TUASON V BOLANOS

As to the first assigned error, there is nothing to the contention that the present action is not brought
by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is
that an action be broughtin the name of, but not necessarily by, the real party in interest. (Section 2,
Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in
the name of the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its undersigned counsel." It is true that the
complaint also 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.
can not 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.
AGUILA JR V CA ( 1768)
Alfredo Aguila Jr.
Business Organization Partnership, Agency, Trust Identity Separate and Distinct
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 non-payment, 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.
HEIRS OF TANG ENG KEE V CA (1769)
Business Organization Partnership, Agency, Trust Periodic Accounting Profit Sharing
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.
ISSUE: Whether or not Tan Eng Kee is a partner.
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 (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2)
they were the ones giving orders to the employees, (3) they were the ones preparing orders from the
suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5) all their
children were employed in the business in different capacities.), which in no way proved partnership.
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 no
business 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.
But the business was started after the war (1945) prior to the publication of the New Civil Code in 1950?
Even so, nothing prevented the parties from complying with this requirement.
Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee 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. Even if it can be speculated that a scenario
wherein if excellent relations exist among the partners at the start of the business and all the partners
are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in
the profits is perfectly plausible. But in the situation in the case at bar, the deferment, if any, had gone
on too long to be plausible. A person is presumed to take ordinary care of his concerns. A demand for
periodic accounting is evidence of a partnership which Kee never did.
The Supreme Court also noted:
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 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 installment 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.
----
Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to
divide the profits among themselves.
15
The agreement need not be formally reduced into writing,
since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable
property or real rights are contributed,
16
and (2) when the partnership has a capital of three thousand
pesos or more.
17
In both cases, a public instrument is required.
18
An inventory to be signed by the
parties and attached to the public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to the partnership.
1

NO ACCOUNTING FOR 40 YEARS
The essence of a partnership is that the partners share in the profits and losses.
29
Each has
the right to demand an accounting as long as the partnership exists.
A demand for periodic accounting is evidence of a partnership

PASCUAL V CIR (1767)
Petitioners bought two parcels of land and another 3 parcels the following year. The 2 parcels were sold in 1968 while the
other 3 were sold in 1970. Realizing profits from the sale, petitioners filed capital gains tax. However, they were assessed
with deficiency tax for corporate income taxes.
ISSUE:
Whether or not petitioners formed an unregistered partnership thereby assessed with corporate income tax.
RULING:
By the contract of partnership, two or more persons bind themselves to contribute money, industry or property to a common
fund with the intention of dividing profits among themselves. There is no evidence though, that petitioners entered into an
agreement to contribute MPI to a common fund and that they intend to divide profits among themselves. The petitioners
purchased parcels of land and became co-owners thereof. Their transactions of selling the lots were isolated cases. The
character of habituality peculiar to the business transactions for the purpose of gain was not present.
The sharing of returns foes 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 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 no evidence that petitioners entered into an agreement to contribute money,
property, or industry to a common fund, and that they intended to divide the profits among
themselves. Respondent commissioner and/or his representative just assumed these
conditions to be present on the basis of the fact that petitioners purchased certain parcels of
land and became co-owners thereof.

In Evangelista, there was a series of transactions where petitioners purchased 24 lots
showing that the purpose was not limited to the conservation or preservation of the
common funds or even the properties acquired by them. The character of habituality
peculiar to business transactions engaged in for the purpose of gain was present here.

The sharing of returns does not of 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 a 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.
--
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the
issue narrows down to their intent in acting as they did.
ONA V CIR 1769 (3)
Facts:
Julia Buales died leaving as heirs her surviving spouse, Lorenzo Oa and her five children. A civil
case was instituted for the settlement of her state, in which Oa 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 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 Oa 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 Oa 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 CTAs decision.
Issue:
W/N there was a co-ownership or an unregistered partnership
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 Oa 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 Mertens 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 V CIR
Facts: Plaintiffs purchased, in the ordinary course of
business, from one of the duly authorized agents of the
National Charity Sweepstakes Office one ticket for the
sum of two pesos (P2), said ticket was registered in the
name of Jose Gatchalian and Company. The ticket won
one of the third-prizes in the amount of P50,000.

Jose Gatchalian was required to file the corresponding
income tax return covering the prize won. Defendant-
Collector made an assessment against Jose Gatchalian
and Co. requesting the payment of the sum of P1,499.94
to the deputy provincial treasurer of Pulilan, Bulacan.
Plaintiffs, however through counsel made a request for
exemption. It was denied.

Plaintiffs failed to pay the amount due, hence a warrant of
distraint and levy was issued. Plaintiffs paid under protest
a part of the tax and penalties to avoid the effects of the
warrant. A request that the balance be paid by plaintiffs in
installments was made. This was granted on the condition
that a bond be filed.

Plaintiffs failed in their installment payments. Hence a
request for execution of the warrant of distraint and levy
was made. Plaintiffs paid under protest to avoid the
execution.

A claim for refund was made by the plaintiffs, which was
dismissed, hence the appeal.

Issue: Whether the plaintiffs formed a partnership hence
liable for income tax.

Held: Yes. According to the stipulation 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. 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
Philippines Charity Sweepstakes, in his capacity as co-
partner, as such collection 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.

---
The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to
the two following: (1) Whether the plaintiffs formed a partnership, or merely a community of property
without a personality of its own; in the first case it is admitted that the partnership thus formed is
liable for the payment of income tax, whereas if there was merely a community of property, they are
exempt from such payment; and (2) whether they should pay the tax collectively or whether the latter
should be prorated among them and paid individually.
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 stipulation 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 Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection 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.
OBILLOS V CIR
FACTS:
Petitioners sold the lots they inherited from their father and derived a total profit of P33,584 for each of them. They treated
the profit as capital gain and paid an income tax thereof. The CIR required petitioners to pay corporate income tax on their
shares, .20% tax fraud surcharge and 42% accumulated interest. Deficiency tax was assessed on the theory that they had
formed an unregistered partnership or joint venture.
ISSUE:
Whether or not partnership was formed by the siblings thus be assessed of the corporate tax.
RULING:
Petitioners were co-owners and to consider them partners would obliterate the distinction between co-ownership and
partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction.

Art 1769 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 partnership or joint venture.

The Commissioner acted on the theory that the 4 petitioners had formed an unregistered
partnership or joint venture within the meaning of Sections 24(a) and 84(b) of the Tax
Code.

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 money to buy 2
lots, resold the same and divided the profit among themselves.

To regard 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.

They were co-owners pure and simple. To consider them as partners would obliterate the
distinction between co-ownership and 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
a unmistakable intention to form a partnership or joint venture.

Such intent was present in Gatchalian v. Collector of Internal Revenue, 67 Phil. 666, where
15 persons contributed small amounts to purchase a 2-peso sweepstakes ticket with the
agreement that they would divide the prize. The ticket won the 3rd prize of P50,000. The 15
persons were held liable for income tax as an unregistered partnership.
--
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.
Reversed CTAs decision
EVANGELISTA V CIR
Facts:
Herein petitioners seek a review of CTAs decision holding them liable for income
tax, real estate dealers tax and residence tax. As stipulated, petitioners borrowed from their
father a certain sum for the purpose of buying real properties. Within February 1943 to April
1994, they have bought parcels of land from different persons, the management of said
properties was charged to their brother Simeon evidenced by a document. These properties
were then leased or rented to various tenants.
On September 1954, CIR demanded the payment of income tax on corporations,
real estate dealers fixed tax, and corporation residence tax to which the petitioners seek to
be absolved from such payment.
Issue: Whether petitioners are subject to the tax on corporations.
Ruling:
The Court ruled that with respect to the tax on corporations, the issue hinges on the
meaning of the terms corporation and partnership as used in Section 24 (provides that a
tax shall be levied on every corporation no matter how created or organized except general
co-partnerships) and 84 (provides that the term corporation includes among others,
partnership) of the NIRC. Pursuant to Article 1767, NCC (provides for the concept of
partnership), its essential elements are: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits among the contracting parties.
It is of the opinion of the Court that the first element is undoubtedly present for petitioners
have agreed to, and did, contribute money and property to a common fund. As to the
second element, the Court fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among themselves as indicated by
the following circumstances:
1. The common fund was not something they found already in existence nor a
property inherited by them pro indiviso. It was created purposely, jointly borrowing a
substantial portion thereof in order to establish said common fund;
2. They invested the same not merely in one transaction, but in a series of
transactions. The number of lots acquired and transactions undertake is strongly
indicative of a pattern or common design that was not limited to the conservation and
preservation of the aforementioned common fund or even of the property acquired.
In other words, one cannot but perceive a character of habitually peculiar to
business transactions engaged in the purpose of gain;
3. Said properties were not devoted to residential purposes, or to other personal
uses, of petitioners but were leased separately to several persons;
4. They were under the management of one person where the affairs relative to
said properties have been handled as if the same belonged to a corporation or
business and enterprise operated for profit;
5. Existed for more than ten years, or, to be exact, over fifteen years, since the
first property was acquired, and over twelve years, since Simeon Evangelista
became the manager;
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its continued
existence.


The collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein.
Also, petitioners argument that their being mere co-owners did not create a separate
legal entity was rejected because, according to the Court, the tax in question is one
imposed upon "corporations", which, strictly speaking, are distinct and different from
"partnerships". When the NIRC includes "partnerships" among the entities subject to the tax
on "corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. The qualifying expression
found in Section 24 and 84(b) clearly indicates that a joint venture need not be undertaken
in any of the standard forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for purposes of the tax on
corporations. Accordingly, the lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein referred to. For purposes of
the tax on corporations, NIRC includes these partnerships - with the exception only of duly
registered general co partnerships - within the purview of the term "corporation." It is,
therefore, clear that petitioners herein constitute a partnership, insofar as said Code is
concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations (Section 2 of CA No. 465), it is
analogous to that of section 24 and 84 (b) of the NIRC. It is apparent that the terms
"corporation" and "partnership" are used in both statutes with substantially the same
meaning. Consequently, petitioners are subject, also, to the residence tax for corporations.
Finally, on the issues of being liable for real estate dealers tax, they are also liable
for the same because the records show that they have habitually engaged in leasing said
properties whose yearly gross rentals exceeds P3,000.00 a year.