ALFREDO N. AGUILA, JR, petitioner, vs.

HONORABLE Upon the refusal of private respondent to vacate the subject

COURT OF APPEALS and FELICIDAD S. VDA. DE premises, A.C. Aguila & Sons, Co. filed an ejectment case
ABROGAR, respondents against her in the MTC Marikina. Said court ruled in favour of
in favor of A.C. Aguila & Sons, Co.
FACTS
Petitioner is the manager of A.C. Aguila & Sons, Co., a RTC Ruling:
partnership engaged in lending activities. Private respondent Private respondent then filed a petition for declaration of
Felicidad Abrogar and her late husband, Ruben M. Abrogar, nullity of a deed of sale with the Regional Trial Court,
were the registered owners of a house and lot, in Marikina On Marikina against Alfredo Aguila. She alleged that the
April 18, 1991, Felicidad Abrogar (with consent of her signature of her husband on the deed of sale was a forgery
husband) and A.C. Aguila & Sons, Co entered into a because he was already dead when the deed was supposed
Memorandum of Agreement and Deed of Absolute Sale, as to have been executed on June 11, 1991.
follows:
 A.C. Aguila & Sons, Co. shall buy the property of the RTC-Marikina dismissed the petition and ruled that
spouses (house and lot in Marikina) in consideration of sum documents, to wit:
of Php 200,000. The deed of absolute sale is with the option
to repurchase with a period of 90 days for Php 230, 000. the Memorandum of Agreement, the Special Power of
Attorney, and the Deed of Absolute Sale were all signed by
 Should the spouses fail to exercise their right to repurchase, the parties on the same date on April 18, 1991 (death of
they are obliged to deliver to A.C. Aguila & Sons, Co. the husband 08 May 1991) CA Ruling: On appeal, CA reversed
possession of the property, within 25 days from expiration of the decision of RTC.
90 days repurchase period.
And ruled that the agreement entered into by the parties is in
 The parties likewise executed a deed of absolute sale, dated the nature of pactum commissorium.
June 11, 1991, wherein private respondent, with the consent
of her late husband, sold the subject property to A.C. Aguila Therefore, the deed of sale should be declared void as we
& Sons, Co., represented by petitioner, for P200,000. hereby so declare to be invalid, for being violative of law.
Hence this petition for review on Certiorari.
In a special power of attorney private respondent authorized
petitioner to cause the cancellation of TCT No. 195101 and Petitioner contends that he is not the real party in interest
the issuance of a new certificate of title in the name of A.C. but A.C. Aguila & Co., against which this case for nullity of
Aguila and Sons, Co., in the event she failed to redeem the deed of sale should have been brought.
subject property as provided in the Memorandum of
Agreement. ISSUE: Whether or not the civil case (for nullity of deed of
sale) was filed against the real party in interest.
Private respondent failed to redeem the property, hence,
pursuant to the SPA, petitioner caused the cancellation and HELD: NO As pointed out by Aguila, he is not the real party in
the issuance of a new certificate of title in the name of A.C. interest but rather it was the partnership A.C. Aguila & Sons,
Aguila and Sons, Co. Subsequently, private respondents were Co. The Rules of Court provide that “every action must be
demanded to vacate the premises prosecuted and defended in the name of the real party in
interest.”
MTC Ruling:
A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of
the suit. Any decision rendered against a person who is not a
real party in interest in the case cannot be executed.

Hence, a complaint filed against such a person should be

dismissed for failure to state a cause of action, as in the case
at bar. Under Art. 1768 of the Civil Code, a partnership “has a
juridical personality separate and distinct from that of each of Villareal vs. Ramirez G.R. No. 144214; July 14,
the partners.” 2003
A share in a partnership can be returned only after the
The partners cannot be held liable for the obligations of the completion of the latter’s dissolution, liquidation, and
partnership unless it is shown that the legal fiction of a
winding up of the business. This is a petition for review
different juridical personality is being used for fraudulent,
unfair, or illegal purposes.
on certiorari of the decision and resolution of the Court
of Appeals.
In this case, Felicidad has not shown that A.C. Aguila & Sons,
Co., as a separate juridical entity, is being used for Facts:
fraudulent, unfair, or illegal purposes. Moreover, the title to Luzviminda Villareal, Jesus Jose, and Carmelito Jose
the subject property is in the name of A.C. Aguila & Sons, Co. formed a partnership. They funded a capital for the
operation of the restaurant and catering business under
It is the partnership, not its officers or agents, which should the name “Aquarius Food House and Catering Services,”
be impleaded in any litigation involving property registered in which amounted to Php 750,000. Carmelito was
its name. A violation of this rule will result in the dismissal of appointed as the operations manager, while Villareal
the complaint.
served as the general manager.

On September 5, 1984, Donaldo Ramirez (respondent)

joined the partnership and contributed a capital
amounting to Php250,000, which was paid by his
parents. In January 1987, Jesus Jose withdrew from the
partnership and his capital contribution amounting to
Php 250,000 was refunded to him. During that same
month, without prior knowledge of the respondents, the
petitioners closed down the restaurant allegedly
because of increased rental.

On March 1, 1987, the respondent spouses conveyed to

the petitioners that they were no longer interested in
continuing their partnership or in reopening the
restaurant, and that they were accepting the latter’s 2. Whether the CA’s computation of Php 253, 114 as
offer to return their capital contribution. respondents’ share is correct;
3. Whether the CA was correct in not assessing costs
After some time, the respondent wrote the petitioners a
Ruling:
letter reiterating the request for the return of their one-
1. No. Respondents have no right to demand from the
third share in the equity of the partnership. petitioners the return of their equity share. Except as
managers of the partnership, the petitioners did not
However, both written and oral requests were ignored. personally hold its equity or assets. “The partnership has a
The respondents filed before the RTC a claim for a sum juridical personality separate and distinct from that of each of
of money from the petitioners, contending that they had the partners.” As such, since the capital was contributed to
already expressed a desire to withdraw from said the partnership and not to the petitioners, it is the
partnership. partnership that must refund the equity of the retiring
RTC – Decision was rendered in favor of the respondents parties.
and against the petitioners, ordering the petitioners to
pay jointly and severally the amount of Php250,000 as
2. No. Before the partners can be paid their respective
actual damages, Php 30,000 for attorney’s fees, and
shares, the creditors of the partnership must first be
costs of suit. compensated. After that, whatever is left of the partnership
assets becomes available for the payment of the partners’
Note: RTC held that the parties voluntarily entered into a shares. As such, in the present case, the exact amount to be
partnership which could be dissolved at any time. refunded to the respondents cannot be determined until all
Petitioners clearly intended to dissolve it when they the partnership assets have been liquidated. CA’s
stopped operating the restaurant. computation should thus be considered erroneous.

CA - Decision of the RTC is SET ASIDE and NULLIFIED to 3. Yes. As a rule, costs are adjudged against the losing party.
make way for the new decision ordering the petitioners However, the courts also have the discretion “for special
solidarily to pay and reimburse to the respondents the reasons” to decide otherwise. When a decision of the lower
court is reversed, the higher court normally does not award
amount of Php 253, 114.00 (Php 759,342 yung
costs, because the losing party relied on the lower court’s
remaining capital ng partnership, divided into three judgment. As such, unless it is shown to be capricious, award
shares kaya nakuha yung Php 253, 114.00). for costs shall not be disturbed by a reviewing tribunal.

Note: CA held that although respondents had no right to The Petition is GRANTED, and the assailed decision and
demand the return of their capital contribution, the resolution of the CA is SET ASIDE. This disposition is without
partnership was nonetheless dissolved when petitioners prejudice to proper proceedings for the accounting, the
lost interest in continuing the restaurant. liquidation and the distribution of the remaining partnership
assets, if any. No pronouncement as to costs.

Issues:
1. WON petitioners are liable to respondents for the latter’s
share in the partnership;
 Issue:
Whether a partnership formed when the co-owners of the
subject lots resold the lots and divided profits among
themselves that would make them liable for corporate
income tax and for the taxes for an unregistered partnership?

Held:
No. The children of Obillos Sr. were simply co-owners where
the division of the profits from the sale of the lots was
incidental to the dissolution of the co-ownership. Under
Article 1769(3) of the Civil Code provides 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”.

There must be an unmistakable intention to form a

partnership or joint venture. Also, as cited in the De Leon
case, Co-Ownership, with properties that produce income
should not automatically be considered partners of an
unregistered partnership within the purview of the income
OBILLOS V. CIR, – G.R. NO. L-68118, OCTOBER 29, 1985 tax law.
Facts:
The children of Jose Obillos Sr. are co-owners of parcel of lots. To hold otherwise, would be to subject the income of all co-
The children sold the lots to Walled City Securities ownerships of inherited properties to the tax on corporations,
Corporation and Olga Canada. The children treated the profit inasmuch as if a property does not produce an income at all,
as a capital gain to which they paid an income tax. After it is not subject to any kind of income tax, whether the
some time, the Commissioner of Internal Revenue required income tax on individuals or the income tax on corporation.
the children of Obillos Sr. to as liable for corporate income REYES V. CIR
taxes. The Commissioner claimed that the children formed an G.R. NO. L-24020-21, July 29, 1968
unregistered partnership or joint venture since they
contributed a sum of money to buy the lots which they resold FACTS:
and divided the profits among themselves. Father and son, Florencio and Angel Reyes, herein
petitioners, purchased a lot
The children rebut that they were simply co-owners and to and building in 1950 which they continued the leasing
consider them partners would obliterate the distinction business of the previous
between co-ownership and partnership. Their purpose was to owner. Their building administrator, who collected the rents,
divide the lots for residential purposes, and they later found kept its books and records and rendered statements,
that it was not feasible because of the high cost of reported an annual gross income of P90,000.00.
construction and had no choice but to resell, division of profit
was merely incidental to the dissolution of co-ownership.
The CIR assessed them income tax, surcharge and Yes, the Supreme Court affirmed the ruling of the CTA
compromise for the years 1951 to 1952 and 1955-1956 of conforming to the rationale that the NIRC is clear and
P46,647.00 and P37,528.00 respectively. These tax equivocal in its provisions that except for those duly
liabilities, according to the CIR, allegedly arising “from the registered as general partnerships, a partnership, “no matter
partnership formed” by the petitioners. how created or organized” is similarly taxed as a corporation.
Hence, the father and son petitioners were ordered to pay
The appeal and subsequent motion for reconsideration by the the reduced assessments with costs.
petitioners with
the CTA, although the amounts reduced, were both denied.
The CTA relying on the provision of the NIRC which imposes
income tax on corporations “organized in, or existing under Bastida vs Menzi
the laws of the Philippines, no matter how created or Facts:
organized but not including registered general Bastida offered to assign to Menzi & Co. his contract with Phil
partnerships, ... a term, which according to the second Sugar Centrals Agency and to supervise the mixing of the
provision cited, includes partnerships “no matter how created fertilizer and to obtain other orders for 50 % of the net profit
or organized,...,” that Menzi & Co., Inc., might derive therefrom. J. M. Menzi
(gen. manager of Menzi & Co.) accepted the offer. The
Hence, this petition was filed before the Supreme Court. agreement between the parties was verbal and was
This time the petitioners insisted that they could not be confirmed by the letter of Menzi to the plaintiff on January 10,
considered as a partnership as their 1922.
intention was not to engage in rental business collectively,
but rather, divide and use the building to house their own Pursuant to the verbal agreement, the defendant corporation
enterprises after 10 years. on April 27, 1922 entered into a written contract with the
plaintiff, marked Exhibit A, which is the basis of the present
This intention was expressed in an affidavit that they filed action. Still, the fertilizer business as carried on in the same
with the BIR. Therefore, they could not be held liable to manner as it was prior to the written contract, but the net
income tax for partnerships as embodied in the NIRC profit that the plaintiff herein shall get would only be 35%.
provision.
The intervention of the plaintiff was limited to supervising the
However, it was also noted that after almost 15 years from mixing of the fertilizers in the bodegas of Menzi. Prior to the
the acquisition of the property there was no division made. expiration of the contract (April 27, 1927), the manager of
Menzi notified the plaintiff that the contract for his services
ISSUE: would not be renewed. Subsequently, when the contract
Whether or not herein petitioners acquired the personality of expired, Menzi proceeded to liquidate the fertilizer business
a partnership in question.
when they continue to earn income from the rents of the
building they both owned for almost 15 years for them to be The plaintiff refused to agree to this. It argued, among
subjected to income tax for corporations and partnerships others, that the written contract entered into by the parties is
under the NIRC. a contract of general regular commercial partnership,
wherein Menzi was the capitalist and the plaintiff the
RULING: industrial partner.
Issue: Is the relationship between the petitioner and Menzi or to defray at its own expense the cost of securing the
that of partners? necessary credit.

Held:
The relationship established between the parties was not that
of partners, but that of employer and employee, whereby the
plaintiff was to receive 35% of the net profits of the fertilizer HEIRS OF TAN ENG KEE v. CA
business of Menzi in compensation for his services for FACTS:
supervising the mixing of the fertilizers.
Following the death of Tan Eng Kee on September 13, 1984,
Neither the provisions of the contract nor the conduct of the Matilde Abubo, the common-law spouse of the decedent,
parties prior or subsequent to its execution justified the joined by their children Teresita, Nena, Clarita, Carlos,
finding that it was a contract of co-partnership. Corazon and Elpidio, collectively known as herein petitioners
HEIRS OF TAN ENG KEE, filed s uit against the decedent's
The written contract was, in fact, a continuation of the verbal brother TAN ENG LAY on February 19, 1990. The complaint
agreement between the parties, whereby the plaintiff worked was for accounting, liquidation and winding up of the alleged
for the defendant corporation for onehalf of the net profits partnership formed after World War II between Tan Eng Kee
derived by the corporation form certain fertilizer contracts. and Tan Eng Lay.

According to Art. 116 of the Code of Commerce, articles of After the second World War, Tan Eng Kee and Tan Eng Lay,
association by which two or more persons obligate pooling their resources and industry together, entered into a
themselves to place in a common fund any property, partnership engaged in the business of selling lumber and
industry, or any of these things, in order to obtain profit, shall hardware and construction supplies. They named their
be commercial, no matter what it class may be, provided it enterprise "Benguet Lumber" which they jointly managed
has been established in accordance with the provisions of the until Tan Eng Kee's death. Petitioners herein averred that the
Code. business prospered due to the hard work and thrift of the
alleged partners.
However in this case, there was no common fund. The
business belonged to Menzi & Co. The plaintiff was working Tan Eng Lay and his children caused the conversion of the
for Menzi, and instead of receiving a fixed salary, he was to partnership "Benguet Lumber" into a corporation called
receive 35% of the net profits as compensation for his "Benguet Lumber Company." The incorporation was
services. purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business.
The phrase in the written contract “en sociedad con”, which
is used as a basis of the plaintiff to prove partnership in this The RTC ruled in favor of the Heirs of Tan Eng Kee. However,
case, merely means “en reunion con” or in association with. the Court of Appeals reversed and set aside the lower court’s
decision.
It is also important to note that although Menzi agreed to
furnish the necessary financial aid for the fertilizer business, ISSUE:
it did not obligate itself to contribute any fixed sum as capital
 Whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber

HELD:

No, Tan Eng Lay and Tan Eng Kee were not partners in
Benguet Lumber

The Supreme Court held that in order to constitute a

partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or
industry to a common fund, and (2) they intend to divide the
profits among themselves. Undoubtedly, the best evidence
would have been the contract of partnership itself, or the
articles of partnership but there is none. TOCAO V. CA
G.R. No. 127405; October 4, 2000
In the case at hand, there is no evidence that Tan Eng Kee Ponente: J. Ynares-Santiago
contributed his resources to a common fund for the purpose
of establishing a partnership. Moreover, it is indeed odd, if FACTS:
not unnatural, that despite the forty years the partnership
was allegedly in existence, Tan Eng Kee never asked for an Private respondent Nenita A. Anay met petitioner William T.
accounting. The essence of a partnership is that the partners Belo, then the vice-president for operations of Ultra Clean
share in the profits and losses. Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed
Therefore, Tan Eng Kee and Tan Eng lay were not her desire to enter into a joint venture with her for the
partners in Benguet Lumber. importation and local distribution of kitchen cookwares.

Under the joint venture, Belo acted as capitalist, Tocao as

president and general manager, and Anay as head of the
marketing department and later, vice-president for sales

The parties agreed that Belo's name should not appear in

any documents relating to their transactions with West Bend
Company. Anay having secured the distributorship of
cookware products from the West Bend Company and
organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under
the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao's name.
The parties agreed further that Anay would be entitled to: Yes, the parties involved in this case formed a
(1) ten percent (10%) of the annual net profits of the partnership
business;
(2) overriding commission of six percent (6%) of the overall The Supreme Court held that to be considered a juridical
weekly production; personality, a partnership must fulfill these requisites:
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The (1) two or more persons bind themselves to contribute
agreement was not reduced to writing on the strength of money, property or industry to a common fund; and
Belo's assurances that he was sincere, dependable and
honest when it came to financial commitments. (2) intention on the part of the partners to divide the profits
among themselves. It may be constituted in any form; a
On October 9, 1987, Anay learned that Marjorie Tocao had public instrument is necessary only where immovable
signed a letter addressed to the Cubao sales office to the property or real rights are contributed thereto.
effect that she was no longer the vice-president of
Geminesse Enterprise. This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as a
Anay attempted to contact Belo. She wrote him twice to written one.
demand her overriding commission for the period of January
8, 1988 to February 5, 1988 and the audit of the company to In the case at hand, Belo acted as capitalist while Tocao as
determine her share in the net profits. president and general manager, and Anay as head of the
marketing department and later, vice-president for sales.
Anay still received her five percent (5%) overriding Furthermore, Anay was entitled to a percentage of the net
commission up to December 1987. The following year, 1988, profits of the business.
she did not receive the same commission although the
company netted a gross sales of P 13,300,360.00. Therefore, the parties formed a partnership.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
complaint for sum of money with damages against Marjorie FRANCISCA EVANGELISTA, petitioners, vs. THE
D. Tocao and William Belo before the Regional Trial Court of COLLECTOR OF INTERNAL REVENUE and THE COURT OF
Makati, Branch 140 TAX APPEALS, respondents. G.R. No. L-9996, October
15, 1957
The trial court held that there was indeed an "oral
partnership agreement between the plaintiff and the Facts:
defendants. The Court of Appeals affirmed the lower court’s Petitioners borrowed sum of money from their father and
decision. together with their own personal funds they used said money
to buy several real properties. They then appointed their
ISSUE: brother (Simeon) as manager of the said real properties with
Whether the parties formed a partnership powers and authority to sell, lease or rent out said properties
to third persons.
HELD:
They realized rental income from the said properties for the
period 1945-1949. On September 24, 1954 respondent
Collector of Internal Revenue demanded the payment of (3) The aforesaid lots were not devoted to residential
income tax on corporations, real estate dealer's fixed tax and purposes, or to other personal uses, of petitioners herein.
corporation residence tax for the years 1945-1949.
Although, taken singly, they might not suffice to establish the
The letter of demand and corresponding assessments were intent necessary to constitute a partnership, the collective
delivered to petitioners on December 3, 1954, whereupon effect of these circumstances is such as to leave no room for
they instituted the present case in the Court of Tax Appeals, doubt on the existence of said intent in petitioners herein.
with a prayer that "the decision of the respondent contained
in his letter of demand dated September 24, 1954" be For purposes of the tax on corporations, our National Internal
reversed, and that they be absolved from the payment of the Revenue Code, includes these partnerships — with the
taxes in question. exception only of duly registered general co-partnerships —
within the purview of the term "corporation." It is, therefore,
CTA denied their petition and subsequent MR and New Trials clear to our mind that petitioners herein constitute a
were denied. Hence this petition. partnership, insofar as said Code is concerned and are
subject to the income tax for corporations.
Issue: Whether or not petitioners have formed a partnership
and consequently, are subject to the tax on corporations
provided for in section 24 of Commonwealth Act. No. 466,
otherwise known as the National Internal Revenue Code, as
well as to the residence tax for corporations and the real
estate dealers fixed tax.

Held: YES. The essential elements of a partnership are two,

namely:
(a) an agreement to contribute money, property or industry
to a common fund; and
(b) intent to divide the profits among the contracting parties.

The first element is undoubtedly present in the case at bar,

for, admittedly, petitioners have agreed to, and did,
contribute money and property to a common fund. Upon
consideration of all the facts and circumstances surrounding
the case, we are fully satisfied that their purpose was to
engage in real estate transactions for monetary gain and
then divide the same among themselves, because of the
following observations, among others: Ona vs CIR

(1) Said common fund was not something they found already FACTS
in existence; Julia Buñales died on March 23, 1944, leaving as heirs her
(2) They invested the same, not merely in one transaction, surviving spouse,
but in a series of transactions. Lorenzo T. Oña and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for
the settlement of her estate. Later, Lorenzo T. Oña the Accordingly, he assessed against the petitioners a fix amount
surviving spouse was appointed administrator of the estate of money as corporate income taxes for 1955 and1956,
of said deceased. respectively. Petitioners protested against the assessment
and asked for reconsideration of the ruling of respondent that
On April 14, 1949, the administrator submitted the project of they have formed an unregistered partnership. Finding no
partition, which was approved by the Court on May 16. merit in petitioners' request, respondent denied it.
Because three of the heirs, namely Luz, Virginia and Lorenzo,
Jr., all surnamed Oña, were still minors when the project of ISSUE/S
partition was approved, Lorenzo T. Oña, their father and Whether or not there was a co-ownership or an unregistered
administrator of the estate, filed a petition in Civil Case No. partnership.
9637 of the Court of First Instance of Manila for appointment Whether or not the petitioners are liable for the deficiency
as guardian of said minors. corporate income
tax.
On November 14, 1949, the Court appointed him guardian of
the persons and property of the aforenamed minors. This HELD
shows that the heirs have undivided ½ interest in 10 parcels 1. There was an unregistered partnership. The Tax Court
of land, 6 houses and money from the War Damage found that instead ofactually distributing the estate of
Commission. the deceased among themselves pursuant to the
project of partition approved in 1949, "the properties
Although the project of partition was approved by the Court remained under themanagement of Lorenzo T. Oña
there was no attempt made to divide the properties and they who used said properties in business by leasing or
remained under the management of Oña who used the selling them and investing the income derived
properties in business by leasing or selling therefrom and the proceed from the sales thereof in
them and investing the income derived therefrom and the real properties and securities," as a result of which
proceeds from the said properties and investments steadily increased
sales thereof in real properties and securities. As a result, yearly.
petitioners’ properties and investments gradually increased
from P105,450.00 in 1949 to And all these became possible because, admittedly,
P480,005.20 in 1956. petitioners never actually received any share of the income
or profits from Lorenzo T. Oña and instead, they allowed him
Petitioners returned for income tax purposes their shares in to continue using said shares as part of the common fund for
the net income but they did not actually receive their shares their ventures, even as they paid the corresponding income
because this left with Oña who invested them. taxes on the basis of their respective shares of the profits of
their common business as reported by the said Lorenzo T.
On the basis of the foregoing facts, respondent Oña.
(Commissioner of Internal
Revenue) decided that petitioners formed an unregistered It is thus incontrovertible that petitioners did not, contrary to
partnership and their contention,
therefore, subject to the corporate income tax, pursuant to merely limit themselves to holding the properties inherited
Section 24, in by them. Indeed, it is admitted that during the material years
relation to Section 84(b), of the Tax Code. herein involved, some of the said
properties were sold at considerable profit, and that with said proportion to his share, there can be no doubt that,
profit, petitioners engaged, thru Lorenzo T. Oña, in the even if no document or instrument were executed, for
purchase and sale of corporate securities. the purpose, for tax purposes, at least, an unregistered
It is likewise admitted that all the profits from these ventures partnership is formed.
were divided
among petitioners proportionately in accordance with their
respective shares in the inheritance. In these circumstances,
it is Our considered view that from the moment petitioners
allowed not only the incomes from their respective shares of
the inheritance but even the inherited properties themselves
to be used by Lorenzo T. Oña as a common fund in
undertaking several transactions or in business, with the
intention of deriving profit to be shared by them
proportionally, such act was tantamount 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.
EIRS OF JOSE LIM, represented by ELENITO LIM
2. Yes. For tax purposes, the co-ownership of inherited v.
properties is automatically converted into an JULIET VILLA LIM
unregistered partnership the moment the said
common properties and/or the incomes derived there A complaint for partition, accounting and damages was
from are used as a common fund with intent to filed by the Petitioner Heirs of Jose Lim against the
produce profits for the heirs in proportion to their Respondent Juliet Villa Lim, widow of the Elfedo Lim,
respective shares in the inheritance as determined in a who was the eldest son of Jose and Cresencia Lim.
project partition either duly executed in an
extrajudicial settlement or approved by the court in The Petitioners alleged that the deceased Jose Lim and
the corresponding testate or intestate proceeding. his friends, Jimmy Yu and Norberto Uy, formed a
partnership in 1980 to engage in the trucking business
The reason is simple. From the moment of such with an initial contribution of ₱ 50,000.00 each. Also in
partition, the heirs are entitled already to their the same year, Jose gave his eldest son, Elfedo, ₱
respective definite shares of the estate and the 50,000.00 as the latter’s capital in the said
incomes thereof, for each of them to manage and partnership.
dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly, he Upon Jose’s death, the heirs and partners agreed to
becomes liable individually for all taxes in connection continue the business under the Management of
therewith. Elfedo. Further, the shares of the partnership profits
and income formed part of the estate of Jose, held in
If after such partition, he allows his share to be held in trust by Elfedo.
common with his co-heirs under a single management
to be used with the intent of making profit thereby in
 The Petitioners’ gave Elfedo the authority to use, such inference shall be drawn if such profits were received in
purchase, and acquire properties using the said funds. payment: (a) as a debt by installment or otherwise; (b) as
Thus, he was never a partner thereof, but merely wages of an employee or rent to a landlord; (c) as an annuity
supervised and managed the trucking business of the to a widow or representative of a deceased partner; (d) as
partners. interest on a loan, though the amount of payment vary with
the profits of the business; and, (e) as the consideration for
On the other hand, the Respondent claimed that Elfedo the sale of a goodwill of a business or other property by
was a partner, stating that Jose gave him ₱ 50,000.00 installments or otherwise.
as his capital to the partnership. He managed the
trucking business, which flourished through his effort. Applying the legal provision above-mentioned, it was clearly
Further, the partnership was able to engage in other established that Elfedo himself was the partner of Jimmy and
business ventures and acquire real properties. Norberto through the following circumstances: (1) Jose gave
Elfedo ₱ 50,000.00 as share in the partnership; (2) Elfedeo
Thus, he was a partner separate and distinct from Jose, ran the affairs of the partnership, having absolute control,
especially after the latter died. His assets arising from power, and authority without any intervention from the
the now-ceased partnership must not be subject of the Petitioners; (3) all of the properties of the partnership were
complaint. registered under the name of Elfedo; (4) Elfedo did not
receive wages or salaries from the partnership, indicating
The Regional Trial Court (RTC) rendered its decision in that he was actually receiving shares of the profits of the
favor of the Petitioners. Aggrieved, the Respondent business; and (5) none of the Petitioners demanded periodic
appealed to the Court of Appeals (CA). On appeal, the accounting accounting from Elfedo during his lifetime.
CA reversed the RTC decision. Hence, this Petition.
Thus, there is no denying that Elfedo was a partner and not
merely hired in the partnership of the trucking business.
Issue:

Whether or not Elfedo was a partner of the partnership

formed by Jose and his friends.
Agad vs. Mabato, 23 SCRA 1223
RULING
FACTS: Mauricio Agad and Severino Mabato executed a public
The Court ruled in the affirmative. A partnership exists when instrument to form a partnership engaged in a fishpond
two or more persons agree to place their money, effects, business. Agad Contributed P1,000.00 with the right to
labor, and skill in lawful commerce or business, with the receive 50% of the profits. Mabato handled the partnership
understanding that there shall be a proportionate sharing of funds and rendered accounts of the operations of the
the profits and losses among them. In determining whether a partnership. However, for the years 1957 to 1963, Mabato
partnership exists, Article 1769 of the Civil Code provides the failed to render accounts and pay Agad his share in the
rules to be applied. profits. Thus, Agad filed a complaint for the recovery of the
amount. However, Mabato contended that no partnership
It specifically provides under Paragraph 4 that the receipts by had ever existed since the contract was not perfected
a person of a share of the profits of a business is a prima because Agad allegedly failed to contribute his P1,000.00
facie evidence that he is a partner in the business, but not contribution. The court dismissed the complaint since the
contract was void for being in violation of Art. 1773 in was supposed to be used for the development of subdivision
because no inventory of the fishpond had been attached with as per the JVA.
the instrument.
However, the project did not push through and the land was
ISSUE: Does the provision on Art. 1773 of the Civil Code subsequently foreclosed by the bank. Petitioners Antonia
apply? Torres alleged that it was due to respondent’s lack of
funds/skills that caused the project to fail, and that
HELD: No. The Court held that Art. 1773 cannot apply. The respondent use the loan in the furtherance of his own
public instrument forming the supposed partnership company.
indicated that it was established “to operate a fishpond” and
not to “engage in a fishpond business.” Moreover, no On the other hand, respondent Manuel Torres alleged that he
fishpond or a real right to any was contributed, even if a used the loan to implement the JVA – surveying and
fishpond or a real right thereto could become part of its subdivision of lots, approval of the project, advertisement,
assets, and that contributions merely consisted of P1, 000.00 and construction of roads and the likes, and that he did all of
each from both parties. Thus, Art. 1773 and 1771 are these for a total of P85,000. Petitioners filed a case for estafa
inapplicable as a basis for the dismissal of the complaint against respondent but failed.
since no immovable property or real rights were contributed.
They then instituted a civil case. CA held that the two parties
formed a partnership for the development of subdivision and
as such, they must bear the loss suffered by the partnership
in the same proportion as their share in profits. Hence, the
petition.

Issue #1: Whether or not the transaction between petitioner

and respondent was that of joint venture/partnership.

Held: Yes. There formed a partnership between the two on

the basis of joint-venture agreement and deed of sale. A
reading of the terms of agreement shows the existence of
partnership pursuant to Art 1767 of Civil Code, which states
“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
Torres vs. Court of Appeals, 320 SCRA 428 among themselves.”

Facts: Petitioners Torres and Baring entered into a “joint In the agreement, petitioners would contribute property to
venture agreement” with Respondent Torres for the the partnership in the form of land which was to be
development of a parcel of land into a subdivision. They developed into a subdivision; while respondent would give, in
executed a Deed of Sale covering the said parcel of land in addition to his industry, the amount needed for general
favor of respondent Manual Torres, who then had it registered expenses and other costs. Furthermore, the income from the
in his name. By mortgaging the property, respondent Manuel said project would be divided according to the stipulated
Torres obtained from Equitable Bank a loan of P40,000, which
percentage. Clearly, the contract manifested the intention of
the parties to form a partnership.

Issue #2: Whether or not the deed of sale between the two
was valid.

Held: No. Petitioners were wrong in contending that the JVA

is void under Article 1422[14] of the Civil Code, because it is
the direct result of an earlier illegal contract, which was for
the sale of the land without valid consideration.

The Joint Venture Agreement clearly states that the

consideration for the sale was the expectation of profits from
the subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the parcel of
land sold to respondent.

Consideration, more properly denominated as cause, can

take different forms, such as the prestation or promise of a
thing or service by another. In this case, the cause of the
contract of sale consisted not in the stated peso value of the
land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used.

As explained by the trial court, the land was in effect given to

the partnership as petitioners participation therein. There
was therefore a consideration for the sale, the petitioners
acting in the expectation that, should the venture come into
fruition, they would get sixty percent of the net profits.