Dyan C.

Gapay
3–C

Case #10:

PASCUAL v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 78133 October 18, 1988

FACTS:
Petitioners Pascual and Dragon bought a total of five parcels of land from 1965 to 1966. In 1968,
they sold the two parcels of land and realized a net profit of P165,224.70. In 1970, they sold the
remaining three parcels of land where they realized a net profit of P60,000.00. Capital gains tax was paid
by the petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years. In 1979,
the respondent Commissioner informed that petitioners, as co-owners in the real estate transactions,
have formed an unregistered partnership or joint venture and such was subject to corporate income tax
as distinguished from profits derived from the partnership by them which is subject to individual income
tax.
Petitioners filed a petition for review with the respondent Court of Tax Appeal but the latter
affirmed the decision of the commissioner.

ISSUE: Whether or not the petitioners created an unregistered partnership, and should be liable for
corporate income tax.

RULING:
No. 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.
There is clear evidence of co-ownership between the petitioners, but 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.
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. However, as petitioners have
availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby
relieved of any further tax liability arising therefrom.
Dyan C. Gapay
3–C

Case # 45

MCDONALD v. NATIONAL CITY BANK OF NEW YORK

G.R. No. L-7991. May 21, 1956

FACTS:
STASIKINOCEY is a partnership formed by Gorcey, da Costa, Jr., Kusik and Gavino. However, it was
denied registration in the Securities and Exchange Commission because of the confusion between that
partnership and another co-partnership called Cardinal Rattan, wherein Gorcey and da Costa are
considered general partners. Cardinal Rattan is merely the business name or style used by the
partnership STASIKINOCEY. Sometime in 1949, STASIKINOCEY had an overdraft account with The National
City Bank of New York, a foreign banking association duly licensed to do business in the Philippines. Due
to the failure of the partnership to make the required payment, the overdraft account was converted
into an ordinary loan. Da Costa executed a promissory note secured by a chattel mortgage over three
vehicles. During the subsistence of the loan, the vehicles were sold to McDonald and later on, McDonald
sold two of the three vehicles to Gonzales. The bank brought an action for recovery of its credit and
foreclosure of the chattel mortgage upon learning of these transactions. The Court of First Instance of
Manila and Court of Appeals rendered judgment in favor of respondent bank.

ISSUE: Whether or not the partnership, Stasikinocey is estopped from asserting that it does not have
juridical personality since it is an unregistered commercial partnership.

RULING:
Yes. While an unregistered commercial partnership has no juridical personality, nevertheless,
where two or more persons attempt to create a partnership failing to comply with all the legal
formalities, the law considers them as partners and the association is a partnership in so far as it is a
favorable to third persons, by reason of the equitable principle of estoppel. Likewise, where a
partnership not duly organized has been recognized as such in its dealings with certain persons, it shall
be considered as “partnership by estoppel” and the persons dealing with it are estopped from denying
its partnership existence. If the law recognizes a defectively organized partnership as de facto as far as
third persons are concerned, for purposes of its de facto existence it should have such attribute of a
partnership as domicile.
Hence, in this case Da Costa and Gorcey cannot deny that they are partners of the partnership
Stasikinocey, because in all their transactions with the National City Bank they represented themselves
as such. McDonald cannot disclaim knowledge of the partnership STASIKINOCEY because he dealt with
said entity in purchasing two of the vehicles in question through Gorcey and Da Costa. The sale of the
vehicles to McDonald being void, the sale to Gonzales is also void since a buyer cannot have a better
right than the seller.