ESTANISLAO, JR. VS.

COURT OF APPEALS
Facts: The petitioner and private respondents are brothers and sisters who are coowners of certain lots at the in Quezon City which were then being leased to SHELL.
They agreed to open and operate a gas station thereat to be known as Estanislao
Shell Service Station with an initial investment of PhP15,000.00 to be taken from the
advance rentals due to them from SHELL for the occupancy of the said lots owned in
common by them. A joint affidavit was executed by them on April 11, 1966. The
respondents agreed to help their brother, petitioner therein, by allowing him to operate
and manage the gasoline service station of the family. In order not to run counter to
the companys policy of appointing only one dealer, it was agreed that petitioner
would apply for the dealership. Respondent Remedios helped in co-managing the
business with petitioner from May 1966 up to February 1967.
On May 1966, the parties entered into an Additional Cash Pledge Agreement with
SHELL wherein it was reiterated that the P15,000.00 advance rental shall be
deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso
that said agreement cancels and supersedes the Joint Affidavit.
For sometime, the petitioner submitted financial statement regarding the operation of
the business to the private respondents, but thereafter petitioner failed to render
subsequent accounting. Hence , the private respondents filed a complaint against the
petitioner praying among others that the latter be ordered:
(1) To execute a public document embodying all the provisions of the
partnership agreement they entered into;
(2) To render a formal accounting of the business operation veering the period
from May 6, 1966 up to December 21, 1968, and from January 1, 1969 up to
the time the order is issued and that the same be subject to proper audit;
(3) To pay the plaintiffs their lawful shares and participation in the net profits of
the business; and
(4) To pay the plaintiffs attorneys fees and costs of the suit.
Issue: Can a partnership exist between members of the same family arising from
their joint ownership of certain properties?
Trial Court: The complaint (of the respondents) was dismissed. But upon a motion
for reconsideration of the decision, another decision was rendered in favor of the
respondents.
CA: Affirmed in toto
Petitioner: The CA erred in interpreting the legal import of the Joint Affidavit vis--vis
the Additional Cash Pledge Agreement. Because of the stipulation cancelling and
superseding the Joint Affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. Also, the CA erred in declaring that
a partnership was established by and among the petitioner and the private
respondents as regards the ownership and /or operation of the gasoline service
station business.
Held: There is no merit in the petitioners contention that because of the stipulation
cancelling and superseding the previous joint affidavit, whatever partnership

agreement there was in said previous agreement had thereby been abrogated. Said
cancelling provision was necessary for the Joint Affidavit speaks of P15,000.00
advance rental starting May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966. There is therefore a
duplication of reference to the P15,000.00 hence the need to provide in the
subsequent document that it cancels and supercedes the previous none. Indeed, it
is true that the latter document is silent as to the statement in the Join Affidavit that
the value represents the capital investment of the parties in the business and it
speaks of the petitioner as the sole dealer, but this is as it should be for in the latter
document, SHELL was a signatory and it would be against their policy if in the
agreement it should be stated that the business is a partnership with private
respondents and not a sole proprietorship of the petitioner.
Furthermore, there are other evidences in the record which show that there was in
fact such partnership agreement between parties. The petitioner submitted to the
private respondents periodic accounting of the business and gave a written authority
to the private respondent Remedios Estanislao to examine and audit the books of
their common business (aming negosyo). The respondent Remedios, on the other
hand, assisted in the running of the business. Indeed, the parties hereto formed a
partnership when they bound themselves to contribute money in a common fund with
the intention of dividing the profits among themselves

AGUILA, JR. VS. CA

Facts: The petitioner herein is the manager of A.C. Aguila & Sons, Co., a partnership
engaged in lending activities, while the private respondent and her late husband were
the registered owners of a house and lot, covered by a transfer certificate of title.
Sometime in 1991, the private respondent and A.C. Aguila & Sons, Co., represented
by the petitioner, entered into a Memorandum of Agreement. In this agreement, a
deed of absolute sale shall be executed by the private respondent in favor of A.C.
Aguila & Sons, Co., giving the former an option to repurchase and obliging the same
to deliver peacefully the possession of the property to A.C. Aguila & Sons, Co., within
15 days after the expiration of the said 90 days grace period.
When the private respondent failed to redeem the property within the grace period,
the petitioner caused the cancellation of the transfer certificate of title under the
private respondents name and the issuance of a new certificate of title in the name of
A.C. Aguila & Sons, Co. Subsequently, the private respondent was asked to vacate
the premises, however she refused. Because of this refusal, A.C. Aguila & Sons, Co.
filed an ejectment case against her.
The MTC ruled in favor of A.C. Aguila & Sons, Co., on the ground that the private
respondent did not redeem the subject property before the expiration of the 90-day
period provided in the MOA. She filed an appeal before the RTC, but failed again.
Then, she filed a petition for declaration of nullity of a deed of sale with the RTC. She
alleged that the signature of her husband on the deed of sale was a forgery because
he was already to be dead when the deed was supposed to have been executed. It

appears however that the she filed a criminal complaint for falsification against the
petitioner.
RTC: DENIED. The plaintiff never questioned receiving from A.C. Aguila & Sons, Co.
the sum of P200,000.00 representing her loan from the defendant. Common sense
dictates that an established lending and realty firm like Aguila would not part with
Php200,000.00 to the spouses, who are virtual strangers to it, without simultaneous
accomplishment and signing of all the required documents, more particularly the
Deed of Absolute Salem to protect its interest.
CA: REVERSED. The transaction between the parties is indubitably an equitable
mortgage. Considering that the private respondent (vendor) was paid the price
which is unusually inadequate (240 sq. m. subdivision lot for only Php200,000.00 in
the year 1991), has retained possession of the property and has continued paying
real taxes over the subject property.
Petitioner:
1.
2.
3.

He is not the real party in interest but A.C. Aguila & Sons, Co.;
The judgment in the ejectment case is a bar to the filing of the complaint for
declaration of nullity of a deed of sale in this case; and
The contract between the parties is a pacto de retro sale and not an
equitable mortgage.

Held: The petition is meritorious. 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.
Moreover, under Article 1768 of the New Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners. The partners
cannot be held liable for the obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used for fraudulent, unfair, or
illegal purposes.
In this case, the private respondent ahs not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair or illegal purposes.
Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co.
and the MOA was executed between the private respondent, with the consent of her
husband, and A.C. Aguila & Sons, Co., represented by the petitioner. Hence, it is the
partnership, not its officers or agents, which should be impleaded in any litigation
involving property registered in its name.
We cannot understand why both the RTC and the CA sidestepped this issue when it
was squarely raised before them by the petitioner. The courts conclusion is that the
petitioner is not the real party in interest against whom this action should be
prosecuted. It is unnecessary to discuss the other issues raised by him in his appeal.

Aguila vs CA

In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan
agreement with a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan
was for P200k. To secure the loan, the spouses mortgaged their house and lot
located in a subdivision. The terms of the loan further stipulates that in case of nonpayment, the property shall be automatically appropriated to the partnership and a
deed of sale be readily executed in favor of the partnership. She does have a 90 day
redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn over the
property and so the firm filed an ejectment case against her (wherein she lost). She
also failed to redeem the property within the period stipulated. She then filed a civil
case against Alfredo Aguila, manager of the firm, seeking for the declaration of nullity
of the deed of sale. The RTC retained the validity of the deed of sale. The Court of
Appeals reversed the RTC. The CA ruled that the sale is void for it is a pactum
commissorium sale which is prohibited under Art. 2088 of the Civil Code (note the
disparity of the purchase price, which is the loan amount, with the actual value of the
property which is after all located in a subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party in interest.
As pointed out by Aguila, he is not the real party in interest but rather it was the
partnership A.C. Aguila & Sons, Co. The Rules of Court provide that every action
must be prosecuted and defended in the name of the real party in interest. 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 the partners. The partners cannot be held liable for
the obligations of the partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair, or illegal purposes. In this
case, Felicidad has not shown that A.C. Aguila & Sons, Co., as a separate juridical
entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. It is the partnership, not its
officers or agents, which should be impleaded in any litigation involving property
registered in its name. A violation of this rule will result in the dismissal of the
complaint.
tan eng kee vs CA

Benguet Lumber has been around even before World War II but during the war, its
stocks were confiscated by the Japanese. After the war, the brothers Tan Eng Lay
and Tan Eng Kee pooled their resources in order to revive the business. In 1981, Tan
Eng Lay caused the conversion of Benguet Lumber into a corporation called Benguet
Lumber and Hardware Company, with him and his family as the incorporators. In
1983, Tan Eng Kee died. Thereafter, the heirs of Tan Eng Kee demanded for an
accounting and the liquidation of the partnership.
Tan Eng Lay denied that there was a partnership between him and his brother. He
said that Tan Eng Kee was merely an employee of Benguet Lumber. He showed
evidence consisting of Tan Eng Kees payroll; his SSS as an employee and Benguet
Lumber being the employee. As a result of the presentation of said evidence, the
heirs of Tan Eng Kee filed a criminal case against Tan Eng Lay for allegedly
fabricating those evidence. Said criminal case was however dismissed for lack of
evidence.

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 or not Tan Eng Kee is a partner.

ISSUE:
HELD: No. There was no certificate of partnership between the brothers. The heirs
were not able to show what was the agreement between the brothers as to the
sharing of profits. All they presented were circumstantial evidence which in no way
proved partnership.

Whether petitioners formed an unregistered partnership subject to corporate income

tax (partnership vs. co-ownership)
RULING:

It is obvious that 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 Kees death in 1984. It had nobusiness
book, no written account nor any memorandum for that matter and no license
mentioning the existence of a partnership.
In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole
proprietorship. He registered the same as such in 1954; that Kee was just an
employee based on the latters payroll and SSS coverage, and other records
indicating Tan Eng Lay as the proprietor.
Also, the business definitely amounted to more P3,000.00 hence if there was a
partnership, it should have been made in a public instrument.

PASCUAL v. Commissioner of Internal Revenue:

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.
YULO V. YANG CHIAO SENG
Facts: Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and
operate a theatre on the premises occupied by Cine Oro, Plaza Sta. Cruz, Manila, the
principal conditions of the offer being (1) Yang guarantees Yulo a monthly
participation of P3,000 (2) partnership shall be for a period of 2 years and 6 months
with the condition that if the land is expropriated, rendered impracticable for business,
owner constructs a permanent building, then Yulos right to lease and partnership
even if period agreed upon has not yet expired; (3) Yulo is authorized to personally
conduct business in the lobby of the building; and (4) after Dec 31, 1947, all
improvements placed by partnership shall belong to Yulo but if partnership is
terminated before lapse of 1 and years, Yang shall have right to remove
improvements. Parties established, Yang and Co. Ltd., to exist from July 1, 1945
Dec 31, 1947.
In June 1946, they executed a supplementary agreement extending the partnership
for 3 years beginning Jan 1, 1948 to Dec 31, 1950.
The land on which the theater was constructed was leased by Yulo from owners,
Emilia Carrion and Maria Carrion Santa Marina for an indefinite period but that after 1
year, such lease may be cancelled by either party upon 90-day notice. In Apr 1949,
the owners notified Yulo of their desire to cancel the lease contract come July. Yulo
and husband brought a civil action to declare the lease for a indefinite period. Owners
brought their own civil action for ejectment upon Yulo and Yang.
CFI: Two cases were heard jointly; Complaint of Yulo and Yang dismissed declaring
contract of lease terminated.
CA: Affirmed the judgment.
In 1950, Yulo demanded from Yang her share in the profits of the business. Yang
answered saying he had to suspend payment because of pending ejectment suit.
Yulo filed present action in 1954, alleging the existence of a partnership between
them and that Yang has refused to pay her shares.
Defendants Position: The real agreement between plaintiff and defendant was one
of lease and not of partnership; that the partnership was adopted as a subterfuge to
get around the prohibition contained in the contract of lease between the owners and
the plaintiff against the sublease of the property.

Trial Court: Dismissal. It is not true that a partnership was created between them
because defendant has not actually contributed the sum mentioned in the Articles of
Partnership or any other amount. The agreement is a lease because plaintiff didnt
share either in the profits or in the losses of the business as required by Art 1769
(CC) and because plaintiff was granted a guaranteed participation in the profits
belies the supposed existence of a partnership.
Issue: Was the agreement a contract a lease or a partnership?
Ruling: Dismissal. The agreement was a sublease not a partnership. The following
are the requisites of partnership: (1) two or more persons who bind themselves to
contribute money, property or industry to a common fund; (2) the intention on
the part of the partners to divide the profits among themselves (Article 1761, CC)
Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any help or
intervention in the management of the theatre. Neither has she demanded from
defendant any accounting of the expenses and earnings of the business. She was
absolutely silent with respect to any of the acts that a partner should have done; all
she did was to receive her share of P3,000 a month which cannot be interpreted in
any manner than a payment for the use of premises which she had leased from the
owners.
Yulo vs yang
Yang Chiao Seng wrote a letter to a Yulo, proposing the formation of a partnership
between them to run and operate a theatre. Among the principal conditions offered
were: first, that Yulo would have a guaranteed monthly participation of P3,000; and
second, that the partnership shall last for a period of two years and six months.
Yulo accepted the offer and the parties executed a partnership agreement. The
capital was fixed at P100,000, P80,000 of which was to be furnished by Yang and
P20,000 by the Yulo. All gains were to be distributed among the partners in the same
proportion as their capital contribution and Yulos liability, in case of loss, shall be
limited to her capital contribution. Later, they executed a supplementary agreement,
wherein they extended the partnership for three (3) years and the benefits were now
to be divided equally between them.
They built the theatre on a piece of land, which was leased under Yulos name. Two
months before the partnership was due to expire, the Yulo demanded from Yang her
share in the profits of the business. In a letter, Yang explained that he had stopped
paying monthly rentals due to the pending ejectment case brought by the landlords
against the Yulo. Inasmuch as he was the sub-lessee, he was retaining the rentals to
make good the rentals due from the Yulo in arrears.
Thus, the Yulo filed a suit for damages against him for maliciously refusing to give her
share in the partnership profits.

In his answer, Yang claimed that the real agreement between them was not one of
partnership but of lease. The partnership was merely adopted as a subterfuge to get
around the prohibition contained in the contract of lease between them and the
landowners.

Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do an
accounting of all income, profits, and properties from the estate of Elfledo Lim as they
claimed that they are co-owners thereof. Juliet refused hence they sued her.

The trial court rendered judgment in favor of Yang. It held that the real agreement
between them is one of lease since under the agreement, Yulo did not actually share
either in the profits or in the losses as required by the Civil Code for partnerships.

The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the
partnership that Jose Lim formed with Norberto and Jimmy. In court, Jimmy Yu
testified that Jose Lim was the partner and not Elfledo Lim. The heirs testified that
Elfledo was merely the driver of Jose Lim.

Issue: whether or not Yulo and Yangs relationship is that of a Partnership.

ISSUE: Who is the partner between Jose Lim and Elfledo Lim?

On appeal, the Supreme Court upheld the lower courts decision. Under Article 1767
of the Civil Code, the following are the requisites of a partnership: 1) two or more
persons who bind themselves to contribute money, property, or industry to a common
fund; and 2) the intention on the part of the partners to divide the profits among
themselves. SC also held that, In the first place, Yulo did not furnish the supposed
P20,000 capital. Second, she did not furnish any help or intervention in management
of the theatre. Third, it does not appear that she has ever demanded from [Yang] any
accounting of the expenses and earnings of the business. Were she really a partner,
her first concern should have been to find out how the business was progressing,
whether the expenses were legitimate, whether the earnings were correct, etc. She
was absolutely silent with respect to any of the acts that a partner should have done;
all that she did was to receive her share of P3,000 a month, which cannot be
interpreted in any manner than a payment for the use of the premises which she had
leased from the owners

HELD: It is Elfledo Lim based on the evidence presented regardless of Jimmy Yus
testimony in court that Jose Lim was the partner. If Jose Lim was the partner, then the
partnership would have been dissolved upon his death (in fact, though the SC did not
say so, I believe it should have been dissolved upon Norbertos death in 1993). A
partnership is dissolved upon the death of the partner. Further, no evidence was
presented as to the articles of partnership or contract of partnership between Jose,
Norberto and Jimmy. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized.

Lim vs Lim
In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a partnership
agreement with Jimmy Yu and Norberto Uy. The three contributed P50,000.00 each
and used the funds to purchase a truck to start their trucking business. A year later
however, Jose Lim died. The eldest son of Jose Lim, Elfledo Lim, took over the
trucking business and under his management, the trucking business prospered.
Elfledo was able to but real properties in his name. From one truck, he increased it to
9 trucks, all trucks were in his name however. He also acquired other motor vehicles
in his name.
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack. Elfledos
wife, Juliet Lim, took over the properties but she intimated to Jimmy and the heirs of
Norberto that she could not go on with the business. So the properties in the
partnership were divided among them.

Petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and Juliet formed part of
the estate of Jose, having been derived from Joses alleged partnership with Jimmy
and Norberto. Elfledo was not just a hired help but one of the partners in the trucking
business, active and visible in the running of its affairs from day one until this ceased
operations upon his demise. The extent of his control, administration and
management of the partnership and its business, the fact that its properties were
placed in his name, and that he was not paid salary or other compensation by the
partners, are indicative of the fact that Elfledo was a partner and a controlling one at
that.

SANTOS VS REYES
In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat
(15%) orally instituted a partnership with them as partners. Their venture is to set up a
lending business where it was agreed that Santos shall be financier and that Nieves
and Zabat shall contribute their industry. **The percentages after their names denote
their share in the profit.
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a
corporation. It was agreed that the partnership shall provide loans to the employees
of Grageras corporation and Gragera shall earn commission from loan payments.

In August 1986, the three partners put into writing their verbal agreement to form the
partnership. As earlier agreed, Santos shall finance and Nieves shall do the daily
cash flow more particularly from their dealings with Gragera, Zabat on the other hand
shall be a loan investigator. But then later, Nieves and Santos found out that Zabat
was engaged in another lending business which competes with their partnership
hence Zabat was expelled.
The two continued with the partnership and they took with them Nieves husband,
Arsenio, who became their loan investigator.
Later, Santos accused the spouses of not remitting Grageras commissions to the
latter. He sued them for collection of sum of money. The spouses countered that
Santos merely filed the complaint because he did not want the spouses to get their
shares in the profits. Santos argued that the spouses, insofar as the dealing with
Gragera is concerned, are merely his employees. Santos alleged that there is a
distinct partnership between him and Gragera which is separate from the partnership
formed between him, Zabat and Nieves.
The trial court as well as the Court of Appeals ruled against Santos and ordered the
latter to pay the shares of the spouses.
ISSUE: Whether or not the spouses are partners.
HELD: Yes. Though it is true that the original partnership between Zabat, Santos and
Nieves was terminated when Zabat was expelled, the said partnership was however
considered continued when Nieves and Santos continued engaging as usual in the
lending business even getting Nieves husband, who resigned from the Asian
Development Bank, to be their loan investigator who, in effect, substituted Zabat.
There is no separate partnership between Santos and Gragera. The latter being
merely a commission agent of the partnership. This is even though the partnership
was formalized shortly after Gragera met with Santos (Note that Nieves was even the
one who introduced Gragera to Santos exactly for the purpose of setting up a lending
agreement between the corporation and the partnership).
HOWEVER, the order of the Court of Appeals directing Santos to give the spouses
their shares in the profit is premature. The accounting made by the trial court is based
on the total income of the partnership. Such total income calculated by the trial court
did not consider the expenses sustained by the partnership. All expenses incurred by
the money-lending enterprise of the parties must first be deducted from the total
income in order to arrive at the net profit of the partnership. The share of each one
of them should be based on this net profit and not from the gross income or total
income.

OBILLOS v. CIR
(October 29, 1985)
DOCTRINE: 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.
NATURE: Petition to review the decision of the Court of Tax Appeals
PONENTE: Aquino, J.
FACTS:
For at least one year after their receipt of two parcels of
land from their father, petitioners resold said lots to the Walled City
Securities Corporation and Olga Cruz Canda, for which they earned
a 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.
One day before the expiration of the five-year prescriptive
period, the Commissioner of Internal Revenue, Commissioner acting on
the theory that the four petitioners had formed an unregistered
partnership or joint venture, 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, a 50% fraud surcharge
and a 42% accumulated interest. Further, the Commissioner considered
the share of the profits of each petitioner in the sum of P33,584 as a
" taxable in full (not a mere capital gain of which is taxable) and
required them to pay deficiency income taxes aggregating P56,707.20
including the 50% fraud surcharge and the accumulated interest.
The petitioners contested the assessments. Two Judges of the
Tax Court sustained the same. Judge Roaquin dissented. Hence, the
instant appeal.
ISSUES:Whether or not petitioners have indeed formed a
partnership or joint venture and thus, liable for corporate income tax.
HELD &RATIO/RULING:We hold that it is error to consider
the petitioners as having formed a partnership under article 1767 of
the Civil Code simply because they allegedly contributed P178,708.12
to buy the two lots, resold the same and divided the profit among
themselves.
To regard the petitioners as having formed a taxable
unregistered partnership 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.

DISPOSITION:WHEREFORE, the judgment of the Tax Court is

reversed and set aside. The assessments are cancelled. No costs.