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Benjamin Yu vs. NLRC Facts:
Benjamin Yu was formerly the Assistant General Manager of the
marble quarrying and export business operated by a registered
partnership with the firm name of "Jade Mountain Products Company
Limited". The partnership was originally organized with Lea and
Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu
and Yu Chang, all Taiwanese, as limited partners. Benjamin Yu was
hired by virtue of a Partnership Resolution, as Assistant General
Manager with a monthly salary of P4,000.00. According to Yu,
however, he actually received only half of his stipulated monthly
salary, as promised by partners that the balance would be paid when
the firm shall have secured additional operating funds from abroad.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea and Rhodora Benda and Mr. Yu Chang, a limited partner,
sold and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. The partnership
now constituted solely by Willy Co and Emmanuel Zapanta continued
to use the old firm name of Jade Mountain, though they moved the
firm's main office from Makati to Mandaluyong. Having learned of
the transfer of the firm's main office, petitioner Benjamin Yu
reported to the Mandaluyong office for work and there he was
informed by Willy Co that it was for him to decide whether or not
he was responsible for the obligations of the old partnership,
including petitioner's unpaid salaries. Petitioner was in fact not
allowed to work anymore in the Jade Mountain business enterprise.
His unpaid salaries remained unpaid. Benjamin Yu filed a complaint
for illegal dismissal and recovery of unpaid salaries, moral and
exemplary damages and attorney's fees, against Jade Mountain, Mr.
Willy Co and the other private respondents. The partnership and
Willy Co contended that Benjamin Yu was never hired as an employee
by the present or new partnership. Labor Arbiter: Yu had been
illegally dismissed. The Labor Arbiter decreed his reinstatement
and awarded him his claim for unpaid salaries, backwages and
attorney's fees. NLRC (on appeal): Reversed the decision of the
Labor Arbiter and dismissed petitioner's complaint. It held that a
new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta
had bought the Jade Mountain business, that the new partnership had
not retained petitioner Yu in his original position as Assistant
General Manager, and that there was no law requiring the new
partnership to absorb the employees of the old partnership.
Benjamin Yu had not been illegally dismissed by the new partnership
which had simply declined to retain him in his former managerial
position or any other position. Finally, the NLRC held that
Benjamin Yu's claim for unpaid wages should be asserted against the
original members of the preceding partnership. Issues:
(1) Whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and replaced by a
new partnerships composed of Willy Co and Emmanuel Zapanta; and
(2) If indeed a new partnership had come into existence, whether
petitioner Yu could nonetheless assert his rights under his
employment contract as against the new partnership. Held:
(1) SC agreed with the NLRC. The legal effect of the changes in
the membership of the partnership was the dissolution of the old
partnership which had hired petitioner in 1984 and the emergence of
a new firm composed of Willy Co and Emmanuel Zapanta in 1987. The
applicable law in this connection is Article 1828 of the Civil Code
which provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up
of the business.
(Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused: (1) without violation of the
agreement between the partners; XXX
(b) by the express will of any partner, who must act in good
faith, when no definite term or particular undertaking is
specified; XXX
(2) in contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at
any time;
In the case at bar, just about all of the partners had sold
their partnership interests, amounting to 82% of the total
partnership interest, to Mr. Willy Co and Emmanuel Zapanta. The
acquisition of 82% of the partnership interest by new partners,
coupled with the retirement or withdrawal of the old partners, was
enough to constitute a new partnership. The occurrences of events
which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the
termination of the legal personality of the old partnership.
Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed.
The legal personality of the expiring partnership persists for
the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, the business of the old
partnership was simply continued by the new partners, without the
old partnership undergoing the
procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took
over the business enterprise owned by the preceding partnership,
and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and distributing its
net assets, and then re-assembling the said
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assets or most of them and opening a new business enterprise.
(2) SC did not agree with NLRC. Under Article 1840 above, creditors
of the old Jade Mountain are also creditors of the new Jade
Mountain which continued the business of the old one without
liquidation of the partnership affairs. Indeed, a creditor of the
old Jade Mountain, like petitioner Benjamin Yu in respect of his
claim for unpaid wages, is entitled to priority vis--vis any claim
of any retired or previous partner insofar as such retired
partner's interest in the dissolved partnership is concerned. It is
clear to the Court that under Article 1840 above, Benjamin Yu is
entitled to enforce his claim for unpaid salaries, as well as other
claims relating to his employment with the previous partnership,
against the new Jade Mountain. It is at the same time also evident
to the Court that the new partnership was entitled to appoint and
hire a new general or assistant general manager. The non-retention
of Benjamin Yu as Assistant General Manager did not therefore
constitute unlawful termination, or termination without just or
authorized cause. We think that the precise authorized cause for
termination in the case at bar was redundancy. The new
partnership had its own new General Manager, apparently Mr.
Willy Co, the principal new owner himself. It follows that
petitioner Benjamin Yu is entitled to separation pay at the rate
of one month's pay for each year of service that he had rendered to
the old partnership, a fraction of at least six (6) months being
considered as a whole year. Plus Moral Damages of Php 20,000 for
Yus shabby treatment, legal interest of 6% per annum for unpaid
wages and separation pay, and attorneys fees of 10% of to the total
amount due from Jade Mountain.
G.R. No. 413 February 2, 1903 Jose Fernandez vs. Francisco de la
Rosa
Facts:
Fernandez and Dela Rosa entered into a verbal agreement to form
a partnership for the purchase of cascoes and hiring the same in
Manila. In their arrangement, each partner will furnish such amount
of money for the purchase of the cascoes with the profits divided
proportionally. Dela Rosa was designated to buy the cascoes. Thus,
Fernandez furnished Dela Rosa 300 pesos for the purchase of casco
no. 1515, 300 pesos for its repairs, and 825 for the purchase of
casco no. 2089. Subsequently, the parties undertook to draw up
articles of partnership but no written agreement was executed
because Dela Rosa allegedly presented a different draft of such
articles, deliberately excluding casco no. 2089 in the partnership.
This prompted Fernandez to demand for an accounting upon him.
Fernandez presented in evidence the following receipt: "I have this
day received from D. Jose Fernandez eight hundred and twenty-five
pesos for the cost of a casco which we are to purchase in company.
Manila, March 5, 1900. Francisco de la Rosa." The casco being
referred to be purchased in company according to the Supreme Court
pertains to casco no. 2089, contrary to the claim of Dela Rosa that
the same was for casco no. 1515. Dela Rosa admitted receiving 300
pesos as a loan from the bakery firm co-owned by Fernandez, and 825
pesos from
Fernandez for the purchase of casco no. 1515 (not casco no.
2089) but maintained not receiving anything for the purchase of
casco no. 2089. Verily, Dela Rosa, at some point, returned the sum
of 1,125 pesos to Fernandez. The lower court ruled in favor of Dela
Rosa . Issue:
WON a partnership exists between Fernandez and Dela Rosa.
Held:
Yes, a partnership exists between the parties. Partnership is a
contract by which 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. (Civil Code, art. 1665).
The essential points upon which the minds of the parties must meet
in a contract of partnership are, therefore, (1) mutual
contribution to a common stock, and (2) a joint interest in the
profits (Civil Code, secs. 1689, 1695.) As regards the first
element, the Supreme Court found that money was indeed furnished by
Fernandez and received by Dela Rosa with the understanding that it
was to be used for the purchase of the cascoes in question. As
regards the second element, namely, the intention to share profits,
appears to be an unavoidable deduction from the fact of the
purchase of the cascoes in common, in the absence of any other
explanation of the object of the parties in making the purchase in
that form, and, it may be added, in view of the admitted fact that
prior to the purchase of the first casco the formation of a
partnership had been a subject of negotiation between them. While
the Supreme Court was unable to find that there was any specific
verbal agreement of partnership, the same may be implied from the
fact as to the purchase of the casco. It is thus apparent that a
complete and perfect contract of partnership was entered into by
the parties. As to the absence of a written instrument The
execution of a written agreement was not necessary in order to give
efficacy to the verbal contract of partnership as a civil contract,
the contributions of the partners not having been in the form of
immovables or rights in immovables. (Civil Code, art. 1667.) As to
the return of Fernandezs money contribution The amount returned
fell short of that which the plaintiff had contributed to the
capital of the partnership, since it did not include the sum which
he had furnished for the repairs of casco No. 1515. Moreover, it is
quite possible that a profit may have been realized from the
business during the period in which the defendant have been
administering it prior to the return of the money, and if so he
still retained that sum in his hands. For these reasons the
acceptance of the money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by converting it
into a societas leonine. There was no intention on the part of the
plaintiff in accepting the money to relinquish his rights as a
partner, nor is there any evidence that by anything that he said or
by anything that he omitted to say he gave the defendant any ground
whatever to believe that he intended to relinquish them. On the
contrary he
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notified the defendant that he waived none of his rights in the
partnership. Collective partnership or en comandita A contract of
partnership subject to a suspensive condition, postponing its
operation until an agreement was reached as to the respective
participation of the partners in the profits
Council Red Men vs. Veterans Army Facts:
This case involves the Veteran Army of the Philippines. Their
Constitution provides for the organization of posts. Among the
posts thus organized is the General Henry W. Lawton Post, No. 1.
March 1, 1903: a contract of lease of parts of a certain buildings
in the city of Manila was signed by Lewis, Stovall, and Hayes (as
trustees of the Apache Tribe, No. 1, Improved Order of Red Men) as
lessors, and McCabe (citing for and on behalf of Lawton Post,
Veteran Army of the Philippines) as lessee. The lease was for the
term of two years commencing February 1, 903, and ending February
28, 1905. The Lawton Post occupied the premises in controversy for
thirteen months, and paid the rent for that time. Thereafter, it
abandoned the premises. Council Red Men then filed an action to
recover the rent for the unexpired term of the lease. Judgment was
rendered in the court below on favor of the defendant McCabe,
acquitting him of the complaint. Judgment was rendered also against
the Veteran Army of the Philippines for P1,738.50, and the costs.
It is claimed by the Veterans Army that the action cannot be
maintained by the Council Red Men as this organization did not make
the contract of lease. It is also claimed that the action cannot be
maintained against the Veteran Army of the Philippines because it
never contradicted, either with the Council Red Men or with Apach
Tribe, No. 1, and never authorized anyone to so contract in its
name. Issue:
Whether or not Article 1695 of the Civil Code is applicable to
the Veteran Army of the Philippines. NO
Held:
Council Red Men must show that the contract of lease was
authorized by the Veterans Army The view most favorable to the
appellee (Council Red Men) is the one that makes the appellant
(Veterans Army) a civil partnership. Assuming that is such, and is
covered by the provisions of title 8, book 4 of the Civil Code, it
is necessary for the appellee (Council Red Men) to prove that the
contract in
question was executed by some authorized to so by the Veteran
Army of the Philippines. Article 1695 of the Civil Code is not
applicable in this case Article 1695 of the Civil Code provides as
follows: "Should no agreement have been made with regard to the
form of management, the following rules shall be observed: 1. All
the partners shall be considered as agents, and
whatever any one of them may do by himself shall bind the
partnership; but each one may oppose the act of the others before
they may have produced any legal effect."
One partner, therefore, is empowered to contract in the name of
the partnership only when the articles of partnership make no
provision for the management of the partnership business. The
constitution of the Veteran Army of the Philippines makes provision
for the management of its affairs, so that article 1695 of the
Civil Code, making each member an agent of the partnership in the
absence of such provision, is not applicable to that organization.
In the case at bar we think that the articles of the Veteran Army
of the Philippines do so provide. It is true that an express
disposition to that effect is not found therein, but we think one
may be fairly deduced from the contents of those articles. They
declare what the duties of the several officers are. In these
various provisions there is nothing said about the power of making
contracts, and that faculty is not expressly given to any officer.
We think that it was, therefore, reserved to the department as a
whole; that is, that in any case not covered expressly by the rules
prescribing the duties of the officers, the department were
present. It is hardly conceivable that the members who formed this
organization should have had the intention of giving to any one of
the sixteen or more persons who composed the department the power
to make any contract relating to the society which that particular
officer saw fit to make, or that a contract when so made without
consultation with, or knowledge of the other members of the
department should bind it. The contract of lease is not binding on
the Veterans Army absent showing that it was authorized in a
meeting of the department We therefore, hold, that no contract,
such as the one in question, is binding on the Veteran Army of the
Philippines unless it was authorized at a meeting of the
department. No evidence was offered to show that the department had
never taken any such action. In fact, the proof shows that the
transaction in question was entirely between Apache Tribe, No. 1,
and the Lawton Post, and there is nothing to show that any member
of the department ever knew anything about it, or had anything to
do with it. Judgment against the appellant is reversed, and the
Veteran Army of the Philippines is acquitted of the complaint. No
costs will be allowed to either party in this court. NOTE: Whether
a fraternal society, such as the Veteran Army of the Philippines,
is a civil partnership is not decided.
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Mariano P. Pascual vs. CIR and Court of Tax Appeals
The distinction between co-ownership and an unregistered
partnership or joint venture for income tax purposes is the issue
in this petition. Facts:
On June 22, 1965, petitioners bought two (2) parcels of land
from Santiago Bernardino, et al. and on May 28, 1966, they bought
another three (3) parcels of land from Juan Roque. The first two
parcels of land were sold by petitioners in 1968 toMarenir
Development Corporation, while the three parcels of land were sold
by petitioners to Erlinda Reyes and Maria Samson on March 19,1970.
Petitioners realized a net profit in the sale made in 1968 in the
amount of P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970. The corresponding capital
gains taxes were paid by petitioners in 1973 and 1974 by availing
of the tax amnesties granted in the said years. However, in a
letter of then Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount of P107,101.70 as
alleged deficiency corporate income taxes for the years 1968 and
1970. 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; and that the availment of tax amnesty under P.D. No.
23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them from the
tax liability of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency income tax
assessed. Issue:
Whether or not petitioners formed an unregistered partnership
subject to corporate income tax. NO! Held: 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.
In the present case, 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 the instant case, petitioners bought two (2) parcels of land
in 1965. They did not sell the same nor make any improvements
thereon. In 1966, they bought another three (3) parcels of land
from one seller. It was only 1968 when they sold the two (2)
parcels of land after which they did not make any additional or new
purchase. The remaining three (3) parcels were sold by them in
1970. The transactions were isolated. The character of habituality
peculiar to business transactions for the purpose of gain was not
present. 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; xxxx
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. 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.
Estanislao vs. CA, Estanislao and Santiago
Facts:
Petitioner and private respondents are brothers and sisters who
are co-owners of certain lots at Quezon City which were then being
leased to the Shell Company. They agreed to operate a gas station
thereat with an initial investment of P 15,000.00 to be taken from
the advance rentals due to them from SHELL for the occupancy of the
said lots owned by them in common. They executed a joint affidavit
where they agreed to help their brother, petitioner herein, by
allowing him to operate and
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manage the gasoline service station of the family. And in order
not to run counter to the policy of Shell of appointing only one
dealer, it was agreed that petitioner would apply for the
dealership. Thereafter, the parties entered into an Additional Cash
Pledge Agreement which canceled and superseded the Joint Affidavit
previously executed by the co-owners. For sometime, petitioner
submitted financial statements regarding the operation of the
business to private respondents, but thereafter petitioner failed
to render subsequent accounting. Hence, a demand was made on
petitioner to render an accounting of the profits. The financial
report shows that the business was able to make a profit of P
87,293.79 for 1968 and P150, 000.00 for 1969 was realized. Private
respondents filed a complaint in the CFI of Rizal against
petitioner: 1) to execute a public document embodying all the
provisions of the partnership agreement 2) to render a formal
accounting 3) to pay the plaintiffs their lawful shares and
participation in the net profits of the business CFI ruled in favor
of private respondents. CA affirmed. Issue:
Whether a partnership exists between members of the same family
arising from their joint ownership of certain properties; YES
Held:
Petitioner relies heavily on the provisions of the Joint
Affidavit and the Additional Cash Pledge Agreement (See Full Text
for contents). Petitioner contends that because of the stipulation
in the Cash Pledge Agreement cancelling and superseding the
previous Joint Affidavit, whatever partnership agreement there was
in said previous agreement had thereby been abrogated. We find no
merit in this argument. Said cancelling provision was necessary for
the Joint Affidavit speaks of P15,000.00 advance rentals starting
May 25, 1966 while the latter agreement also refers to advance
rentals of the same amount starting May 24, 1966. Further, evidence
in the record shows that there was in fact such partnership
agreement between the parties:
1. This is attested by the testimonies of private respondent
Remedios Estanislao and Atty. Angeles.
2. Petitioner submitted to private respondents periodic
accounting of the business.
3. Petitioner gave a written authority to private respondent
Remedies Estanislao, his sister, to examine and audit the books of
their "common business'.
4. Respondent Remedios assisted in the running of the
business.
There is no doubt that the parties hereto formed a partnership
when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among
themselves. The sole dealership by the petitioner and the issuance
of all government permits and licenses in the name of petitioner
was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL
products.
Ang Pue vs. Sec of Commerce and Industry
Facts:
On May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
organized the partnership Ang Pue & Company for a term of five
years from May 1, 1953, extendible by their mutual consent. On June
19, 1954 Republic Act No. 1180 was enacted which provided that a
partnership not wholly formed by Filipinos could continue to engage
in the retail business until the expiration of its term. Prior to
the expiration of the five-year term of the partnership but after
the enactment of the RA 1180, the partners amended the original
articles of part ownership so as to extend the term of life of the
partnership to another five years. When the amended articles were
presented for registration in the Office of the Securities &
Exchange Commission, registration was refused upon the ground that
the extension was in violation of the aforesaid Act. Ang Pue &
Company filed an action for declaratory relief to secure judgment
"declaring that plaintiffs could extend for five years the term of
the partnership pursuant to the provisions of plaintiffs' Amendment
to the Article of Co-partnership." TC dismissed the same.
Issue:
Whether the terms of partnership may still be extended for 5
more years; NO Held:
To organize a corporation or a partnership that could claim a
juridical personality of its own and transact business as such, is
not a matter of absolute right but a privilege which may be enjoyed
only under such terms as the State may deem necessary to impose. RA
No. 1180 was clearly intended to apply to partnership already
existing at the time of the enactment of the law. To argue that
because the original articles of partnership provided that the
partners could extend the term of the partnership, the provisions
of Republic RA cannot be adversely affect appellants herein, is to
erroneously assume that the aforesaid provision constitute a
property right of which the partners can not be deprived without
due process or without their consent. The agreement contained
therein must be deemed subject to the law existing at the time when
the partners came to agree regarding the extension. In the present
case, as already stated, when the partners amended the articles of
partnership, the provisions of Republic Act 1180 were already in
force, and there can be not the slightest doubt that the right
claimed by appellants to extend
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the original term of their partnership to another five years
would be in violation of the clear intent and purpose of the law
aforesaid.
Obillos vs. CIR & Court of Tax Appeals
Facts:
Jose Obillos, Sr. transferred his rights to his four children,
the petitioners, to enable them to build their residences.
Presumably, the Torrens titles issued to them would show that they
were co-owners of the two lots. After having held the two lots for
more than a year, the petitioners resold them from which they
derived a total profit of P134,341.88 or P33,584 for each of them.
They treated the profit as a capital gain and paid an income tax of
P16,792. One day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue required
the petitioners to pay corporate income tax in addition to
individual income tax. Further, he considered the share of the
profits of each petitioner as taxable in full and not a mere
capital gain of which is taxable. Petitioners are being held liable
for deficiency income taxes and penalties totaling to P127,781.76.
Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture within the
meaning of sections 24(a) and 84(b) of the Tax Code. Issue: Whether
petitioners formed an unregistered partnership; NO
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. As testified by
Jose Obillos, Jr., they had no such intention. They were co-owners
pure and simple. Their original purpose was to divide the lots for
residential purposes. The division of the profit was merely
incidental to the dissolution of the co-ownership. 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. All
co-ownerships are not deemed unregistered partnership.Co-Ownership
who own properties which produce income should not automatically be
considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all co-ownerships of
inherited properties to the tax on corporations, inasmuch as if a
property does not produce an income at all, it is not subject to
any kind of income tax, whether the income tax on individuals or
the income tax on corporation. In the instant case, what the
Commissioner should have investigated was whether the father
donated the two lots to the petitioners and whether he paid the
donor's tax.
Lim Tong Lim vs. Philippine Fishing
Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract for the purchase of fishing nets
from the Philippine Fishing Gear Industries, Inc.. Chua and Yao
claimed that they were engaged in a business venture with Lim Tong
Lim, who however was not a signatory to the agreement. Buyers,
however, failed to pay for the fishing nets and the floats. Private
respondents filed a collection suit against Chua, Yao and Lim Tong
Lim. The suit was brought against the three in their capacities as
general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. RTC
ruled that defendants are jointly liable to plaintiff, that their
joint liability could be presumed from the equal distribution of
the profit and loss. CA affirmed. Issue:
Whether by their acts, Lim, Chua and Yao could be deemed to have
entered into a partnership; YES
From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business,
which they started by buying boats worth P3.35 million, financed by
a loan secured from Jesus Lim who was petitioner's brother. In
their Compromise Agreement, they subsequently revealed their
intention to pay the loan with the proceeds of the sale of the
boats, and to divide equally among them the excess or loss. These
boats, the purchase and the repair of which were financed with
borrowed money, fell under the term "common fund" under Article
1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation
of the boats would be divided equally among them also shows that
they had indeed formed a partnership. Partnership extended not only
to the purchase of the boat, but also to that of the nets and the
floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. Defense:
Lim disclaims any direct participation in the purchase of the nets,
alleging that the negotiations were conducted by Chua and Yao only,
and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a
partner, of Chua and Yao, for the "Contract of Lease. We are not
convinced by petitioner's argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing venture. He
would like this Court to believe that he consented to the sale of
his own boats to pay a debt of Chua and Yao, with the excess of the
proceeds to be divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved that
there was a preexisting partnership among all three.
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3-Manresa [BUSORG CASE DIGESTS]
The sale of the boats, as well as the division among the three
of the balance remaining after the payment of their loans, proves
beyond cavil that F/B Lourdes, though registered in his name, was
not his own property but an asset of the partnership. It is not
uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the
petitioner himself. After all, he is the brother of the creditor,
Jesus Lim. Being partner, they are all liable for debts incurred by
or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or
ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that
contract.
Aguila vs. CA & Vda. De Abrogar
Facts:
Petitioner is the manager of A.C. Aguila & Sons, Co., a
partnership engaged in lending activities. Private respondent, with
the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner, entered into a Memorandum of Agreement
(See full text for details). A.C Aguila bought the property of
private respondent and her late husband for P200,000. On the same
day, parties executed the deed of absolute sale. Private respondent
failed to redeem the property within the 90-day period. Hence,
petitioner caused the cancellation of TCT No. 195101 and the
issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co. Thereafter, private respondent was demanded to vacate
the premises within 15 days after receipt of the letter and
surrender its possession peacefully to A.C. Aguila & Sons. Upon
the refusal of private respondent to vacate the subject premises,
A.C. Aguila & Sons, Co. filed an ejectment case. MTC ruled in
favor of A.C. Aguila & Sons, Co. RTC and CA affirmed. Private
respondent then filed a petition for declaration of nullity of a
deed of sale with the Regional Trial Court signature of her husband
on the deed of sale was a forgery because he was already dead when
the deed was supposed to have been executed on June 11, 1991. RTC
ruled in favor of petitioner. CA reversed ruling that transaction
is an equitable mortgage. Petitioner now contends that he is not
the real party in interest but A.C. Aguila & Co., against which
this case should have been brought. Issue: Whether petitioner is a
real party in interest; NO Held:
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, private respondent 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. and
the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A.C. Aguila
& Sons, Co., represented by petitioner. Hence, it is the
partnership, not its officers or agents, which should be impleaded
in any litigation involving property registered in its name.
Ona & Heirs of Bunales vs. CIR Facts:
Julia Buales died leaving as heirs her surviving spouse and her
five children. The surviving spouse as administrator of the estate
submitted the project of partition which was approved by the Court.
Although the project of partition was approved by the Court, no
attempt was made to divide the properties therein listed. Instead,
the properties remained under the management of Lorenzo T. 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. From said
investments and properties petitioners derived such incomes as
profits from installment sales of subdivided lots, profits from
sales of stocks, dividends, rentals and interests. Commissioner of
Internal Revenue decided that petitioners formed an unregistered
partnership subject to the corporate income tax, pursuant to
Section 24, in relation to Section 84(b), of the Tax Code.
Petitioners were assessed for P8,092.00 and P13,899.00 as corporate
income taxes for 1955 and 1956. Petitioners protested but CIR
denied the same. Issue:
WON petitioners are co-owners of the properties inherited by
them from the deceased Julia Buales and the profits derived from
transactions involving the same or an unregistered partnership
subject to tax under Sections 24 and 84(b) of the National Internal
Revenue Code;UNREGISTERED PARTNERSHIP Held:
Petitioners did not merely limit themselves to holding the
properties inherited by them. Some of the said properties were sold
at considerable profit, and from the said profit were the purchase
and sale of corporate securities. All the profits from these
ventures were divided among petitioners proportionately in
accordance with their respective shares in the inheritance. From
the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T. Oa as a common fund
in undertaking several transactions or in business, with the
intention of deriving profit to be shared by them proportionally,
such act was tantamount to actually contributing such incomes to a
common fund and, in effect, they thereby formed an unregistered
partnership within the purview of the provisions of the Tax Code.
In cases of inheritance, there should be a period when the heirs
can be considered as co-owners rather than unregistered
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3-Manresa [BUSORG CASE DIGESTS]
co-partners within the contemplation of our corporate tax laws.
Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to all the
heirs, without them becoming thereby unregistered co-partners, but
it does not necessarily follow that such status as co-owners
continues until the inheritance is actually and physically
distributed among the heirs. After knowing their respective shares
in the partition, they might decide to continue holding said shares
under the common management of the administrator or executor or of
anyone chosen by them and engage in business on that basis.
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. Partnerships under
the civil code are different from that of unregistered partnerships
which are considered as "corporations" under sections 24 and 84(b)
of the NIRC.
When 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. Section 24 of said Code exempts from
the aforementioned tax "duly registered general partnerships," In
section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." The term
"corporation" includes, among others, "joint accounts" and
"associations", none of which has a legal personality of its own,
independent of that of its members.
Kiel vs. Estate of P.S. Sabert Facts:
In 1907, Albert F. Kiel along with William Milfeil commenced to
work on certain public lands situated in the municipality of
Parang, Province of Cotabato, known as Parang Plantation Company.
Kiel subsequently took over the interest of Milfeil. In 1910, Kiel
and P. S. Sabert entered into an agreement to develop the Parang
Plantation Company. Sabert was to furnish the capital to run the
plantation and Kiel was to manage it. They were to share and share
alike in the property. 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. By virtue of the agreement, from 1910 to 1917,
Kiel worked upon and developed the plantation. During the World
War, he was deported from the Philippines. On August 16, 1919, five
persons, including P. S. Sabert, organized the Nituan Plantation
Company, with a subscribed capital of P40,000. On April 10, 1922,
P. S. Sabert transferred all of his rights in two parcels of land
situated in the municipality of Parang, Province of Cotabato,
embraced within his homestead application No. 21045 and his
purchase
application No. 1048, in consideration of the sum of P1, to the
Nituan Plantation Company. In this same period, Kiel appears to
have tried to secure a settlement from Sabert. At least in a letter
dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell
all property that I have for P40,000 or take in a partner who is
willing to develop the plantation, to take up the K. & S. debt
no matter which way I will straiten out with you." 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. Issues:
(1) Whether a trust in the land had been established by the
evidence in the case. NO
(2) Whether a co-partnership between Kiel and the deceased
Sabert existed. YES
Held:
It is conceivable, that the facts in this case could have been
so presented to the court by means of allegations in the complaint,
as to disclose characteristics of a resulting trust. But the
complaint as framed asks for a straight money judgment against an
estate. In no part of the complaint did plaintiff (Kiel) allege any
interest in land, claim any interest in land, or pretend to
establish a resulting trust in land. That Kiel did not care to
press such an action is demonstrated by the relation of the fact of
alienage with the rule, that 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. No partnership agreement in writing was entered
into by Kiel and Sabert. The question consequently is whether or
not the alleged verbal copartnership formed by Kiel and Sabert has
been proved, if we eliminate the testimony of Kiel and only
consider the relevant testimony of other witnesses. In performing
this task, we are not unaware of the rule of partnership that the
declarations of one partner, not made in the presence of his
copartner, are not competent to prove the existence of a
partnership between them as against such other partner, and that
the existence of a partnership cannot be established by general
reputation, rumor, or hearsay. The testimony of the plaintiff's
witnesses, together with the documentary evidence, leaves the firm
impression with us that Kiel and Sabert did enter into a
partnership, and that they were to share equally. Applying the
tests as to the existence of partnership, we feel that competent
evidence exists establishing the partnership. Even more primary
than any of the rules of partnership above announced, is the
injunction to seek out the intention of the parties, as gathered
from the facts and as ascertained from their language and conduct,
and then to give this intention effect. (The court remanded the
case to the TC to determine how much Kiel is entitled to as for his
share.)
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Alicbusan vs. CA Facts:
Cesar Cordero and Leopoldo Alicbusan were partners in the
operation of Babys Canteen located in the Philtranco terminal in
Pasay City. Pursuant to their agreement, Cordero assumed the
position of Managing partner while Alicbusan took care of
accounting, records keeping and other comptrollership functions.
The partnership was to exist for a fixed term, between July 1981 up
to July 1984. Upon expiration of the said period, both of them
continued their relationship under the original term. On May 11,
1990, Cordero filed a complaint for collection for various sums
totaling P209, 497. 36 which he later on amended to P309, 681. 51.
This represented the collectibles he had from Philtranco, by virtue
of an arrangement whereby Philtranco employees were allowed to buy
goods and items from Babys Canteen on credit, which payments were
subsequently deducted by Philtranco from the employees salaries.
Philtranco would remit the amount to them 15 days later. According
to Cordero, the remittances of salary deductions for the months of
February up to May 1990 were withheld by Philtranco due to
Alicbusans instigation. He averred that Alicbusan had done this in
bad faith because of business differences which arose between him
and Alicbusan in another partnership operation in Quezon.
Alicbusans defense is to aver that he transferred all his rights
and interests over Babys Canteen for the sum of P250,000 as
evidenced by a Deed of Sale and Transfer of Right between the
parties on April 5, 1989. Under the said deed Cordero allegedly
bound himself to pay the downpayment of P50,000, while the balance
would be payable in 20 monthly installments at P10,000 per month.
RTC ruled in favor of Cordero and Babys Canteen, upholding the
existence of a partnership between Cordero and Alicbusan. CA
affirmed the ruling of the RTC. Issue:
Whether a partnership still exists between Cordero and
Alicbusan. YES
Held:
Cordero argues that the court should not have disregarded the
legal presumptions in favor of the validity of the deed of sale os
his partnership rights, namely: 1. that the private transactions
have been fair and regular 2. that the ordinary course of business
has been followed 3. there is sufficient consideration for a
contract However, these presumptions are disputable and can be
rebutted by the evidence to the contrary. The calibration of this
evidence and the relative weight accorded to them are within the
exclusive domain of both the trial and appellate courts which
cannot be set aside by the Supreme Court absent any showing that
there is no evidence to support the conclusion already
established.
Contrary to Alicbusans assertion, the record is replete with
evidence establishing the fact that the deed of sale was fictitious
and simulated. First, payments were never madethe downpayment or
the subsequent installments of P10,000. What were presented as
payment were a series of checks with varying amounts. Second,
Alicbusan continued to perform his functions of comptrollership
after the deed was signed. Alicbusan continued to oversee and check
daily sales and report vouches. He was the approving authority as
far as check vouchers were concerned. Furthermore, the evidence
shows that he subsequently delegated this function to his wife. The
balance sheet lists the Partners capital for each of them. During
this time, Alicbusan did not object to his inclusion in the report
as partner of Babys Canteen, which he would have if the sale were
not terminated. Hence Alicbusan is liable to pay Cordero P30,000 as
moral damages.
Yulo vs. 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,
PlazaSta. 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. 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
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3-Manresa [BUSORG CASE DIGESTS]
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?
SUBLEASE
Held: 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.
Gatchalian vs. Collector of Internal Revenue
Policy: A partnership is formed when two or more persons
contributed money to buy a sweepstakes ticket with the intention to
divide the prize which they may win. 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
If a partnership had been formed by A, B, etc. then it was
liable for income tax pursuant to law then in force; if merely a
community of property, then such co-ownership was not liable, not
having a legal personality of its own. Issue:
Did the plaintiff form a partnership or merely a community of
property? Partnership
Held:
The plaintiff formed a partnership. Hence, they are liable to
pay the income tax. 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. Having organized and
constituted a partnership, the entity is bound to pay the income
tax Act No. 2833. Being the partnership liable to the income tax,
the tax must be paid collectively by the partnership and not by the
plaintiffs individually.
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA
EVANGELISTA, petitioners, vs. THE COLLECTOR OF INTERNAL REVENUE and
THE COURT OF TAX APPEALS, respondents.
Facts:
Eufemia, Manuela and Fransisca Evangelista were siblings who
bought several (4) real estate properties from 1943-1944. The money
to buy these properties came from a 59k loan from their father and
from their own money. 1945 they appointed their brother Simeon to
manage their properties with full power to lease, to collect and
receive rents; to bring suits against defaulting tenants, to sign
all letters, contract, etc. The Evangelista sisters leased the
properties they bought to tenants, earning net profits: 1945 5.8k
1946 7.4k 1947 12.6k In 1954, the CIR demanded the payment of the
following taxes: Income taxes (1945-1949) 6.1k Real estate dealers
fixed tax (1946-9) 527 pesos Residence taxes of corporation
(1945-9) 6.8k
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3-Manresa [BUSORG CASE DIGESTS]
The sisters filed a case with the CTA, claiming that they were
not subject to the aforementioned taxes since the said taxes were
imposed upon corporations provided for in Section 24 of
Commonwealth Act 84. Commonwealth Act 84: SEC. 24. Rate of tax on
corporations.There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding
taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created
or organized but not including duly registered general
co-partnerships (compaias colectivas), a tax upon such income equal
to the sum of the following: SEC. 84 (b). The term 'corporation'
includes partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance
companies, but does not include duly registered general
copartnerships. The sisters claim they are mere co-owners and not
copartners. Issue:
Whether the Evangelistas were properly subject to the taxes
assessed by the CIR. YES HELD: Ruling summary: The SC upheld the
ruling of the CTA
against the Evangelistas because the two elements of a
partnership were present:
1. there was an agreement to contribute money, property or
industy to a common fund
2. they had the intent to divide the profits among the
contracting parties
First element: agreement to contribute MPI
This element is undisputed because the sister pooled their own
money and even borrowed money from their father. The funds they
used to buy the properties were not something they found already in
existence. They created it purposely. Second element intent to
gain
1. they invested the money in numerous properties and entered
into numerous transactions - 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; instead, the Court was convinced
of the habitual character peculiar to business transactions engaged
in the purpose of gain
2. lots they purchased were not residential, but were leased to
tenants
3. appointment of Simeon as manager Simeons appointment and his
functions indicate that the affairs relative to said properties
have been handled as if the same belonged to a corporation or
business and enterprise operated for profit.
4. ^ the aforementioned conditions have existed for over 10
years
5. The Evangelistas did not present nor explain their purpose in
creating the set up or the causes for its continued existence.
The arrangement created by the sisters are covered by the
tax
The tax in question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code 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. Thus, for
instance, section 24 of said Code exempts from the aforementioned
tax "duly registered general partnerships which constitute
precisely one of the most typical forms of partnerships in this
jurisdiction. . Likewise, as defined in section 84(b) of said Code,
"the term corporation includes partnerships, no matter how created
or organized."
Again, pursuant to said section 84(b), the term "corporation"
includes, among other, joint accounts, and "associations," none of
which has a legal personality of its own, independent of that of
its members. For purposes of tax on corporations, the NIRC includes
partnerships
Partnerships included: syndicate, group, pool, joint venture or
other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on
Partnerships excluded: duly registered general copartnerships
Evangelista sisters also subject to real estate dealer tax
Real estate dealer' includes any person engaged in the business
of buying, selling, exchanging, leasing, or renting property or his
own account as principal and holding himself out as a full or part
time dealer in real estate or as an owner of rental property or
properties rented or offered to rent for an aggregate amount of
three thousand pesos or more a year.
Reyes vs. CIR Facts:
Petitioners Florencio and Angel Reyes, father and son, purchased
a lot and building for P 835,000.00. The initial payment of P
375,000.00 was shared equally by them. The balance of P 460,000.00
was left, which represents the mortgage obligation of the vendors
with a bank, which mortgage obligations were assumed by the
vendees. At the time of the purchase, the building was leased to
various tenants, whose rights under the lease contracts with the
original owners, the purchaser, petitioners herein, agreed to
respect. Petitioners divided equally the income of operation and
maintenance. An assessment as to the income tax due was made
against petitioners by the CIR. This assessment was appealed to the
Court of Tax Appeals. The CTA ruled that petitioners are liable for
the income tax due from the partnership formed by petitioners. The
CTA applied the provisions of the NIRC on corporations. The first
cited provision imposes an income tax on corporations "organized
in, or existing under the laws of the Philippines, no matter how
created or organized but not including duly registered general
co-partnerships" a term, which according to the second provision
cited, includes partnerships "no matter
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3-Manresa [BUSORG CASE DIGESTS]
how created or organized, ...," and applying the leading case of
Evangelista v. Collector of Internal Revenue. Issue:
Whether or not petitioners form a partnership as to make them
liable to the income tax assessed by the CTA - YES Held:
Petitioners are subject to the tax on corporations as provided
for in the NIRC. Applying the leading case of Evangelista v.
Collector of Internal Revenue, and section 84(b) of the NIRC, which
explicitly provides that the term corporation "includes
partnerships" and to Article 1767 of the Civil Code of the
Philippines, defining what a contract of partnership is, "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. Upon
consideration of all the facts and circumstances surrounding the
case, we are fully satisfied that their purpose was to engage in
real estate transactions for monetary gain and then divide the same
among themselves. Also, the SC said that for purposes of the tax on
corporations, our National Internal Revenue Code, include
partnerships with the exception only of duly registered general
co-partnerships 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.
Navarro vs. CA
CASE: Petition for annulment of judgment: by Sps Navarro;
dismissed by the CA: Facts:
On July 23, 1976, Olivia V. Yanson filed a complaint against
Lourdes Navarro for "Delivery of Personal Properties With Damages".
The complaint incorporated an application for a writ of replevin.
(*was subsequently amended to include private respondent's husband,
Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as
co-defendant.)
On July 27, 1976, then Executive Judge Oscar R. Victoriano
approved Yansons application for a writ of replevin. By virtue of
the same, Yanson has recovered the subject chattels. Subsequently,
the Presiding judge rendered a decision disposing that
1. all chattels already recovered by [Yanson] by virtue of the
Writ of Replevin and as listed in the complaint are sustained to
belong to [Yanson] being the owner of these properties;
2. the motor vehicle (Ford Fiera Jeep) registered in and which
had remain in the possession of the [Navarro] was likewise declared
to belong to Yanson, however, [Navarro] is ordered to
reimburse [Yanson] the sum of P6,500.00 representing the amount
advanced to pay part of the price for the Jeep.
3. [Navarro] was likewise ordered to return to [Yanson] such
other equipment[s] as were brought by the latter to and during the
operation of their business as were listed in the complaint and not
recovered as yet by virtue of the previous Writ of Replevin.
This decision was subsequently declared final and executory. The
trial court issued a writ of execution. The Sheriff's Return of
Service declared that the writ was "duly served and satisfied". A
receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson,
co-petitioner in this case, was likewise submitted by the Sheriff
Sps Navarro filed with the CA a petition for annulment of the trial
court's decision, claiming that the trial judge erred in declaring
the non-existence of a partnership, contrary to the evidence on
record. (Which petition was outrightly
dismissed by the CA due to absence of extrinsic or collateral
fraud, observing further that an appeal was the proper remedy.) Sps
Navarro claim:
that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a
verbal partnership engaged in the business of Air Freight Service
Agency in Bacolod"; and
that the decision sustaining the writ of replevin is void since
the properties belonging to the partnership do not actually belong
to any of the parties until the final disposition and winding up of
the partnership"
Sps Navarro keep on pressing that the idea of a partnership
exists on account of the so-called admissions in judicio.
Issue:
Whether a partnership existed between the parties in the present
case. NO. Held: As a premise, Article 1767 of the New Civil Code
defines the contract of partnership:
Art. 1767. 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 proceeds among
themselves. xxx xxx xxx Corollary to this definition is the
provision in determining whether a partnership exist as so provided
under Article 1769, to wit: xxx xxx xxx Furthermore, the Code
provides under Article 1771 and 1772 that
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1. while a partnership may be constituted in any
form, a public instrument is necessary where
immovables or any rights is constituted. 2. Likewise, if the
partnership involves a capitalization of
P3,000.00 or more in money or property, the same must appear in
a public instrument which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with these requirements shall only affect
liability of the partners to third persons. In consideration of the
above, it is undeniable that both the plaintiff (Yanson) and the
defendant-wife (Navarro) made admission to have entered into an
agreement of operating this Allied Air Freight Agency of which the
Yanson
personally constituted with the Manila Office in a sense that
the Yanson did supply the necessary equipments and money while her
brother Atty. Rodolfo Villaflores was the Manager and the defendant
the Cashier. It was also admitted that part of this agreement was
an equal sharing of whatever proceeds realized.
Consequently, Yanson brought into this transaction certain
chattels in compliance with her obligation. The same has been done
by the herein brother and Navarro who started to work in the
business. A cursory examination of the evidences presented no proof
that a partnership, whether oral or written had been constituted at
the inception of this transaction.
True it is that even up to the filing of this complaint those
movables brought by Yanson for the use in the operation of the
business remain registered in her name. While there may have been
co-ownership or co-possession of some items and/or any sharing of
proceeds by way of advances received by both Yanson and Navarro,
these are not indicative and supportive of the existence of any
partnership between them. Article 1769 of the New Civil
Code is explicit. In view of the above factual findings of the
Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding
up is beside the point.
Biglangawa and Espiritu vs. Pastor Constantino
Facts: January 1950: Biglangawa and Espiritu appointed
Constantino
as their exclusive agent to develop the area they owned into a
subdivision and sell them. As compensation they promised commission
(of 30% on the gross sales) and a fee (of 10% on the collections
made by him). He advanced all expenses in the development,
administration and advertisement of such area October 1951:
Constantino was able to dispose more than
half of the area Later in October 1951: Owners terminated the
contract but
acknowledged that they will pay the unpaid commission in monthly
installments (they had a practice of paying
Constantino lesser than what was expressed on the January 1950
contract, such that, when liquidation was made, there was still a
balance on Constantinos commission) March 1953: Owners refused to
make the necessary
settlement regarding the unpaid commission and the remaining
fees due him Constantino filed a CIVIL CASE against the owner.
April 1955: Pending such civil case, Constantino filed with the
ROD a notice of LIS PENDENS on the area/property which was
converted into a subdivision May 1955: Owners sold it to Santos.
ROD made annotation of
the LP on owners and Santos title June 1955: They filed a
PETITION for cancellation of said LP
July 1955: Lower court decided in favor of the owners and
ordered the cancellation of the LP stating that Constantinos
civil action was purely and clearly a claim for money judgment
which does not affect the title or the right of possession of real
property annotated with LP and it being a
settled rule in this jurisdiction that a notice of lis pendens
may be invoked as a remedy in cases where the very lis mota of the
pending litigation concerns directly the possession of, or title to
a specific real property Constantinos theory: Such holding that his
was purely a money judgement claim is wrong. Instead he is
contending that the agreement whereby he is to be paid commission
and fee actually converted him into a partner and gave him 1/5
participation of the property itself, thus, his suit is one for the
settlement and adjustment of partnership interest or a partition
action or proceeding
Issue:
Whether there is partnership amongst Constantino and
Biglangawa/Espiritu. NONE
RULING:
There is no word nor expression in the contract that suggests
any idea of partnership. On the contrary, Constantino expressly
avers in his complaint that Biglangawa and Espiritu appointed him
as their EXCLUSIVE AGENT to develop xxx. Categorically, he referred
to himself as agent, not a partner,
entitled to compensation in the form of commission and/or fee,
not participation and not in the form of share.
It is true that he made advances for the expenses incurred in
the development and administration of the property but this was
never considered as contributions to business as to make him a
partner, otherwise, he would have stated that in his complaint. In
fact, after a liquidation of these advances and the commissions due
to appellant at the time of the termination of the agency, the
whole balance was considered as Biglangawa and Espiritus
indebtedness. Hence, the lower court was right. His civil action
was not one affecting the title of right of possession of the real
property nor one to recover possession of real estate, or to quiet
title, or to remove cloud upon title, or for partition, or any
similar action affecting the title, use and occupation of the real
estate and its buildings. Hence LP cannot lie.
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FRANCISCO BASTIDA, plaintiff-appellee, vs.MENZI & Co., INC.,
J.M. MENZI and P.C. SCHLOBOHM, defendants. G.R. No. L-35840 March
31, 1933 Facts:
Defendant Menzi & Co., Inc. through its president and
general manager, J.M. Menzi, under the authority of the board of
directors, entered into a contract with the plaintiff to engage in
the business of exploiting prepared fertilizers. A fertilizer
account was opened in the general ledger, and interest at the rate
charged by the Bank of the Philippine Islands was debited or
credited to that account on the daily balances of the fertilizer
business. This was in accordance with appellant's established
practice, to which the plaintiff assented. The intervention of the
plaintiff was limited to supervising the mixing of the fertilizers
in Menzi & Co.'s, Inc., bodegas. On May 3, 1924 the plaintiff
made a contract with Menzi & Co., Inc., to furnish it all the
stems and scraps to tobacco that it might need for its fertilizer
business either in the Philippine Islands or for export to other
countries. White, Page & Co., certified public accountants,
audited the books of Menzi & Co., Inc., every month, and at the
end of each year they prepared a balance sheet and a profit and
loss statement of the fertilizer business. These statements were
delivered to the plaintiff for examination, and after he had had an
opportunity of verifying them he approved them without objection
and returned them to Menzi & Co., Inc. Plaintiff collected from
Menzi Co., Inc., as his share or 35 per cent of the net profits of
the fertilizer business. Prior to the expiration of the contract,
Exhibit A, the manager of Menzi & Co. Inc., notified the
plaintiff that the contract for his services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer
department of Menzi & Co., Inc., had on hand materials and
ingredients and two Ford trucks of the book value of approximately
P75,000, and accounts receivable amounting to P103,000. There were
claims outstanding and bills to pay. Before the net profits could
be finally determined, it was necessary to dispose of the materials
and equipment, collect the outstanding accounts for Menzi &
Co., Inc., prepared a balance sheet and a profit and loss statement
for the period from January 1 to April 27, 1927 as a basis of
settlement, but the plaintiff refused to accept it, and filed the
present action. Menzi & Co., Inc., then proceeded to liquidate
fertilizer business in question. In October, 1927 it proposed to
the plaintiff that the old and damaged stocks on hand having a book
value of P40,000, which the defendant corporation had been unable
to dispose of, be sold at public or private sale, or divided
between the parties. The plaintiff refused to agree to this. The
defendant corporation then applied to the trial court for an order
for the sale of the remaining property at public auction, but
apparently the court did not act on the petition. During the
liquidation the books of Menzi & Co., Inc., for the whole
period of the contract in question were reaudited by White, Page
& Co.., certain errors of bookkeeping were
discovered by them. After making the corrections they found the
balance due the plaintiff to be P21,633.20. Plaintiff employed a
certified public accountant, Vernon Thompson, to examine the books
and vouchers of Menzi & Co. Thompson assumed the plaintiff and
Menzi & Co., Inc., to be partners, and that Menzi & Co.,
Inc., was obliged to furnish free of charge all the capital the
partnership should need. He naturally reached very different
conclusions from those of the auditors of Menzi Co., Inc. Issue:
What is the relationship of plaintiff and defendant?
Employer-Employee
Held:
We come now to a consideration of appellant's assignment of
error. After considering the evidence and the arguments of counsel,
we are unanimously of the opinion that under the facts of this case
the relationship established between Menzi & Co. and by the
plaintiff was to receive 35 per cent of the net profits of the
fertilizer business of Menzi & Co., Inc., in compensation for
his services of supervising the mixing of the fertilizers. Neither
the provisions of the contract nor the conduct of the parties prior
or subsequent to its execution justified the finding that it was a
contract of copartnership. Exhibit A, as appears from the statement
of facts, was in effect a continuation of the verbal agreement
between the parties, whereby the plaintiff worked for the defendant
corporation for one-half of the net profits derived by the
corporation from certain fertilizer contracts. Plaintiff was paid
his share of the profits from those transactions after Menzi &
Co., Inc., had deducted the same items of expense which he now
protests. Plaintiff never made any objection to defendant's manner
of keeping the accounts or to the charges. The business was
continued in the same manner under the written agreement, Exhibit
A, and for four years the plaintiff never made any objection. On
the contrary he approved and signed every year the balance sheet
and the profit and loss statement. It was only when plaintiff's
contract was about to expire and the defendant corporation had
notified him that it would not renew it that the plaintiff began to
make objections. The trial court relied on article 116 of the Code
of Commerce, which provides that articles of association by which
two or more persons obligate themselves to place in a common fund
any property, industry, or any of these things, in order to obtain
profit, shall be commercial, no matter what its class may be,
provided it has been established in accordance with the provisions
of this Code; but in the case at bar there was no common fund, that
is, a fund belonging to the parties as joint owners or partners.
The business belonged to Menzi & Co., Inc. The plaintiff was
working for Menzi & Co., Inc. Instead of receiving a fixed
salary or a fixed salary and a small percentage of the net profits,
he was to receive 35 per cent of the net profits as compensation
for his services. Menzi & Co., Inc., was to advanced him P300 a
month on account of his participation in the profits. It will be
noted that no provision was made for reimbursing Menzi & Co.,
Inc., in case there should be no net profits at the end of the
year. It is now well settled
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that the old rule that sharing profits as profits made one a
partner is overthrown. (Mechem, second edition, p. 89.) It is
nowhere stated in Exhibit A that the parties were establishing a
partnership or intended to become partners. Great stress in laid by
the trial judge and plaintiff's attorneys on the fact that in the
sixth paragraph of Exhibit A the phrase "en sociedad con" is used
in providing that defendant corporation not engage in the business
of prepared fertilizers except in association with the plaintiff
(en sociedad con). The fact is that en sociedad con as there used
merely means en reunion con or in association with, and does not
carry the meaning of "in partnership with". The trial judge found
that the defendant corporation had not always regarded the contract
in question as an employment agreement, because in its answer to
the original complaint it stated that before the expiration of
Exhibit A it notified the plaintiff that it would not continue
associated with him in said
business. The trial judge concluded that the phrase "associated
with", used by the defendant corporation, indicated that it
regarded the contract, Exhibit A, as an agreement of copartnership.
In the first place, the complaint and answer having been superseded
by the amended complaint and the answer thereto, and the answer to
the original complaint not having been presented in evidence as an
exhibit, the trial court was not authorized to take it into
account. "Where amended pleadings have been filed, allegations in
the original pleadings are held admissible, but in such case the
original pleadings can have no effect, unless formally offered in
evidence." (Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27
Phil., 148.) In the second place, although the word "associated"
may be related etymologically to the Spanish word "socio", meaning
partner, it does not in its common acceptation imply any
partnership relation.
Heirs of Jose Lim vs. Lim Facts:
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. 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 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:
Who is the partner between Jose Lim and Elfledo Lim? Elfledo
Lim
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 . 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. But at any rate, the Supreme Court noted that
based on the functions performed by Elfledo, he is the actual
partner. The following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto: 1.) Cresencia testified
that Jose gave Elfledo P50,000.00, as share in the partnership, on
a date that coincided with the payment of the initial capital in
the partnership; 2.) Elfledo ran the affairs of the partnership,
wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners
herein; 3.) all of the properties, particularly the nine trucks of
the partnership, were registered in the name of Elfledo; 4.) Jimmy
testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares
of the profits of the business; and 5.) none of the heirs of Jose,
the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in the case of Heirs of
Tan Eng Kee, a demand for periodic accounting is evidence of a
partnership.
Furthermore, 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. It is apparent
that the other partners only contributed in the initial capital but
had no say thereafter on how the business was ran. Evidently it was
through Elfredos efforts and hard work that the partnership was
able to acquire more trucks and otherwise
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3-Manresa [BUSORG CASE DIGESTS]
prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
JOSE MIGUEL ANTON VS. SPOUSES ERNESTO OLIVA AND CORAZON OLIVA
(G.R. NO. 182563 | 2011-04-11) Facts:
On September 9, 2008 respondents Ernesto and Corazon Oliva (the
Olivas) filed an action for accounting and specific
performance with damages against petitioner spouses Jose Miguel
and Gladys Miriam Anton (the Antons) before the
Regional Trial Court (RTC) of Quezon City. The Olivas alleged
that they entered into three Memoranda of Agreement (MOA) with
Gladys Miriam, their daughter, and Jose Miguel, their son-in-law,
setting up a business partnership covering three fast food stores,
known as "Pinoy Toppings"
that were to be established at SM Megamall, SM Cubao, and SM
Southmall. Under the MOAs, the Olivas wer,e entitled to 30% share
of the net profits of the SM Megamall store and 20% in the cases of
SM Cubao and SM Southmall stores. The pertinent portions of the
first MOA dated May 2, 1992,
covering the SM Megamall store (see full text). The pertinent
terms of the second MOA dated May 6, 1993,
covering the SM Cubao store (see full text). The pertinent
portions of the third MOA dated April 20, 1995,
covering the SM Southmall Branch (see full text). The Olivas
alleged that while the Antons gave them a total of P2,547,000.00
representing their monthly shares of the net profits from the
operations of the SM Megamall and SM Southmall stores, the Antons
did not give them their shares of the net profits from the store at
SM Cubao. Further, Jose Miguel did not render to them an account of
the operations of the three stores. And, beginning November 1997,
the Antons altogether stopped giving the Olivas their share in the
net profits of the three stores. The Olivas demanded an accounting
of partnership funds but, in response, Jose Miguel terminated their
partnership agreements. JOSE MIGUEL ALLEGED: that he and his wife,
Gladys
Miriam, never partnered with the Olivas in the operations of the
three stores. The Antons merely borrowed money from the Olivas to
finance the opening of those stores. Gladys Miriam, who managed the
operations of the business, remitte