G.R. No.

L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

ISSUE: Whether or not the partnership was 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

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was

formed on 30 September 1947 by herein respondent 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. On 1 October 1947, the limited partnership was
registered with the Securities and Exchange Commission. 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. It had an office and held itself out
as a limited partnership, handling and carrying merchandise, using invoices,
bills and letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the Central Bank.

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.

Respondent Suter protested the assessment, and requested its cancellation

and withdrawal, as not in accordance with law, but his request was denied.
Unable to secure a reconsideration, he appealed to the Court of Tax Appeals,
which court, after trial, rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin"
Co., Ltd. should be disregarded for income tax purposes, considering that
respondent William J. Suter and his wife, Julia Spirig Suter actually formed
a single taxable unit; and

(b) Whether or not the partnership was 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 of P1.00.

CIR: The theory of the petitioner, Commissioner of Internal Revenue, is that

the marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical
personality of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the business;
consequently the income tax return of respondent Suter for the years in
question should have included his and his wife's individual incomes and that
of the limited partnership, in accordance with Section 45 (d) of the National
Internal Revenue Code, which provides as follows:

(d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable
year shall be filed by either spouse to cover the income of both
spouses; ....

SUTER: In refutation of the foregoing, respondent Suter maintains, as the

Court of Tax Appeals held, that his marriage with limited partner Spirig and
their acquisition of Carlson's interests in the partnership in 1948 is not
a ground for dissolution of the partnership, either in the Code of Commerce
or in the New Civil Code, and that since its juridical personality had not
been affected and since, as a limited partnership, as contra distinguished
from a duly registered general partnership, it is taxable on its income
similarly with corporations, Suter was not bound to include in his individual
return the income of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd.,
has been dissolved by operation of law because of the marriage of the only
general partner, William J. Suter to the originally limited partner, Julia
Spirig one year after the partnership was organized is rested by the appellant
upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence
on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads
as follows:

A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express
provision in the Code of Commerce, persons prohibited from making
donations to each other are prohibited from entering into universal
partnerships. (2 Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership.
(1 Guy de Montella 58)

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 universalpartnership requires either that the object of the
association be all the present propertyof the partners, as contributed by
them to the common fund, or else "allthat the partners may acquire by their
industry or workduring 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.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his
Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with
regard to the prohibition contained in the aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de

sociedad universal, pero o podran constituir sociedad particular? Aunque
el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de
los contratos de sociedad particular entre esposos, ya que ningun
precepto de nuestro Codigo los prohibe, y hay que estar a la norma general
segun la que toda persona es capaz para contratar mientras no sea
 declarado incapaz por la ley. La jurisprudencia de la Direccion de los
Registros fue favorable a esta misma tesis en su resolution de 3 de febrero
de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943.

Nor could the subsequent marriage of the partners operate to dissolve it,
such marriage not being one of the causes provided for that purpose either
by the Spanish Civil Code or the Code of Commerce.

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 beforetheir 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.

It being a basic tenet of the Spanish and Philippine law that the partnership
has a juridical personality of its own, distinct and separate from that of
its partners (unlike American and English law that does not recognize such
separate juridical personality), the bypassing of the existence of the
limited partnership as a taxpayer can only be done by ignoring or disregarding
clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its
income with that of the component members. True, section 24 of the Internal
Revenue Code merges registered general co-partnerships (compaias
colectivas) with the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a cardinal tenet
of our partnership laws, and can not be extended by mere implication to
limited partnerships.

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 exemptthe limited partnership
from income taxation but would throw the tax burden upon the partners-spouses
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 partner-spouses; 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, tax wise, 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, pp. 88-89).lawphi1.nt

But it is argued that the income of the limited partnership is actually or

constructively the income of the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As pointed out in Agapito
vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila,
60 Phil. 167, the fruits of the wife's parapherna become conjugal only when
no longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the legal
personality of the limited partnership, which is not essential to the income
taxability of the partnership since the law taxes the income of even joint
accounts that have no personality of their own. 1Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a
taxable unit, which it is not. What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though the amount of income
(income of the conjugal partnership vis-a-visthe joint income of husband and
wife) may be the same for a given taxable year, their consequences would be
different, as their contributions in the business partnership are not the
same.

The difference in tax rates between the income of the limited partnership
being consolidated with, and when split from the income of the spouses, is
not a justification for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it by requiring the
limited partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME SYCIP, SALAZAR,
FELICIANO, HERNANDEZ & CASTILLO.
July 30, 1979

Facts:
Petitions were filed by the surviving partners of Atty. Alexander Sycip, who
died on May 5, 1975 and by the surviving partners of Atty. Herminio Ozaeta,
who died on February 14, 1976, praying that they be allowed to continue using,
in the names of their firms, the names of partners who had passed away.

Petitioners contend that the continued use of the name of a deceased or former
partner when permissible by local custom, is not unethical but care should
be taken that no imposition or deception is practiced through this use. They
also contend that no local custom prohibits the continued use of a deceased
partners name in a professional firms name; there is no custom or usage
in the Philippines, or at least in the Greater Manila Area, which recognizes
that the name of a law firm necessarily identifies the individual members
of the firm.

Issue:
WON the surviving partners may be allowed by the court to retain the name
of the partners who already passed away in the name of the firm? NO
Held:
In the case of Register of Deeds of Manila vs. China Banking Corporation,
the SC said:
The Court believes that, in view of the personal and confidential nature of
the relations between attorney and client, and the high standards demanded
in the canons of professional ethics, no practice should be allowed which
even in a remote degree could give rise to the possibility of deception.
Said attorneys are accordingly advised to drop the names of the deceased
partners from their firm name.

The public relations value of the use of an old firm name can tend to create
undue advantages and disadvantages in the practice of the profession. An able
lawyer without connections will have to make a name for himself starting from
scratch. Another able lawyer, who can join an old firm, can initially ride
on that old firms reputation established by deceased partners.

The court also made the difference from the law firms and business
corporations:
A partnership for the practice of law is not a legal entity. It is a mere
relationship or association for a particular purpose. It is not a
partnership formed for the purpose of carrying on trade or business or of
holding property. Thus, it has been stated that the use of a nom de plume,
assumed or trade name in law practice is improper.

We find such proof of the existence of a local custom, and of the elements
requisite to constitute the same, wanting herein. Merely because something
is done as a matter of practice does not mean that Courts can rely on the
same for purposes of adjudication as a juridical custom.
Petition suffers legal and ethical impediment.

Ortega vs. CA

FACTS:

On December 19, 1980, respondent Misa associated himself together, as senior partner
with petitioners Ortega, del Castillo, Jr., and Bacorro, as junior partners. On Feb. 17, 1988,
respondent Misa wrote a letter stating that he is withdrawing and retiring from the firm
and asking for a meeting with the petitioners to discuss the mechanics of the liquidation.

petitioner filed a petition to the Commision's Securities Investigation and Clearing

Department for the formal dissolution and liquidation of the partnership. On March 31,
1989, the hearing officer rendered a decision ruling that the withdrawal of the
petitioner has not dissolved the partnership.

On appeal, the SEC en banc reversed the decision and was affirmed by the Court of
Appeals. Hence, this petition.

ISSUE:

Whether the partnership is a partnership at will and whether or not the withdrawl
dissolved the partnership regardless of his good or bad faith

HELD:

Yes, to both.

. The SC stated that a partnership that does not fix its term is a partnership at will. The
birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. 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 a 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

ELIGIO ESTANISLAO, JR., petitioner, vs. THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO,
EMILIO and LEOCADIO SANTIAGO,respondents.

FACTS: Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of
Annapolis and Aurora Blvd., QuezonCity 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 owned in common by them.

A joint affidavit was executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles. They agreed to
help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the family. On
May 26, 1966, 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 petitioner 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, the petitioner submitted financial statements regarding the operation of the business to private respondents,
but therafter petitioner failed to render subsequent accounting. Hence through Atty. Angeles, a demand was made on
petitioner to render an accounting of the profits. The financial report of December 31, 1968 shows that the business was
able to make a profit of P 87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be ordered: 1. to execute a public document embodying all
the provisions of the partnership agreement entered into between plaintiffs and defendant as provided in
Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to December 21, 1968
and from January 1, 1969 up to the time the order is issued and that the same be subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount of no less than P
l50,000.00 with interest at the rate of 1%per month from date of demand until full payment thereof for the entire duration
of the business

PETITIONERS CONTENTION:that because of the said stipulation cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous agreement had thereby been abrogated.

ISSUE: WON a partnership exists between members of the same family arising from their joint ownership of certain
properties.

HELD:YES. 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 Affidavit that the P 15,000.00 represents the
"capital investment" of the parties in the gasoline station business and it speaks of petitioner 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 private respondents and not a sole proprietorship of petitioner.

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 private respondent Remedios Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business. 4 Petitioner gave a written authority to private respondent Remedies
Estanislao, his sister, to examine and auditTHE BOOKS OF their "common business' aming negosyo). 5 Respondent 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. 6
The sole dealership by the petitioner and the issuance of all government permits and licenses in the name of
petitioner 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.

Campos Rueda & Co v Pacific Commercial (44 Phil 916)

Facts: Campos, Rueda & Co., a limited partnership, is indebted to the

appellants: Pacific Commercial Co. , Asiatic Petroleum Co, and International
Banking Corporation amounting to not less than P1,000.00 (which were not paid
more than 30 days prior to the date of the filing by petitioners of the
application for voluntary insolvency).

The trial court denied their petition on the ground that it was not proven,
nor alleged, that the members of the firm were insolvent at the time the
application was filed. It also held that the partners are personally and
solidarily liable for the consequences of the transactions of the
partnership.

Issue:

Whether or not a limited partnership may be held to have committed an act

of insolvency. YES.

Held:

Yes. A limited partnerships juridical personality is different from the

personality of its members. On general principle, the limited partnership
must answer for and suffer the consequence of its acts. Under our Insolvency
Law, one of the acts of bankruptcy upon w/c an adjudication of involuntary
insolvency can be predicated is the failure to pay obligations.

The failure of Campos, Rueda & Co., to pay its obligations constitutes an
act w/c is specifically provided for in the Insolvency Law for declaration
of involuntary insolvency. The petitioners have a right to a judicial decree
declaring the involuntary insolvency of said partnership.

VARGAS and COMPANY, plaintiff-appellee,

vs.
CHAN HANG CHIU, ET AL., defendants-appellants.

Rohde and Wright for appellants.

Escaler and Salas for appellee.

MORELAND, J.:
This is an action brought to set aside a judgment of the justice's court of
Manila on the ground that the plaintiff here, the defendant in the action
in which the judgment was secured, was not served with summons and that,
therefore, the justice's court acquired no jurisdiction to render the
judgment was that the same is null and void. Judgment was entered in favor
of plaintiff declaring the judgment in controversy void and setting it aside.
This appeal is from that judgment.

It appears from the record that the plaintiff is a merchantile association

duly organized under the laws of the Philippine Islands and presumably
registered as required by law. On the 19th day of August, 1911, an action
was begun by Chan Hang Chiu against the plaintiff in this case to recover
a sum of money. The summons and complaint were placed in the hands of the
sheriff, who certified that on the 19th day of August, 1911, he served the
same on Vargas & Co. by delivering to and leaving with one Jose Macapinlac
personally true copies thereof, he being the managing agent of said Vargas
& Co. at the time of such service.

Lower Court: the justice's court rendered judgment against Vargas & Co. for
the sum of 372.28. Thereafter execution was duly issued and the property of
Vargas & Co. levied on for the payment thereof. Thereupon Vargas & Co. paid
the amount of the judgment and costs under protest, with notice that it would
sue to recover the amount paid. The execution was returned satisfied and there
the matter rested until the present action was brought.

Vargas and Co: and that contention is supported by the decision of the court
below, that Vargas & Co. being a partnership, it is necessary, in bringing
an action against it, to serve the summons on all of the partners, delivering
to each one of them personally a copy thereof; and that the summons in this
case having been served on the managing agent of the company only, the service
was of no effect as against the company and the members thereof and the
judgment entered by virtue of such a service was void.

Plaintiff also contends, and this contention is likewise supported by the

court below, that, even admitting that service on the managing agent of the
plaintiff is sufficient service, as a matter of fact no service was really
made on the managing agent of the company but, rather, on an employee or
salesman of the company, who had no powers of management or supervision and
who was not competent to receive service on behalf of the company within the
provisions of section 396 of the Code of Civil Procedure.
We are of the opinion that neither of these contentions can be sustained.
As to the first, we may say that it has been the universal practice in the
Philippine Islands since American occupation, and was the practice prior to
that time, to treat companies of the class to which the plaintiff belongs
as legal or juridicial entities and to permit them to sue and be sued in the
name of the company, the summons being served solely on the managing agent
or other official of the company specified by the section of the Code of
Civil Procedure referred to. This very action is an illustration of the
practice in vogue in the Philippine Islands. The plaintiff brings this action
in the company name and not in the name of the members of the firm. Actions
against companies of the class to which plaintiff belongs are brought,
according to the uninterrupted practice, against such companies in their
company names and not against the individual partners constituting the firm.
In the States, in which the individual members of the firm must be separately
served with process, the rule also prevails that they must be parties to the
action, either plaintiffs or defendant, and that the action cannot be brought
in the name of or against the company itself. This follows naturally for the
reason that, if it is necessary to serve the partners individually, they are
entitled to be heard individually in the action and they must, therefore,
be made parties thereto so that they can be heard. It would be idle to serve
process on individual members of a partnership if the litigation were to be
conducted in the name of the partnership itself and by the duly constituted
officials of the partnership exclusively.

From what has been said it is apparent that the plaintiff in this action is
acting contrary to its own contention by bringing the action in the name of
the company be served with process, then the action should be brought in the
individual names of the partners and not in the name of the company itself.

Article 35 of the Civil Code provides:

The following are judicial persons:

1. The corporation, associations, and institutions of public interest

recognized by law.

2. The associations of private interest, be they civil, commercial, or

industrial, to which the law grants proper personality, independent of
that of each member thereof.
Article 38 provides: "Judicial persons may acquire and possess property of
all kinds, as well as contract obligations and institute civil or criminal
actions in accordance with the laws and rules of their establishment."

Article 116 of the Code of Commerce provides in part: "After a commercial

association has been established, it shall have legal representation in all
its acts and contracts."

These provisions have been the foundation of the practice followed without
interruption for many years that association of the class to which plaintiff
belongs have an independent and separate legal entity sufficient to permit
them to sue and be sued in the company name and to be served with process
through the chief officer or managing agent thereof or any other official
of the company specified by law.

As to the second contention, we may say that the presumption is that a judgment
rendered by a justice's court is a valid and enforceable judgment where the
record discloses that all of the steps necessary to confer jurisdiction on
the court have been taken. In the case before us it affirmatively appears
that the service of process was made on the person the sheriff certified was
the managing agent of the defendant company. The sheriff's certificate serves
as prima facieevidence of the existence of the facts stated therein. The
record, therefore, discloses, so far as the fact of service is concerned,
that it was duly made on the managing agent of the company as required by
section 396, paragraph 1, of the Code of Civil Procedure. In attacking the
judgement on the ground that service was not made on the managing agent of
the company, it is incumbent on the plaintiff to overcome the presumption
arising from the sheriff's certificate before the attack will succeed.
Endeavoring to overcome the presumption referred to, plaintiff offered as
a witness one Tomas O. Segovia, an employee of the plaintiff company. He
testified that he was a bookkeeper and that as such he was well acquainted
with the business of the company and that the person Macapinlac referred
to in the sheriff's certificate as managing agent of the plaintiff company
was an agent for the sale of plows, of which the plaintiff company was a
manufacturer; and that he had no other relations with the company than that
stated. During the course of the examination this question was put to and
answer elicited from this witness:

How do you know that they were not summoned, or that they did not know
of this case brought before the justice of the peace of the city of Manila?
 I being the bookkeeper and the general attorney-in-fact to Vargas & Co.,
in Iloilo, ought to know whether they have been notified or summoned,
but I only knew about it when the sheriff appeared in our office to make
the levy.

This is the only witness who testified in the case. It does not appear when
he became the bookkeeper of the company, or that he was in such a position
that he could know or did know personally the acts of the company and its
relations to Macapinlac. He does not testify of his own knowledge to the
essential facts necessary to controvert the statements contained it the
sheriff's certificate of service. His testimony is rather negative than
positive, it being at all times possible, in spite of his evidence, indeed,
in strict accord therewith, that Vargas & Co., of which the witness was
neither official nor manager, could have appointed a managing agent for the
company or could have removed him without the personal knowledge of the
witness. The witness had no personal knowledge of the relation between the
company and Macapinlac. He never saw the contract existing between them.
He did not hear the agreement between them nor did he know of his own knowledge
what the relations between the company and Macapinlac were. His testimony
besides being negative in character has in it many of the elements of hearsay
and is not at all satisfactory. It would have been very easy to present one
of the members of the company, or all of them, who engaged Macapinlac, who
know the relations between him and the company, to testify as to what those
relations were and to deny, if that were the fact, that Macapinlac was such
an agent or official of the company as is within the purview of section 396
above referred to. The facts stated in the certificate of the sheriff will
not be considered as overcome and rebutted except on clear evidence showing
the contrary. The evidence of the bookkeeper, who is the only witness for
the company, is not satisfactory in any sense and is quite insufficient to
overcome the presumption established by the sheriff's certificate.

In view of these considerations it is not necessary to consider the question

presented by the payment by the plaintiff company of the judgment.

The judgment appealed from is reversed and the complaint dismissed on the
merits, without costs in this instance. So ordered.

G.R. No. L-48113 April 7, 1947

NGO TIAN TEK and NGO HAY, petitioner,
vs.
PHILIPPINE EDUCATION CO., INC., respondent.

Tansinsin and Yatco for petitioner.

Marcial Esposo for respondent.

PARAS, J.:

The plaintiff, Philippine Education Co., Inc., instituted in the Court of

First Instance of Manila an action against the defendants, Vicente Tan alias
Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for the recovery
of some P16,070.14, unpaid cost of merchandise purchased by Lee Guan Box
Factory from the plaintiff and five other corporate entities which, though
not parties to the action, had previously assigned their credits to the
plaintiff, together with attorney's fees, interest and costs.

By agreement of the parties, the case was heard before a referee, Attorney
Francisco Dalupan, who in due time submitted his report holding the
defendants jointly and severally liable to the plaintiff for the sum of
P16,070.14 plus attorney's fees and interest at the rates specified in the
report. On March 6, 1939, the Court of First Instance of Manila rendered
judgment was affirmed by the Court of Appeals in its decision of January 31,
1941, now the subject of our review at the instance of the partnership Ngo
Tian Tek and Ngo Hay, petitioner herein.

"It appears that," quoting from the decision of the Court of Appeals whose
findings of fact are conclusive, "as far back as the year 1925, the Modern
Box Factory was established at 603 Magdalena Street, Manila. It was at first
owned by Ngo Hay, who three years later was joined by Ngo Tian Tek as a junior
partner. The modern Box Factory dealt in pare and similar merchandise and
purchased goods from the plaintiff and its assignors in the names of the
Modern Box Factory, Ngo Hay and Co., Go Hay Box Factory, or Go Hay. Then about
the year 1930, the Lee Guan Box Factory was established a few meters from
the Modern Box Factory, under the management of Vicente Tan. When that concern,
through Vicente Tan, sought credit with the plaintiff and its assignors, Ngo
Hay, in conversations and interviews with their officers and employees,
represented that he was the principal owner of such factory, that the Lee
Guan Box Factory and the Modern Box Factory belonged to the same owner, and
that the Lee Guan Box Factory was a subsidiary of the Modern Box Factory.
There is evidence that many goods purchased in the name of the Lee Guan Box
Factory were delivered to the Modern Box Factory by the employees of the
plaintiff and its assignors upon the express direction of Vicente Tan. There
is also evidence that the collectors of the sellers were requested by Vicente
Tan to collect and did collect from the Modern Box Factory the bills
against the Lee Guan Box Factory. In the fact the record shows many checks
signed by Ngo Hay or Ngo Tian Tek in payment of accounts of the Lee Guan Box
Factory. Furthermore, and this seems to be conclusive-Ngo Hay, testifying
for the defense, admitted that 'he' was the owner of the Lee Guan Box Factory
in and before the year 1934, but that in January, 1935, 'he' sold it, by the
contract of sale Exhibit 7, to Vicente Tan, who had been his manager of the
business. Tan declared also that before January, 1935, the Lee Guan Box
Factory pertained to Ngo Hay and Ngo Tian Tek. The contract Exhibit 7 was
found by the referee, to be untrue and simulated, for various convincing
reasons that need no repetition here. And the quoted statements serve
effectively to confirm the evidence for the plaintiff that it was Ngo Hay's
representations of ownership of, and responsibility for, Lee Guan Box Factory
that induced them to open credit for that concern. It must be stated that
in this connection to answer appellant's fitting observation that the
plaintiff and the assignors have considered Ngo Hay, the Modern Box Factory
and Ngo Hay and Co. as one and the same, through the acts of the partners
themselves, and that the proof as to Ngo Hay's statements regarding the
ownership of Lee Guan Box Factory must be taken in that view. Ngo Hay was
wont to say 'he' owned the Modern Box Factory, meaning that he was the
principal owner, his other partner being Ngo Tian Tek. Now, it needs no
demonstration for appellant does not deny it that the obligations of
the Lee Guan Box Factory must rest upon its known owner. And that owner in
Ngo Tian Tek and Ngo Hay."

We must overrule petitioner's contention that the Court of Appeals erred in

holding that Lee Guan Box Factory was a subsidiary of the Modern Box Factory
and in disregarding the fact that the contracts evidencing the debts in
question were signed by Vicente Tan alias Chan Sy, without any indication
that tended to involve the Modern Box Factory or the petitioner.

In the first place, we are concluded by the finding of the Court of Appeals
regarding the ownership by the petitioner of Lee Guan Box Factory. Secondly,
the circumstances that Vicente Tan alias Chan Sy acted in his own name cannot
save the petitioner, in view of said ownership, and because contracts entered
into by a factor of a commercial establishment known to belong to a well
known enterprise or association, shall be understood as made for the account
of the owner of such enterprise or association, even when the factor has
not so stated at the time of executing the same, provided that such contracts
involve objects comprised in the line and business of the establishment.
(Article 286, Code of Commerce.) The fact that Vicente Tan did not have any
recorded power of attorney executed by the petitioner will not operate to
prejudice third persons, like the respondent Philippine Education Co., Inc.,
and its assignors. (3 Echavarri, 133.)

Another defense set up by the petitioner is that prior to the transactions

which gave rise to this suit, Vicente Tan had purchased Lee Guan Box Factory
from Ngo Hay under the contract, Exhibit 7; and the petitioner assails, under
the second assignment of error, the conclusion of the Court of Appeals that
said contract is simulated. This contention is purely factual and must also
be overruled.

The petitioner questions the right of the respondent Philippine Education

Co., Inc., to sue for the credits assigned by the five entities with which
Lee Guan Box Factory originally contracted, it being argued that the
assignment, intended only for purposes of collection, did not make said
respondent the real party in interest. The petitioner has cited 5 Corpus Juris,
section 144, page 958, which points out that "under statutes authorizing only
a bona fideassignee of choses in action to sue thereon in his own name, an
assignee for collection merely is not entitled to sue in his own name."

The finding of the Court of Appeals that there is nothing "simulated in the
assignment," precludes us from ruling that respondent company is not a bona
fide assignee. Even assuming, however, that said assignment was only for
collection, we are not prepared to say that, under section 114 of the Code
of Civil Procedure, in force at the time this action was instituted, ours
is not one of those jurisdictions following the rule that "when a choose,
capable of legal assignment, is assigned absolutely to one, but the
assignment is made for purpose of collection, the legal title thereto vests
in the assignee, and it is no concern of the debtor that the equitable title
is in another, and payment to the assignee discharges the debtor." (5 C. J.,
section 144, p. 958.) No substantial right of the petitioner could indeed
be prejudiced by such assignment, because section 114 of the Code of Civil
Procedure reserves to it "'any set-off or other defense existing at the time
of or before notice of the assignment.'"

Petitioner's allegation that "fraud in the inception of the debt is personal

to the contracting parties and does not follow assignment," and that the
contracts assigned to the respondent company "are immoral and against public
policy and therefore void," constitute defenses on the merits, but do not
affect the efficacy of the assignment. It is obvious that, apart from the
fact that the petitioner can not invoke fraud of its authorship to evade
liability, the appealed decision is founded on an obligation arising, not
from fraud, but from the very contracts under which merchandise had been
purchased by Lee Guan Box Factory.

The fourth and fifth assignments of error relate to the refusal of the Court
of Appeals to hold that the writ of attachment is issued at the commencement
of this action by the Court of First Instance is illegal, and to award in
favor of the petitioner damages for such wrongful attachment. For us to
sustain petitioner's contention will amount to an unauthorized reversal of
the following conclusion of fact of the Court of Appeals: "The stereotyped
manner in which defendants obtained goods on credit from the six companies,
Vicente Tan's sudden disappearance, the execution of the fake sale Exhibit
7 to throw the whole responsibility upon the absent or otherwise insolvent
Tan, defendant's mercurial and unbelievable theories as to the ownership of
the Modern Box Factory and Lee Guan Box Factory obviously adopted in a
vain effort to meet or explain away the evidentiary force of plaintiff's
documentary evidence are much too significant to permit a declaration that
the attachment was not justified."

Regarding the suggestion in petitioner's memorandum that this case should

be dismissed because of the death of Ngo Hay, it is sufficient to state that
the petitioner Ngo Tian Tek and Ngo Hay is sued as a partnership possessing
a personality distinct from any of the partners.

The appealed decision is affirmed, with costs against the petitioner. So

ordered.

Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ.,
concur.

ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs. SECRETARY OF COMMERCE AND INDUSTRY,
defendant-appellee.

FACTS:It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue &
Company for a term of five years from May 1, 1953, extendible by their mutual consent. The purpose of the partnership was
"to maintain the business of general merchandising, buying and selling at wholesale and retail, particularly of lumber,
hardware and other construction materials for commerce, either native or foreign." The corresponding articles of partnership
(Exhibit B) were registered in the Office of the Securities & Exchange Commission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other
things, that, after its enactment, a partnership not wholly formed by Filipinos could continue to engage in
the retail business until the expiration of its term. On April 15, 1958 prior to the expiration of the five-year term of
the partnership Ang Pue & Company, but after the enactment of the Republic Act 1180, the partners already mentioned
amended the original articles of part ownership (Exhibit B) so as to extend the term of life of the partnership to
another five years.
When the amended articles were presented for registration in the Office of the Securities & Exchange Commission on April
16, 1958, registration was refused upon the ground that the extension was in violation of the aforesaid Act.

ISSUE:WON the term of the partnership can be extended

HELD:NO. To organize a corporation or a partnership that could claim a juridical personality of its own and transact
business as such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms
as the State may deem necessary to impose. That the State, through Congress, and in the manner provided by law,
had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by
Filipinos may engage in the retail business can not be seriously disputed. That this provision was clearly intended to
apply to partnership already existing at the time of the enactment of the law is clearly showing by its
provision giving them the right to continue engaging in their retail business until the expiration of their term
or life.

To argue that because the original articles of partnership provided that the partners could extend the term of the partnership,
the provisions of Republic Act 1180 cannot adversely affect appellants herein, is to erroneously assume that the aforesaid
provision constitute a property right of which the partners can not be deprived without due process or without their consent.
The agreement contain therein must be deemed subject to the law existing at the time when the partners came to agree
regarding the extension. In the present case, as already stated, when the partners amended the articles of partnership, the
provisions of Republic Act 1180 were already in force, and there can be not the slightest doubt that the right claimed by
appellants to extend the original term of their partnership to another five years would be in violation of the clear intent and
purpose of the law aforesaid.

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs. THE COMMISSIONER OF INTERNAL REVENUE
and COURT OF TAX APPEALS, respondents.

FACTS: 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
to Marenir 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 filed a petition for review before the CTA

COMMISSIONERS CONTENTION: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 1 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.

CTAs ruling:It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact
formed by petitioners which like a corporation was subject to corporate income tax distinct from that imposed on the
partners.

ISSUE:Is there a partnership or co-ownership?

HELD:CO-OWNERSHIP.

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.

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 Evangelista, 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.

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 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.
LORENZO ONA vs CIR

FACTS:Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa 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. Oa the surviving spouse was appointed administrator of the estate of said deceased.

The project of partition 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.

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 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. 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. As a result, petitioners'
properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956. 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.

CIR: 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.

ISSUE: should petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Buales
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? UNREGISTERED
PARTNERSHIP.

HELD: They have formed and unregistered partnership.

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. Oa 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. Oa 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. Oa.

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. 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. Oa 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.

JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
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: (15 people contributed centavos in different amounts to
form P2)
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 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;
8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed, denied
plaintiffs' request;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant, defendant on May 13,
1935 issued a warrant of distraint and levy against the property of the plaintiffs;
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;

ISSUE: 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

HELD: PARTNERSHIP. 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. 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.

SARDANE VS. COURT OF APPEALS and Romeo Acojedo

FACTS:

Petitioner Sardane is the owner of a Sardane Trucking Services. Sardane borrowed money
from private respondent by making promises and issuing several promissory notes. On
the due date Acojedo demanded the said sum but instead of paying Sardane apologized
for his failure to pay on time, and he promised Acojedo that he would pay him next time.

After so many failed attempts to collect his money Acojedo decided to seek the
intervention of the court. Now after so many failed attempts to collect the promised
payment, Mr.Acojedo filed a collection case against Sardane. Even during the scheduled
date of the trial, Sardane, as usual 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: 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 Acojedo.

CFI: The CFI ruled in favor of Sardane

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.

DELUAO v. CASTEEL

G.R. No. L-21906; December 24, 1968

Ponente: J. Castro

FACTS:

In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of

swampy land, 178.76 hectares, in the then sitio of Malalag, municipality of Padada,
Davao for 3 consecutive times because the Bureau of Fisheries did not act upon his
previous applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat
poised upon his position by the other applicants who entered upon and spread
themselves within the area, Casteel realized the urgent necessity of expanding his
occupation thereof by constructing dikes and cultivating marketable fishes. But
lacking financial resources at that time, he sought financial aid from his
uncle Felipe Deluao.

Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed a protest. Consequently, two
administrative cases ensued involving the area in question.
However, despite the finding made in the investigation of the above administrative
cases, the Director of Fisheries nevertheless rejected Casteel's application on
October 25, 1949, required him to remove all the improvements which he had
introduced on the land, and ordered that the land be leased through public
auction

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the
first part, and Nicanor Casteel as party of the second part, executed a contract
denominated a "contract of service". On the same date the above contract was
entered into, Inocencia Deluao executed a special power of attorney in favor of
Jesus Donesa

On November 29, 1949 the Director of Fisheries rejected the application filed by
Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated
his claim over the same area in the two administrative cases and asked for
reinvestigation of the application of Nicanor Casteel over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision

ordering Casteel to be reinstated in the area and that he shall pay for
the improvement made thereupon.

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado),
Jesus Donesa, from the premises.

ISSUE:
Whether the reinstatement of Casteel over the subject land constitute a dissolution
of the partnership between him and Deluao YES

HELD:
Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

The Supreme Court ruled that the arrangement under the so-called "contract of
service" continued until the decision both dated Sept. 15, 1950 were issued by the
Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B.

This development, by itself, brought about the dissolution of the

partnership. Since the partnership had for its object the division into two
equal parts of the fishpond between the appellees and the appellant after it shall
have been awarded to the latter, and therefore it envisaged the unauthorized
transfer of one half thereof to parties other than the applicant Casteel, it was
dissolved by the approval of his application and the award to him of the fishpond.
The approval was an event which made it unlawful for the members to carry it on
in partnership. Moreover, subsequent events likewise reveal the intent of both
parties to terminate the partnership because each refused to share the fishpond
with the other.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the
dissolution of a partnership, "... any event which makes it unlawful for the
business of the partnership to be carried on or for the members to carry it
on in partnership." The approval of the appellant's fishpond application by
the decisions in DANR Cases 353 and 353-B brought to the fore several
provisions of law which made the continuation of the partnership unlawful
and therefore caused its ipso facto dissolution.

Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond
permit (the permittee) from transferring or subletting the fishpond granted
to him, without the previous consent or approval of the Secretary of
Agriculture and Natural Resources.15 To the same effect is Condition No. 3
of the fishpond permit which states that "The permittee shall not transfer
or sublet all or any area herein granted or any rights acquired therein
without the previous consent and approval of this Office." Parenthetically,
we must observe that in DANR Case 353-B, the permit granted to one of the
parties therein, Leoncio Aradillos, was cancelled not solely for the reason
that his permit covered a portion of the area included in the appellant's
prior fishpond application, but also because, upon investigation, it was
ascertained thru the admission of Aradillos himself that due to lack of
capital, he allowed one Lino Estepa to develop with the latter's capital the
area covered by his fishpond permit F-289-C with the understanding that he
(Aradillos) would be given a share in the produce thereof.16

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act,
likewise provides that

The lessee shall not assign, encumber, or sublet his rights without the
consent of the Secretary of Agriculture and Commerce, and the violation
of this condition shall avoid the contract; Provided, That assignment,
encumbrance, or subletting for purposes of speculation shall not be
permitted in any case: Provided, further, That nothing contained in this
section shall be understood or construed to permit the assignment,
encumbrance, or subletting of lands leased under this Act, or under any
 previous Act, to persons, corporations, or associations which under this
Act, are not authorized to lease public lands.

Finally, section 37 of Administrative Order No. 14 of the Secretary of

Agriculture and Natural Resources issued in August 1937, prohibits a transfer
or sublease unless first approved by the Director of Lands and under such
terms and conditions as he may prescribe. Thus, it states:

When a transfer or sub-lease of area and improvement may be allowed.

If the permittee or lessee had, unless otherwise specifically provided,
held the permit or lease and actually operated and made improvements on
the area for at least one year, he/she may request permission to sub-lease
or transfer the area and improvements under certain conditions.

(a) Transfer subject to approval. A sub-lease or transfer shall only

be valid when first approved by the Director under such terms and
conditions as may be prescribed, otherwise it shall be null and void.
A transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and
forfeiture of the bond and for granting the area to a qualified applicant
or bidder, as provided in subsection (r) of Sec. 33 of this Order.

Since the partnership had for its object the division into two equal parts
of the fishpond between the appellees and the appellant after it shall have
been awarded to the latter, and therefore it envisaged the unauthorized
transfer of one-half thereof to parties other than the applicant Casteel,
it was dissolved by the approval of his application and the award to him of
the fishpond. The approval was an event which made it unlawful for the
business of the partnership to be carried on or for the members to carry it
on in partnership

ALBERT F. KIEL, plaintiff-appellee, vs. ESTATE OF P. S. SABERT, defendant-appellant.

FACTS: In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public lands situated in the
municipality of Parang, Province of Cotabato, known as Parang Plantation Company. Kiel subsequently took over the interest
of Milfeil.

In 1910, Kiel and P. S. Sabert entered into an agreement to develop the Parang Plantation Company. Sabert was to furnish
the capital to run the plantation and Kiel was to manage it. They were to share and share alike in the property. It seems that
this partnership was formed so that the land could be acquired in the name of Sabert, Kiel being a German citizen and not
deemed eligible to acquire public lands in the Philippines.

By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the plantation. During the World War, he
was deported from the Philippines. Kiel appears to have tried to secure a settlement from Sabert. At least in a letter dated
June 6, 1918, Sabert wrote Kiel that he had offered "to sell all property that I have for P40,000 or take in a partner who is
willing to develop the plantation, to take up the K. & S. debt no matter which way I will straiten out with you." But Sabert's
death came before any amicable arrangement could be reached and before an action by Kiel against Sabert could be
decided.
So these proceedings against the estate of Sabert to secure the sum of 2000.

ISSUE: WON a partnership exists between Kiel and Sabert YES

HELD: YES. No partnership agreement in writing was entered into by Kiel and Sabert. The question consequently is
whether or not the alleged verbal copartnership formed by Kiel and Sabert has been proved, if we eliminate the testimony of
Kiel and only consider the relevant testimony of other witnesses.

In performing this task, we are not unaware of the rule of partnership that the declarations of one partner, not made in the
presence of his copartner, are not competent to prove the existence of a partnership between them as against such other
partner, and that the existence of a partnership cannot be established by general reputation, rumor, or hearsay. The
testimony of the plaintiff's witnesses, together with the documentary evidence, leaves the firm impression with us that Kiel
and Sabert did enter into a partnership, and that they were to share equally. Applying the tests as to the existence of
partnership, we feel that competent evidence exists establishing the partnership. Even more primary than any of the rules of
partnership above announced, is the injunction to seek out the intention of the parties, as gathered from the facts and as
ascertained from their language and conduct, and then to give this intention effect.

The testimony of the plaintiff's witnesses, together with the documentary

evidence, leaves the firm impression with us that Kiel and Sabert did enter
into a partnership, and that they were to share equally. Applying the tests
as to the existence of partnership, we feel that competent evidence exists
establishing the partnership. Even more primary than any of the rules of
partnership above announced, is the injunction to seek out the intention of
the parties, as gathered from the facts and as ascertained from their language
and conduct, and then to give this intention effect. (Giles vs.Vette [1924],
263 U. S., 553.)

Error 7, relating to the judgment rendered for the plaintiff. Well taken
in part.

The judgment handed down, it will be remembered, permitted the plaintiff to

recover from the estate the full amount claimed, presumably on the assumption
that Sabert having sold by property to the Nituan Plantation Company for
P40,000, Kiel should have one-half of the same, or P20,000. There is, however,
extant in the record absolutely no evidence as to the precise amount received
by Sabert from the sale of this particular land. If it is true that Sabert
sold all his land to the Nituan Plantation Company for P40,000, although this
fact was not proven, what part of the P40,000 would correspond to the property
which belonged to Kiel and Sabert under their partnership agreement? It
impresses us further that Kiel under the facts had no standing in court to
ask for any part of the land and in fact he does not do so; his only legal
right is to ask for what is in effect an accounting with reference to its
improvements and income as of 1917 when Sabert became the trustee of the
estate on behalf of Kiel.

As we have already intimated, we do not think that Kiel is entitled to any

share in the land itself, but we are of the opinion that he has clearly shown
his right to one-half of the value of the improvements and personal property
on the land as to the date upon which he left the plantation. Such improvements
and personal property include buildings, coconut palms, and other plantings,
cattle and other animals, implements, fences, and other constructions, as
well as outstanding collectible credits, if any, belonging to the partnership.
The value of these improvements and of the personal property cannot be
ascertained from the record and the case must therefore be remanded for
further proceedings.