Professional Documents
Culture Documents
Facts:
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children. A civil case
was instituted for the settlement of her state, in which Oña was appointed administrator and later on the
guardian of the three heirs who were still minors when the project for partition was approved. This
shows that the heirs have undivided ½ interest in 10 parcels of land, 6 houses and money from the War
Damage Commission.
Although the project of partition was approved by the Court, no attempt was made to divide the
properties and they remained under the management of Oña who used said properties in business by
leasing or selling them and investing the income derived therefrom and the proceeds from the sales
thereof in real properties and securities. As a result, petitioners’ properties and investments gradually
increased. Petitioners returned for income tax purposes their shares in the net income but they did not
actually receive their shares because this left with Oña who invested them.
Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore,
subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners asked for
reconsideration, which was denied hence this petition for review from CTA’s decision.
Issue:
W/N the petitioners are liable for the deficiency corporate income tax
Held:
Unregistered partnership. The Tax Court found that instead of actually distributing the estate of the
deceased among themselves pursuant to the project of partition, the heirs allowed their properties to
remain under the management of Oña and let him use their shares as part of the common fund for their
ventures, even as they paid corresponding income taxes on their respective shares.
Yes. For tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived therefrom
are used as a common fund with intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or intestate proceeding. The reason is
simple. From the moment of such partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and, accordingly, he becomes liable individually for all
taxes in connection therewith. If after such partition, he allows his share to be held in common with his
co-heirs under a single management to be used with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document or instrument were executed, for the
purpose, for tax purposes, at least, an unregistered partnership is formed.
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships —
The term “partnership” includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried on…
(8 Merten’s Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
with the exception only of duly registered general copartnerships — within the purview of the term
“corporation.” It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income tax for corporations. Judgment affirmed.
Gatchalian vs CIR
FACTS:
On December 15, 1934, the plaintiffs, all 15 of them, each contributed in order to buy a sweepstakes
ticket worth Php 2.00.
That immediately thereafter but prior to December 16, 1934, plaintiffs purchased, in the ordinary course
of business, from one of the duly authorized agents of the National Charity Sweepstakes Office one
ticket bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in the
name of Jose Gatchalian and Company.
The above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000
and that the corresponding check covering the above-mentioned prize of P50,000 was drawn by the
National Charity Sweepstakes Office in favor of Jose Gatchalian & Company against the Philippine
National Bank, which check was cashed during the latter part of December, 1934 by Jose Gatchalian &
Company
Thereafter, Jose 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 on
December 29, 1934
The defendant made an assessment against Jose Gatchalian & Company requesting the payment of
the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan. Tthe plaintiffs requested
exemption from the payment of the income tax but it was rejected. The plaintiffs paid in protest the tax
assessment given to them.
ISSUE:
Whether the plaintiffs formed a partnership, thus not exempted from paying income tax
HELD:
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.
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 collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761.
Sardane vs CA
FACTS:
Petitioner brought an action in the collection of a sum of P5,217.25 based on promissory notes executed
by the herein private respondent NobioSardane in favor of the herein petitioner. Petitioner based his
right to collect on the promissory notes executed by respondent on different dates. It has been
established in the trial court that on many occasions, the petitioner demanded the payment of the total
amount of P5,217.25. The failure of the private respondent to pay the said amount prompted the
petitioner to seek the services of lawyer who made a letter (Exhibit 1) formally demanding the return of
the sum loaned. Because of the failure of the private respondent to heed the demands extrajudicially
made by the petitioner, the latter was constrained to bring an action for collection of sum of
money.During the scheduled day for trial, private respondent failed to appear and to file an answer. On
motion of petitioner, he was granted to present evidence ex parte. Private respondent filed a motion to
lift the order of default which was granted by the City Court in an order dated May 24, 1976, taking into
consideration that the answer was filed within two hours after the hearing of the evidence presented ex-
parte by the petitioner. The trial court favored plaintiff’s petition. One of the questions raised in the
review was whether the oral testimony for the therein private respondent Sardane that a partnership
existed between him and therein petitioner Acojedo are admissible to vary the meaning of the
abovementioned promissory notes.
RULING: The Court of Appeals held, and agreed with by the Court, that even if evidence aliunde other
than the promissory notes may be admitted to alter the meaning conveyed thereby, still the evidence is
insufficient to prove that a partnership existed between the private parties hereto. As manager of the
basnig Sarcado naturally some degree of control over the operations and maintenance thereof had to be
exercised by herein petitioner. The fact that he had received 50% of the net profits does not conclusively
establish that he was a partner of the private respondent herein. Article 1769(4) of the Civil Code is
explicit that while 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, no such inference shall be drawn if such profits were received in
payment as wages of an employee. Furthermore, herein petitioner had no voice in the management of
the affairs of the Basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez
Hermanos, in denying the claim of the plaintiff therein that he was a partner in the business of the
defendant, declared: This contention cannot be sustained. It was a mere contract of employment. The
plaintiff had no voice nor vote in the management of the affairs of the company. The fact that the
compensation received by him was to be determined with reference to the profits made by the
defendant in their business did not in any sense make him a partner therein. Hence, there no
partnership exists in the case.
Deluao vs Casteel
-Casteel was the original occupant and applicant of a fishpond area since before the last World War. He
wanted to preclude subsequent applicants from entering and spreading themselves within the area by
expanding his occupation thereof by the construction of dikes and the cultivation of marketable fishes.
-Thus, he borrowed P27, 000 from the Deluaos to finance needed improvements for the fishpond, and
was compelled by force of this circumstance to enter into the contract of partnership, with an agreement
to divide the fishpond after the award. Eventually, Casteel administered the said property and single-
handedly opposed rival applicants who occupied portions of the fishpond area. He relentlessly pursued
his claim to the said area up to the Office of the DANR Secretary, until it was finally awarded to him.
Issue: WON the parties can now validly divide the said fishpond as agreed upon by them? NO.
Ruling:
-Spouses Deluaos’ statement that the beneficial right over the fishpond in question is the "specific
partnership property" contemplated by art. 1811 of the Civil Code is incorrect. A reading of the said
provision will show that what is meant is tangible property, such as a car, truck or a piece of land, but
not an intangible thing such as the beneficial right to a fishpond. If what they have in mind is the
fishpond itself, they are grossly in error. A fishpond of the public domain can never be considered a
specific partnership property because only its use and enjoyment — never its title or ownership — is
granted to specific private persons.
-Since we held as illegal the second part of the contract of partnership between the parties to divide the
fishpond between them after the award, a fortiori, no rights or obligations could have arisen therefrom.
Inescapably, no trust could have resulted because trust is founded on equity and can never result from
an act violative of the law. Art. 1452 of the Civil Code does not support the appellees' stand because it
contemplates an agreement between two or more persons to purchase property — capable of private
ownership — the legal title of which is to be taken in the name of one of them for the benefit of all. In the
case at bar, the parties did not agree to purchase the fishpond, and even if they did, such is prohibited
by law, a fishpond of the public domain not being susceptible of private ownership.
-It must be observed that, despite the decisions of the DANR Secretary in DANR cases 353 and 353-B
awarding the area to Casteel, and despite the latter's proposal that they divide the fishpond between
them, the Deluaos unequivocally expressed in their aforequoted letter their decision not to share the
fishpond with Casteel. This produced the dissolution of the entire contract of partnership (to jointly
administer and to divide the fishpond after the award) between the parties, not to mention its automatic
dissolution for being contrary to law.
-Pettioner’s final proposition that only by giving effect to the confirmed intention of the parties may the
cause of equity and justice be served, we must state that since the contract of service is contrary to law
and, therefore, null and void, it is not and can never be considered as the law between the parties.
Facts
Albert F. Kiel commenced to work on certain public lands situated in the municipality of Parang,
Cotabato, known as Parang Plantation Company. In 1910, Kiel and P. S. Sabert entered into an
agreement to develop the plantation. Sabert was to furnish the capital and Kiel was to manage it. It
seems that this partnership was formed so that the land could be acquired in the name of Sabert, Kiel
being a German citizen and not deemed eligible to acquire public lands in the Philippines.
During the World War, Kiel was deported from the Philippines. Five persons, including P. S. Sabert,
organized the Nituan Plantation Company, to which Sabert transferred all the rights and interests of the
Parang Plantation Company. Kiel appears to have tried to secure a settlement from Sabert. But Sabert's
death came before any amicable arrangement could be reached and before an action by Kiel against
Sabert could be decided. So these proceedings against the estate of Sabert.
Issue
What is the nature of the proceeding? Is this an action to establish a resulting trust in the land of Sabert?
NO
Held
The court held that a ruling on the issue of establishing trust is not needed. Note that the complaint as
framed asks for a straight money judgment against an estate. In no part of the complaint did plaintiff
allege any interest in land, claim any interest in land, or pretend to establish a resulting trust in land. This
is not an action to establish trust in the land, because a trust will not be created when, for the purpose of
evading the law prohibiting one from taking or holding real property, he takes a conveyance thereof in
the name of a third person.
Also, no partnership agreement in writing was entered into by Kiel and Sabert. Thus the real issue is
whether or not the alleged verbal copartnership formed by Kiel and Sabert has been proved. The court
held that declarations of one partner, not made in the presence of his copartner, are not competent to
prove the existence of a partnership between them, and that the existence of a partnership cannot be
established by general reputation, rumor, or hearsay.
Although we feel that competent evidence exists establishing the partnership, Kiel under the facts had
no standing in court to ask for any part of the land and in fact he does not do so. His only legal right is to
ask for what is in effect an accounting with reference to its improvements and income when Sabert
became the trustee of the estate on behalf of Kiel.
Kiel is not entitled to any share in the land itself, but he has clearly shown his right to one-half of the
value of the improvements and personal property on the land. The value of these improvements and of
the personal property cannot be ascertained from the record and the case must therefore be remanded
for further proceedings.
FACTS
ISSUE
Whether the nature of the mercantile establishment, Teck Seing & Co., Ltd. is a limited partnership.
HELD
NO.
To establish a limited partnership, there must be, at least, one general partner and the name of at least
one of the general partners must appear in the firm name. This requirement has not been fulfilled. Those
who seek to avail themselves of the protection of laws permitting the creation of limited partnerships
must the show a substantially full compliance with such laws. It must be noted that all the requirements
of the Code have been met w/ the sole exception of that relating to the composition of the firm name.
The legal intention deducible from the acts of the parties controls in determining the existence of a
partnership. If they intend to do a thing w/c in law constitutes a partnership, they are partners although
their very purpose was to avoid the creation of such relation. Here the intention of the persons making
up, Teck Seing & Co., Ltd. Was to establish partnership w/c they erroneously denominated as a limited
partnership.
"That we, Santiago Jo Chung Cang, of legal age, Trader, neighbor and resident of the municipality of
Tabogon, Province of Cebu, Philippines, Go Tayco, of legal age, Merchant, neighbor and resident of the
municipality of Cebu, Province Of Cebu, Philippine Islands, Yap Gueco, of legal age, trader, Neighbor
and resident of the municipality and Province of Cebu, Islas Philippines, Lim Yogsing, of legal age,
trader, neighbor and Resident of the municipality of Cebu, Province of Cebu, Islands Philippines, and Jo
Ybec, of legal age, trader, Resident of the municipality of Jagna, Province of Bohol, Islands
Philippines, we hereby state that we constitute and We form a limited trading company, under the laws
in force
In the Philippines, and to be registered in accordance with the Regulations of the Commercial Code in
the Philippines.
"That the business name shall be named" Teck Seing & Co., Ltd. "and Will have its main address at
Calle Magallanes No. 94, of the City of Cebu, Province of Cebu, Philippine Islands.
"That the social capital will be thirty thousand pesos (P30,000) Currency of the Philippine Islands,
divided into five shares of P6,000 as follows: Santiago Jo Chung Cang; P6,000.00 - Go Tayco; 6,000.00
- Yap Gueco; 6,000.00 - Jo Ybec; 6,000.00- Lim Yogsing - 6,000.00
"That the duration of the partnership shall be six years, from The date of this deed, and this time may be
extended to Unanimous discretion of all shareholders.
"The object of the partnership will be the purchase and sale of goods in general.
"The administrator or administrators of the company may, With prior agreement of the shareholders,
establish how many Branches or establishments deemed necessary to facilitate Their business and the
greater development of the trade in which the Society, verifying all the operations they create Suitable
for the promotion of its capital.
"The profits or losses that result during each year Shall be distributed proportionally among the
shareholders, According to the capital contributed by each one of them.
"The profits that will result in each commercial year, if Result in some gains, they can not be withdrawn
by the
Shareholders within a period of three years from the date of Date of the first annual balance of the
business, leaving therefore Reserves in order to increase the capital contributed by The shareholders
and thus expand the sphere of action undertaken by the same company. To the The three-year term
expires, each shareholder may Withdraw or deposit in the hands of the company, the profits Should
correspond during that three-year term.
"That shareholders may not extract or dispose in any Time any quantity or quantities of the company,
which Has been contributed by them, to meet their expenses Not even paying any income on the
amount Attempt to dispose of or extract from that company.
"The shareholder Mr. Lim Yogsing will be in charge, in union of the Mr. Vicente Jocson Jo, the
Company's management, who May use the social signature indistinctly, being for Consequently
authorized both to do on her behalf All kinds of business operations, business speculations, Practicing
judicially and extrajudicially how many acts For the good of society, appoint attorneys-in-fact or Lawyers
for claims and collection of credits and to propose Exceptions. In case of absence, illness or Any other
impediment of shareholder Mr. Lim Yogsing, it may confer general or special power to the shareholder
Which creates convenient for which in union of the administrator Assistant to Mr. Vicente Jocson Jo,
could both administer Conveniently the business of the company. That the Administrators may have the
necessary employees for the Management of the company's businesses, and will determine the That
these employees should receive for services rendered to the society.
"That both administrators may have one thousand two hundred Pesos (P1,200) Philippine currency,
annually, for your expenses Particular, said quantity of P1,200 being that corresponding to To each of
said administrators, as emoluments Wages that are assigned to each, For his work in the administration
of society.
It being understood that, shareholders may dispose of each purpose Year the bonus to be granted to
each manager, if the Businesses of the year were buoyant and justified the granting of a Special bonus,
apart from the salary set forth here and specified.
"That passed the term of six years, and is of the convenience of The shareholders continued the
business of this company, Term will be extended for an equal number of years, without Of the granting
of further deeds, leaving the present in Force until the term established by all shareholders.
"That any differences that may arise between Shareholders, either for the reason stipulated in this deed,
Already by acts in the course and direction of the businesses in her Will be arranged to arrange between
the same friendly and Extrajudicially, and if an arrangement is not achieved in this way, Such
shareholders shall appoint an arbitrator whose resolution is All bound and hereby undertake and
undertake to Accept it in all its parts, renouncing further resources.
"In what terms do we make this deed of Company, and we promise to keep it faithfully and Strictly
according to the pacts we have established.
"In testimony of all of which, we signed in the City of Cebu, Province of Cebu, Philippine Islands, today,
October 31, thousand Nine hundred and ten.
"In the Municipality of Cebu, of the aforementioned Province, I. F., Today, October 31, 1919, A. D.,
before me, a Notary Public who Subscribe, personally appeared Santiago Jo Chung Cang, Go Tayco,
Yap Gueco, Lim Yogsing and Jo Ybec, represented The latter by Ho Seng Sian, as authorized in
Telegram dated September 27, 1919 that I have been Presented at the same event, of whom I give the
assurance I know for being the same people who gave the preinsert Document, ratifying before me its
content and stating that it is the Itself an act of his free and voluntary bestowal. Mr. Santiago Jo Chung
Cang showed me his personal certificate issued
Cebu, I.F., on October 9, 1919 under No. G2042490, Yap Gueco also showed me his one issued in
Cebu, Cebu, I.F. On January 20, 1919 under No. F1452296, Lim Yogsing. I also exhibited his own
issued in Cebu, Cebu, I.F., the day February 26, 1919 under No. F1455662, and Ho Seng Sian
Representative of Jo Ybec, showed me his personal certificate issued In Cebu, Cebu, I. F. on February
4, 1919 under No.
F1453733.
"Public notary
Page 95 of my
Notary Registration
Agad vs Mabato
Facts: Petitioner Mauricio Agad claims that he and defendant Severino Mabato are partners in a
fishpond business to which they contributed P1000 each. As managing partner, Mabato yearly rendered
the accounts of the operations of the partnership. However, for the years 1957-1963, defendant failed to
render the accounts despite repeated demands. Petitioner filed a complaint against Mabato to which a
copy of the public instrument evidencing their partnership is attached. Aside from the share of profits
(P14,000) and attorney’s fees (P1000), petitioner prayed for the dissolution of the partnership and
winding up of its affairs.
Mabato denied the existence of the partnership alleging that Agad failed to pay hisP1000 contribution.
He then filed a motion to dismiss on the ground of lack of cause of action. The lower court dismissed the
complaint finding a failure to state a cause of action predicated upon the theory that the contract of
partnership is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the
fishpond referred in said instrument had not been attached thereto.
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties; and attached to the public instrument.
Issue: Whether or not immovable property or real rights have been contributed to the partnership.
Held: Based on the copy of the public instrument attached in the complaint, the partnership was
established to operate a fishpond", and not to "engage in a fishpond business.” Thus, Mabato’s
contention that “it is really inconceivable how a partnership engaged in the fishpond business could exist
without said fishpond property (being) contributed to the partnership” is without merit. Their contributions
were limited to P1000 each and neither a fishpond nor a real right thereto was contributed to the
partnership.
Therefore, Article 1773 of the Civil Code finds no application in the case at bar. Case remanded to the
lower court for further proceedings.
Tuason vs Bolanos
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.
Aurbach vs Sanitary