Week II Art. 1825.
When a person, by words spoken or written or by conduct,
Art. 1769. In determining whether a partnership exists, these rules shall
apply:
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns
are derived;
(4) The receipt by a person of a share of the profits of a business is
prima facie evidence that he is a partner in the business, but no
such inference shall be drawn if such profits were received in
payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of payment
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise. (n)
represents himself, or consents to another representing him to anyone, as a
partner in an existing partnership or with one or more persons not actual
partners, he is liable to any such persons to whom such representation has
been made, who has, on the faith of such representation, given credit to the
actual or apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to
such person so giving credit by or with the knowledge of the apparent
partner making the representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with
the other persons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing
partnership, or with one or more persons not actual partners, he is an agent
of the persons consenting to such representation to bind them to the same
extent and in the same manner as though he were a partner in fact, with
respect to persons who rely upon the representation. When all the
members of the existing partnership consent to the representation, a
partnership act or obligation results; but in all other cases it is the joint act
or obligation of the person acting and the persons consenting to the
representation. (n)
JOSE GATCHALIAN ET AL. v. COLLECTOR OF INTERNAL
REVENUE, GR No. 45425, 1939-04-29
Facts:
plaintiffs are all residents of the municipality of Pulilan, Bulacan, and that
defendant is the Collector of Internal Revenue of the Philippines;...
plaintiffs, in order to enable them to purchase one sweepstakes ticket
valued at two pesos (P2), subscribed and paid therefor the amounts as
follows:... immediately thereafter... plaintiffs purchased... from... ne of the
duly authorized agents of the National Charity Sweepstakes Office one
ticket bearing No. 178637... and that the said ticket was registered in the
name of Jose Gatchalian and Company... as a result
, the above-mentioned ticket bearing No. 178637 won one of the third
prizes in the amount of P50,000... and... which check was cashed... by Jose
Gatchalian & Company
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... the said return was signed by
Gatchalian... efendant made an assessment against... requesting the
payment of the sum of P1,499.94 to the deputy provincial treasurer of
Pulilan, Bulacan... plaintiffs, through their attorney, sent to defendant a
reply... requesting exemption from the payment of the income tax to which
reply there were enclosed fifteen (15)... separate individual income tax
returns filed separately by each one of the plaintiffs... defendant... denied
plaintiffs' request... for exemption from the payment of tax... in view of the
failure of the plaintiffs to pay the amount of tax demanded by the
defendant, notwithstanding subsequent demand... issued a warrant of
distraint and levy against the property of the plaintiffs... plaintiffs,...
through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi,... paid
under protest the sum of P601.51... as part of the tax... and requested
defendant that plaintiffs be allowed to pay under protest the balance...
plaintiffs demanded upon defendant the refund of the total sum of
P1,863.44... paid under protest by them but that defendant refused and still
refuses to refund the said amount... notwithstanding the plaintiffs'
demands.
Issues:
Whether the plaintiffs formed a partnership, or merely a community of
property without a personality of its own
Ruling:
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 stipulated 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 Philippine Charity Sweepstakes, in
his capacity as co-partner, as such collected 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 collecte
There is no merit in... plaintiffs' contention that the tax should be prorated
among them and paid individually, resulting in their exemption from the
tax.
PASCUAL v. Commissioner of Internal Revenue
G.R. No. 78133 October 18, 1988
GANCAYCO, J.:
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. Petitioner 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
in the sale made in 1970. The corresponding capital gains taxes were paid
by petitioners in 1973 and 1974 .
Respondent Commissioner informed petitioners that in the years 1968 and
1970, petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under
Section 24, both of the National Internal Revenue Code; that the
unregistered partnership was subject to corporate income tax as
distinguished from profits derived from the partnership by them which is
subject to individual income tax.
ISSUE:
Whether petitioners formed an unregistered partnership subject to corporate
income tax (partnership vs. co-ownership)
RULING:
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;
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.
G.R. No. L-68118 October 29, 1985
OBILLOS, et AL., petitioners
vs.
CIR & CTA
AQUINO, J.:
Facts:
On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and
963 square meters of located at Greenhills, San Juan, Rizal. The next day
he transferred his rights to his four children, the petitioners, to enable them
to build their residences. The Torrens titles issued to them showed that they
were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners
resold them to the Walled City Securities Corporation and Olga Cruz
Canada for the total sum of P313,050. They derived from the sale a total
profit of P134, 341.88 or P33,584 for each of them. They treated the profit
as a capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, the Commissioner of Internal Revenue required the four
petitioners to pay corporate income tax on the total profit of P134,336 in
addition to individual income tax on their shares thereof. The petitioners are
being held liable for deficiency income taxes and penalties totalling
P127,781.76 on their profit of P134,336, in addition to the tax on capital
gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed
an unregistered partnership or joint venture The petitioners contested the
assessments. Two Judges of the Tax Court sustained the same. Hence, the
instant appeal.
Issue:
Whether or not the petitioners had indeed formed a partnership or joint
venture and thus liable for corporate tax.
Held:
The Supreme Court held that the petitioners should not be considered to
have formed a partnership just because they allegedly contributed
P178,708.12 to buy the two lots, resold the same and divided the profit
among themselves. To regard so would result in oppressive taxation and
confirm the dictum that the power to tax involves the power to destroy. That
eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners would obliterate the
distinction between a co-ownership and a partnership. The petitioners were
not engaged in any joint venture by reason of that isolated transaction.
*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.*
Their original purpose was to divide the lots for residential purposes. If later
on they found it not feasible to build their residences on the lots because of
the high cost of construction, then they had no choice but to resell the same
to dissolve the co-ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership which was in the nature of
things a temporary state. It had to be terminated sooner or later.
They did not contribute or invest additional ' capital to increase or expand
the properties, nor was there an unmistakable intention to form partnership
or joint venture.
WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The assessments are cancelled. No costs.
All co-ownerships are not deemed unregistered partnership.—Co-
Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise,
would be to subject the income of all
Co-ownerships of inherited properties to the tax on corporations, inasmuch
as if a property does not produce an income at all, it is not subject to any
kind of income tax, whether the income tax on individuals or the income tax
on corporation.
As compared to other cases:
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
where after an extrajudicial settlement the co-heirs used the inheritance or
the incomes derived therefrom as a common fund to produce profits for
themselves, it was held that they were taxable as an unregistered
partnership.
This case is different from Reyes vs. Commissioner of Internal Revenue, 24
SCRA 198, where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided equally the
net income, and from Evangelista vs. Collector of Internal Revenue, 102
Phil. 140, where the three Evangelista sisters bought four pieces of real
property which they leased to various tenants and derived rentals therefrom.
Clearly, the petitioners in these two cases had formed an unregistered
partnership.
RIVERA v PEOPLE’S BANK & TRUST CO.
April 17, 1942 | Ozaeta, J. | Partnership > Nature > Distinguished From
Digester: Angat, Christine Joy F.
SUMMARY: Edgar Stephenson executed a survivorship agreement in
favor of Ana Rivera, his housekeeper. The agreement provided that
Stephenson and Rivera will be the joint owners of the money deposited in
the account with People’s Bank and Trust Co., and upon the death of
either one of the party, the survivor will be the sole owner of the balance
in said account. Stephenson died, and pursuant to the survivorship
agreement, Rivera tried to claim the balance of the joint account. The
bank, however, refused. Rivera filed a complaint to recover the money, but
the trial court dismissed the complaint, ruling that the agreement is either a
power of attorney or a donation mortis causa, the requirements of which
were not satisfied. The Court, in finding the survivorship agreement valid
on its face, characterized it as an aleatory contract, the transfer of the
ownership predicated upon the condition of who might die first (in other
words, the other party assumes the risk of losing the property if he dies
earlier/the other party gets the property in the chance that he outlives the
other). The Court likewise found the agreement valid as-applied, since
there was no fraud in its execution.
DOCTRINE: (There is nothing in the case which speaks of Partnership,
so the doctrine, as herein stated, is an inference based on my appreciation
of this case’s value.) A joint deposit or joint bank account is not a
partnership. The right of survivorship which is a recognized stipulation in
joint deposits is not applied in partnerships since in the latter, upon the
death of a partner, the estate or heirs of the deceased partner has the right
to recover his contributing capital and any fruits and interests therein.
FACTS:
 December 24, 1929: Edgar Stephenson opened an account in his name
with People’s Bank and Trust Co. by depositing therein the sum of
P1,000.
 October 17, 1931: A survivorship agreement made by and between
Edgar Stephenson and Ana Rivera was executed.
o Ana Rivera was Stephenson’s housekeeper since 1920.
o The survivorship agreement provides that:
 All moneys deposited with the Bank will be deposited in a joint
account, without consideration of its previous ownership
 The money deposited and all its interest therein, shall be the
property of both the joint tenants (Stephenson and Rivera), and
shall be payable and collectible by either of them during their
joint lives
 In the event of the death of one of the joint tenants, the balance
shall belong to and be the sole property of the survivor
 The agreement shall be binding upon the parties, their heirs,
their executors, administrators, and assigned
 Thus, pursuant to the survivorship agreement, the balance of P2,072 in
Stephen’s account was transferred to the account under the name of
“Edgar Stephenson and/or Ana Rivera.”
 June 8, 1939: Stephenson died.
o At the time of Stephenson’s death, the account had a balance of
P701.43 and Rivera was in possession of the deposit book.
 Rivera tried to claim the balance of the account, but People’s Bank
refused. The Bank was under the opinion that the survivorship
agreement was of doubtful validity.
 Rivera then filed a petition against the bank in order to recover the
money.
 o Minnie Stephenson, administratix of Stephen’s estate, filed a
complaint-for-intervention, alleging that the money deposited in
the said account was and is the exclusive property of Stephen. She
averred that the survivorship agreement was a donation mortias
causa which was not executed with the formalities of a will, thus it
has no legal effect.
 The trial court ruled in favor of the Bank.
o The TC held that if the agreement will be viewed from its effect
during the lives of both parties, it is a power of attorney
authorizing Rivera to make withdrawals from the account.
However, this power was terminated upon the death of
Stephenson.
o On the other hand, if the agreement will be viewed from its effect
after the death of either one of the parties, it is a donation mortis
causa. Since it was not executed with the formalities of a will,
Rivera did not validly acquire the said donation.
RULING: Petition granted.
Whether the survivorship agreement was valid, thus Rivera is entitled
to the balance in the bank account -- YES
 Contrary to the trial court’s ruling, the survivorship agreement in this
case is neither a power of attorney nor a donation mortis causa. The
trial court’s conclusion was predicated on the assumption that
Stephenson was the exclusive owner of the funds deposited in the
bank. However, Stephenson and Rivera became joint owners when the
former subsequently transferred the account to the name of himself
and/or Ana Rivera.
o It is not unusual for a person to deposit money in the bank in the
name of or in the account of another. In this case, Stephenson
transferred the money in a joint account. While the Court can no
1
NOTE: This case was decided in 1942, which meant that when they were referring to
the Civil Code, they were referring to the old one, not the new one which took effect in
longer know the reason behind Stephenson’s execution of the
survivorship agreement, the Court is of the conclusion that such
transfer was justified, considering that Rivera served Stephenson,
her master, for about 19 years without actually receiving her salary
for him.
 On its face, the survivorship agreement is valid. It is considered an
aleatory contract supported by a lawful consideration – the mutual
agreement of the joint depositors permitting either of them to withdraw
the whole deposit during their lifetime, and transferring the balance to
the survivor upon the death of one of them.
o Civil Code, Article 17901. By an aleatory contract one of the
parties binds himself, or both reciprocally bind themselves to give
or to do something as an equivalent for that which the other party
is to give or do in case of the occurrence of an event which is
uncertain or will happen at an indeterminate time.
o Macam v Gatmaitan: [The parties] reciprocally assigned their
respective property to one another conditioned upon who might die
first, the time of death determining the event upon which the
acquisition of such right by the one or the other depended. This
contract, as any other contract, is binding upon the parties.
 Further, it is established that a bank account may be created wherein
two persons will be joint owners thereof during their mutual lives, and
the survivor takes the whole on the death of the other. The right to
make joint deposits has generally been held not to be done away with
by statutes abolishing joint tenancy and survivorship generally as they
existed at common law.
 Even considering the operation or effect of the survivorship agreement
(or, in simple terms, as-applied), the agreement in this case remains
valid. There was no showing that there was fraud or vitiation of
consent as to nullify the contract.
o An agreement which is per se not contrary to law will be violative
of the law if it be shown in a given case that such agreement is a
1950. Consequently, Article 1790 is now Article 2010 of the New Civil Code; the text of
the provision, however, remains the same.
 mere cloak to hide an inofficious donation, to transfer property in
fraud of creditors, or to defeat the legitime of a forced heir.
TUASON VS. BOLANOS
GR. No. L-4935. May 28, 1954
95 Phil. 106
CASE DIGEST
Facts:
Plaintiff’s complaint against defendant was to recover possession of a registered
land. In the complaint, the plaintiff is represented by its Managing Partner,
Gregorio Araneta, Inc., another corporation. Defendant, in his answer, sets up
prescription and title in himself thru "open, continuous, exclusive and public and
notorious possession under claim of ownership, adverse to the entire world by
defendant and his predecessors in interest" from "time immemorial". After trial,
the lower court rendered judgment for plaintiff, declaring defendant to be without
any right to the land in question and ordering him to restore possession thereof to
plaintiff and to pay the latter a monthly rent. Defendant appealed directly to the
Supreme Court and contended, among others, that Gregorio Araneta, Inc. can not
act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership
Issue:
Whether or not a corporation may enter into a joint venture with another
corporation.
Ruling:
It is true that the complaint states that the plaintiff is "represented herein by
its Managing Partner Gregorio Araneta, Inc.", another corporation, but there
is nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta,
Inc. cannot act as managing partner for plaintiff on the theory that it is illegal
for two corporations to enter into a partnership is without merit, for the true
rule is that "though a corporation has no power to enter into a partnership,
it may nevertheless enter into a joint venture with another where the nature
of that venture is in line with the business authorized by its charter."
(Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2.
Fletcher Cyc. of Corp., 1082.). There is nothing in the record to indicate that
the venture in which plaintiff is represented by Gregorio Araneta, Inc. as
"its managing partner" is not in line with the corporate business of either of
them.
HEIRS OF TAN ENG KEE vs.CA
HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740, G.R. No. 126881,
October 3, 2000
FACTS:
After the second World War, Tan EngKee and Tan Eng Lay, pooling their
resources and industry together, entered into a partnership engaged in the
business of selling lumber and hardware and construction supplies. They
named their enterprise "Benguet Lumber" which they jointly managed until
Tan EngKee's death. Petitioners herein averred that the business prospered
due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the conversion
of the partnership "Benguet Lumber" into a corporation called "Benguet
Lumber Company." The incorporation was purportedly a ruse to deprive
Tan EngKee and his heirs of their rightful participation in the profits of the
business. Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division of
the net assets of Benguet Lumber. The RTC ruled in favor of petitioners,
declaring that Benguet Lumber is a joint venture which is akin to a particular
partnership. The Court of Appeals rendered the assailed decision reversing
the judgment of the trial court.
ISSUE: Whether the deceased Tan EngKee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership
RULING:
There was no partnership whatsoever. Except for a firm name, there was no
firm account, no firm letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and no time fixed for the
duration of the partnership. There was even no attempt to submit an
accounting corresponding to the period after the war until Kee's death in
1984. It had no business book, no written account nor any memorandum for
that matter and no license mentioning the existence of a partnership. Also,
the trial court determined that Tan EngKee and Tan Eng Lay had entered
into a joint venture, which it said is akin to a particular partnership. A
particular partnership is distinguished from a joint adventure, to wit:(a) A
joint adventure (an American concept similar to our joint accounts) is a sort
of informal partnership, with no firm name and no legal personality. In a
joint account, the participating merchants can transact business under their
own name, and can be individually liable therefor. (b) Usually, but not
necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination maycontinue
for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind. A joint venture
"presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital
or property contributed, and where each party exercises equal rights in the
conduct of the business. The evidence presented by petitioners falls short of
the quantum of proof required to establish a partnership. In the absence of
evidence, we cannot accept as an established fact that Tan EngKee allegedly
contributed his resources to a common fund for the purpose of establishing
a partnership. Besides, it is indeed odd, if not unnatural, that despite the
forty years the partnership was allegedly in existence, Tan EngKee never
asked for an accounting. The essence of a partnership is that the partners
share in the profits and losses. Each has the right to demand an accounting
as long as the partnership exists. A demand for periodic accounting is
evidence of a partnership. During his lifetime, Tan EngKee appeared never
to have made any such demand for accounting from his brother, Tang Eng
Lay. We conclude that Tan EngKee was only an employee, not a partner
since they did not present and offer evidence that would show that Tan
EngKee received amounts of money allegedly representing his share in the
profits of the enterprise. There being no partnership, it follows that there is
no dissolution, winding up or liquidation to speak of.
WOLFGANG AURBACH vs. SANITARY WARES
MANUFACTURING CORPORATION (Saniwares)(1989)
FACTS: Saniwares, a domestic corporation, was incorporated for the
primary purpose of manufacturing and marketing sanitary wares. One of
the incorporators, Mr. Young went abroad to look for foreign partners.
ASI, a foreign corporation domiciled in the US entered into an agreement
with Saniwares and some Filipino investors whereby ASI and the Filipino
investors agreed to participate in the ownership of an enterprise which
would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad China and sanitary wares. The
parties agreed that the business operations in the Philippines shall be
carried on by an incorporated enterprise which name shall be Sanitary
Wares Manufacturing Corporation. The agreement has the provision that
the management of the corporation shall be vested in the Board of
Directors (BOD) which shall consists of 9 individuals. And as long as
ASIwill own 30% of the outstanding capital stock, 3 of the 9 directors
shall be designated by ASI and the other directors by the other
stockholders. Veto power was also given to ASI which is designed to
protect it as a minority group. The joint enterprise prospered. However,
disagreements came up due to objection of ASI of the desired expansion of
the Filipino group. When the time came to elect the BOD, instead of 9
nominees, 11 were nominated contrary to the usual practice. The meeting
was subsequently adjourned. ASI, other stockholders and Salazar, one of
the nominees as director continued the meeting at the elevator lobby of
ASI Building and consequently, 5 directors were elected as certified by the
acting secretary.
ISSUE: Whether or not the directors as nominated by the ASI group are
valid members of the BOD of Saniwares
HELD:
No. The rule is that whether the parties to a particular contract have
thereby established among themselves a joint venture or some other
relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and... construction
of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO)
65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal.
2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that
the actual intention of the parties should be viewed strictly on the
"Agreement" dated August 15, 1962 wherein it is clearly stated that the
parties' intention was to form a... corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions
which states:
Aurelio K. Litonjua, Jr.,petitioner vs. Eduardo K. Litonjua, Sr.,
respondents.
Business Organization – Partnership, Agency, Trust – Partnership, how
formed
Facts:
 Aurelio and Eduardo are brothers.
 In 1973, Aurelio alleged that Eduardo entered into a contract of
partnership with him.
 Aurelio showed as evidence a letter sent to him by Eduardo that the latter
is allowing Aurelio to manage their family business (if Eduardo’s away)
and in exchange thereof he will be giving Aurelio P1 million or 10%
equity, whichever is higher.
 A memorandum was subsequently made for the said partnership
agreement.
 The memorandum this time stated that in exchange of Aurelio, who just
got married, retaining his share in the family business (movie theatres,
shipping and land development) and some other immovable properties,
he will be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is greater.
 In 1992 however, the relationship between the brothers went sour.
 And so Aurelio demanded an accounting and the liquidation of his share
in the partnership.
 Eduardo did not heed and so Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: NO.
 The partnership is void and legally nonexistent.
 The documentary evidence presented by Aurelio, i.e. the letter from
Eduardo and the Memorandum, did not prove partnership.
 The 1973 letter from Eduardo on its face, contains typewritten entries,
personal in tone, but is unsigned and undated.
 As an unsigned document, there can be no quibbling that said letter does
not meet the public instrumentation requirements exacted under Article
1771 (how partnership is constituted) of the Civil Code.
 Moreover, being unsigned and doubtless referring to a partnership
involving more than P3,000.00 in money or property, said letter cannot
be presented for notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the Article 1772
(capitalization of a partnership) of the Code.
 And inasmuch as the inventory requirement under the succeeding
Article 1773 goes into the matter of validity when immovable property
is contributed to the partnership, the next logical point of inquiry turns
on the nature of Aurelio’s contribution, if any, to the supposed
partnership.
 The Memorandum is also not a proof of the partnership for the same is
not a public instrument and again, no inventory was made of the
 immovable property and no inventory was attached 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.
Frank Bourns v. D.M. Carman G.R. No. 2880 December 4, 1906
Ponente: MAPA, J.
FACTS: An action to recover the sum of $437.50 balance due on a
contract for the sawing of lumber yard of Lo-Chim-Lim was filed by
Bourns (Plaintiff). The contract was entered into by Lo- Chim-Lim, acting
as in his own name with the plaintiff, and it appears that Lo-Chim-Lim
personally agreed to pay for the work himself. The plaintiff brought the
action against Lo- Chim-Lim and his co-defendants jointly, alleging that at
the time the contract was made, they were the joint proprietors and
operators of the said lumber yard engaged in the purchase and sale of
lumber under the name and style of Lo-Chim-Lim, hence were partners.
The lower court dismissed the action on the ground that defendants D.M.
Carman, Fulgencio and Tan-Tongco, except Vicente Palance and Go-
Tauco were not the partners of Lo-Chim-Lim.
ISSUE: Whether appellants are deemed partners of Lo-Chim-Lim and
hence are liable to Bourns
HELD:
No. The alleged partnership between Lo-Chim-Lim and the appellants was
formed by verbal agreement only. There is no evidence tending to show
that the said agreement was reduced to writing, or that it was ever recorded
in a public instrument. Moreover, the partnership had no corporate name.
The partnership was engaged in business under the name and style of Lo-
Chim-Lim only. Moreover, it does not appear that there was any mutual
agreement between the parties and if there were any, it has not been shown
what the agreement was. The contracts made with the plaintiff were made
by Lo-Chim-Lim individually in his own name, and there is no evidence
that the partnership over contracted in any form. Hence, the partnership is
one of cuentasen participacion. It is but a simple business conducted by
Lo-Chim-Lim exclusively in his own name. A partnership constituted in
such a manner, the existence of which was only known to those who had
an interest in the same, being no mutual agreements between the partners
and without a corporate name indicating to the public in some way that
there were other people besides the one who ostensibly managed and
conducted the business, is exactly the accidental partnership of cuentas en
participacion defined in Art. 239 of the Code of Commerce. Those who
contract with the person under whose name the business of such
partnership of cuentas en participacion is conducted, shall have only a
right of action against such person and not against the other persons
interested, and the latter, on the other hand, shall have no right of action
against the third person who contracted with the manager unless such
manager formally transfers his right to them.
Sevilla vs. CA
FACTS:
A contract by and between Noguera and Tourist World Service
(TWS), represented by Canilao, wherein TWS leased the premises
belonging to Noguera as branch office of TWS. When the branch office
was opened, it was run by appellant Sevilla payable to TWS by any airline
for any fare brought in on the efforts of Mrs. Sevilla, 4% was to go to
Sevilla and 3% was to be withheld by the TWS.
Later, TWS was informed that Sevilla was connected with rival
firm, and since the branch office was losing, TWS considered closing
down its office.
On January 3, 1962, the contract with appellee for the use of the
branch office premises was terminated and while the effectivity thereof
was January 31, 1962, the appellees no longer used it. Because of this,
Canilao, the secretary of TWS, went over to the branch office, and finding
the premises locked, he padlocked the premises. When neither appellant
Sevilla nor any of his employees could enter, a complaint was filed by the
appellants against the appellees.
TWS insisted that Sevilla was a mere employee, being the “branch
manager” of its branch office and that she had no say on the lease executed
with the private respondent, Noguera.
ISSUE: W/N ER-EE relationship exists between Sevilla and TWS
HELD:
The records show that petitioner, Sevilla, was not subject to control
by the private respondent TWS. In the first place, under the contract of
lease, she had bound herself in solidum as and for rental payments, an
arrangement that would belie claims of a master-servant relationship. That
does not make her an employee of TWS, since a true employee cannot be
made to part with his own money in pursuance of his employer’s business,
or otherwise, assume any liability thereof.
In the second place, when the branch office was opened, the same
was run by the appellant Sevilla payable to TWS by any airline for any
fare brought in on the effort of Sevilla. Thus, it cannot be said that Sevilla
was under the control of TWS. Sevilla in pursuing the business, relied on
her own capabilities.
It is further admitted that Sevilla was not in the company’s payroll.
For her efforts, she retained 4% in commissions from airline bookings, the
remaining 3% going to TWS. Unlike an employee, who earns a fixed
salary, she earned compensation in fluctuating amount depending on her
booking successes.
The fact that Sevilla had been designated “branch manager” does
not make her a TWS employee. It appears that Sevilla is a bona fide travel
agent herself, and she acquired an interest in the business entrusted to her.
She also had assumed personal obligation for the operation thereof,
holding herself solidary liable for the payment of rentals.
Wherefore, TWS and Canilao are jointly and severally liable to
indemnify the petitioner, Sevilla.
PHILEX MINING CORPORATION v. CIR, GR No. 125704, 1998-
08-28
Facts:
Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals... affirming the Court of Tax Appeals decision... ordering it to pay
the amount of P110,677,668.52 as excise tax liability for the period from
the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Sections 248 and
249 of the Tax Code of
1977.
BIR sent a letter to Philex asking it to settle its tax liabilities for the... in
the total amount of P123,821,982.52
PERIOD COVERED
Philex protested the demand... stating that it has pending claims for VAT
input credit/refund for the taxes it paid for the years 1989 to 1991 in the
amount of P119,977,037.02 plus... interest.
Therefore... should be applied against the tax liabilities
BIR... found no merit in Philex's position
Since these pending claims have not yet been established or determined
with certainty
Hence
Philex settle the amount
Philex raised the issue to the Court of Tax Appeals
BIR issued a Tax Credit Certificate... which... effectively lowered the
latter's tax obligation of P110,677,688.52.
CTA still ordered Philex to pay the remaining balance... elucidating its
reason... for legal compensation to take place, both obligations must be
liquidated and demandable.
Liquidated' debts are those where the exact amount has already been
determined
In the... instant case,... refund is still pending litigation... the liquidated
debt... cannot... be set-off against the unliquidated... claim
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to
set-off on compensation since claim for taxes is not a debt or contract.
Philex appealed the case before the Court of Appeals... affirmed the Court
of Tax Appeals
Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994
Philex now contends that the same should... off-set its excise tax
liabilities... since both had already become "due and demandable, as well
as fully liquidated
Issues:
legal compensation can properly take place... had no obligation... to pay
the excise liabilities within the prescribed period since, after all, it still has
pending claims for VAT input credit/refund with BIR
BIR violated Section 106(e)... of the National Internal Revenue Code of
1977... which requires the refund of input taxes within 60 days,... when it
took five years for the latter to... grant its tax claim for VAT input
credit/refund.
Ruling:
We see no merit in this contention.
taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other.
There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity.
in Francia v. Intermediate Appellate Court... taxes cannot be subject to set-
off or compensation, thus:
"We have consistently ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes
him an amount equal to or greater than the... tax being collected. The
collection of tax cannot await the results of a lawsuit against the
government."
Caltex Philippines, Inc. v. Commission on Audit
"x x x a taxpayer may not offset taxes due from the claims that he may
have against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is... not such a debt, demand,
contract or judgment as is allowed to be set-off."
Philex's reliance on our holding in Commissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may be
set off against an existing tax liability even though the refund has not yet
been approved by the
Commissioner,... is no longer without any support in statutory law. while we understand Philex's predicament, it must be stressed that the
same is not valid reason for the non- payment of its tax liabilities.
when the National Internal Revenue Code of 1977 was enacted, the same
provision upon which the

Itogon-Suyoc pronouncement was based was omitted.

this is an outright disregard of the basic principle in tax law that taxes are
the lifeblood of the government and so should be collected without
unnecessary hindrance.

we cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the
government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is... that it is compulsory rather than a
matter of bargain.

a tax does not depend upon the consent of the taxpayer

Corollarily... pending claims... is immaterial for the imposition of charges

and penalties prescribed under Section 248 and 249 of the Tax Code of
1977.

we agree with Philex.

once the claimant has submitted all the... required documents, it is the
function of the BIR to assess these documents with purposeful dispatch.
After all, since taxpayers owe honesty to government it is but just that
government render fair service to the taxpayers.

In the instant case, the VAT input taxes were paid between 1989 to 1991
but the refund of these erroneously paid taxes was only granted in 1996.

had the BIR been more diligent and judicious with their duty, it could have
granted the refund earlier.