintiff had contributed to the capital of the partnership, since it did
not include the sum which he had furnished for the repairs of casco No. 1515. Moreover,
it is quite possible, as claimed by the plaintiff, that a profit may have been realized from
the business during the period in which the defendant have been administering it prior
to the return of the money, and if so he still retained that sum in his hands. For these
reasons the acceptance of the money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by converting it into a societas
leonina, as claimed by counsel for the defendant.
The result is that we hold and declare that a partnership was formed between the parties
in January, 1900, the existence of which the defendant is bound to recognize; that
cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff is
entitled to an accounting of the defendant’s administration of such property, and of the
profits derived therefrom. This declaration does not involve an adjudication as to any
disputed items of the partnership account.
TOCAO V. CA
FACTS: Private respondent Nenita A. Anay met petitioner William T. Belo, then the
vice-president for operations of Ultra Clean Water Purifier, through her former
employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed
her desire to enter into a joint venture with her for the importation and local
distribution of kitchen cookwares
Under the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for
sales
The parties agreed that Belo's name should not appear in any documents relating to
their transactions with West Bend Company. Anay having secured the distributorship of
cookware products from the West Bend Company and organized the administrative staff
and the sales force, the cookware business took off successfully. They operated under
the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's
name.
The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo's assurances that he was sincere, dependable and honest
when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to
the Cubao sales office to the effect that she was no longer the vice-president of
Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits.
Anay still received her five percent (5%) overriding commission up to December 1987.
The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140
The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants. The Court of Appeals affirmed the lower court’s decision.
ISSUE: Whether the parties formed a partnership
HELD: Yes, the parties involved in this case formed a partnership
The Supreme Court held that to be considered a juridical personality, a partnership
must fulfill these requisites:
(1) two or more persons bind themselves to contribute money, property or industry to a
common fund; and
(2) intention on the part of the partners to divide the profits among themselves. It may
be constituted in any form; a public instrument is necessary only where immovable
property or real rights are contributed thereto.
This implies that since a contract of partnership is consensual, an oral contract of
partnership is as good as a written one.
In the case at hand, Belo acted as capitalist while Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for
sales. Furthermore, Anay was entitled to a percentage of the net profits of the business.
Therefore, the parties formed a partnership.

Tai Tong Chuache & Co. V. Insurance Commission (1988)

FACTS:
Azucena Palomo bought a parcel of land and building from Rolando Gonzales and
assumed a mortgage of the building in favor of S.S.S. which was insured with S.S.S.
Accredited Group of Insurers
April 19, 1975: Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the
amount of P100,000 and to secure it, the land and building was mortgaged
June 11, 1975: Pedro Palomo secured a Fire Insurance Policy covering the building for
P50,000 with Zenith Insurance Corporation
July 16, 1975: another Fire Insurance policy was procured from Philippine British
Assurance Company, covering the same building for P50,000 and the contents thereof
for P70,000
Before the occurrence of the peril insured against the Palomos had already paid their
credit due the
July 31, 1975: building and the contents were totally razed by fire
Palomo was able to claim P41,546.79 from Philippine British Assurance Co., P11,877.14
from Zenith Insurance Corporation and P5,936.57 from S.S.S. Group of Accredited
Insurers but Travellers Multi-Indemnity refused so it demanded the balance from the
other three but they refused so they filed against them
Insurance Commission, CFI: absolved Travellers on the basis that Arsenio Cua was
claiming and NOT Tai Tong Chuache
Palomo Appealed
Travellers reasoned that the policy is endorsed to Arsenio Chua, mortgage creditor
Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of the
fire Insurance Policy issued by travellers
affirmative defense of lack of insurable interest that before the occurrence of the peril
insured against the Palomos had already paid their credit due the petitioner
ISSUE: W/N Tai Tong Chuache & Co. has insurable interest
HELD: YES. Travellers Multi-Indemnity Corporation to pay Tai Tong Chuache & Co.
when the creditor is in possession of the document of credit, he need not prove non-
payment for it is presumed.
The validity of the insurance policy taken b petitioner was not assailed by private
respondent. Moreover, petitioner's claim that the loan extended to the Palomos has not
yet been paid was corroborated by Azucena Palomo who testified that they are still
indebted to herein petitioner
Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he acted for and in behalf of the firm
Upon its failure to prove the allegation of lack of insurable interest on the part of the
petitioner, Travellers must be held liable.
Alfredo Aguila Jr vs Court of Appeals et al
FACTS: In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan
agreement with a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan
was for P200k. To secure the loan, the spouses mortgaged their house and lot located in
a subdivision. The terms of the loan further stipulates that in case of non-payment, the
property shall be automatically appropriated to the partnership and a deed of sale be
readily executed in favor of the partnership. She does have a 90 day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn over the property
and so the firm filed an ejectment case against her (wherein she lost). She also failed to
redeem the property within the period stipulated. She then filed a civil case against
Alfredo Aguila, manager of the firm, seeking for the declaration of nullity of the deed of
sale. The RTC retained the validity of the deed of sale. The Court of Appeals reversed the
RTC. The CA ruled that the sale is void for it is a pactum commissorium sale which is
prohibited under Art. 2088 of the Civil Code (note the disparity of the purchase price,
which is the loan amount, with the actual value of the property which is after all located
in a subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party in interest.
As pointed out by Aguila, he is not the real party in interest but rather it was the
partnership A.C. Aguila & Sons, Co. The Rules of Court provide that “every action must
be prosecuted and defended in the name of the real party in interest.” A real party in
interest is one who would be benefited or injured by the judgment, or who is entitled to
the avails of the suit. Any decision rendered against a person who is not a real party in
interest in the case cannot be executed. Hence, a complaint filed against such a person
should be dismissed for failure to state a cause of action, as in the case at bar.
Under Art. 1768 of the Civil Code, a partnership “has a juridical personality separate and
distinct from that of each of the partners.” The partners cannot be held liable for the
obligations of the partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair, or illegal purposes. In this case,
Felicidad has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is
being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject
property is in the name of A.C. Aguila & Sons, Co. It is the partnership, not its officers or
agents, which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint.
Heirs of Tan Eng Kee vs Court of Appeals
FACTS: 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 Kee’s 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 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.
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 latter’s 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 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 JOSE LIM vs. JULIET VILLA LIM
614 SCRA 141, G.R. No. 172690, March 3, 2010, Nachura, J.:p
FACTS: Petitioners are the heirs of the late Jose Lim (Jose). They filed a Complaint for
Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent),
widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy)
and Norberto Uy (Norberto), formed a partnership to engage in the trucking business.
Initially, with a contribution of P50,000.00 each, they purchased a truck to be used in
the hauling and transport of lumber of the sawmill. Jose managed the operations of this
trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under the management of Elfledo.
The shares in the partnership profits and income that formed part of the estate of Jose
were held in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or
acquire properties using said funds. Petitioners alleged that Elfledo was never a partner
or an investor in the business and merely supervised the purchase of additional trucks
using the income from the trucking business of the partners. On May 18, 1995, Elfledo
died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent
took over the administration of the aforementioned properties, which belonged to the
estate of Jose, without their consent and approval. Claiming that they are co-owners of
the properties, petitioners required respondent to submit an accounting of all income,
profits and rentals received from the estate of Elfledo, and to surrender the
administration thereof. Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a
partner of Norberto and Jimmy. Respondent also alleged that when Jose died in 1981,
he left no known assets, and the partnership with Jimmy and Norberto ceased upon his
demise. Respondent also stressed that Jose left no properties that Elfledo could have
held in trust. Respondent maintained that all the properties involved in this case were
purchased and acquired through her and her husband‘s joint efforts and hard work, and
without any participation or contribution from petitioners or from Jose.
ISSUE: Whether or not a partnership exists. HELD: YES. A partnership exists when two
or more persons agree to place their money, effects, labor, and skill in lawful commerce
or business, with the understanding that there shall be a proportionate sharing of the
profits and losses among them. A contract of partnership is defined by the Civil Code as
one where 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 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 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 petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of Elfledo and Juliet formed
part of the estate of Jose, having been derived from Jose‘s alleged partnership with
Jimmy and Norberto. The extent of his control, administration and management of the
partnership and its business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners, are indicative of the
fact that Elfledo was a partner and a controlling one at that. It is apparent that the other
partners only contributed in the initial capital but had no say thereafter on how the
business was ran. Evidently it was through Elfredo‘s efforts and hard work that the
partnership was able to acquire more trucks and otherwise prosper. Even the appellant
participated in the affairs of the partnership by acting as the bookkeeper sans salary.
LORENZO OÑA V CIR
FACTS: Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her
five children. A civil case was instituted for the settlement of her state, in which Oña 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 ½ 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 Oña 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 Oña 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 CTA’s decision.
Issue: W/N there was a co-ownership or an unregistered partnershipW/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 Oña
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 Merten’s 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.
REYES vs. CIR
24 SCRA 198, G.R. Nos. L-24020-21, July 29, 1968, Fernando, J.:p
FACTS: Petitioners purchased a lot and building. The initial payment was shared
equally by the respondents. At the time of the purchase, the building was leased to
various tenants, whose rights under the lease contracts with the original owners, the
purchasers, petitioners herein, agreed to respect. The administration of the building was
entrusted to an administrator who collected the rents; kept books and records and
rendered statement of accounts to the owners. Petitioners divided equally the income of
operation and maintenance. The CTA held that petitioners formed a partnership taxable
by law applying the ruling in Evangelista case.
ISSUE: W/N petitioners indeed formed a partnership as contemplated by law.
HELD: Yes. The essential elements of partnerships are present in this case, 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 was already admitted
and therefore it boils down to their intent in acting as they did. Upon consideration of
the circumstances surrounding the case, it was found out that the petitioner‘s purpose
was to engage in real estate transactions for monetary gain and then divide the same
among themselves. common fund used in a series of transactions; the property thus
acquired was not used for residential or other purposes other than leasing. Such
properties having been under management by one person with full power to lease and
such condition existed for 10 years already. The collective effect of these circumstances
is such as to leave no room for doubt on the existence of said intent in the petitioners
herein.
OBILLOS vs. CIR
139 SCRA 436, G.R. No. L-68118 October 29, 1985, Aquino
FACTS: The Commissioner acted on the theory that the 4 petitioners had formed an
unregistered partnership or joint venture within the meaning of Sections 24(a) and
84(b) of the Tax Code.
For at least one year after their receipt of two parcels of land from their father,
petitioners resold said lots to the Walled City Securities Corporation and Olga Cruz
Canda, for which they earned a 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.
One day before the expiration of the five-year prescriptive period, the Commissioner of
Internal Revenue, Commissioner acting on the theory that the four petitioners had
formed an unregistered partnership or joint venture, 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, a 50% fraud surcharge and a 42% accumulated interest. Further,
the Commissioner considered the share of the profits of each petitioner in the sum of
P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and required
them to pay deficiency income taxes aggregatingP56,707.20 including the 50% fraud
surcharge and the accumulated interest.
ISSUE: Whether or not petitioners have indeed formed a partnership or joint venture
and thus, liable for corporate income tax.
HELD: It is error to consider the petitioners as having formed a partnership under
article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would
result in oppressive taxation. 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.( Such intent
to form a partnership was present in Gatchalian v. Collector of Internal Revenue, where
15 persons contributed small amounts to purchase a 2-peso sweepstakes ticket with the
agreement that they would divide the prize. The ticket won the 3rd prize of P50,000.
The 15 persons were held liable for income tax as an unregistered partnership.)
The judgment of the Tax Court is reversed and set aside. The assessments are cancelled.
SARDANE vs. CA 167 SCRA 524, G.R. No. L-47045
FACTS: Acojedo brought an action in the City Court of Dipolog for collection of a sum of
P5,217.25 based on promissory notes executed by the herein Nobio Sardane in favor of
the herein Acojedo. Exhibit B is a printed promissory note involving Pl,117.25 and dated
May 13, 1972. Exhibit C is likewise a printed promissory note and denotes on its face
that the sum loaned was Pl,400.00. Exhibit D is also a printed promissory note dated
May 31, 1977 involving an amount of P100.00. Exhibit E is what is commonly known to
the layman as 'vale' which reads: 'Good for: two hundred pesos (Sgd) Nobio Sardane'.
Exhibit F is stated in the following tenor: 'Received from Mr. Romeo Acojedo the sum
Pesos: Two Thousand TwoHundred (P2,200.00) ONLY, to be paid on or before
December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales' involving the
same amount of one hundred pesos, and dated August 25, 1972 and September 12, 1972
respectively. IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of
the plaintiff and against the defendant as follows: (a) Ordering the defendant to pay
unto the plaintiff the sum of Five Thousand Two Hundred Seventeen Pesos and Twenty-
five centavos (P5,217.25) plus legal interest to commence from April 23, 1976 when this
case was filed in court. ISSUE: Whether or not Sardane is a partner in a partnership
thus the debts in issue are partnership contributions? HELD: No. The Court of Appeals
held, and still the evidence is insufficient to prove that a partnership existed between the
private parties hereto. As manager of the basnig, Sarcado naturally some degree of
control over the operations and maintenance thereof had to be exercised by herein
petitioner. The fact that he had received 50% of the net profits does not conclusively
establish that he was a partner of the private respondent herein. Article1769(4) of the
Civil Code is explicit that while 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, no such inference
shall be drawn if such profits were received in payment as wages of an employee.
Furthermore, herein petitioner had no voice in the management of the affairs of the
basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez
Hermanos, in denying the claim of the plaintiff therein that he was a partner in the
business of the defendant, declared: This contention cannot be sustained. It was a mere
contract of employment. The plaintiff had no voice nor vote in the management of the
affairs of the company. The fact that the compensation received by him was to be
determined with reference to the profits made by the defendant in their business did not
in any sense make him a partner therein. ...There are other considerations noted by
respondent Court which negate herein petitioner's pretension that he was a partner and
not a mere employee indebted to the present private respondent. Also, although he
contends that herein private respondent is the treasurer of the alleged partnership, yet it
is the latter who is demanding an accounting. The advertence of the Court of
First Instance to the fact that the casco bears the name of herein petitioner disregards
the finding of the respondent Court that it was just a concession since it was he who
obtained the engine used in the Sardaco from the Department of Local Government and
Community Development. Further, the use by the parties of the pronoun "our" in
referring to "our basnig, our catch", "our deposit", or "our boseros" was merely
indicative of the camaraderie and not evidentiary of a partnership, between them.
ANTONIA TORRES vs. COURT OF APPEALS
320 SCRA 428, G.R. No. 134559 December 9, 1999
FACTS: In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture
agreement with Manuel Torres. Under the agreement, the sisters agreed to execute a
deed of sale in favor Manuel over a parcel of land, the sisters received no
cash payment from Manuel but the promise of profits (60% for the sisters and 40% for
Manuel) – said parcel of land is to be developed as a subdivision.
Manuel then had the title of the land transferred in his name and he subsequently
mortgaged the property. He used the proceeds from the mortgage to start building
roads, curbs and gutters. Manuel also contracted an engineering firm for the building of
housing units. But due to adverse claims in the land, prospective buyers were scared off
and the subdivision project eventually failed.
The sisters then filed a civil case against Manuel for damages equivalent to 60% of the
value of the property, which according to the sisters, is what‘s due them as per the
contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower
court.
The sisters then appealed before the Supreme Court where they argued that there is no
partnership between them and Manuel because the joint venture agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a
partnership agreement whereby they agreed to contribute property (their land) which
was to be developed as a subdivision. While on the other hand, though Manuel did not
contribute capital, he is an industrial partner for his contribution for general expenses
and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage (60-40). Clearly, the contract manifested the
intention of the parties to form a partnership. Further still, the sisters cannot invoke
their right to the 60% value of the property and at the same time deny the same contract
which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be
blamed to Manuel (the sisters on their appeal did not show evidence as to Manuel‘s fault
in the failure of the partnership). The sisters must then bear their loss (which is 60%).
Manuel does not bear the loss of the other 40% because as an industrial partner he is
exempt from losses.