PARTNERSHIP | 1ST BATCH OF CASES.

COMMISSIONER OF INTERNAL REVENUE VS.

WILLIAM J. SUTTER AND THE COURT OF TAX
APPEALS
G.R. No. L-25532, February 28, 1969, (REYES, J.B.L., J.)
A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.", was formed on 30 September 1947 by
William J. Suter, as the general partner, and Julia Spirig and
Gustav Carlson, as the limited partners. The partners
contributed, respectively, P20,000.00, P18,000.00 and
P2,000.00 to the partnership. The firm engaged, among other
activities, in the importation, marketing, distribution and
operation of automatic phonographs, radios, television sets
and amusement machines, their parts and accessories. In 1948,
however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner
Carlson sold his share in the partnership to Suter and his wife.
The sale was duly recorded with the Securities and
Exchange Commission on 20 December 1948. The limited
partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959 when the
latter, in an assessment, consolidated the income of the firm
and the individual incomes of the partners-spouses Suter and
Spirig, resulting in a determination of a deficiency income tax
against respondent Suter in the amount of P2,678.06 for 1954
and P4,567.00 for 1955. Suter protested the assessment.
Unable to secure a reconsideration, he appealed to the Court of
Tax Appeals, which reversed the CIRs ruling. Commissioner
of Internal Revenue filed a petition for review.
ISSUES: 1) Should the corporate personality of the William J.
Suter "Morcoin" Co., Ltd. In terms of income tax be
disregarded as it forms a single taxable unit due to the
marriage?
2) Was the partnership dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter,
and the subsequent sale to them by the remaining partner,
Gustav Carlson of his participation of P2,000.00 in the
partnership for a nominal amount ofP1.00.?
HELD:
1) NO
The petitioner-appellant has evidently failed to observe the
fact that William J. Suter "Morcoin" Co., Ltd. was not a
universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish Civil Code of 1889
(which was the law in force when the subject firm was
organized in 1947), a universal partnership requires either that
the object of the association be all the present property of the
partners, as contributed by them to the common fund, or else

"all that the partners may acquire by their industry or work

during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership,
since the contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00 by Julia
Spirig, and neither one of them was an industrial partner. It
follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article
1677 of the Civil Code of 1889.
2) NO
The appellant's view, that by the marriage of both partners the
company became a single proprietorship, is equally erroneous.
The capital contributions of partners William J. Suter and Julia
Spirig were separately owned and contributed by them before
their marriage; and after they were joined in wedlock, such
contributions remained their respective separate property
under the Spanish Civil Code (Article 1396): "The following
shall be the exclusive property of each spouse: (a) That which
is brought to the marriage as his or her own; - - - -- - - -.
Thus, the individual interest of each consort in William J.
Suter "Morcoin" Co., Ltd. did not become common property
of both after their marriage in 1948.
The rulings cited by the petitioner (Collector of Internal
Revenue vs. University of the Visayas, L-13554, Resolution of
30 October 1964, and Koppel (Phil.), Inc., vs. Yatco, 77 Phil.
504) as authority for disregarding the fiction of legal
personality of the corporations involved therein are not
applicable to the present case. In the cited cases, the
corporations were already subject to tax when the fiction of
their corporate personality was pierced; in the present case, to
do so would exempt, the limited partnership from income
taxation but would throw the tax burden upon the
partnersspouses in their individual capacities. The
corporations, in the cases cited, merely served as business
conduits or alter egos of the stockholders, a factor that
justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited
partnership is not a mere business conduit of the partnerspouses; it was organized for legitimate business purposes; it
conducted its own dealings with its customers prior to
appellee's marriage, and had been filing its own income tax
returns as such independent entity. The change in its
membership, brought about by the marriage of the partners
and their subsequent acquisition of all interest therein, is no
ground for withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income tax. As
far as the records show, the partners did not enter into
matrimony and thereafter buy the interests of the remaining
partner with the premeditated scheme or design to use the
partnership as a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its

income, to require that income to be included in the individual
tax return of respondent Suter is to overstretch the letter and
intent of the law. In fact, it would even conflict with what it
specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, taxwise, of a
general copartnership (compaia colectiva) and a limited
partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the
former, because it is in the case of compaias colectivas that
the members, and not the firm, are taxable in their individual
capacities for any dividend or share of the profit derived from
the duly registered general partnership (Section 26, N. I. R. C.;
Araas, Anno. & juris. on the N.I.R.C., As Amended, Vol. 1,
pages 88-89).
J. M. TUASON & CO., INC., REPRESENTED BY ITS
MANAGING PARTNER, GREGORIO ARANETA, INC.
v. QUIRINO BOLAOS
G.R. No. L-4935, May 28, 1954 (Reyes, J.)
An action to recover possession of registered land
situated in barrio Tatalon, Quezon City was brought by J.M.
Tuason & Co. Inc. The complaint was was amended 3 times
where the 1st was about the extent and description of the land
where it reduced the area from 13 to 6 hectares. The 2nd was
about the portion of the area which was embraced in another
certificate of title. And still later, after defendant's surveyor
and witness had testified that the area occupied and claimed
by defendant was about 13 hectares. Bolaos, in his answer,
sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession under claim of
ownership, adverse to the entire world by defendant and his
predecessors in interest" from "time in- memorial". He further
alleges that registration of the land was obtained by J.M.
Tuason thru fraud or error and without knowledge to him.
The lower court rendered judgment for J.M. Tuason,
declaring Bolaos to be without any right to the land in
question and ordering him to restore possession to J.M.
Tuason and to pay a monthly rent until he vacates the land,
and also to pay the costs.
ISSUE: Can Gregorio Araneta represent J.M. Tuason & Co.
Inc. as its managing partner?
HELD:
YES. There is nothing to the contention that the
present action is not brought by the real party in interest, that
is, by J. M. Tuason & Co., Inc. What the Rules of Court
require is that an action be brought in the name of, but not
necessarily by, the real party in interest. (Section 2, Rule 2.) In
fact the practice is for an attorney-at-law to bring the action,
that is to file the complaint, in the name of the plaintiff.

That practice appears to have been followed in this

case, since the complaint is signed by the law firm of Araneta
& Araneta, "counsel for plaintiff" and commences with the
statement "Comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the
plaintiff is "represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by another
person, natural or juridical, in a suit in court. The contention
that Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to
enter into a partnership is without merit, for the true rule is
that "though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with
another where, the nature of that venture is in line with the
business-authorized by its charter." There is nothing in the
record to indicate that the venture in which plaintiff is
represented; by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of
them.
EVANGELISTA & CO., DOMINGO C. EVANGELISTA,
JR., CONCHITA B. NAVARRO and LEONARDA
ATIENZA ABAD SABTOS vs. ESTRELLA ABAD
SANTOS
GR No. L-31684, (Makalintal, J.)
A co-partnership was formed under the name of
Evangelista & Co. on October 9, 1954. Its Articles of Copartnership was amended on June 7, 1955 so as to include
respondent Estrella Abad Santos as industrial partner, with
petitioners Domingo Evangelista, Jr., Leonarda Atienza Abad
Santos, and Conchita Navarro.
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 x x x in proportion of 70% for the first
three partners (herein petitioners) to be divided among them
equally; and 30% for the fourth partner, respondent Estrella
Abad Santos.
On December 17, 1963, respondent filed a suit against the
three partners (petitioners), alleging that the partnership had
been paying dividends to the partners except to her; and that
notwithstanding demands the defendants had refused to let her
examine the partnership books. She therefore prayed that the
defendants be ordered to render 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 the allegations; and by
way 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 promissory
note as co-maker and mortgaged her property as security. CFI
of Manila and CA ruled in favor of plaintiff.
ISSUE. WON respondent 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.
HELD.
Respondent is an industrial partner 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.
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
that he 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 article 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 herein plaintiff will be
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). The company is estopped from
denying Abad Santos as an industrial partner because it has
been 9 years and the company never corrected their agreement
in order to show their true intentions. The company never
bothered to correct those up until Abad Santos filed a
complaint.
Respondent should thus be entitled to see the partnership
books in accordance with Art. 1299 which states that:
(1) Any partner shall have the right to a formal account
as to partnership affairs:
if he is wrongfully excluded from the partnership
business or possession of its property by his copartners;
(2) If the right exists under the terms of any agreement;
(3) As provided under Article 1807;
(4) Whenever other circumstances render it just and
reasonable.
THE CITY OF MANILA, PLAINTIFF AND
APPELLANT, VS. FRANCISCO GAMBE ET AL.,
DEFENDANTS AND APPELLEES.
G.R. No. 3666, August 17, 1909, JOHNSON, J.
The Supreme Court rendered a judgement against
Francisco Gambe, for the sum of $1,300 (USD) for damages
occasioned by the steamship Alfred to the "Spanish Bridge" in
the city of Manila with Gambe being the pilot of the
steamship.
After the writ of execution returned unsatisfied twice,
the plaintiff City of Manila attempted to attach whatever
money or effects Gambe had in the said Pilots' Association of
Manila. The Association denied having in its possession any
money or effects that belonged to Gambe. Thereafter, the CFI
of Manila ordered Francisco Aguado (Chief Pilot of the
Assoc.), Francisco Gambe, Manuel Goitia (Treasurer), and W.
Morgan Shuster (Collector of Customs) to personally to
appear before the CFI to answer concerning the property
sought to be attached (amounting to P800) by the City of
Manila.
Owing to the fact that each member of the Pilots'
Association before becoming such, must deposit with the
association the sum of P800, to be retained by the association
for the purpose of satisfying damages which may be incurred
by others by reason of negligence or fault on the part of the
association in the transaction of its business, that persons thus

depositing the money could not withdraw it; that it is property

of the association and may not be withdrawn, even in case of
the death of a member. Hence the CFI decided that such
deposited property could not be the subject of attachment.
ISSUE. WON whether or not the interests of the defendant in
said association may be attached.
HELD.
NO, the amount cannot be attached for Gambe
cannot maintain an action against the said association for the
recovery of the specific debt, credit, or personal property. For
if Gambe could successfully maintain an action against the
said Pilots' Association for the recovery of a specific sum of
money or specific personal property, then, it is in the courts
opinion, his judgment creditors, or the plaintiff in this case,
might also by the procedure provided for under said section
431 maintain the present action (Attachment).
In this case, to be a member of the Pilots association,
a pilot must contribute a sum of money into the treasury of the
association. This fund becomes the property of the association
for the purpose of protecting its members against losses
occasioned by its members to ships while said ships are under
the control of a member or members of said association. The
fund created by the contributions of the members no longer
belongs to the members of the association; it belongs to the
association. The association has a distinct and separate entity
from the individual members who make it up. The fund is
created for a specific purpose.
Whether the damage caused by the defendant in this
case is of such a character for which the said association
assumed the responsibility is a question which the person
injured has a right to test in a special action against said
association.

agreed to help Estanislao, Jr. by allowing him to operate and

manage the gasoline service station of the family. They
negotiated with SHELL. For practical purposes and in order
not to run counter to the company's policy of appointing only
one dealer, it was agreed that petitioner would apply for the
dealership. Remedios helped in managing the business with
petitioner from May 3, 1966 up to February 16, 1967.
The parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P
15,000.00 advance rental shall be deposited with SHELL to
cover advances of fuel to Estanislao, Jr. as dealer with a
proviso that said agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-owners."
For sometime, Estanislao, Jr. submitted financial statements
regarding the operation of the business to Remedios and Emilo
and Leocadio Santiago, but thereafter Estanislao, Jr. failed to
render subsequent accounting.
Remedios, et al. filed a complaint in the CFI against
Estanislao,
Jr.
praying that the latter be ordered
to execute a public document embodying all the provisions of
the partnership agreement entered
into between plaintiffs and defendant as provided in Article 17
71 of the New Civil Code. The CFI ruled in favor of
Remedios, et al. The CA affirmed in toto.
ISSUE: Did a partnership exist between members of the same
family, Estanislao, Jr. and Remedios, et al. herein, arising
from their joint ownership of the said lots?

ELIGIO ESTANISLAO, JR. v. COURT OF APPEALS, et

al.
G.R. NO. L-49982, 27 APRIL 1988, FIRST DIVISION,
(GANCAYCO, J.)

RULING:
YES. In the Joint Affidavit, it is clearly stipulated by
the parties that the P 15,000.00 advance rental due to them
from SHELL shall augment their "capital investment" in the
operation of the gasoline station, which advance rentals shall
be credited as rentals. In the subsequent document entitled
"Additional Cash Pledge Agreement," Remedios, et al. and
Estanislao, Jr. assigned to SHELL the monthly rentals due
them until such time that the monthly rentals accumulated
equal P 15,000.00 which Remedios, et al. agree to be a cash
deposit of Estanislao, Jr. in favor of SHELL to increase his
credit limit as dealer. As above-stated, it provided "This
agreement, therefore, cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the
CO-OWNERS."

Estanislao, Jr., Remedios Estanislao and Emilio and Leocadio

Santiago are brothers and sisters who are co-owners of certain
lots 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 P 15,000.00 to be
taken from the advance rentals due to them from SHELL for
the occupancy of the said lots under a Joint Affidavit. They

Said cancelling provision was necessary for the Joint

Affidavit speaks of P 15,000.00 advance rentals starting May
25, 1966 while the latter agreement also refers to advance
rentals of the same amount starting May 24, 1966. There is,
therefore, a duplication of reference to the P 15,000.00 hence
the need to provide in the subsequent document that it
"cancels and supersedes" the previous one. True it is that in
the latter document, it is silent as to the statement in the Joint

From the evidence that was adduced before the lower

court the said association had no debts, credits, or personal
property, not capable of manual delivery, in its possession,
belonging to the defendant (Gambe), which may be subject to
attachment.

Affidavit that the P 15,000.00 represents the "capital

investment" of the parties in the gasoline station business and
it speaks of Estanislao, Jr. as the sole dealer, but this is as it
should be for in the latter document SHELL was a signatory
and it would be against its policy if in the agreement it
should be stated that the business is a partnership with
Remedios, et al. and not a sole proprietorship of Estanislao,
Jr.
Moreover other evidence in the record shows that there was in
fact such partnership agreement between the parties. This is
attested by the testimonies of Remedies Estanislao and
Atty. Angeles. Estanislao, Jr. submitted to Remedios, et al.
periodic accounting of the business. Petitioner gave a written
authority to Remedies, his sister, to examine and audit the
books of their "common business.' Remedios assisted in the
running of the business. There is no doubt that the parties
hereto formed a partnership when they bound themselves to
contribute money to a common fund with the intention of
dividing the profits among themselves. The sole dealership by
Estanislao, Jr. and the issuance of all government permits and
licenses in the name of Estanislao, Jr. was in compliance with
the afore-stated policy of SHELL and the understanding of the
parties of having only one dealer of the SHELL products.
FERNANDEZ V. DE LA ROSA
1 PHIL. 671
The plaintiff alleges that in January, 1900, he entered into a
verbal agreement with the defendant to form a partnership for
the purchase of cascoes and the carrying on of the business of
letting the same for hire in Manila, the defendant to buy the
cascoes and each partner to furnish for that purpose such
amount of money as he could, the profits to be divided
proportionately.
Dela Rosa admits that the project of forming a partnership in
the casco business in which he was already engaged to some
extent individually was discussed between himself and the
plaintiff in January, 1900, but he denies that any agreement
was ever consummated. He denies that the plaintiff furnished
any money in January, 1900, for the purchase of the first
casco, or for repairs on the same, but claims that he borrowed
300 pesos on his individual account in January from the
bakery firm, consisting of the plaintiff, Marcos Angulo, and
Antonio Angulo. The 825 pesos, which he admits he received
from the Fernandez March 5, he claims was for the purchase
of the first casco, which he alleged was bought March 12, and
he alleges that he never received anything from the defendant
toward the purchase of the 2nd casco. He claims to have paid,
exclusive of repairs, 1,200 pesos for the first casco and 2,000
pesos for the second one.
ISSUE:
(1) Did a partnership exist between the parties?

(2) If such partnership existed, was it terminated as a result of

the act of the defendant in receiving back the 1,125 pesos?
HELD:
YES.
"Partnership is a contract by which two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves." (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must
meet in a contract of partnership are, therefore, (1) mutual
contribution to a common stock, and (2) a joint interest in the
profits. If the contract contains these two elements the
partnership relation results, and the law itself fixes the
incidents of this relation if the parties fail to do so. (Civil
Code, secs. 1689, 1695.)
We have found as a fact that money was furnished by the
plaintiff and received by the defendant with the understanding
that it was to be used for the purchase of the cascoes in
question. This establishes the first element of the contract,
namely, mutual contribution to a common stock. The second
element, namely, the intention to share profits, appears to be
an unavoidable deduction from the fact of the purchase of the
cascoes in common, in the absence of any other explanation of
the object of the parties in making the purchase in that form,
and, it may be added, in view of the admitted fact that prior to
the purchase of the first casco the formation of a partnership
had been a subject of negotiation between them.
The execution of a written agreement was not necessary in
order to give efficacy to the verbal contract of partnership as a
civil contract, the contributions of the partners not having been
in the form of immovables or rights in immovables. (Civil
Code, art. 1667.) The special provision cited, requiring the
execution of a public writing in the single case mentioned and
dispensing with all formal requirements in other cases, renders
inapplicable to this species of contract the general provisions
of article 1280 of the Civil Code.
NO.
The amount returned fell short, in our view of the facts, of that
which the plaintiff had contributed to the capital of the
partnership, since it did not include the sum which he had
furnished for the repairs of casco No. 1515. Moreover, it is
quite possible, as claimed by the plaintiff, that a profit may
have been realized from the business during the period in
which the defendant have been administering it prior to the
return of the money, and if so he still retained that sum in his
hands. For these reasons the acceptance of the money by the
plaintiff did not have the effect of terminating the legal
existence of the partnership by converting it into a societas
leonina, as claimed by counsel for the defendant.

TAI TONG CHUACHE v. THE INSURANCE

COMMISSION AND TRAVELLERS MULTIINDEMNITY CORPORATION
LORENZO T. OA and HEIRS OF JULIA BUALES,
namely: RODOLFO B. OA, MARIANO B. OA, LUZ
B. OA, VIRGINIA B. OA and LORENZO B. OA,
JR.,
vs. THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342, May 25, 1972
Julia Buales died leaving as heirs her surviving spouse,
Lorenzo T. Oa and her five children. A civil case was
instituted in the CFI of Manila for the settlement of her estate.
Oa, the surviving spouse, was appointed administrator of the
estate of said deceased. He submitted the project of partition,
which was approved by the Court. Because three of the heirs,
namely, Luz, Virginia and Lorenzo, Jr, all surnamed Oa,
were still minors when the project of partition was approved,
Lorenzo Oa, their father and administrator of the estate filed
a petition with the CFI of Manila for the appointment as
guardian of said minors. The Court appointed him guardian of
the persons and property of the aforenamed minors. The heirs
have undivided interest in 10 parcels of land, 6 houses and
money from the War Damage Commission.
Although the project of partition was approved by the Court,
no attempt was made to divide the properties and the
properties remained under the management of Lorenzo Oa
who used said properties in business by leasing or selling them
and investing the income derived therefrom and proceeds from
the sales thereof in real properties and securities.
CIR 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
corporate income taxes for 1955 and 1956. 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, CIR denied it.

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. Oa, 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.
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 petitioners
formed an unregistered partnership.
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 copartnership.
GATCHALIAN v. CIR

The 15 Plaintiffs are all residents of Pulilan Bulacan.

They contributed to a common fund for the purpose of
purchasing a sweepstakes ticket. After raising the money
they bought the ticket and was registered in the name of
Jose Gatchalian and Company.

The ticket won the prize of 50,000. A check was drawn in

favor of Jose Gatchalian and Company which was
cashed later. Jose Gatchalian was the one who personally
collected the check as co-partner.

Gatchalian was required by CIR to file the corresponding

income tax return covering the prize won by Jose
Gatchalian and Company. Thereafter, CIR made an
assessment against Jose Gatchalian requesting the
payment of tax.

The plaintiffs sent CIR a reply requesting exemption from

the payment of income tax to which reply there were
enclosed 15 separate individual income tax returns files
separately by each of the plaintiff. They argued that they

ISSUE: WON petitioners formed an unregistered partnership.

RULING:
YES, petitioners formed an unregistered partnership.
Supreme Court held that 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. Oa 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.

are not liable for tax as they are not considered as

partnership, only a community property.

A warrant of distraint and levy was later on issued by CIR

to collect from plaintiff. The plaintiff paid in protest to
avoid embarrassment.
Thereafter, plaintiffs demanded for the refund of the
amount they paid under protest contending that they are
not liable to pay the tax as partnership but only to their
individual capacity that will then make them exempted as
provided by the Tax Code.

ISSUE: Whether the plaintiffs formed a partnership or merely

a community property without personality of its own?
RULING:
YES. Plaintiffs formed a partnership.

divided equally the income of operation and maintenance. The

gross income from rentals of the building amounted to about
P90,000.00 annually.
From the above facts, the respondent Court of Tax Appeals
applying the appropriate provisions of the National
Internal Revenue Code, the first of which imposes an
income tax on corporations "organized in, or existing
under the laws of the Philippines, no matter how created
or organized but not including duly registered general copartnerships (companias colectivas), ...,"6 a term, which
according to the second provision cited, includes partnerships
"no matter how created or organized, ...," 7 and applying the
leading case of Evangelista v. Collector of Internal
Revenue,8 sustained the action of respondent Commissioner of
Internal Revenue, but reduced the tax liability of petitioners,
as previously noted.

Plaintiffs organized a partnership of a civil nature because

each of them put up money to buy a sweepstakes ticker for the
sole purpose of dividing equally the price which they may
win, as they did in fact in the amount of 50,000.

Petitioners maintain the view that the Evangelista ruling does

not
apply;
for
them,
the
situation
is
dissimilar.1wph1.tConsequently they allege that the
reliance by respondent Court of Tax Appeals was unwarranted
and the decision should be set aside.

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 PCSO in his
capacity as co-partner. He collected the prize and received the
check. All these circumstances repel the idea that the plaintiffs
organized and formed a community of property only.

ISSUE: 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.

Having organized a partnership of civil nature, said entity is

the one bound to pay the income tax.
FLORENCIO REYES and ANGEL REYES, vs.
COMMISSIONER OF INTERNAL REVENUE and HON.
COURT OF TAX APPEALS
On October 31, 1950, petitioners, father and son, purchased a
lot and building, known as the Gibbs Building, situated at 671
Dasmarias Street, Manila, for P835,000.00, of which they
paid the sum of P375,000.00, leaving a balance of
P460,000.00, representing the mortgage obligation of the
vendors with the China Banking Corporation, which mortgage
obligations were assumed by the vendees. The initial payment
of P375,000.00 was shared equally by petitioners. At the time
of the purchase, the building was leased to various tenants,
whose rights under the lease contracts with the original
owners, the purchasers, petitioners herein, agreed to respect.
The administration of the building was entrusted to an
administrator who collected the rents; kept its books and
records and rendered statements of accounts to the owners;
negotiated leases; made necessary repairs and disbursed
payments, whenever necessary, after approval by the owners;
and performed such other functions necessary for the
conservation and preservation of the building. Petitioners

RULING:
YES.
After referring to another section of the National Internal
Revenue Code, which explicitly provides that the term
corporation "includes partnerships" and then to Article 1767 of
the Civil Code of the Philippines, defining what a contract of
partnership is, the opinion goes on to state that "the essential
elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly
present in the case 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
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.
In support of the above conclusion, reference was made to the
following circumstances, namely, the common fund being
created purposely not something already found in existence,
the investment of the same not merely in one transaction but in
a series of transactions; the lots thus acquired not being
devoted to residential purposes or to other personal uses of

petitioners in that case; such properties having been under the

management of one person with full power to lease, to collect
rents, to issue receipts, to bring suits, to sign letters and
contracts and to endorse notes and checks; the above
conditions having existed for more than 10 years since the
acquisition of the above properties; and no testimony having
been introduced as to the purpose "in creating the set up
already adverted to, or on the causes for its continued
existence."11 The conclusion that emerged had all the imprint
of inevitability. Thus: "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."12
It may be said that there could be a differentiation made
between the circumstances above detailed and those existing
in the present case. It does not suffice though to preclude the
applicability of the Evangelista decision. Petitioners could
harp on these being only one transaction. They could stress
that an affidavit of one of them found in the Bureau of Internal
Revenue records would indicate that their intention was to
house in the building acquired by them the respective
enterprises, coupled with a plan of effecting a division in 10
years. It is a little surprising then that while the purchase was
made on October 31, 1950 and their brief as petitioners filed
on October 20, 1965, almost 15 years later, there was no
allegation that such division as between them was in fact
made. Moreover, the facts as found and as submitted in the
brief made clear that the building in question continued to be
leased by other parties with petitioners dividing "equally the
income ... after deducting the expenses of operation and
maintenance. Differences of such slight significance do not
call for a different ruling.
The first alleged error committed by respondent Court of Tax
Appeals in holding that petitioners, in acquiring the Gibbs
Building, established a partnership subject to income tax as a
corporation under the National Internal Revenue Code is
likewise untenable. In their discussion in their brief of this
alleged error, stress is laid on their being co-owners and not
partners.
This is the way it was disposed of in the opinion of the present
Chief Justice: "This pretense was correctly rejected by the
Court of Tax Appeals."14 Then came the explanation why: "To
begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and
different from "partnerships". When our Internal Revenue
Code includes "partnerships" among the entities subject to the
tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of
said Code exempts from the aforementioned tax "duly
registered general partnerships", which constitute precisely

one of the most typical forms of partnerships in this

jurisdiction. Likewise, as defined in section 84(b) of said
Code, "the term corporation includes partnerships, no matter
how created or organized." This qualifying expression clearly
indicates that a joint venture need not be undertaken in any of
the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on
corporations. 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 copartnerships" 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"."15 The opinion went on to summarize the
matter aptly: "For purposes of the tax on corporations,our
National
Internal
Revenue
Code,
include
these
partnerships with the exception only of duly registered
general co-partnerships 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."16
In the light of the above, it cannot be said that the respondent
Court of Tax Appeals decided the matter incorrectly. There is
no warrant for the assertion that it failed to apply the settled
law to uncontroverted facts.
WHEREFORE, the decision of the respondent Court of Tax
Appeals ordering petitioners "to pay the sums of P37,128.00
as income tax due from the partnership formed by herein
petitioners for the years 1951 to 1954 and P20,619.00 for the
years 1955 and 1956 within thirty days from the date this
decision becomes final, plus the corresponding surcharge and
interest in case of delinquency," is affirmed. With costs
against petitioners.
.
IN THE MATTER OF THE TESTATE ESTATE OF THE
DECEASED EDWARD E. CHRISTENSEN, ADOLFO
CRUZ AZNAR,MARIA LUCY CHRISTENSEN DANEY
AND ADOLFO CRUZ AZNAR, V. MARIA HELEN
CHRISTENSEN
GARCIA
AND
BERNARDA
CAMPORE-DONDO
Bernarda Camporedondo and Edward E. Christensen, an
American citizen, who was also unmarried started living
together as husband and wife for over 30 years until the death
of Christensen. Out of said relations, 2 children, Lucy and
Helen Christensen, were allegedly born.

Upon the demise of the American, who had left a considerable

amount of properties, his will naming Adolfo Cruz Aznar as
executor was duly presented for probate. Oppositions to the
probate of this will were separately filed by Maria Helen
Christensen Garcia and Bernarda Camporedondo. Helen
contended that the dispositions made therein were illegal
because although she and Lucy Christensen were both
children had by the deceased with Bernarda Camporedondo,
yet she was given only a meager sum of P3,600 out of an
estate valued at $485,000 while Lucy would get the rest of the
properties.

when she commenced relationship with the deceased. And

considering that aside from her own declaration, which the
Court found to be highly improbable, there appears no
evidence to prove her alleged contribution or participation in
the acquisition of the properties involved therein, and that in
view of the holding of the Court that for a claim to one-half of
such property to be allowed it must be proved that same was
acquired through their joint efforts and labor.

Bernarda Camporedondo, on the other hand, who received

P1,000, claimed ownership over one-half of the entire estate
in virtue of her relationship with the deceased, it being alleged
that she and the testator having lived together as husband and
wife continuously for a period of over 30 years, the properties
acquired during such cohabitation should be governed by the
rules on co-ownership. This opposition was dismissed by the
probate court on the ground that she had no right to intervene
in said proceeding, for as such common-law wife she had no
successional right that might be affected by the probate of the
will, and likewise, she could not be allowed to establish her
title and co-ownership over the properties therein for such
questions must be ventilated in a court of general jurisdiction.

JOSE FORTIS, PLAINTIFF AND APPELLEE, VS.

GUTIERREZ HERMANOS, DEFENDANTS AND
APPELLANTS.
G.R. No. 2484, April 11, 1906

ISSUE. Whether Bernarda Camporedondo, a common-law

wife, may be considered as a co-owner of the properties
acquired by the deceased and thus entitled to one-half thereof
after the latter's death?
HELD.
NO.
In case of Marata v. Dionio, the court declared that where a
man and a woman, not suffering from any impediment to
contract marriage, live together as husband and wife, an
informal civil partnership exists and made the pronouncement
that each of them has an interest in the properties acquired
during said union and is entitled to participate therein if said
properties were the product of their JOINT efforts. In another
case, the Court similarly held that although there is no
technical marital partnership between persons living maritally
without being lawfully married, nevertheless there is between
them an informal civil partnership, and the parties would be
entitled to an equal interest where the property is acquired
through their JOINT efforts.
Appellee, claiming that the properties in controversy were the
product of their joint industry apparently in her desire to tread
on the doctrine laid down in the aforementioned cases, would
lead The Court to believe that her help was solicited or she
took a hand in the management and/or acquisition of the same.
But such assertion appears incredible if The Court considered
that she was observed by the trial Court as an illiterate woman

Hence, The Court

Camporedondo.

denied

the

claim

of

Bernarda

FACTS: Plaintiff, an employee of defendants during the years

1900, 1901; and 1902, brought this action to recover a balance
due him as salary for the year 1902. He alleged that he was
entitled, as salary, to 5 per cent of the net profits of the
business of the defendants for said year.
The court below, in its judgment, found that the
contract entered into by the plaintiff and the defendants
provide that the plaintiff shall receive as compensation 5 per
cent of the net profits of the business. The contract was made
on the part of the defendants by Miguel Alonzo Gutierrez, one
of the managers of the company by the provisions of the
articles of partnership. It was further found that 5 per cent of
the net profits of the business for the year 1902 amounted to
26,378.68 pesos, Mexican currency and that the plaintiff had
received on account of such salary 12,811.75 pesos, Mexican
currency, thereby having a deficiency of 13,566.93 pesos,
Mexican currency. The court also ordered judgment against
the defendants for the 600 pesos, and interest thereon for the
amount the plaintiff expended to the defendants during the
year 1903.
The total judgment rendered against the
defendants in favor of the plaintiff, reduced to Philippine
currency, amounted to P3,025.40. The defendants moved for
a new trial, which was denied.
ISSUE: 1. WON the contract entered into by Miguel
Alonzo Gutierrez and the plaintiff binds the partnership.
2. WHETHER the contract entered into by the plaintiff
made him copartner because of the fact that he receives 5
per cent of the net profits of the business OR a mere
employee.
RULING: 1. YES. The evidence is sufficient to support the
finding of the court below to the effect that the plaintiff
worked for the defendants during the year 1902 under a
contract by which he was to receive as compensation 5 per
cent of the net profits of the business. The contract was made
on the part of the defendants by Miguel Alonzo Gutierrez. By

the provisions of the articles of partnership he was made one

of the managers of the company, with full power to transact all
of the business thereof. As such manager he had authority to
make a contract of employment with the plaintiff.
2. This contention can not be sustained. It was a mere
contract of employment. The plaintiff had no voice nor vote
in the management of the affairs of the company. The fact
that the compensation received by him was to be
determined with reference to the profits made by the
defendants in their business did not in any sense make him
a partner therein. The articles of partnership between the
defendants provided that the profits should be divided among
the partners named in a certain proportion. The contract made
between the plaintiff and the then manager of the defendant
partnership did not in any way vary or modify this provision
of the articles of partnership. The profits of the business could
not be determined until all of the expenses had been paid. A
part of the expenses to be paid for the year 1902 was the salary
of the plaintiff. That salary had to be deducted before the net
profits of the business, which were to be divided among the
partners, could be ascertained. It was undoubtedly necessary
in order to determine what the salary of the plaintiff was, to
determine what the profits of the business were, after paying
all of the expenses except his, but that determination was not
the final determination of the net profits of the business. It was
made for the purpose of fixing the basis upon which his
compensation should be determined.