De La Cuesta, de Las Alas and Callanta Law Offices For Petitioners. The Solicitor General For Respondents

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G.R. No.

78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,


vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

De la Cuesta, De las Alas and Callanta Law Offices for petitioners.

The Solicitor General for respondents

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this petition.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966,
they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners
in 1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda
Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the
amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said
years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were
assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the
years 1968 and 1970.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable
as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of
the National Internal Revenue Code   that the unregistered partnership was subject to corporate income tax as
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distinguished from profits derived from the partnership by them which is subject to individual income tax; and that
the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual
income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency income tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In
due course, the respondent court by a majority decision of March 30, 1987,   affirmed the decision and action taken
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by respondent commissioner with costs against petitioners.

It ruled that on the basis of the principle enunciated in Evangelista   an unregistered partnership was in fact formed
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by petitioners which like a corporation was subject to corporate income tax distinct from that imposed on the
partners.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of
this case, although there might in fact be a co-ownership between the petitioners, there was no adequate basis for
the conclusion that they thereby formed an unregistered partnership which made "hem liable for corporate income
tax under the Tax Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:

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A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT


AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID
DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM
PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13,
Rollo.)

The petition is meritorious.

The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4

In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds
they used in buying several real properties. They appointed their brother to manage their properties with full power
to lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various tenants for several
years and they gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others, from them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,
as well as to the residence tax for corporations and the real estate dealers' fixed tax. With respect to
the tax on corporations, the issue hinges on the meaning of the terms corporation and partnership as
used in sections 24 and 84 of said Code, the pertinent parts of which read:

Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships (companies collectives), a tax
upon such income equal to the sum of the following: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participation), associations or insurance companies, but
does not include duly registered general co-partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among themselves.

Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the
issue narrows down to their intent in acting as they did. Upon consideration of all the facts and

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circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not a property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. On
February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number
of lots (24) acquired and transcations undertaken, as well as the brief interregnum between each,
particularly the last three purchases, is strongly indicative of a pattern or common design that was
not limited to the conservation and preservation of the aforementioned common fund or even of the
property acquired by petitioners in February, 1943. In other words, one cannot but perceive a
character of habituality peculiar to business transactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to
1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being
so let, for petitioners do not even suggest that there has been any change in the utilization thereof.

4. Since August, 1945, the properties have been under the management of one person, namely,
Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business enterprise
operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen
(15) years, since the first property was acquired, and over twelve (12) years, since Simeon
Evangelists became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the
set up already adverted to, or on the causes for its continued existence. They did not even try to
offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein, and, hence, those cases are not in point.  5

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide the profits among themselves. Respondent
commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that
petitioners purchased certain parcels of land and became co-owners thereof.

In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by
them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968
when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The
remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality
peculiar to business transactions for the purpose of gain was not present.

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In Evangelista, the properties were leased out to tenants for several years. The business was under the
management of one of the partners. Such condition existed for over fifteen (15) years. None of the circumstances
are present in the case at bar. The co-ownership started only in 1965 and ended in 1970.

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:

I wish however to make the following observation Article 1769 of the new Civil Code lays down the
rule for determining when a transaction should be deemed a partnership or a co-ownership. Said
article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not 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;

From the above it appears that the fact that those who agree to form a co- ownership share or do
not share any profits made by the use of the property held in common does not convert their venture
into a partnership. Or the sharing of the gross returns does not of itself establish a partnership
whether or not the persons sharing therein have a joint or common right or interest in the property.
This only means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership, the existence of
a juridical personality different from that of the individual partners, and the freedom to transfer or
assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross
returns of that enterprise in proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no common stock or capital,
and no community of interest as principal proprietors in the business itself which the proceeds
derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are
only tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding
as tenants in common, and to divide the profits of disposing of it, the brother and the other not being
entitled to share in plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233
Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b)
generally participating in both profits and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract, manage the business, and dispose
of the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree
among themselves as to the management, and use of such property and the application of the
proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.)  6

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The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a
joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of
a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the
whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to
support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby
they purchased properties and sold the same a few years thereafter did not thereby make them partners. They
shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership
which is thereby liable for corporate income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been formed,
since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held
liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this
unpaid obligation of the partnership p.   However, as petitioners have availed of the benefits of tax amnesty as
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individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March
30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the
corporate income tax liability in this case, without pronouncement as to costs.

SO ORDERED.

G.R. No. L-19342 May 25, 1972

LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B.
OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Orlando Velasco for petitioners.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete, and Special
Attorney Purificacion Ureta for respondent.

BARREDO, J.:p

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that petitioners have constituted an
unregistered partnership and are, therefore, subject to the payment of the deficiency corporate income taxes assessed against them by respondent Commissioner
of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to
the provisions of Section 51 (e) (2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as the
resolution of said court denying petitioners' motion for reconsideration of said decision.

The facts are stated in the decision of the Tax Court as follows:

Julia Buñales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oña and
her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila
for the settlement of her estate. Later, Lorenzo T. Oña the surviving spouse was appointed
administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the
administrator submitted the project of partition, which was approved by the Court on May 16, 1949
(See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed
Oña, were still minors when the project of partition was approved, Lorenzo T. Oña, their father and
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administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of
Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him
guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.).

The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided
one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses
with a total assessed value of P17,590.00 and an undetermined amount to be collected from the
War Damage Commission. Later, they received from said Commission the amount of P50,000.00,
more or less. This amount was not divided among them but was used in the rehabilitation of
properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two
were acquired after the death of the decedent with money borrowed from the Philippine Trust
Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally with Lorenzo T. Oña, the
administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with
the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no attempt was made
to divide the properties therein listed. Instead, the properties remained under the management of
Lorenzo T. 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 from P105,450.00 in 1949 to
P480,005.20 in 1956 as can be gleaned from the following year-end balances:

Y Invest Lan Buil


e
a ment d din
r g

  Accou Acc Acc


nt oun oun
t t

1949 — P87,860.00 P17,590.00

1950 P24,657.65 128,566.72 96,076.26

1951 51,301.31 120,349.28 110,605.11

1952 67,927.52 87,065.28 152,674.39

1953 61,258.27 84,925.68 161,463.83

1954 63,623.37 99,001.20 167,962.04

1955 100,786.00 120,249.78 169,262.52

1956 175,028.68 135,714.68 169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)

From said investments and properties petitioners derived such incomes as profits from installment
sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account
kept by Lorenzo T. Oña where the corresponding shares of the petitioners in the net income for the
year are also known. Every year, petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from transactions involving them (Exhibit
3, supra; t.s.n., pp. 25-26). However, petitioners did not actually receive their shares in the yearly

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income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in the hands of Lorenzo T. Oña
who, as heretofore pointed out, invested them in real properties and securities. (See Exhibit 3, t.s.n.,
pp. 50, 102-104).

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for
1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered partnership. Finding no merit in petitioners'
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).

The original assessment was as follows:

1955

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.00


25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50

1956

Net income as per investigation ................ P69,245.23

Income tax due thereon ............................... 13,849.00


25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25

(See Exhibit 13, page 50, BIR records)

Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of
the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so
that the questioned assessment refers solely to the income tax proper for the years 1955 and 1956
and the "Compromise for non-filing," the latter item obviously referring to the compromise in lieu of
the criminal liability for failure of petitioners to file the corporate income tax returns for said years.
(See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition)

Petitioners have assigned the following as alleged errors of the Tax Court:

I.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;

II.

THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-
OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);

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III.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

IV.

ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED


PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY
INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;

V.

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT


OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE
PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM THE
DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.

In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of
Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased
Julia Buñales and the profits derived from transactions involving the same, or, must they be deemed to have formed
an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2)
Assuming they have formed an unregistered partnership, should this not be only in the sense that they invested as a
common fund the profits earned by the properties owned by them in common and the loans granted to them upon
the security of the said properties, with the result that as far as their respective shares in the inheritance are
concerned, the total income thereof should be considered as that of co-owners and not of the unregistered
partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various
amounts already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the deficiency corporate
taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner?

Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in
interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early
as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since
those dates admittedly under the administration or management of the head of the family, the widower and father
Lorenzo T. Oña, the assessment in question refers to the later years 1955 and 1956. We believe this point to be
important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal
Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered
them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is
easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the
purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact
that they were not similarly assessed earlier by the Bureau of Internal Revenue.

The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to
the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oña who
used said properties in business by leasing or selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account"
in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the
income or profits from Lorenzo T. Oña and instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective
shares of the profits of their common business as reported by the said Lorenzo T. Oña.
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It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the
properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. 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. In these
circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña as
a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared
by them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in
effect, they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the
Tax Code.

It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners
rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the
partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs,
obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such
status as co-owners continues until the inheritance is actually and physically distributed among the heirs, for it is
easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding
said shares under the common management of the administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants
therein to be unregistered co-partners for tax purposes, that their common fund "was not something they found
already in existence" and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that ergo, in all instances where an inheritance is not actually
divided, there can be no unregistered co-partnership. As already indicated, for tax purposes, the co-ownership of
inherited properties is automatically converted into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate
proceeding. The reason for this 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. This is exactly what happened to petitioners in this case.

In this connection, 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," and, for that matter, on any other
provision of said code on partnerships is unavailing. In Evangelista, supra, this Court 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 confirmity with the usual
requirements of the law on partnerships, in order that one could be deemed constituted for purposes

9
of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes,
among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a
legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not
have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general co-partnerships" — which are
possessed of the aforementioned personality — have been expressly excluded by law (sections 24
and 84[b]) from the connotation of the term "corporation." ....

xxx xxx xxx

Similarly, the American Law

... provides its own concept of a partnership. Under the term "partnership" it includes
not only a partnership as known in common law but, as well, a syndicate, group,
pool, joint venture, or other unincorporated organization which carries on any
business, financial operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income
Taxation, p. 789; emphasis ours.)

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.)

For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships — with the exception only of duly registered general copartnerships — within the
purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.

We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L-
24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by
appellants therein.

As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes
in question, of their inherited properties from those acquired by them subsequently, We consider as justified the
following ratiocination of the Tax Court in denying their motion for reconsideration:

In connection with the second ground, it is alleged that, if there was an unregistered partnership, the
holding should be limited to the business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership should be limited to the income
derived from the acquisition and sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is admitted that the inherited properties
and the income derived therefrom were used in the business of buying and selling other real
properties and corporate securities. Accordingly, the partnership income must include not only the
income derived from the purchase and sale of other properties but also the income of the inherited
properties.

Besides, as already observed earlier, the income derived from inherited properties may be considered as individual
income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but
the moment their respective known shares are used as part of the common assets of the heirs to be used in making
profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.

Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court. Pertinently,
the court ruled this wise:

10
In support of the third ground, counsel for petitioners alleges:

Even if we were to yield to the decision of this Honorable Court that the herein
petitioners have formed an unregistered partnership and, therefore, have to be taxed
as such, it might be recalled that the petitioners in their individual income tax returns
reported their shares of the profits of the unregistered partnership. We think it only
fair and equitable that the various amounts paid by the individual petitioners as
income tax on their respective shares of the unregistered partnership should be
deducted from the deficiency income tax found by this Honorable Court against the
unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their
Motion for Reconsideration, Oct. 28, 1961.)

In other words, it is the position of petitioners that the taxable income of the partnership must be
reduced by the amounts of income tax paid by each petitioner on his share of partnership profits.
This is not correct; rather, it should be the other way around. The partnership profits distributable to
the partners (petitioners herein) should be reduced by the amounts of income tax assessed against
the partnership. Consequently, each of the petitioners in his individual capacity overpaid his income
tax for the years in question, but the income tax due from the partnership has been correctly
assessed. Since the individual income tax liabilities of petitioners are not in issue in this proceeding,
it is not proper for the Court to pass upon the same.

Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as
individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to
sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their individual income taxes, they may already be
barred by prescription from recovering their overpayments in a separate action. We do not agree. As We see it, the
case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax,
assuming that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has
the right to be reimbursed what he has erroneously paid, but the law is very clear that the claim and action for such
reimbursement are subject to the bar of prescription. And since the period for the recovery of the excess income
taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper
return and payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax
obligation to the State.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs
against petitioners.

G.R. No. L-45425             April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,


vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

Guillermo B. Reyes for appellants.


Office of the Solicitor-General Tuason for appellee.

IMPERIAL, J.:

The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the sum of P1,863.44,
with legal interest thereon, which they paid under protest by way of income tax. They appealed from the decision
rendered in the case on October 23, 1936 by the Court of First Instance of the City of Manila, which dismissed the
action with the costs against them.
11
The case was submitted for decision upon the following stipulation of facts:

Come now the parties to the above-mentioned case, through their respective undersigned attorneys, and
hereby agree to respectfully submit to this Honorable Court the case upon the following statement of facts:

1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is the Collector of
Internal Revenue of the Philippines;

2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket
valued at two pesos (P2), subscribed and paid therefor the amounts as follows:

1. Jose Gatchalian .................................................................................................... P0.18


2. Gregoria Cristobal ............................................................................................... .18
3. Saturnina Silva .................................................................................................... .08
4. Guillermo Tapia ................................................................................................... .13
5. Jesus Legaspi ...................................................................................................... .15
6. Jose Silva ............................................................................................................. .07
7. Tomasa Mercado ................................................................................................ .08
8. Julio Gatchalian ................................................................................................... .13
9. Emiliana Santiago ................................................................................................ .13
10. Maria C. Legaspi ............................................................................................... .16
11. Francisco Cabral ............................................................................................... .13
12. Gonzalo Javier .................................................................................................... .14
13. Maria Santiago ................................................................................................... .17
14. Buenaventura Guzman ...................................................................................... .13
15. Mariano Santos ................................................................................................. .14

Total ........................................................................................................ 2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the ordinary course of
business, from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in the name of
Jose Gatchalian and Company;

4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket
bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding check
covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes Office in
favor of Jose Gatchalian & Company against the Philippine National Bank, which check was cashed during
the latter part of December, 1934 by Jose Gatchalian & Company;

5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to file
the corresponding income tax return covering the prize won by Jose Gatchalian & Company and that on
December 29, 1934, the said return was signed by Jose Gatchalian, a copy of which return is enclosed as
Exhibit A and made a part hereof;

6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving
12
to said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount of
P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof;

7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of which
marked Exhibit C is attached and made a part hereof, requesting exemption from payment of the income tax
to which reply there were enclosed fifteen (15) separate individual income tax returns filed separately by
each one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to D-15, respectively,
in order of their names listed in the caption of this case and made parts hereof; a statement of sale signed
by Jose Gatchalian showing the amount put up by each of the plaintiffs to cover up the attached and marked
as Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose Gatchalian dated December
29, 1934 is attached and marked Exhibit F and made part thereof;

8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his
demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10, 1935
within which to pay the said tax;

9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant,
notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on March
23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant of
distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit I is enclosed
and made a part hereof;

10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said plaintiffs
on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under protest the
sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced
by official receipt No. 7454879 which is attached and marked Exhibit J and made a part hereof, and
requested defendant that plaintiffs be allowed to pay under protest the balance of the tax and penalties by
monthly installments;

11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject to
the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt payment
of each installments as it becomes due;

12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made a
part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments at the
rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935;

13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of P602.51, a
copy of which protest is attached and marked Exhibit L, but that defendant in his letter dated August 1, 1935
overruled the protest and denied the request for refund of the plaintiffs;

14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the terms
and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which is
attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within five
days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935;

15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the plaintiffs
on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid
under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid
balance of the income tax and penalties demanded by defendant as evidenced by income tax receipt No.
35811 which is attached and marked Exhibit N and made a part hereof; and that on September 3, 1936, the
plaintiffs formally protested to the defendant against the payment of said amount and requested the refund
thereof, copy of which is attached and marked Exhibit O and made part hereof; but that on September 4,
1936, the defendant overruled the protest and denied the refund thereof; copy of which is attached and
marked Exhibit P and made a part hereof; and

13
16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred and
sixty three pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant refused
and still refuses to refund the said amount notwithstanding the plaintiffs' demands.

17. The parties hereto reserve the right to present other and additional evidence if necessary.

Exhibit E referred to in the stipulation is of the following tenor:

To whom it may concern:

I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of
August, 1934, I sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated
below and the part of may share remaining is also shown to wit:

Purchaser Amount Address


1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan.
2. Buenaventura Guzman ............................... .13 - Do -
3. Maria Santiago ............................................ .17 - Do -
4. Gonzalo Javier .............................................. .14 - Do -
5. Francisco Cabral .......................................... .13 - Do -
6. Maria C. Legaspi .......................................... .16 - Do -
7. Emiliana Santiago ......................................... .13 - Do -
8. Julio Gatchalian ............................................ .13 - Do -
9. Jose Silva ...................................................... .07 - Do -
10. Tomasa Mercado ....................................... .08 - Do -
11. Jesus Legaspi ............................................. .15 - Do -
12. Guillermo Tapia ........................................... .13 - Do -
13. Saturnina Silva ............................................ .08 - Do -
14. Gregoria Cristobal ....................................... .18 - Do -
15. Jose Gatchalian ............................................ .18 - Do -

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of whatever prize that might be
won by said ticket.

Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:

RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY 19,
1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.

14
Exhibit Purchase Price Net
Name Expenses
No. Price Won prize
1. Jose
Gatchalian ........................................ D-1 P0.18 P4,425 P 480 3,945
..
2. Gregoria
D-2 .18 4,575 2,000 2,575
Cristobal ......................................
3. Saturnina
D-3 .08 1,875 360 1,515
Silva .............................................
4. Guillermo
D-4 .13 3,325 360 2,965
Tapia ..........................................
5. Jesus Legaspi by Maria
D-5 .15 3,825 720 3,105
Cristobal .........
6. Jose
Silva ................................................. D-6 .08 1,875 360 1,515
...
7. Tomasa
D-7 .07 1,875 360 1,515
Mercado .......................................
8. Julio Gatchalian by Beatriz
D-8 .13 3,150 240 2,910
Guzman .......
9. Emiliana
D-9 .13 3,325 360 2,965
Santiago ......................................
10. Maria C.
D-10 .16 4,100 960 3,140
Legaspi ......................................
11. Francisco
D-11 .13 3,325 360 2,965
Cabral ......................................
12. Gonzalo
D-12 .14 3,325 360 2,965
Javier ..........................................
13. Maria
D-13 .17 4,350 360 3,990
Santiago ..........................................
14. Buenaventura
D-14 .13 3,325 360 2,965
Guzman ...........................
15. Mariano
D-15 .14 3,325 360 2,965
Santos ........................................

<="" td="" style="font-size: 14px;


text-decoration: none; color: rgb(0, 0,
2.00 50,000
128); font-family: arial, verdana;">

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the two following:
(1) Whether the plaintiffs formed a partnership, or merely a community of property without a personality of its own; in
the first case it is admitted that the partnership thus formed is liable for the payment of income tax, whereas if there
was merely a community of property, they are exempt from such payment; and (2) whether they should pay the tax
collectively or whether the latter should be prorated among them and paid individually.

The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended by section 2
of Act No. 3761, reading as follows:

15
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income
received in the preceding calendar year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or insurance company, organized in the
Philippine Islands, no matter how created or organized, but not including duly registered general
copartnership (compañias colectivas), a tax of three per centum upon such income; and a like tax shall be
levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar
year from all sources within the Philippine Islands by every corporation, joint-stock company, partnership,
joint account (cuenta en participacion), association, or insurance company organized, authorized, or existing
under the laws of any foreign country, including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise: Provided, however, That nothing in this section shall be
construed as permitting the taxation of the income derived from dividends or net profits on which the normal
tax has been paid.

The gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or insurance company, or property, real,
personal, or mixed, shall be ascertained in accordance with subsections (c) and (d) of section two of Act
Numbered Two thousand eight hundred and thirty-three, as amended by Act Numbered Twenty-nine
hundred and twenty-six.

The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year thereafter.

There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment
of income tax under the law. But according to the stipulation facts the plaintiffs organized a partnership of a civil
nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the
prize which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership
was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the
prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the
same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and
formed a community of property only.

Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay the income
tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of
Act No. 3761. There is no merit in plaintiff's contention that the tax should be prorated among them and paid
individually, resulting in their exemption from the tax.

In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the plaintiffs appellants.
So ordered.

G.R. No. 127405               October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,


vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616, affirming the Decision

of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509. 2

16
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, 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. Belo volunteered to
finance the joint venture and assigned to Anay the job of marketing the product considering her experience and
established relationship with West Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. 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. Anay organized the administrative staff and sales force while Tocao
hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belo’s name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they agreed to use Anay’s name in securing distributorship of
cookware from that company. 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.

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, with office at 712 Rufino
Building, Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach, California, U.S.A.,
from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as president and
general manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on
July 13, 1987. A portion of the letter reads:

"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now,
acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice President Sales
Marketing and a business partner of our company, will attend in response to the invitation." (Italics supplied.) 3

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on
account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31, 1987, she received a
plaque of appreciation from the administrative and sales people through Marjorie Tocao for her excellent job

performance. On October 7, 1987, in the presence of Anay, Belo signed a memo entitling her to a thirty-seven

percent (37%) commission for her personal sales "up Dec 31/87." Belo explained to her that said commission was
apart from her ten percent (10%) share in the profits. 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. The following day, October 10, she received a note from Lina T. Cruz, marketing manager,
that Marjorie Tocao had barred her from holding office and conducting demonstrations in both Makati and Cubao
offices. 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. When
her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.

Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she
did not receive the same commission although the company netted a gross sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed 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.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following: (1)
P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral
damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of
Geminesse Enterprise from the inception of its business operation until she was "illegally dismissed" to determine
her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) "overriding
commission" on the remaining 150 West Bend cookware sets before her "dismissal."
17
In their answer, Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was "neither reduced

in writing, nor ratified," was "either unenforceable or void or inexistent." As far as Belo was concerned, his only role
was to introduce Anay to Marjorie Tocao. There could not have been a partnership because, as Anay herself
admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as
marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to either
her compensation or dismissal, such complaint should have been lodged with the Department of Labor and not with
the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of "ill-will and resentment"
because Marjorie Tocao did not allow her to "lord it over in the Geminesse Enterprise." Anay had acted like she
owned the enterprise because of her experience and expertise. Hence, petitioners were the ones who suffered
actual damages "including unreturned and unaccounted stocks of Geminesse Enterprise," and "serious anxiety,
besmirched reputation in the business world, and various damages not less than P500,000.00." They also alleged
that, to "vindicate their names," they had to hire counsel for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of
Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages. 10

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He, however,
admitted that the two had agreed that Anay would receive a three to four percent (3-4%) share in the gross sales of
the cookware. He denied contributing capital to the business or receiving a share in its profits as he merely served
as a guarantor of Marjorie Tocao, who was new in the business. He attended and/or presided over business
meetings of the venture in his capacity as a guarantor but he never participated in decision-making. He claimed that
he wrote the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the
business venture at the request of Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she
admitted that Anay was an expert in the cookware business and hence, they agreed to grant her the following
commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two percent (2%) on
product demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that they agreed on a
ten percent (10%) commission on the net profits. Marjorie claimed that she got the capital for the business out of the
sale of the sewing machines used in her garments business and from Peter Lo, a Singaporean friend-financier who
loaned her the funds with interest. Because she treated Anay as her "co-equal," Marjorie received the same
amounts of commissions as her. However, Anay failed to account for stocks valued at P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987 and
1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net
profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150) cookware
sets available for disposition when plaintiff was wrongfully excluded from the partnership by defendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering
January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and

5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit.

SO ORDERED."

18
The trial court held that there was indeed an "oral partnership agreement between the plaintiff and the defendants,"
based on the following: (a) there was an intention to create a partnership; (b) a common fund was established
through contributions consisting of money and industry, and (c) there was a joint interest in the profits. The
testimony of Elizabeth Bantilan, Anay’s cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a partnership existed between
the parties. The letter of Roger Muencheberg of West Bend Company stating that he awarded the distributorship to
Anay and Marjorie Tocao because he was convinced that with Marjorie’s financial contribution and Anay’s
experience, the combination of the two would be invaluable to the partnership, also supported that conclusion.
Belo’s claim that he was merely a "guarantor" has no basis since there was no written evidence thereof as required
by Article 2055 of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse
Enterprise plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the contrary,
it demonstrated his involvement as a partner in the business.

The trial court further held that the payment of commissions did not preclude the existence of the partnership
inasmuch as such practice is often resorted to in business circles as an impetus to bigger sales volume. It did not
matter that the agreement was not in writing because Article 1771 of the Civil Code provides that a partnership may
be "constituted in any form." The fact that Geminesse Enterprise was registered in Marjorie Tocao’s name is not
determinative of whether or not the business was managed and operated by a sole proprietor or a partnership. What
was registered with the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner.
Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share
in the profits "realized from the appropriation of the partnership business and goodwill." An innocent partner thus
possesses "pecuniary interest in every existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled."

Petitioners’ appeal to the Court of Appeals was dismissed, but the amount of damages awarded by the trial court
11 

were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their Motion for
Reconsideration was denied by the Court of Appeals for lack of merit. Petitioners Belo and Marjorie Tocao are now
12 

before this Court on a petition for review on certiorari, asserting that there was no business partnership between
them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by
the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed between
them and private respondent Anay because Geminesse Enterprise "came into being" exactly a year before the
"alleged partnership" was formed, and that it was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without any "memorandum whatsoever regarding the
alleged partnership."13

The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the
trial and appellate courts. This Court cannot set aside factual findings of such courts absent any showing that there
is no evidence to support the conclusion drawn by the court a quo. In this case, both the trial court and the Court of
14 

Appeals are one in ruling that petitioners and private respondent established a business partnership. This Court
finds no reason to rule otherwise.

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
15 

where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is
16 

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.
17 

The pertinent 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.
19
Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware.
Private respondent contributed such expertise to the partnership and hence, under the law, she was the industrial or
managing partner. It was through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that company’s cookware products; it was through the same efforts that the
business was propelled to financial success. Petitioner Tocao herself admitted private respondent’s indispensable
role in putting up the business when, upon being asked if private respondent held the positions of marketing
manager and vice-president for sales, she testified thus:

"A: No, sir at the start she was the marketing manager because there were no one to sell yet, it’s only me there then
her and then two (2) people, so about four (4). Now, after that when she recruited already Oscar Abella and Lina
Torda-Cruz these two (2) people were given the designation of marketing managers of which definitely Nita as
superior to them would be the Vice President." 18

By the set-up of the business, third persons were made to believe that a partnership had indeed been forged
between petitioners and private respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West
Bend Company to Roger Muencheberg of the same company states:

"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have
cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory Vista. She has also
gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other
key people and build up the organization. All they need is the finance and the products to sell." 19

On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in the face of the
established fact that he presided over meetings regarding matters affecting the operation of the business. Moreover,
his having authorized in writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could not
be interpreted otherwise than that he had a proprietary interest in the business. His claim that he was merely a
guarantor is belied by that personal act of proprietorship in the business. Moreover, if he was indeed a guarantor of
future debts of petitioner Tocao under Article 2053 of the Civil Code, he should have presented documentary
20 

evidence therefor. While Article 2055 of the Civil Code simply provides that guaranty must be "express," Article
1403, the Statute of Frauds, requires that "a special promise to answer for the debt, default or miscarriage of
another" be in writing.
21

Petitioner Tocao, a former ramp model, was also a capitalist in the partnership. She claimed that she herself
22 

financed the business. Her and petitioner Belo’s roles as both capitalists to the partnership with private respondent
are buttressed by petitioner Tocao’s admissions that petitioner Belo was her boyfriend and that the partnership was
not their only business venture together. They also established a firm that they called "Wiji," the combination of
petitioner Belo’s first name, William, and her nickname, Jiji. The special relationship between them dovetails with
23 

petitioner Belo’s claim that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the
business operation, petitioners requested West Bend Company to allow them to "utilize their banking and trading
facilities in Singapore" in the matter of importation and payment of the cookware products. The inevitable
24 

conclusion, therefore, was that petitioners merged their respective capital and infused the amount into the
partnership of distributing cookware with private respondent as the managing partner.

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
25 

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
26 

administrative staff and the sales force. Secondly, petitioner Tocao’s admissions militate against an employer-
employee relationship. She admitted that, like her who owned Geminesse Enterprise, private respondent received
27 

only commissions and transportation and representation allowances and not a fixed salary. Petitioner Tocao
28  29 

testified:

"Q: Of course. Now, I am showing to you certain documents already marked as Exhs. ‘X’ and ‘Y.’ Please go over
this. Exh. ‘Y’ is denominated `Cubao overrides’ 8-21-87 with ending August 21, 1987, will you please go over this

20
and tell the Honorable Court whether you ever came across this document and know of your own knowledge the
amount ---

A: Yes, sir this is what I am talking about earlier. That’s the one I am telling you earlier a certain percentage for
promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: ‘Overrides
Marjorie Ann Tocao P21,410.50’ this means that you have received this amount?

A: Oh yes, sir.

Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation,
advertising and promotion?

A: Yes, sir.

Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay P21,410.50’, what is this?

A: That’s her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of
her expertise in the business she is vital to my business. So, as part of the incentive I offer her the same thing.

Q: So, in short you are saying that this you have shared together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating her as an equal?

A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.

Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao P15,314.25’ the amount there you will
acknowledge you have received that?

A: Yes, sir.

Q: Again in concept of commission, representation, promotion, etc.?

A: Yes, sir.

Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the
same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?

21
A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

A: Yes, sir." (Italics supplied.) 30

If indeed petitioner Tocao was private respondent’s employer, it is difficult to believe that they shall receive the same
income in the business. In a partnership, each partner must share in the profits and losses of the venture, except
that the industrial partner shall not be liable for the losses. As an industrial partner, private respondent had the right
31 

to demand for a formal accounting of the business and to receive her share in the net profit. 32

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
33 

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%
34 

of its business activity was devoted to the sale of water sterilizer or purifier. Indubitably then, the business name
35 

Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for petitioner
Tocao’s 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
36 

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 respondent’s 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,
38 

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 39 

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
40 

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 partner’s 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."41

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.42

In this case, petitioner Tocao’s 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-

22
president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the
43 

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. 44

The winding up of partnership affairs has not yet been undertaken by the partnership.  This is manifest in
1âwphi1

petitioners’ claim for stocks that had been entrusted to private respondent in the pursuit of the partnership business.

The determination of the amount of damages commensurate with the factual findings upon which it is based is
primarily the task of the trial court. The Court of Appeals may modify that amount only when its factual findings are
45 

diametrically opposed to that of the lower court, or the award is palpably or scandalously and unreasonably
46 

excessive. However, exemplary damages that are awarded "by way of example or correction for the public
47 

good," should be reduced to P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly,
48 

the award of moral damages of P100,000.00 was excessive and should be likewise reduced to P50,000.00.
Similarly, attorney’s fees that should be granted on account of the award of exemplary damages and petitioners’
evident bad faith in refusing to satisfy private respondent’s plainly valid, just and demandable claims, appear to
49 

have been excessively granted by the trial court and should therefore be reduced to P25,000.00.

WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private
respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the
partnership pursuant to the pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court
for proper proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court and the Court
of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for
the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine private
respondent’s ten percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets available for disposition since the time private
respondent was wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total
production which, for the period covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of
P50,000.00, exemplary damages in the amount of P50,000.00 and attorney’s fees in the amount of
P25,000.00.

SO ORDERED.

G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,


vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to
divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of

23
their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or
fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a
contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who
may not have directly transacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the
Court of Appeals in CA-GR CV
41477,   which disposed as follows:
1

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby
affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as
follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20,
1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications
as hereinafter made by reason of the special and unique facts and circumstances and the
proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices and computed on


their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for


P385,377.80 dated February 9, 1990;

ii. Accrued interest for P27,904.02 on Invoice No. 14413 for


P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for


P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per
appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets
counted from September 20, 1990 (date of attachment) to September 12, 1991 (date
of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid
price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for
the total amount P600,045.00, this Court noted that these items were attached to guarantee
any judgment that may be rendered in favor of the plaintiff but, upon agreement of the

24
parties, and, to avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the
sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court.
In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the ownership and possession
of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets [was] retained by
the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the
plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered
the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and
for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of
defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be
entitled to in this case will have to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering, however, that the total judgment
obligation as computed above would amount to only P840,216.92, it would be inequitable,
unfair and unjust to award the excess to the defendants who are not entitled to damages and
who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact
that they are not the owners of the nets and floats. For this reason, the defendants are
hereby relieved from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED.  3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated
February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to the Corporation.  4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection
suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange
Commission.   On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
5

enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas,
Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable
time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter
Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to
present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other
hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.   The 6

trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a
public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales
proceeds of P900,000.  7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the
witnesses presented and (2) on a Compromise Agreement executed by the three   in Civil Case No. 1492-MN which
9

25
Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an
injunction and (e) damages.   The Compromise Agreement provided:
10

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or
Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.  11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint
liability could be presumed from the equal distribution of the profit and loss. 21

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may
thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The
appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook
a partnership for a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership, two or more persons bind themselves to
contribute money, property or industry to a common fund with the intention of dividing the profits
among themselves (Article 1767, New Civil Code).  13

Hence, petitioner brought this recourse before this Court.  14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT


THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING,
THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS
WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must
resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.
26
This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership

and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the
CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its
finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of
the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua
and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the
main asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed
that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides:

Art. 1767 — 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.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual
findings: 
15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to
join him, while Antonio Chua was already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing
boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance
the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan
extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and
other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership
in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the
ownership papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong
Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.

27
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e)
damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the
parties-litigants the terms of which are already enumerated above.

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 who
was petitioner's brother. 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.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets
and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of
their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the
fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed
that the proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus,
the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the
present action is embraced by one of the exceptions to the rule.   In assailing the factual findings of the two lower
16

courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement

Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them,
but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but
an embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings
mentioned above nullified petitioner's argument that the existence of a partnership was based only on the
Compromise Agreement.

Petitioner Was a Partner,

Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a
partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration
papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

28
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own
boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership
among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which
debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in
their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after
the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own
property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not
incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao,
and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation knowing it to
be without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it
shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence. "The reason behind this doctrine is obvious — an unincorporated association has
no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation
as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations
and becomes personally liable for contracts entered into or for other acts performed as such agent.  17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first
instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying
its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold.
The only question here is whether petitioner should be held jointly   liable with Chua and Yao. Petitioner contests
18

29
such liability, insisting that only those who dealt in the name of the ostensible corporation 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.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has
effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that 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.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed
to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate
the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the
subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which
each contending party fully and fairly lays before the court the facts in issue and then, brushing aside
as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that
justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust.
Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no vested rights in
technicalities.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the
Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of
the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his
partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own
design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to
assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of
the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. L-5236             January 10, 1910

PEDRO MARTINEZ, plaintiff-appellee,
vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.

Fernando de la Cantera for appellant.


O'Brien and DeWitt for appellee.

30
ARELLANO, C.J.:

On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a private document,
acknowledged that they had received the same with the agreement, as stated by them, "that we are to invest the
amount in a store, the profits or losses of which we are to divide with the former, in equal shares."

The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to render him an accounting of
the partnership as agreed to, or else to refund him the P1,500 that he had given them for the said purpose. Ong
Pong Co alone appeared to answer the complaint; he admitted the fact of the agreement and the delivery to him
and to Ong Lay of the P1,500 for the purpose aforesaid, but he alleged that Ong Lay, who was then deceased, was
the one who had managed the business, and that nothing had resulted therefrom save the loss of the capital of
P1,500, to which loss the plaintiff agreed.

The judge of the Court of First Instance of the city of Manila who tried the case ordered Ong Pong Co to return to
the plaintiff one-half of the said capital of P1,500 which, together with Ong Lay, he had received from the plaintiff, to
wit, P750, plus P90 as one-half of the profits, calculated at the rate of 12 per cent per annum for the six months that
the store was supposed to have been open, both sums in Philippine currency, making a total of P840, with legal
interest thereon at the rate of 6 per cent per annum, from the 12th of June, 1901, when the business terminated and
on which date he ought to have returned the said amount to the plaintiff, until the full payment thereof with costs.

From this judgment Ong Pong Co appealed to this court, and assigned the following errors:

1. For not having taken into consideration the fact that the reason for the closing of the store was the
ejectment from the premises occupied by it.

2. For not having considered the fact that there were losses.

3. For holding that there should have been profits.

4. For having applied article 1138 of the Civil Code.

5. and 6. For holding that the capital ought to have yielded profits, and that the latter should be calculated 12
per cent per annum; and

7. The findings of the ejectment.

As to the first assignment of error, the fact that the store was closed by virtue of ejectment proceedings is of no
importance for the effects of the suit. The whole action is based upon the fact that the defendants received certain
capital from the plaintiff for the purpose of organizing a company; they, according to the agreement, were to handle
the said money and invest it in a store which was the object of the association; they, in the absence of a special
agreement vesting in one sole person the management of the business, were the actual administrators thereof; as
such administrators they were the agent of the company and incurred the liabilities peculiar to every agent, among
which is that of rendering account to the principal of their transactions, and paying him everything they may have
received by virtue of the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of them has rendered such account
nor proven the losses referred to by Ong Pong Co; they are therefore obliged to refund the money that they
received for the purpose of establishing the said store — the object of the association. This was the principal
pronouncement of the judgment.

With regard to the second and third assignments of error, this court, like the court below, finds no evidence that the
entire capital or any part thereof was lost. It is no evidence of such loss to aver, without proof, that the effects of the
store were ejected. Even though this were proven, it could not be inferred therefrom that the ejectment was due to
the fact that no rents were paid, and that the rent was not paid on account of the loss of the capital belonging to the
enterprise.

With regard to the possible profits, the finding of the court below are based on the statements of the defendant Ong
Pong Co, to the effect that "there were some profits, but not large ones." This court, however, does not find that the
31
amount thereof has been proven, nor deem it possible to estimate them to be a certain sum, and for a given period
of time; hence, it can not admit the estimate, made in the judgment, of 12 per cent per annum for the period of six
months.

Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part of a partner who
acted as agent in receiving money for a given purpose, for which he has rendered no accounting, such agent is
responsible only for the losses which, by a violation of the provisions of the law, he incurred. This being an
obligation to pay in cash, there are no other losses than the legal interest, which interest is not due except from the
time of the judicial demand, or, in the present case, from the filing of the complaint. (Arts. 1108 and 1100, Civil
Code.) We do not consider that article 1688 is applicable in this case, in so far as it provides "that the partnership is
liable to every partner for the amounts he may have disbursed on account of the same and for the proper interest,"
for the reason that no other money than that contributed as is involved.

As in the partnership there were two administrators or agents liable for the above-named amount, article 1138 of the
Civil Code has been invoked; this latter deals with debts of a partnership where the obligation is not a joint one, as is
likewise provided by article 1723 of said code with respect to the liability of two or more agents with respect to the
return of the money that they received from their principal. Therefore, the other errors assigned have not been
committed.

In view of the foregoing judgment appealed from is hereby affirmed, provided, however, that the defendant Ong
Pong Co shall only pay the plaintiff the sum of P750 with the legal interest thereon at the rate of 6 per cent per
annum from the time of the filing of the complaint, and the costs, without special ruling as to the costs of this
instance. So ordered.

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA
ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

Leonardo Abola for petitioners.

Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the
Articles of Co-partnership was amended as to include herein respondent, Estrella Abad Santos, as industrial
partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P.
Navarro, the original capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The
amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry being an
industrial partner", and that the profits and losses "shall be divided and distributed among the partners ... in the
proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo
Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of
Manila, alleging that the partnership, which was also made a party-defendant, had been paying dividends to the
partners except to her; and that notwithstanding her demands the defendants had refused and continued to refuse
and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any
share in the dividends declared by the partnership. She therefore prayed that the defendants be ordered to render

32
accounting to her of the partnership business and to pay her corresponding share in the partnership profits after
such accounting, plus attorney's fees and costs.

The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership;
denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership books; and byway
of affirmative defense alleged that the amended Articles of Co-partnership did not express the true agreement of the
parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the
partnership; and that her share of 30% was to be based on the profits which might be realized by the partnership
only until full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance
Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.

The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is
an industrial partner as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be
realized by the partnership from June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation
shall be fully paid, as claimed by appellants (herein petitioners)." On that issue the Court of First Instance found for
the plaintiff and rendered judgement "declaring her an industrial partner of Evangelista & Co.; ordering the
defendants to render an accounting of the business operations of the (said) partnership ... from June 7, 1955; to pay
the plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this
suit."

The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo.

In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista
& Co., notwithstanding the admitted fact that since 1954 and until after promulgation of the decision
of the appellate court the said respondent was one of the judges of the City Court of Manila, and
despite its findings that respondent had been paid for services allegedly contributed by her to the
partnership. In this connection the Court of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made an industrial partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony quoted in the decision
proves that said respondent did not bind herself to contribute her industry, and she
could not, and in fact did not, because she was one of the judges of the City Court of
Manila since 1954.

(C) In finding that respondent did not in fact contribute her industry, despite the
appellate court's own finding that she has been paid for the services allegedly
rendered by her, as well as for the loans of money made by her to the partnership.

II. The lower court erred in not finding that in any event the respondent was lawfully excluded from,
and deprived of, her alleged share, interests and participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net income.

III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent
was declared an industrial partner of the petitioner, and petitioners were ordered to render an
accounting of the business operation of the partnership from June 7, 1955, and to pay the
respondent her alleged share in the net profits of the partnership plus the sum of P2,000.00 as
attorney's fees and the costs of the suit, instead of dismissing respondent's complaint, with costs,
against the respondent.

33
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of
Appeals. The evidence presented by the parties as the trial in support of their respective positions on the issue of
whether or not the respondent was an industrial partner was thoroughly analyzed by the Court of Appeals on its
decision, to the extent of reproducing verbatim therein the lengthy testimony of the witnesses.

It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been commited by the lower court. It should be observed, in this
regard, that the Court of Appeals did not hold that the Articles of Co-partnership, identified in the record as Exhibit
"A", was conclusive evidence that the respondent was an industrial partner of the said company, but considered it
together with other factors, consisting of both testimonial and documentary evidences, in arriving at the factual
conclusion expressed in the decision.

The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder
reproduced if only to demonstrate that the same were made after a through analysis of then evidence, and hence
are beyond this Court's power of review.

The aforequoted findings of the lower Court are assailed under Appellants' first assigned error,
wherein it is pointed out that "Appellee's documentary evidence does not conclusively prove that
appellee was in fact admitted by appellants as industrial partner of Evangelista & Co." and that "The
grounds relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding
that the appellee is an industrial partner of appellant Evangelista & Co., herein referred to as the
partnership — the lower court relied mainly on the appellee's documentary evidence, entirely
disregarding facts and circumstances established by appellants" evidence which contradict the said
finding' (Page 21, Appellants' Brief). The lower court could not have done otherwise but rely on the
exhibits just mentioned, first, because appellants have admitted their genuineness and due
execution, hence they were admitted without objection by the lower court when appellee rested her
case and, secondly the said exhibits indubitably show the appellee is an industrial partner of
appellant company. Appellants are virtually estopped from attempting to detract from the probative
force of the said exhibits because they all bear the imprint of their knowledge and consent, and there
is no credible showing that they ever protested against or opposed their contents prior of the filing of
their answer to appellee's complaint. As a matter of fact, all the appellant Evangelista, Jr., would
have us believe — as against the cumulative force of appellee's aforesaid documentary evidence —
is the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already mentioned,
does not express the true intent and agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit sharer entitled to 30% of the net profits
that may be realized between the partners from June 7, 1955, until the mortgage loan of P30,000.00
to be obtained from the RFC shall have been fully paid. This version, however, is discredited not
only by the aforesaid documentary evidence brought forward by the appellee, but also by the fact
that from June 7, 1955 up to the filing of their answer to the complaint on February 8, 1964 — or a
period of over eight (8) years — appellants did nothing to correct the alleged false agreement of the
parties contained in Exhibit "A". It is thus reasonable to suppose that, had appellee not filed the
present action, appellants would not have advanced this obvious afterthought that Exhibit "A" does
not express the true intent and agreement of the parties thereto.

At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding
fact which proves that the parties to the Amended Articles of Partnership, Exhibit "A", did not
contemplate to make the appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It
is an admitted fact that since before the execution of the amended articles of partnership, Exhibit
"A", the appellee Estrella Abad Santos has been, and up to the present time still is, one of the judges
of the City Court of Manila, devoting all her time to the performance of the duties of her public office.
This fact proves beyond peradventure that it was never contemplated between the parties, for she
could not lawfully contribute her full time and industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.

34
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and
then concluded as follows:

One cannot read appellee's testimony just quoted without gaining the very definite impression that,
even as she was and still is a Judge of the City Court of Manila, she has rendered services for
appellants without which they would not have had the wherewithal to operate the business for which
appellant company was organized. Article 1767 of the New Civil Code which provides that "By
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, 'does not
specify the kind of industry that a partner may thus contribute, hence the said services may
legitimately be considered as appellee's contribution to the common fund. Another article of the
same Code relied upon appellants reads:

'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits
which he may have obtained in violation of this provision, with a right to damages in
either case.'

It is not disputed that the provision against the industrial partner engaging in business for himself
seeks to prevent any conflict of interest between the industrial partner and the partnership, and to
insure faithful compliance by said partner with this prestation. There is no pretense, however, even
on the part of the appellee is engaged in any business antagonistic to that of appellant company,
since being a Judge of one of the branches of the City Court of Manila can hardly be characterized
as a business. That appellee has faithfully complied with her prestation with respect to appellants is
clearly shown by the fact that it was only after filing of the complaint in this case and the answer
thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in
their Supplemental Answer dated June 29, 1964 — or after around nine (9) years from June 7, 1955
— subsequent to the filing of defendants' answer to the complaint, defendants reached an
agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share,
interests or participation, as an alleged industrial partner, in the defendant partnership and/or in its
net profits or income, on the ground plaintiff has never contributed her industry to the partnership,
instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of
Manila, devoting her time to performance of her duties as such judge and enjoying the privilege and
emoluments appertaining to the said office, aside from teaching in law school in Manila, without the
express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always knows as
a appellee as a City judge even before she joined appellant company on June 7, 1955 as an
industrial partner, why did it take appellants many yearn before excluding her from said company as
aforequoted allegations? And how can they reconcile such exclusive with their main theory that
appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was
to grant the appellee a share of 30% of the net profits which the appellant partnership may realize
from June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance
Corporal shall have been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that appellee is an industrial
partner of appellant company, with the right to demand for a formal accounting and to receive her
share in the net profit that may result from such an accounting, which right appellants take exception
under their second assigned error. Our said holding is based on the following article of the New Civil
Code:

'ART. 1899. Any partner shall have the right to a formal account as to partnership
affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;

(2) If the right exists under the terms of any agreement;


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(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only
errors of law, accepting as conclusive the factual findings of the lower court upon its own assessment of the
evidence.

The judgment appealed from is affirmed, with costs.

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