Obillos vs CIR 139 SCRA 436
Facts:
In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan. The next day, he
transferred his rights to his four children for them to build their own residences. The Torrens title would
show that they were co-owners of the two lots. However, the petitioners resold them to Walled City
Securities Corporation and Olga Cruz Canda for P313k or P33k for each of them. They treated the profit
as capital gains and paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate income tax of their shares, as this entire
assessment is based on the alleged partnership under Article 1767 of the Civil Code; simply because they
contributed each to buy the lots, resold them and divided the profits among them.
But as testified by Obillos, they have no intention to form the partnership and that it was merely
incidental since they sold the said lots due to high demand of construction. Naturally, when they sell them
as co-partners, it will result to the share of profits. Further, their intention was to divide the lots for
residential purposes.
Issue: Was there a partnership, hence, they are subject to corporate income taxes?
Court Ruling:
Not necessarily. As Article 1769 (3) of the Civil Code provides: the sharing of gross returns does not in
itself establish a partnership, whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived. There must be an unmistakeable intention to
form a partnership or joint venture.
In this case, the Commissioner should have investigated if the father paid donor's tax to establish the fact
that there was really no partnership.
Reyes vs CIR 24 SCRA 198
Petitioners Florencio and Angel Reyes, father and son, purchased a lot and building for P 835,000.00. 2.
The amount of P 375,000.00 was paid. 3. The balance of P 460,000.00 was left, which represents the
mortgage obligation of the vendors with the China Banking Corporation, which mortgage obligations
were assumed by the vendees. 4. The initial payment of P 375,000.00 was shared equally by the
petitioners. 5. At the time of the purchase, the building was leased to various tenants, whose rights under
the lease contracts with the original owners, the purchaser, petitioners herein, agreed to respect. 6.
Petitioners divided equally the income of operation and maintenance. 7. The gross income from rentals of
the building amounted to about P 90,000.00 annually. 8. An assessment was made against petitioners by
the CIR. 9. The assessment sought to be reconsidered was futile. 10. On appeal to the Court of Tax
Appeals, the CTA ruled that petitioners are liable for the income tax due from the partnership formed by
petitioners.
ISSUE: Are petitioners subject to the tax on corporations provided for in the National Internal Revenue
Code?
HELD: After referring to another section of the NIRC, which explicitly provides that the term
corporations includes partnerships and then to Article 1767 of the Civil Code of the Philippines, defining
what a contract of partnership is, the opinion goes on to state that the essential elements of a partnership
are two, namely: a) an agreement to contribute money, property or industry to a common fund; and b)
intent to divide the profits among the contracting parties. The first element is undoubtedly present in the
case, for, admittedly, petitioners have agreed to , and did, contribute money and property to a common
fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, it was determined that their purpose was to engage in real
estate transaction for monetary gain and then divide the same among themselves, hence taxable.
Bastida vs Menzi & Co. 58 Phil 199 (1933)
Facts:
Bastida offered to assign to Menzi & Co. his contract with Phil Sugar Centrals Agency and to supervise
the mixing of the fertilizer and to obtain other orders for 50 % of the net profit that Menzi & Co., Inc.,
might derive therefrom. J. M. Menzi (gen. manager of Menzi & Co.) accepted the offer. The agreement
between the parties was verbal and was confirmed by the letter of Menzi to the plaintiff on January 10,
1922.
Pursuant to the verbal agreement, the defendant corporation on April 27, 1922 entered into a written
contract with the plaintiff, marked Exhibit A, which is the basis of the present action. Still, the fertilizer
business as carried on in the same manner as it was prior to the written contract, but the net profit that the
plaintiff herein shall get would only be 35%. The intervention of the plaintiff was limited to supervising
the mixing of the fertilizers in the bodegas of Menzi.
Prior to the expiration of the contract (April 27, 1927), the manager of Menzi notified the plaintiff that the
contract for his services would not be renewed. Subsequently, when the contract expired, Menzi
proceeded to liquidate the fertilizer business in question. The plaintiff refused to agree to this. It argued,
among others, that the written contract entered into by the parties is a contract of general regular
commercial partnership, wherein Menzi was the capitalist and the plaintiff the industrial partner.
Issue: Is the relationship between the petitioner and Menzi that of partners?
Held:
The relationship established between the parties was not that of partners, but that of employer and
employee, whereby the plaintiff was to receive 35% of the net profits of the fertilizer business of Menzi in
compensation for his services for supervising the mixing of the fertilizers. Neither the provisions of the
contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it was
a contract of co-partnership. The written contract was, in fact, a continuation of the verbal agreement
between the parties, whereby the plaintiff worked for the defendant corporation for one-half of the net
profits derived by the corporation form certain fertilizer contracts.
According to Art. 116 of the Code of Commerce, articles of association by which two or more persons
obligate themselves to place in a common fund any property, industry, or any of these things, in order to
obtain profit, shall be commercial, no matter what it class may be, provided it has been established in
accordance with the provisions of the Code. However in this case, there was no common fund. The
business belonged to Menzi & Co. The plaintiff was working for Menzi, and instead of receiving a fixed
salary, he was to receive 35% of the net profits as compensation for his services. The phrase in the written
contract “en sociedad con”, which is used as a basis of the plaintiff to prove partnership in this case,
merely means “en reunion con” or in association with.
It is also important to note that although Menzi agreed to furnish the necessary financial aid for the
fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own
expense the cost of securing the necessary credit.
Heirs of Tang Eng Kee vs CA 341 SCRA 740 (2000)
FACTS:
After the second World War, Tan EngKee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they jointly managed until
Tan EngKee's death. Petitioners herein averred that the business prospered due to the hard work and thrift
of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company."
The incorporation was purportedly a ruse to deprive Tan EngKee and his heirs of their rightful
participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and
the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet
Lumber. The RTC ruled in favor of petitioners, declaring that Benguet Lumber is a joint venture which is
akin to a particular partnership. The Court of Appeals rendered the assailed decision reversing the
judgment of the trial court.
ISSUE: Whether the deceased Tan EngKee and Tan Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular partnership
RULING:
There was no partnership whatsoever. Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and
no time fixed for the duration of the partnership. There was even no attempt to submit an accounting
corresponding to the period after the war until Kee's death in 1984. It had no business book, no written
account nor any memorandum for that matter and no license mentioning the existence of a partnership.
Also, the trial court determined that Tan EngKee and Tan Eng Lay had entered into a joint venture, which
it said is akin to a particular partnership. A particular partnership is distinguished from a joint adventure,
to wit:(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating merchants
can transact business under their own name, and can be individually liable therefor. (b) Usually, but not
necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing
to a successful termination maycontinue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind. A joint venture "presupposes generally a
parity of standing between the joint co-ventures or partners, in which each party has an equal proprietary
interest in the capital or property contributed, and where each party exercises equal rights in the conduct
of the business. The evidence presented by petitioners falls short of the quantum of proof required to
establish a partnership. In the absence of evidence, we cannot accept as an established fact that Tan
EngKee allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan EngKee never asked for an accounting. The essence of a partnership is that the
partners share in the profits and losses .Each has the right to demand an accounting as long as the
partnership exists. A demand for periodic accounting is evidence of a partnership. During his lifetime,
Tan EngKee appeared never to have made any such demand for accounting from his brother, Tang Eng
Lay. We conclude that Tan EngKee was only an employee, not a partner since they did not present and
offer evidence that would show that Tan EngKee received amounts of money allegedly representing his
share in the profits of the enterprise. There being no partnership, it follows that there is no dissolution,
winding up or liquidation to speak of.
Tocao vs CA 342 SCRA 20 (2001)
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?
RULING: 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.[15] It may be constituted in
any form; a public instrument is necessary only where immovable property or real rights are contributed
thereto.[16] This implies that since a contract of partnership is consensual, an oral contract of partnership
is as good as a written one. Where no immovable property or real rights are involved, what matters is that
the parties have complied with the requisites of a partnership. The fact that there appears to be no record
in the Securities and Exchange Commission of a public instrument embodying the partnership agreement
pursuant to Article 1772 of the Civil Code did not cause the nullification of the partnership. The ertinent
provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.
The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a percentage of
net profits constitutes only prima facie evidence that the recipient is a partner in the business, the
evidence in the case at bar controverts an employer-employee relationship between the parties. In the first
place, private respondent had a voice in the management of the affairs of the cookware
distributorship, including selection of people who would constitute the administrative staff and the sales
force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She
admitted that, like her who owned Geminesse Enterprise, private respondent received only commissions
and transportation and representation allowances and not a fixed salary.
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole
proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August 19,
1987 was merely the name of that enterprise. While it is true that in her undated application for renewal
of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail of
kitchenwares, cookwares, utensils, skillet, she also admitted that the enterprise was only 60% to 70% for
the cookware business, while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier. Indubitably then, the business name Geminesse Enterprise was used only for
practical reasons - it was utilized as the common name for petitioner Tocaos various business activities,
which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted
stocks of Geminesse Enterprise amounting to P208,250.00. Obviously a ploy to offset the damages
awarded to private respondent, that claim, more than anything else, proves the existence of a partnership
between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private complainant remained as
co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously booted out of the
partnership in October 1987, she still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for
herself and/or for petitioner Belo financial gains resulting from private respondents efforts to make the
business venture a success. Thus, as petitioner Tocao became adept in the business operation, she started
to assert herself to the extent that she would even shout at private respondent in front of other people. Her
instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in both
the Makati and Cubao sales offices concretely spoke of her perception that private respondent was no
longer necessary in the business operation, and resulted in a falling out between the two. However, a mere
falling out or misunderstanding between partners does not convert the partnership into a sham
organization. The partnership exists until dissolved under the law. Since the partnership created by
petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on
their mutual desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partners capability to give it, and the absence of cause for dissolution provided
by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent
the dissolution of the partnership but that it can result in a liability for damages.
An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the
power, although not necessarily the right to dissolve the partnership.
In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by
her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no
longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her
own withdrawal from the partnership and considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business.
The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in
petitioners claim for stocks that had been entrusted to private respondent in the pursuit of the partnership
business.
YULO vs. YANG CHIAO SENG
106 Phil 111, G.R. No. L-12541, August 28, 1959, Labrador, J.:p
FACTS: Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and operate a theatre
on the premises occupied by Cine Oro, Plaza Sta. Cruz, Manila, the principal conditions of the offer being
(1) Yang guarantees Yulo a monthly participation of P3,000 (2) partnership shall be for a period of 2
years and 6 months with the condition that if the land is expropriated, rendered impracticable for
business, owner constructs a permanent building, then Yulo’s right to lease and partnership even if period
agreed upon has not yet expired; (3) Yulo is authorized to personally conduct business in the lobby of the
building; and (4) after Dec 31, 1947, all improvements placed by partnership shall belong to Yulo but if
partnership is terminated before lapse of 1 and ½ years, Yang shall have right to remove improvements.
Parties established, “Yang and Co. Ltd.”, to exist from July 1,1945 – Dec 31, 1947. In June 1946, they
executed a supplementary agreement extending the partnership for 3 years beginning Jan.1, 1948 to Dec.
31, 1950. The land on which the theater was constructed was leased by Yulo from owners, Emilia Carrion
and Maria Carrion Santa Marina for an indefinite period but that after 1 year, such lease may be cancelled
by either party upon 90-day notice. In Apr 1949, the owners notified Yulo of their desire to cancel the
lease contract come July. Yulo and husband brought a civil action to declare the lease for an indefinite
period. Owners brought their own civil action for ejectment upon Yulo and Yang.
CFI: Two cases were heard jointly; Complaint of Yulo and Yang dismissed declaring contract of lease
terminated.
CA: Affirmed the judgment. In 1950, Yulo demanded from Yang her share in the profits of the business.
Yang answered saying he had to suspend payment because of pending ejectment suit. Yulo filed present
action in 1954, alleging the existence of a partnership between them and that Yang has refused to pay her
shares.
Defendant’s Position: The real agreement between plaintiff and defendant was one of lease and not of
partnership; that the partnership was adopted as a subterfuge to get around the prohibition contained in
the contract of lease between the owners and the plaintiff against the sublease of the property.
Trial Court: Dismissal. It is not true that a partnership was created between them because defendant has
not actually contributed the sum mentioned in the Articles of Partnership or any other amount. The
agreement is a lease because plaintiff didn’t share either in the profits or in the losses of the business as
required by Art 1769 (CC) and because plaintiff was granted a “guaranteed participation” in the profits
belies the supposed existence of a partnership.
ISSUE: Was the agreement a contract a lease or a partnership?
RULING: We have gone over the evidence and we fully agree with the conclusion of the trial court that
the agreement was a sublease, not a partnership. The following are the requisites of partnership: (1) two
or more persons who bind themselves to contribute money, property, or industry to a common fund; (2)
intention on the part of the partners to divide the profits among themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not
furnish any help or intervention in the management of the theatre. In the third place, it does not appear
that she has ever demanded from defendant any accounting of the expenses and earnings of the business.
Were she really a partner, her first concern should have been to find out how the business was
progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that she did was to
receive her share of P3,000 a month, which can not be interpreted in any manner than a payment for the
use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both
parties considered this offer as the real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or participation in the business from
December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement
between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to the
lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the partnership
agreement or the agreement for her to receive a participation of P3,000 automatically ceased as of said
date.
Evangelista vs CIR 102 Phil 140
FACTS: The petitioners borrowed from their father PhP59,140.00 which amount together with their
personal monies was used by them for the purpose of buying and selling real properties. From 1943
to1944, they bought 24 parcels of land (including the improvements thereon) on four different occasions.
In 1945, they appointed their brother Simeon to manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefore; in default of such payment, to bring suits against the
defaulting tenant; and to endorse and deposit all notes and checks for them. In 1948, their net rental
income amounted to PhP12,615.35. On September 1954, the respondent Collector of Internal Revenue
demanded the payment of (1) income tax on corporations, (2) real estate dealer’s fixed tax, and (3)
corporation residence tax for the years 1945-1949, computed according to the assessments made on their
properties. Because of this, the petitioners filed a case against the respondents in the Court of Tax
Appeals, praying that the decision of the respondent contained in its letter of demand be reversed and that
they be absolved from the payment of the taxes in question.
Court of Tax Appeals: The petitioners are liable. (No explanation for such in the case)
Petitioners: They are mere co-owners, not co-partners, for, in consequence of the acts performed by them,
a legal entity, with a personality independent of that of its members, did not come into existence, and
some of the characteristics of partnerships are lacking in the case at bar.
ISSUE: Whether the petitioners are subject to the tax on corporations, real estate dealer’s fixed tax, and
corporation residence tax.
HELD: The petitioners are liable to pay the tax on corporations provided for in Sec. 24 of the
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code. According to
Sec.84 of the same statute, “the term ‘corporation’ includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts, associations or insurance companies, but does not
include duly registered general co-partnerships.” Also, Article 1767 of the Civil Code provides: “By the
contract of partnership, two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.” Pursuant to this article,
the essential elements of a partnership are two, namely: (1) an agreement to contribute money, property or
industry to a common fund; and (2) intent to divide the profits among the contracting parties. The first
element is undoubtedly present in the case at bar, for, admittedly, the petitioners have agreed to, and did,
contribute money and property to a common fund. Also, it can be said that their purpose was to engage in
real estate transactions for monetary gain and then divide the same among themselves because: (1) they
created the common fund purposely; (2) they invested the same, not merely in one transaction, but in a
series of transactions; (3) the parcels of land that they bought were not devoted to residential purposes, or
to other personal uses of the petitioners but were leased separately to several persons; (4) the properties
have been under the management of one person, namely Simeon Evangelista, making the affairs relative
to the said properties appear to have been handled as if the same belonged to a corporation or business
enterprise operated for profit; and (5) the petitioners have not testified or introduced any evidence, either
on their purpose in creating the set up already adverted to, or on the causes for its continued existence.
Hence, the petitioners herein constitute a partnership, and in so far as the National Internal Revenue Code
is concerned, they are subject to the income tax for corporations.
Lastly, the records show that the petitioners have habitually engaged in leasing the properties for a period
of 12 years, and that the yearly gross rentals of the said properties from 1945 to 1948 ranged
fromPhP9,599.00 to PhP 17,453.00. Thus, they are subject to the tax provided in Section 193 (q) of our
national Internal Revenue Code, for “real estate dealers,” in as much as, pursuant to Section 194 (s)
thereof: “Real estate dealers include any person engaged in the business of buying, selling, exchanging,
leasing, or renting property of his own account as principal and holding himself out as full or part-time
dealer in real estate or as an owner of rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year. * * *
ONA vs. CIR
45 SCRA 24, G.R. No. L-19342 May 25, 1972, Barredo, J.:p
FACTS: Julia Bunales died leaving as heirs her husband, petitioner Lorenzo, and her five children.
Lorenzo was appointed as the administrator of his wife’s estate and also the guardian of their three minor
children. Although the project of partition was approved by the court, there was no attempt to divide the
properties. The properties remained under the management of Lorenzo who used it in business by leasing
or selling them and investing the income or proceeds derived therefrom in real properties and securities.
As a result, petitioner’s properties and investments increased. Petitioners did not actually receive their
shares in the yearly income. The income was always left in the hands of Lorenzo T. Oña who, as
heretofore pointed out, invested them in real properties and securities. The Commissioner of Internal
Revenue (CIR) decided that petitioners formed an unregistered partnership and therefore subject to
corporate income tax.
ISSUE: WON the petitioners formed an unregistered partnership
HELD: Petitioners did not merely limit themselves to holding the properties inherited by them. In fact,
some were sold at considerable profit, and with said profit, petitioners engaged, thru Lorenzo T. Oña, in
the purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures
were divided among petitioners proportionately in accordance with their respective shares in the
inheritance. It is thus manifest that there was a common fund to undertake several businesses, with the
intention of deriving profit to be shared by them proportionally, such act was tantamount to actually
contributing such incomes to a common fund and, in effect, they thereby formed an unregistered
partnership.
Petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing 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," is unavailing. In
Evangelista case, the SC clearly differentiated the concept of partnerships under the Civil Code from that
of unregistered partnerships which are considered as "corporations" under Sections 24 and 84(b) of the
National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this
point thus: "To begin with, the tax in question is one imposed upon 'corporations', which, strictly
speaking, are distinct and different from 'partnerships'. When our Internal Revenue Code includes
'partnerships' among the entities subject to the tax on 'corporations', said Code must allude, therefore, to
organizations which are not necessarily 'partnerships', in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax 'duly registered general
partnerships', which constitute precisely one of the most typical forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said Code, 'the term corporation includes partnerships, no matter
how created or organized.' This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for purposes of the tax on corporation.
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.
RULING: Art. 1769. 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 from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installments 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.
Applying the legal provision to the facts of this case, the following circumstances tend to prove that
Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in
the partnership; (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from any of petitioners herein; (3) all of the
properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he
actually received were shares of the profits of the business; and (5) none of the petitioners, as heirs of
Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As repeatedly
stressed in Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties
acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having
been derived from Jose's alleged partnership with Jimmy and Norberto. They failed to refute respondent's
claim that Elfledo and respondent engaged in other businesses. Edison even admitted that Elfledo also
sold Interwood lumber as a sideline.[19] Petitioners could not offer any credible evidence other than their
bare assertions. Thus, we apply the basic rule of evidence that between documentary and oral evidence,
the former carries more weight
