Pascual v.

CIR

Petitioners bought two (2) parcels of land and a year after, they bought another three (3)
parcels of land. Petitioners subsequently sold the said lots in 1968 and 1970, and
realized net profits. 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, the
Acting BIR Commissioner assessed and required Petitioners 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 asserting that they had availed of tax
amnesties way back in 1974. In a reply, 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 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.
ISSUE:
Whether the Petitioners should be treated as an unregistered partnership or a coownership for the purposes of income tax.
RULING:
The Petitioners are simply under the regime of co-ownership and not under
unregistered partnership.
By the contract of, with the intention of dividing the profits among themselves (Art. 1767,
Civil Code of the Philippines). 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. 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. Hence,
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.

Estanislao v CA
FACTS:
Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., Quezon City which were then
being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to
open and operate a gas station thereat to be known as Estanislao Shell Service Station
with an initial investment of P15,000.00 to be taken from the advance rentals due to
them from SHELL for the occupancy of the said lots owned in common by them.
On May 26, 1966, the parties herein entered into an Additional Agreement with a
proviso that said agreement cancels and supersedes the original
agreement executed by the co-owners.
For sometime, the petitioner submitted financial statements regarding the operation of
the business to private respondents, but thereafter petitioner failed to render
subsequent accounting.

A demand was made on petitioner:

to render an accounting of the profits;
to execute a public document embodying all the provisions of the partnership
agreement;
to pay the plaintiffs their lawful shares and participation in the net profits of the
business.
ISSUE:
IS A PARTNERSHIP a FORMED WHERE MEMBERS OF THE SAME FAMILY BIND
THEMSELVES TO CONTRIBUTE MONEY TO A COMMON FUND WITH THE
INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES?
HELD:
YES. The Joint Affidavit of April 11, 1966 (Exhibit A), clearly stipulated by the members
of the same family that the P15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station.

other evidence in the record:

Petitioner submitted to private respondents periodic accounting of the business.
Petitioner gave a written authority to private respondent Remedios Estanislao, his
sister, to examine and audit the books of their "common business" (aming negosyo).
Respondent Remedios assisted in the running of the business.
Fue Leung v IAC

1.) DAN FUE LEUNG,

petitioner, vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU,
respondents.
G.R. No. 70926 January 31, 1989GUTIERREZ,
JR., J.:
FACTS:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate
Court in AC-G.R. No. CV-00881 whichaffirmed the decision of the then Court of First
Instance of Manila, Branch II in Civil Case No. 116725 declaring privaterespondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria
and ordering thepetitioner to pay to the private respondent his share in the annual
profits of the said restaurant.This case originated from a complaint filed by respondent
Leung Yiu with the then Court of First Instance of Manila, BranchII to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from the operation
of Sun WahPanciteria since October, 1955 from petitioner Dan Fue Leung.The Sun
Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was
established sometime inOctober, 1955. It was registered as a single proprietorship and
its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the
sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case
toshow that Sun Wah Panciteria was actually a partnership and that he was one of the
partners having contributed P4,000.00to its initial establishment.The private
respondents evidence is summarized as follows:About the time the Sun Wah Panciteria
started to become operational, the private respondent gave P4,000.00 as
hiscontribution to the partnership. This is evidenced by a receipt wherein the petitioner
acknowledged his acceptance of theP4,000.00 by affixing his signature thereto.
Furthermore, the private respondent received from the petitioner the amount of
P12,000.00 covered by the latter's Equitable Banking Corporation Check from the

profits of the operation of the restaurantfor the year 1974The petitioner denied having
received from the private respondent the amount of P4,000.00. He contested and
impugnedthe genuineness of the receipt. His evidence is summarized as follows:The
petitioner did not receive any contribution at the time he started the Sun Wah Panciteria.
He used his savings from hissalaries as an employee at Camp Stotsenberg in Clark
Field and later as waiter at the Toho Restaurant amounting to a littlemore than
P2,000.00 as capital in establishing Sun Wah Panciteria. Petitioner presented various
government licenses andpermits showing the Sun Wah Panciteria was and still is a
single proprietorship solely owned and operated by himself alone.Fue Leung also flatly
denied having issued to the private respondent the receipt (Exhibit G) and the Equitable
BankingCorporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).
ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah Panciteria?
HELD: The private respondent is a partner of the petitioner in Sun Wah Panciteria. The
requisites of a partnership which are1)two or more persons bind themselves to
contribute money, property, or industry to a common fund; and 2) intention on thepart of
the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v.
Yang Chiao Cheng, 106 Phil.110)-have been established. As stated by the respondent,
a partner shares not only in profits but also in the losses of thefirm. If excellent relations
exist among the partners at the start of business and all the partners are more
interested in seeingthe firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible. It would beincorrect to state that if a partner
does not assert his rights anytime within ten years from the start of operations, such
rightsare irretrievably lost. The private respondent's cause of action is premised upon
the failure of the petitioner to give him theagreed profits in the operation of Sun Wah
Panciteria. In effect the private respondent was asking for an accounting of hisinterests
in the partnership

Tan Eng Kee v CA

FACTS: Benguet Lumber has been around even before World War II but during the war, its
stocks were confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan
Eng Kee pooled their resources in order to revive the business. In 1981, Tan Eng Lay
caused the conversion of Benguet Lumber into a corporation called Benguet Lumber and
Hardware Company, with him and his family as the incorporators. In 1983, Tan Eng Kee
died. Thereafter, the heirs of Tan Eng Kee demanded for an accounting and the liquidation
of the partnership.
Tan Eng Lay denied that there was a partnership between him and his brother. He said that
Tan Eng Kee was merely an employee of Benguet Lumber. He showed evidence consisting

of Tan Eng Kees payroll; his SSS as an employee and Benguet Lumber being the
employee. As a result of the presentation of said evidence, the heirs of Tan Eng Kee filed a
criminal case against Tan Eng Lay for allegedly fabricating those evidence. Said criminal
case was however dismissed for lack of evidence.
ISSUE: Whether or not Tan Eng Kee is a partner.
HELD: No. There was no certificate of partnership between the brothers. The heirs were not
able to show what was the agreement between the brothers as to the sharing of profits. All
they presented were circumstantial evidence which in no way proved partnership.
It is obvious that there was no partnership whatsoever. Except for a firm name, there was
no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the duration of the partnership.
There was even no attempt to submit an accounting corresponding to the period after the
war until Kees death in 1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a partnership.
In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole
proprietorship. He registered the same as such in 1954; that Kee was just an employee
based on the latters payroll and SSS coverage, and other records indicating Tan Eng Lay
as the proprietor.
Also, the business definitely amounted to more P3,000.00 hence if there was a partnership,
it should have been made in a public instrument.
But the business was started after the war (1945) prior to the publication of the New Civil
Code in 1950?
Even so, nothing prevented the parties from complying with this requirement.
Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the partners share in the profits and
losses. Each has the right to demand an accounting as long as the partnership exists. Even
if it can be speculated that a scenario wherein if excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the
firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly
plausible. But in the situation in the case at bar, the deferment, if any, had gone on too long
to be plausible. A person is presumed to take ordinary care of his concerns. A demand for
periodic accounting is evidence of a partnership which Kee never did.

The Supreme Court also noted:

In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits
were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

SARDANE VS. COURT OF APPEALS

FACTS: Petitioner Sardane is the owner of a Sardane Trucking Services. One day Sardane
borrowed money from the other guy by making promises and issuing several promissory notes.
On the due date the other guy wanted his money back but instead of paying Sardane apologized
for his failure to pay on time, and he promised the other guy that he would pay him next time.
After so many failed attempts to collect his money the other guy got mad and finally decided to
seek the intervention of the court. Now after so many failed attempts to collect the promised
payment, the other guy, Mr.Acojedo (Private Respondent), with so much hate on his heart,

finally filed a collection case against Sardane. Even during the scheduled date of the trial,
Sardane, as usual he did not show up. On motion by the petitioner(herein private respondent),
the Court issued an order declaring the Sardane in default and eventually after presentation of
evidence ex parte, the court rendered judgment by default in favor of the petitioner. Sardane
then appealed to the CFI, and he claimed that the promissory notes were his contribution to the
partnership; and that there is no contract of loan; thus he is not indebted to the other guy. The
CFI, believing the arguments of Sardane, ruled on his favor thereby reversing the decision of the
lower court by dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said
defendant-appellant P500.00 for moral damages
ISSUE:
whether or not a partnership existed?
HELD:
NONE .The fact that he had received 50% of the net profits does not conclusively establish that
he was a partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit
that while the receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, no such inference shall be drawn if such profits were received
in payment as wages of an employee. Furthermore, herein petitioner had no voice in the
management of the affairs of the basnig. Under similar facts, this Court in the early
case of Fortis vs. Gutierrez Hermanos, denied the claim of the plaintiff therein that he was a
partner in the business of the defendant. The same rule was reiterated in Bastida vs. Menzi &
Co., Inc., et al. which involved the same factual and legal milieu.
Santos v Reyes

FACTS: In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat
(15%) orally instituted a partnership with them as partners. Their venture is to set up a
lending business where it was agreed that Santos shall be financier and that Nieves and
Zabat shall contribute their industry. **The percentages after their names denote their share
in the profit.
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a
corporation. It was agreed that the partnership shall provide loans to the employees of
Grageras corporation and Gragera shall earn commission from loan payments.
In August 1986, the three partners put into writing their verbal agreement to form the
partnership. As earlier agreed, Santos shall finance and Nieves shall do the daily cash flow
more particularly from their dealings with Gragera, Zabat on the other hand shall be a loan

investigator. But then later, Nieves and Santos found out that Zabat was engaged in another
lending business which competes with their partnership hence Zabat was expelled.
The two continued with the partnership and they took with them Nieves husband, Arsenio,
who became their loan investigator.
Later, Santos accused the spouses of not remitting Grageras commissions to the latter. He
sued them for collection of sum of money. The spouses countered that Santos merely filed
the complaint because he did not want the spouses to get their shares in the profits. Santos
argued that the spouses, insofar as the dealing with Gragera is concerned, are merely his
employees. Santos alleged that there is a distinct partnership between him and Gragera
which is separate from the partnership formed between him, Zabat and Nieves.
The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to
pay the shares of the spouses.

ISSUE: Whether or not the spouses are partners.

HELD: Yes. Though it is true that the original partnership between Zabat, Santos and
Nieves was terminated when Zabat was expelled, the said partnership was however
considered continued when Nieves and Santos continued engaging as usual in the lending
business even getting Nieves husband, who resigned from the Asian Development Bank, to
be their loan investigator who, in effect, substituted Zabat.
There is no separate partnership between Santos and Gragera. The latter being merely a
commission agent of the partnership. This is even though the partnership was formalized
shortly after Gragera met with Santos (Note that Nieves was even the one who introduced
Gragera to Santos exactly for the purpose of setting up a lending agreement between the
corporation and the partnership).
HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their
shares in the profit is premature. The accounting made by the trial court is based on the
total income of the partnership. Such total income calculated by the trial court did not
consider the expenses sustained by the partnership. All expenses incurred by the moneylending enterprise of the parties must first be deducted from the total income in order to

arrive at the net profit of the partnership. The share of each one of them should be based
on this net profit and not from the gross income or total income.

Tocao v CA

FACTS: William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three
agreed to form a joint venture for the sale of cooking wares. Belo was to contribute P2.5
million; Tocao also contributed some cash and she shall also act as president and general
manager; and Anay shall be in charge of marketing. Belo and Tocao specifically asked Anay
because of her experience and connections as a marketer. They agreed further that Anay
shall receive the following:
1.

10% share of annual net profits

2.

6% overriding commission for weekly sales

3.

30% of sales Anay will make herself

4.

2% share for her demo services

They operated under the name Geminesse Enterprise, this name was however registered
as a sole proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture
agreement was not reduced to writing because Anay trusted Belos assurances.
The venture succeeded under Anays marketing prowess.
But then the relationship between Anay and Tocao soured. One day, Tocao advised one of
the branch managers that Anay was no longer a part of the company. Anay then demanded
that the company be audited and her shares be given to her.
ISSUE: Whether or not there is a partnership.
HELD: Yes, even though it was not reduced to writing, for a partnership can be instituted in
any form. The fact that it was registered as a sole proprietorship is of no moment for such
registration was only for the companys trade name.
Anay was not even an employee because when they ventured into the agreement, they
explicitly agreed to profit sharing this is even though Anay was receiving commissions
because this is only incidental to her efforts as a head marketer.

The Supreme Court also noted that a partner who is excluded wrongfully from a partnership
is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits realized from the appropriation
of the partnership business and goodwill. An innocent partner thus possesses pecuniary
interest in every existing contract that was incomplete and in the trade name of the copartnership and assets at the time he was wrongfully expelled.
An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personaeallows the
partners to have the power, although not necessarily the right to dissolve the partnership.
Tocaos unilateral exclusion of Anay from the partnership is shown by her memo to the
Cubao office plainly stating that Anay was, as of October 9, 1987, no longer the vicepresident for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her
own withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up of the business.

Torres v CA

In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement
with Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in
favor Manuel over a parcel of land, the sisters received no cash payment from Manuel but
the promise of profits (60% for the sisters and 40% for Manuel) said parcel of land is to be
developed as a subdivision.
Manuel then had the title of the land transferred in his name and he subsequently
mortgaged the property. He used the proceeds from the mortgage to start building roads,
curbs and gutters. Manuel also contracted an engineering firm for the building of housing
units. But due to adverse claims in the land, prospective buyers were scared off and the
subdivision project eventually failed.
The sisters then filed a civil case against Manuel for damages equivalent to 60% of the
value of the property, which according to the sisters, is whats due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where they argued that there is no
partnership between them and Manuel because the joint venture agreement is void.

ISSUE: Whether or not there exists a partnership.

HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a
partnership agreement whereby they agreed to contribute property (their land) which was to
be developed as a subdivision. While on the other hand, though Manuel did not contribute
capital, he is an industrial partner for his contribution for general expenses and other costs.
Furthermore, the income from the said project would be divided according to the stipulated
percentage (60-40). Clearly, the contract manifested the intention of the parties to form a
partnership. Further still, the sisters cannot invoke their right to the 60% value of the
property and at the same time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be
blamed to Manuel (the sisters on their appeal did not show evidence as to Manuels fault in
the failure of the partnership). The sisters must then bear their loss (which is 60%). Manuel
does not bear the loss of the other 40% because as an industrial partner he is exempt from
losses.

Lim Tong Lim v. PFGI

FACTS: It was established that Lim Tong Lim requested Peter Yao to engage in commercial
fishing with him and one Antonio Chua. The three agreed to purchase two fishing boats but
since they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong
Lim). They again borrowed money and they agreed to purchase fishing nets and other
fishing equipments. Now, Yao and Chua represented themselves as acting in behalf of
Ocean Quest Fishing Corporation (OQFC) they contracted with Philippine Fishing Gear
Industries (PFGI) for the purchase of fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some
time to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable
because he was not aware that Chua and Yao represented themselves as a corporation;
that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth

P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement,
they subsequently revealed their intention to pay the loan with the proceeds of the sale of
the boats, and to divide equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under the term common
fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be
imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets
found in his boats, the boat which has earlier been proven to be an asset of the partnership.
Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held
liable as general partners.