PARTNERSHIP

Prepared by: Angelica C. Romero ISSUE: Whether or not the special

conditions attached by the mayor is a valid
Acebedo Optical Company, Inc. v. exercise of police power.
CA, 329 SCRA 314, March 31, 2000, En
Banc [Purisima] HELD: NO.
Municipal Corporation – Proprietary • Acebedo was applying for a business
Functions – Police Power permit to operate its business and not to
• Acebedo Optical applied for a business practice optometry (the latter being
permit to operate in Iligan City. within the jurisdiction PRC Board of
• After hearing the sides of local Optometry).
optometrists, Mayor Cabili of • The conditions attached by the mayor is
Iligan granted the permit but he attached ultra vires hence cannot be given any
various special conditions which legal application therefore estoppel does
basically made Acebedo’s dependent not apply.
upon prescriptions to be issued by local • It is neither a valid exercise of police
optometrists. power.
• Acebedo is not allowed to practice • Though the mayor can definitely impose
optometry within the city. conditions in the granting of permits, he
• Acebedo however acquiesced to the must base such conditions on law or
said conditions and operated under the ordinances otherwise the conditions are
permit. ultra vires.
• Later, Acebedo was charged for • Lastly, the granting of the license is not
violating the said conditions and was a contract, it is a special privilege –
subsequently suspended from operating estoppels does not apply.
within Iligan.
• Acebedo then assailed the validity of the • The scope of police power has been
attached conditions. held to be so comprehensive as to
• The local optometrists argued that encompass almost all matters affecting
Acebedo is estopped in assailing the the health, safety, peace, order, morals,
said conditions because it acquiesced to comfort and convenience of the
the same and that the imposition of the community.
special conditions is a valid exercise of
police power; that such conditions were • Police power is essentially regulatory in
entered upon by the city in its nature and the power to issue licenses
proprietary function hence the permit is or grant business permits, if exercised
actually a contract. for a regulatory and not revenue-raising
 purpose, is within the ambit of this • And so Aurelio demanded an accounting
power. and the liquidation of his share in the
partnership.
• Eduardo did not heed and so Aurelio
sued Eduardo.
Aurelio K. Litonjua, Jr.,petitioner vs.
Eduardo K. Litonjua, Sr., respondents.
ISSUE: Whether or not there exists a
partnership.
Business Organization – Partnership,
Agency, Trust – Partnership, how formed
HELD: NO.

Facts:
• The partnership is void and legally
• Aurelio and Eduardo are brothers.
nonexistent.
• In 1973, Aurelio alleged that Eduardo
• The documentary evidence presented
entered into a contract of partnership
by Aurelio, i.e. the letter from Eduardo
with him.
and the Memorandum, did not prove
• Aurelio showed as evidence a letter sent
partnership.
to him by Eduardo that the latter is
• The 1973 letter from Eduardo on its
allowing Aurelio to manage their family
face, contains typewritten entries,
business (if Eduardo’s away) and in
personal in tone, but is unsigned and
exchange thereof he will be giving
undated.
Aurelio P1 million or 10% equity,
whichever is higher. • As an unsigned document, there can be
no quibbling that said letter does not
• A memorandum was subsequently
meet the public instrumentation
made for the said partnership GR: oral or in
requirements exacted under Article writing
agreement. E: immovable
prop + real
1771 (how partnership is constituted) of rights are
• The memorandum this time stated that contributed —
> public
the Civil Code. intrument
in exchange of Aurelio, who just got
• Moreover, being unsigned and
married, retaining his share in the family
doubtless referring to a partnership
business (movie theatres, shipping and
involving more than P3,000.00 in money
land development) and some other
or property, said letter cannot be
immovable properties, he will be given
presented for notarization, let alone
P1 Million or 10% equity in all these
registered with the Securities and
businesses and those to be
Exchange Commission (SEC), as called
subsequently acquired by them
for under the Article 1772
whichever is greater.
(capitalization of a partnership) of the
• In 1992 however, the relationship
Code.
between the brothers went sour.
capital of 3000 or more in money or property —> public instrument + recorded in SEC
• And inasmuch as the inventory ASI (the foreign investors), having been
requirement under the succeeding based on the Corporation Code, will not
Article 1773 goes into the matter of apply.
validity when immovable property is
contributed to the partnership, the next • A joint venture has been generally
logical point of inquiry turns on the understood to mean an organization
nature of Aurelio’s contribution, if any, to formed for some temporary purpose. It
the supposed partnership. is distinguished mainly from a
• The Memorandum is also not a proof of partnership in that the latter
the partnership for the same is not a contemplates a general business with
public instrument and again, no some continuity while the former is
inventory was made of the immovable formed for the execution of a single
property and no inventory was attached transaction
to the Memorandum.
• Article 1773 of the Civil Code requires
that if immovable property is contributed
to the partnership an inventory shall be
had and attached to the contract.

AURBACH VS. SANITARY WARES Jose Gatchalian, et.al. plaintiffs-appellants,

vs. The Collector of Internal Revenue,
FACTS: This was the case where there defendant-appellee.
were essentially two groups of
shareholders in the company: one • A distraint warrant is a document
composed of Filipinos, and the other served by the sheriff that indicates the
group of foreign investors. There was an amount of overdue taxes, the due date
increase in the latter’s shares in the and instructions prohibiting the removal
company so they wanted a or destruction of any property within the
proportionate increase in their nominees business.
to the company’s Board of Directors. Facts:
• HOLDING: Although a corporation • Plaintiffs purchased, in the ordinary
cannot enter into a partnership, it can course of business, from one of the duly
nevertheless engage in a joint venture authorized agents of the
with others. In this case, taking into National CharitySweepstakes Office one
consideration their intent and history, the ticket for the sum of two pesos (P2),
parties formed a joint venture and not a said ticket was registered in the name of
corporation. This becomes relevant Jose Gatchalian and Company.
because it implies that the argument of
• The ticket won one of the third-prizes in Held: Yes. The plaintiffs formed a formed a
the amount of P50,000. partnership.
• Jose Gatchalian was required to file the
corresponding income tax • According to the stipulation facts the
return covering the prize won. plaintiffs organized a partnership of a
• Defendant-Collector made an civil nature because each of them put
assessment against Jose Gatchalian up money to buy a sweepstakes ticket
and Co. requesting the payment of the for the sole purpose of dividing equally
sum of P1,499.94 to the deputy the prize which they may win, as they
provincial treasurer of Pulilan, Bulacan. did in fact in the amount of P50,000.
• Plaintiffs, however through counsel • The partnership was not only formed,
made a request for exemption. It was but upon the organization thereof and
denied. the winning of the prize, Jose Gatchalian
• Plaintiffs failed to pay the amount due, personally appeared in the office of the
hence a warrant of distraint and levy Philippines Charity Sweepstakes, in his
was issued. capacity as co-partner, as

• Plaintiffs paid under protest a part of the such collection the prize, the office

tax and penalties to avoid the effects of issued the check for P50,000 in favor of

the warrant. Jose Gatchalian and company, and the

• A request that the balance be paid by said partner, in the same capacity,

plaintiffs in installments was made. This collected the said check.

was granted on the condition that a • All these circumstances repel the idea

bond be filed. that the plaintiffs organized and formed

• Plaintiffs failed in their installment a community of property only.

payments.
• Hence a request for execution of the
warrant of distraint and levy was made.
• Plaintiffs paid under protest to avoid the
execution.
• A claim for refund was made by the
plaintiffs, which was dismissed, hence
the appeal.
Issue: Whether the plaintiffs formed
partnership or community of property. If a
partnership, hence liable for income tax.
Lorenzo T. Ona and Heirs of Julia
Bunales petitioner vs The Commissioner
of Internal Revenue, respondent.
Facts:
• Julia Buñales died leaving as heirs her
surviving spouse, Lorenzo Oña and her
five children.
a
• A civil case was instituted for the
settlement of her state, in which Oña
was appointed administrator and later
 on the guardian of the three heirs who 1) Whether or not there was a co-ownership
were still minors when the project for or an unregistered partnership
partition was approved. 2) Whether or not the petitioners are liable
for the deficiency corporate income tax
• This shows that the heirs have
undivided ½ interest in 10 parcels of Held:
land, 6 houses and money from the War 1.) Unregistered partnership. The Tax
Damage Commission. Court found that instead of actually
distributing the estate of the deceased
• Although the project of partition was among themselves pursuant to the
approved by the Court, no attempt was project of partition, the heirs allowed
made to divide the properties and they their properties to remain under the
remained under the management of management of Oña and let him use
Oña who used said properties in their shares as part of the common fund
business by leasing or selling them and for their ventures, even as they paid
investing the income derived therefrom corresponding income taxes on their
and the proceeds from the sales thereof respective shares.
in real properties and securities. 2.) Yes. For tax purposes, the co-ownership
of inherited properties is automatically
• As a result, petitioners’ properties and
converted into an unregistered
investments gradually increased.
partnership the moment the said
• Petitioners returned for income tax common properties and/or the incomes
purposes their shares in the net income derived therefrom are used as a
but they did not actually receive their common fund with intent to produce
shares because this left with Oña who profits for the heirs in proportion to their
invested them. respective shares in the inheritance as
determined in a project partition either
• Based on these facts, CIR decided that duly executed in an extrajudicial
petitioners formed an unregistered settlement or approved by the court in
partnership and therefore, subject to the corresponding testate or intestate
the corporate income tax, particularly for proceeding.
years 1955 and 1956.

• The reason is simple. From the moment

• Petitioners asked for reconsideration,
of such partition, the heirs are entitled
which was denied hence this petition for
already to their respective definite
review from CTA’s decision.
shares of the estate and the incomes
Issue: 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
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.
For purposes of the tax on corporations, our
National Internal Revenue Code includes
these partnerships —
The term “partnership” includes
syndicate, group, pool, joint venture or other
unincorporated organization, through or by
means of which any business, financial
operation, or venture is carried on… (8
Merten’s Law of Federal Income Taxation, p.
562 Note 63; emphasis ours.)
with the exception only of duly registered
general co-partnerships — within
purview of the term “corporation.”
CONCLUSION:
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
corporations. Judgment affirmed.
Obillos et al vs. CIR/CA
GRN – L68118 October 29, 1985
in Aquino, J.:
FACTS:
Petitioners sold the lots they inherited from
their father and derived a total profit of
P33,584 for each of them. They treated the
profit as capital gain and paid an income tax
thereof. The CIR required petitioners to pay
corporate income tax on their shares, .20%
tax fraud surcharge and 42% accumulated
interest. Deficiency tax was assessed on the
theory that they had formed an unregistered
partnership or joint venture.
ISSUE:
Whether or not partnership was formed by
the siblings thus be assessed of the
a
corporate tax.
RULING:
Petitioners were co-owners and to consider
them partners would obliterate the
distinction between co-ownership and
partnership. The petitioners were not
the
engaged in any joint venture by reason of
that isolated transaction.
Art 1769… the sharing of gross returns does
not of itself establish a partnership, whether
or not the persons sharing them have a joint
for
or common right or interest in any property
from which the returns are derived. There
must be an unmistakable intention to form
partnership or joint venture.
 HELD: Yes. It is apparent from the factual
milieu that the three decided to engage in a
fishing business. Moreover, their

Lim vs. Philippine Fishing Gear Compromise Agreement had revealed their

Industries Inc intention to pay the loan with the proceeds

Lim vs. Philippine Fishing Gear of the sale and to divide equally among

Industries Inc. them the excess or loss. The boats and

equipment used for their business entails

FACTS: their common fund. The contribution to such

Lim Tong Lim requested Peter Yao and fund need not be cash or fixed assets; it

Antonio Chua to engage in commercial could be an intangible like credit or industry.

fishing with him. The three agreed to That the parties agreed that any loss or

purchase two fishing boats but since they do profit from the sale and operation of the

not have the money they borrowed from one boats would be divided equally among them

Jesus Lim the brother of Lim Tong Lim. also shows that they had indeed formed a

Subsequently, they again borrowed money partnership. The principle of corporation by

for the purchase of fishing nets and other estoppel cannot apply in the case as Lim

fishing equipments. Yao and Chua Tong Lim also benefited from the use of the

represented themselves as acting in behalf nets in the boat, which was an asset of the

of “Ocean Quest Fishing Corporation” partnership. Under the law on estoppel,

(OQFC) and they contracted with Philippine those acting in behalf of a corporation and

Fishing Gear Industries (PFGI) for the those benefited by it, knowing it to be

purchase of fishing nets amounting to more without valid existence are held liable as

than P500k. However, they were unable to general partners. Hence, the question as to

pay PFGI and hence were sued in their own whether such was legally formed for

names as Ocean Quest Fishing Corporation unknown reasons is immaterial to the case.

is a non-existent corporation. Chua admitted

his liability while Lim Tong Lim refused such
liability alleging that Chua and Yao acted
without his knowledge and consent in
representing themselves as a corporation.

ISSUE: Whether Lim Tong Lim is liable as a

partner