G.R. No.

78133 October 18, 1988 under Section 20(b) and its income was subject to the
taxes prescribed under Section 24, both of the
MARIANO P. PASCUAL and RENATO P. National Internal Revenue Code 1 that the
DRAGON, petitioners, unregistered partnership was subject to corporate
vs. income tax as distinguished from profits derived from
THE COMMISSIONER OF INTERNAL REVENUE and the partnership by them which is subject to individual
COURT OF TAX APPEALS, respondents. income tax; and that the availment of tax amnesty
under P.D. No. 23, as amended, by petitioners
De la Cuesta, De las Alas and Callanta Law Offices for relieved petitioners of their individual income tax
petitioners. liabilities but did not relieve them from the tax
liability of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency
The Solicitor General for respondents
income tax assessed.

Petitioners filed a petition for review with the

respondent Court of Tax Appeals docketed as CTA
GANCAYCO, J.:
Case No. 3045. In due course, the respondent court
by a majority decision of March 30, 1987, 2 affirmed
The distinction between co-ownership and an the decision and action taken by respondent
unregistered partnership or joint venture for income commissioner with costs against petitioners.
tax purposes is the issue in this petition.
It ruled that on the basis of the principle enunciated
On June 22, 1965, petitioners bought two (2) parcels in Evangelista 3 an unregistered partnership was in
of land from Santiago Bernardino, et al. and on May fact formed by petitioners which like a corporation
28, 1966, they bought another three (3) parcels of was subject to corporate income tax distinct from
land from Juan Roque. The first two parcels of land that imposed on the partners.
were sold by petitioners in 1968 toMarenir
Development Corporation, while the three parcels of
In a separate dissenting opinion, Associate Judge
land were sold by petitioners to Erlinda Reyes and
Constante Roaquin stated that considering the
Maria Samson on March 19,1970. Petitioners realized
circumstances of this case, although there might in
a net profit in the sale made in 1968 in the amount of
fact be a co-ownership between the petitioners,
P165,224.70, while they realized a net profit of
there was no adequate basis for the conclusion that
P60,000.00 in the sale made in 1970. The
they thereby formed an unregistered partnership
corresponding capital gains taxes were paid by
which made "hem liable for corporate income tax
petitioners in 1973 and 1974 by availing of the tax under the Tax Code.
amnesties granted in the said years.
Hence, this petition wherein petitioners invoke as
However, in a letter dated March 31, 1979 of then
basis thereof the following alleged errors of the
Acting BIR Commissioner Efren I. Plana, petitioners
respondent court:
were assessed and required to pay a total amount of
P107,101.70 as alleged deficiency corporate income
A. IN HOLDING AS PRESUMPTIVELY
taxes for the years 1968 and 1970.
CORRECT THE DETERMINATION OF
THE RESPONDENT
Petitioners protested the said assessment in a letter
COMMISSIONER, TO THE EFFECT
of June 26, 1979 asserting that they had availed of tax
THAT PETITIONERS FORMED AN
amnesties way back in 1974.
UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME
In a reply of August 22, 1979, respondent TAX, AND THAT THE BURDEN OF
Commissioner informed petitioners that in the years OFFERING EVIDENCE IN
1968 and 1970, petitioners as co-owners in the real OPPOSITION THERETO RESTS UPON
estate transactions formed an unregistered THE PETITIONERS.
partnership or joint venture taxable as a corporation
 B. IN MAKING A FINDING, SOLELY corporations, the issue hinges on
ON THE BASIS OF ISOLATED SALE the meaning of the terms
TRANSACTIONS, THAT AN corporation and partnership as
UNREGISTERED PARTNERSHIP used in sections 24 and 84 of said
EXISTED THUS IGNORING THE Code, the pertinent parts of which
REQUIREMENTS LAID DOWN BY read:
LAW THAT WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT Sec. 24. Rate of the tax on
A PARTNERSHIP EXISTS. corporations.There shall be
levied, assessed, collected, and paid
C. IN FINDING THAT THE INSTANT annually upon the total net income
CASE IS SIMILAR TO THE received in the preceding taxable
EVANGELISTA CASE AND year from all sources by every
THEREFORE SHOULD BE DECIDED corporation organized in, or
ALONGSIDE THE EVANGELISTA existing under the laws of the
CASE. Philippines, no matter how created
or organized but not including duly
D. IN RULING THAT THE TAX registered general co-partnerships
AMNESTY DID NOT RELIEVE THE (companies collectives), a tax upon
PETITIONERS FROM PAYMENT OF such income equal to the sum of
OTHER TAXES FOR THE PERIOD the following: ...
COVERED BY SUCH AMNESTY. (pp.
12-13, Rollo.) Sec. 84(b). The term "corporation"
includes partnerships, no matter
The petition is meritorious. how created or organized, joint-
stock companies, joint accounts
The basis of the subject decision of the respondent (cuentas en participation),
court is the ruling of this Court in Evangelista. 4 associations or insurance
companies, but does not include
duly registered general co-
In the said case, petitioners borrowed a sum of
partnerships (companies
money from their father which together with their
colectivas).
own personal funds they used in buying several real
properties. They appointed their brother to manage
their properties with full power to lease, collect, rent, Article 1767 of the Civil Code of the
issue receipts, etc. They had the real properties Philippines provides:
rented or leased to various tenants for several years
and they gained net profits from the rental income. By the contract of partnership two
Thus, the Collector of Internal Revenue demanded or more persons bind themselves to
the payment of income tax on a corporation, among contribute money, property, or
others, from them. industry to a common fund, with
the intention of dividing the profits
In resolving the issue, this Court held as follows: among themselves.

The issue in this case is whether Pursuant to this article, the

petitioners are subject to the tax on essential elements of a partnership
corporations provided for in section are two, namely: (a) an agreement
24 of Commonwealth Act No. 466, to contribute money, property or
otherwise known as the National industry to a common fund; and (b)
Internal Revenue Code, as well as to intent to divide the profits among
the residence tax for corporations the contracting parties. The first
and the real estate dealers' fixed element is undoubtedly present in
tax. With respect to the tax on the case at bar, for, admittedly,
petitioners have agreed to, and did, petitioners herein. The properties
contribute money and property to a were leased separately to several
common fund. Hence, the issue persons, who, from 1945 to 1948
narrows down to their intent in inclusive, paid the total sum of
acting as they did. Upon P70,068.30 by way of rentals.
consideration of all the facts and Seemingly, the lots are still being so
circumstances surrounding the let, for petitioners do not even
case, we are fully satisfied that their suggest that there has been any
purpose was to engage in real change in the utilization thereof.
estate transactions for monetary
gain and then divide the same 4. Since August, 1945, the
among themselves, because: properties have been under the
management of one person,
1. Said common fund was not namely, Simeon Evangelists, with
something they found already in full power to lease, to collect rents,
existence. It was not a property to issue receipts, to bring suits, to
inherited by them pro indiviso. sign letters and contracts, and to
They created it purposely. What is indorse and deposit notes and
more they jointly borrowed a checks. Thus, the affairs relative to
substantial portion thereof in order said properties have been handled
to establish said common fund. as if the same belonged to a
corporation or business enterprise
2. They invested the same, not operated for profit.
merely in one transaction, but in a
series of transactions. On February 5. The foregoing conditions have
2, 1943, they bought a lot for existed for more than ten (10)
P100,000.00. On April 3, 1944, they years, or, to be exact, over fifteen
purchased 21 lots for P18,000.00. (15) years, since the first property
This was soon followed, on April 23, was acquired, and over twelve (12)
1944, by the acquisition of another years, since Simeon Evangelists
real estate for P108,825.00. Five (5) became the manager.
days later (April 28, 1944), they got
a fourth lot for P237,234.14. The 6. Petitioners have not testified or
number of lots (24) acquired and introduced any evidence, either on
transcations undertaken, as well as their purpose in creating the set up
the brief interregnum between already adverted to, or on the
each, particularly the last three causes for its continued existence.
purchases, is strongly indicative of a They did not even try to offer an
pattern or common design that was explanation therefor.
not limited to the conservation and
preservation of the aforementioned Although, taken singly, they might
common fund or even of the not suffice to establish the intent
property acquired by petitioners in necessary to constitute a
February, 1943. In other words, one partnership, the collective effect of
cannot but perceive a character of these circumstances is such as to
habituality peculiar to business leave no room for doubt on the
transactions engaged in for existence of said intent in
purposes of gain. petitioners herein. Only one or two
of the aforementioned
3. The aforesaid lots were not circumstances were present in the
devoted to residential purposes or cases cited by petitioners herein,
to other personal uses, of
 and, hence, those cases are not in (2) Co-ownership or co-possession
point. 5 does not itself establish a
partnership, whether such co-
In the present case, there is no evidence that owners or co-possessors do or do
petitioners entered into an agreement to contribute not share any profits made by the
money, property or industry to a common fund, and use of the property;
that they intended to divide the profits among
themselves. Respondent commissioner and/ or his (3) The sharing of gross returns
representative just assumed these conditions to be does not of itself establish a
present on the basis of the fact that petitioners partnership, whether or not the
purchased certain parcels of land and became co- persons sharing them have a joint
owners thereof. or common right or interest in any
property from which the returns
In Evangelists, there was a series of transactions are derived;
where petitioners purchased twenty-four (24)
lots showing that the purpose was not limited to the From the above it appears that the
conservation or preservation of the common fund or fact that those who agree to form a
even the properties acquired by them. The character co- ownership share or do not share
of habituality peculiar to business transactions any profits made by the use of the
engaged in for the purpose of gain was present. property held in common does not
convert their venture into a
In the instant case, petitioners bought two (2) parcels partnership. Or the sharing of the
of land in 1965. They did not sell the same nor make gross returns does not of itself
any improvements thereon. In 1966, they bought establish a partnership whether or
another three (3) parcels of land from one seller. It not the persons sharing therein
was only 1968 when they sold the two (2) parcels of have a joint or common right or
land after which they did not make any additional or interest in the property. This only
new purchase. The remaining three (3) parcels were means that, aside from the
sold by them in 1970. The transactions were isolated. circumstance of profit, the presence
The character of habituality peculiar to business of other elements constituting
transactions for the purpose of gain was not present. partnership is necessary, such as
the clear intent to form a
In Evangelista, the properties were leased out to partnership, the existence of a
tenants for several years. The business was under the juridical personality different from
management of one of the partners. Such condition that of the individual partners, and
existed for over fifteen (15) years. None of the the freedom to transfer or assign
circumstances are present in the case at bar. The co- any interest in the property by one
ownership started only in 1965 and ended in 1970. with the consent of the
others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953
Thus, in the concurring opinion of Mr. Justice Angelo
ed., pp. 635-636)
Bautista in Evangelista he said:

It is evident that an isolated

I wish however to make the
transaction whereby two or more
following observation Article 1769
persons contribute funds to buy
of the new Civil Code lays down the
certain real estate for profit in the
rule for determining when a
absence of other circumstances
transaction should be deemed a
showing a contrary intention
partnership or a co-ownership. Said
cannot be considered a partnership.
article paragraphs 2 and 3,
provides;
Persons who contribute property or
funds for a common enterprise and
agree to share the gross returns of The common ownership of
that enterprise in proportion to property does not itself create a
their contribution, but who partnership between the owners,
severally retain the title to their though they may use it for the
respective contribution, are not purpose of making gains; and they
thereby rendered partners. They may, without becoming partners,
have no common stock or capital, agree among themselves as to the
and no community of interest as management, and use of such
principal proprietors in the business property and the application of the
itself which the proceeds derived. proceeds therefrom. (Spurlock vs.
(Elements of the Law of Partnership Wilson, 142 S.W. 363,160 No. App.
by Flord D. Mechem 2nd Ed., 14.) 6
section 83, p. 74.)
The sharing of returns does not in itself establish a
A joint purchase of land, by two, partnership whether or not the persons sharing
does not constitute a co- therein have a joint or common right or interest in the
partnership in respect thereto; nor property. There must be a clear intent to form a
does an agreement to share the partnership, the existence of a juridical personality
profits and losses on the sale of different from the individual partners, and the
land create a partnership; the freedom of each party to transfer or assign the whole
parties are only tenants in property.
common. (Clark vs. Sideway, 142
U.S. 682,12 Ct. 327, 35 L. Ed., 1157.) In the present case, there is clear evidence of co-
ownership between the petitioners. There is no
Where plaintiff, his brother, and adequate basis to support the proposition that they
another agreed to become owners thereby formed an unregistered partnership. The two
of a single tract of realty, holding as isolated transactions whereby they purchased
tenants in common, and to divide properties and sold the same a few years thereafter
the profits of disposing of it, the did not thereby make them partners. They shared in
brother and the other not being the gross profits as co- owners and paid their capital
entitled to share in plaintiffs gains taxes on their net profits and availed of the tax
commission, no partnership existed amnesty thereby. Under the circumstances, they
as between the three parties, cannot be considered to have formed an unregistered
whatever their relation may have partnership which is thereby liable for corporate
been as to third parties. (Magee vs. income tax, as the respondent commissioner
Magee 123 N.E. 673, 233 Mass. proposes.
341.)
And even assuming for the sake of argument that
In order to constitute a partnership such unregistered partnership appears to have been
inter sese there must be: (a) An formed, since there is no such existing unregistered
intent to form the same; (b) partnership with a distinct personality nor with assets
generally participating in both that can be held liable for said deficiency corporate
profits and losses; (c) and such a income tax, then petitioners can be held individually
community of interest, as far as liable as partners for this unpaid obligation of the
third persons are concerned as partnership p. 7 However, as petitioners have availed
enables each party to make of the benefits of tax amnesty as individual taxpayers
contract, manage the business, and in these transactions, they are thereby relieved of any
dispose of the whole property.- further tax liability arising therefrom.
Municipal Paving Co. vs. Herring
150 P. 1067, 50 III 470.) WHEREFROM, the petition is hereby GRANTED and
the decision of the respondent Court of Tax Appeals
of March 30, 1987 is hereby REVERSED and SET ASIDE
and another decision is hereby rendered relieving See also Articles 1817 and
petitioners of the corporate income tax liability in this 1818, Supra.
case, without pronouncement as to costs.

SO ORDERED.
G.R. No. L-9996 October 15, 1957
Cruz, Grio-Aquino and Medialdea, JJ., concur.
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA,
Narvasa, J., took no part. and FRANCISCA EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, respondents.
Footnotes
Santiago F. Alidio and Angel S. Dakila, Jr., for
1 Annex C of the Petition, citing petitioner.
Evangelista v. Collector, G.R. No. Office of the Solicitor General Ambrosio Padilla,
9996, Oct. 15,1957,102 Phil. 140. Assistant Solicitor General Esmeraldo Umali and
Solicitor Felicisimo R. Rosete for Respondents.
2 Penned by Presiding Judge
Amante Filler, concurred in by CONCEPCION, J.:
Associate Judge Alex Z. Reyes,
Associate Judge Roaquin dissented This is a petition filed by Eufemia Evangelista,
in a separate opinion. Manuela Evangelista and Francisca Evangelista, for
review of a decision of the Court of Tax Appeals, the
3 Supra. dispositive part of which reads:

4 Supra. FOR ALL THE FOREGOING, we hold that the

petitioners are liable for the income tax, real
5 Supra, pp. 144-146; italics estate dealer's tax and the residence tax for
supplied. the years 1945 to 1949, inclusive, in
accordance with the respondent's
assessment for the same in the total amount
6 Supra, pp. 150-151; italics
of P6,878.34, which is hereby affirmed and
supplied.
the petition for review filed by petitioner is
hereby dismissed with costs against
7 Article 1816. All partners, petitioners.
including industrial ones, shall be
liable pro rata with all their
It appears from the stipulation submitted by the
property and after all the
parties:
partnership assets have been
exhausted, for the contracts which
may be entered into in the name 1. That the petitioners borrowed from their
and for the account of the father the sum of P59,1400.00 which
partnership, under its signature and amount together with their personal monies
by a person authorized to act for was used by them for the purpose of buying
the partnership. However, any real properties,.
partner may enter into a separate
obligation to perform a partnership 2. That on February 2, 1943, they bought
contract. (Civil Code of the from Mrs. Josefina Florentino a lot with an
Philippines) area of 3,713.40 sq. m. including
improvements thereon from the sum of
P100,000.00; this property has an assessed 10. That in 1948, they realized a gross rental
value of P57,517.00 as of 1948; income of P17,453.00 out of the which
amount was deducted the sum of P4,837.65
3. That on April 3, 1944 they purchased from as expenses, thereby leaving them a net
Mrs. Josefa Oppus 21 parcels of land with an rental income of P12,615.35.
aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this It further appears that on September 24, 1954
property has an assessed value of respondent Collector of Internal Revenue demanded
P82,255.00 as of 1948; the payment of income tax on corporations, real
estate dealer's fixed tax and corporation residence
4. That on April 28, 1944 they purchased tax for the years 1945-1949, computed, according to
from the Insular Investments Inc., a lot of assessment made by said officer, as follows:
4,353 sq. m. including improvements
thereon for P108,825.00. This property has INCOME TAXES
an assessed value of P4,983.00 as of 1948;
1945 14.84
5. That on April 28, 1944 they bought form
1946 1,144.71
Mrs. Valentina Afable a lot of 8,371 sq. m.
including improvements thereon for 1947 10.34
P237,234.34. This property has an assessed
value of P59,140.00 as of 1948; 1948 1,912.30

1949 1,575.90
6. That in a document dated August 16,
1945, they appointed their brother Simeon Total including surcharge and P6,157.09
Evangelista to 'manage their properties with compromise
full power to lease; to collect and receive
rents; to issue receipts therefor; in default of REAL ESTATE DEALER'S FIXED TAX
such payment, to bring suits against the
1946 P37.50
defaulting tenants; to sign all letters,
contracts, etc., for and in their behalf, and to 1947 150.00
endorse and deposit all notes and checks for
them; 1948 150.00

1949 150.00
7. That after having bought the above-
mentioned real properties the petitioners Total including penalty P527.00
had the same rented or leases to various
tenants; RESIDENCE TAXES OF CORPORATION

1945 P38.75
8. That from the month of March, 1945 up to
an including December, 1945, the total 1946 38.75
amount collected as rents on their real
properties was P9,599.00 while the 1947 38.75
expenses amounted to P3,650.00 thereby
1948 38.75
leaving them a net rental income of
P5,948.33; 1949 38.75

9. That on 1946, they realized a gross rental Total including surcharge P193.75
income of in the sum of P24,786.30, out of TOTAL TAXES DUE P6,878.34.
which amount was deducted in the sum of
P16,288.27 for expenses thereby leaving
them a net rental income of P7,498.13; Said letter of demand and corresponding
assessments were delivered to petitioners on
December 3, 1954, whereupon they instituted the fund, with the intention of dividing the
present case in the Court of Tax Appeals, with a profits among themselves.
prayer that "the decision of the respondent contained
in his letter of demand dated September 24, 1954" be Pursuant to the article, the essential elements of a
reversed, and that they be absolved from the partnership are two, namely: (a) an agreement to
payment of the taxes in question, with costs against contribute money, property or industry to a common
the respondent. fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly
After appropriate proceedings, the Court of Tax present in the case at bar, for, admittedly, petitioners
Appeals the above-mentioned decision for the have agreed to, and did, contribute money and
respondent, and a petition for reconsideration and property to a common fund. Hence, the issue narrows
new trial having been subsequently denied, the case down to their intent in acting as they did. Upon
is now before Us for review at the instance of the consideration of all the facts and circumstances
petitioners. surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for
The issue in this case whether petitioners are subject monetary gain and then divide the same among
to the tax on corporations provided for in section 24 themselves, because:
of Commonwealth Act. No. 466, otherwise known as
the National Internal Revenue Code, as well as to the 1. Said common fund was not something
residence tax for corporations and the real estate they found already in existence. It was not
dealers fixed tax. With respect to the tax on property inherited by them pro indiviso.
corporations, the issue hinges on the meaning of the They created it purposely. What is more
terms "corporation" and "partnership," as used in they jointly borrowed a substantial portion
section 24 and 84 of said Code, the pertinent parts of thereof in order to establish said common
which read: fund.

SEC. 24. Rate of tax on corporations.There 2. They invested the same, not merely not
shall be levied, assessed, collected, and paid merely in one transaction, but in a series of
annually upon the total net income received transactions. On February 2, 1943, they
in the preceding taxable year from all bought a lot for P100,000.00. On April 3,
sources by every corporation organized in, 1944, they purchased 21 lots for P18,000.00.
or existing under the laws of the Philippines, This was soon followed on April 23, 1944, by
no matter how created or organized but not the acquisition of another real estate for
including duly registered general co- P108,825.00. Five (5) days later (April 28,
partnerships (compaias colectivas), a tax 1944), they got a fourth lot for P237,234.14.
upon such income equal to the sum of the The number of lots (24) acquired and
following: . . . transactions undertaken, as well as the brief
interregnum between each, particularly the
SEC. 84 (b). The term 'corporation' includes last three purchases, is strongly indicative of
partnerships, no matter how created or a pattern or common design that was not
organized, joint-stock companies, joint limited to the conservation and preservation
accounts (cuentas en participacion), of the aforementioned common fund or
associations or insurance companies, but even of the property acquired by the
does not include duly registered general petitioners in February, 1943. In other
copartnerships. (compaias colectivas). words, one cannot but perceive a character
of habitually peculiar to business
Article 1767 of the Civil Code of the Philippines transactions engaged in the purpose of gain.
provides:
3. The aforesaid lots were not devoted to
By the contract of partnership two or more residential purposes, or to other personal
persons bind themselves to contribute uses, of petitioners herein. The properties
money, properly, or industry to a common were leased separately to several persons,
 who, from 1945 to 1948 inclusive, paid the To begin with, the tax in question is one imposed
total sum of P70,068.30 by way of rentals. upon "corporations", which, strictly speaking, are
Seemingly, the lots are still being so let, for distinct and different from "partnerships". When our
petitioners do not even suggest that there Internal Revenue Code includes "partnerships"
has been any change in the utilization among the entities subject to the tax on
thereof. "corporations", said Code must allude, therefore, to
organizations which are not necessarily
4. Since August, 1945, the properties have "partnerships", in the technical sense of the term.
been under the management of one person, Thus, for instance, section 24 of said Code exempts
namely Simeon Evangelista, with full power from the aforementioned tax "duly registered general
to lease, to collect rents, to issue receipts, to partnerships which constitute precisely one of the
bring suits, to sign letters and contracts, and most typical forms of partnerships in this jurisdiction.
to indorse and deposit notes and checks. Likewise, as defined in section 84(b) of said Code, "the
Thus, the affairs relative to said properties term corporation includes partnerships, no matter
have been handled as if the same belonged how created or organized." This qualifying expression
to a corporation or business and enterprise clearly indicates that a joint venture need not be
operated for profit. undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on
5. The foregoing conditions have existed for partnerships, in order that one could be deemed
more than ten (10) years, or, to be exact, constituted for purposes of the tax on corporations.
over fifteen (15) years, since the first Again, pursuant to said section 84(b), the term
property was acquired, and over twelve (12) "corporation" includes, among other, joint accounts,
years, since Simeon Evangelista became the (cuentas en participation)" and "associations," none
manager. of which has a legal personality of its own,
independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as
6. Petitioners have not testified or
a condition essential to the existence of the
introduced any evidence, either on their
partnerships therein referred to. In fact, as above
purpose in creating the set up already
stated, "duly registered general copartnerships"
adverted to, or on the causes for its
which are possessed of the aforementioned
continued existence. They did not even try to
personality have been expressly excluded by law
offer an explanation therefor.
(sections 24 and 84 [b] from the connotation of the
term "corporation" It may not be amiss to add that
Although, taken singly, they might not suffice to
petitioners' allegation to the effect that their liability
establish the intent necessary to constitute a
in connection with the leasing of the lots above
partnership, the collective effect of these
referred to, under the management of one person
circumstances is such as to leave no room for doubt
even if true, on which we express no opinion tends
on the existence of said intent in petitioners herein.
to increase the similarity between the nature of their
Only one or two of the aforementioned
venture and that corporations, and is, therefore, an
circumstances were present in the cases cited by
additional argument in favor of the imposition of said
petitioners herein, and, hence, those cases are not in
tax on corporations.
point.
Under the Internal Revenue Laws of the United
Petitioners insist, however, that they are mere co-
States, "corporations" are taxed differently from
owners, not copartners, for, in consequence of the
"partnerships". By specific provisions of said laws,
acts performed by them, a legal entity, with a
such "corporations" include "associations, joint-stock
personality independent of that of its members, did
companies and insurance companies." However, the
not come into existence, and some of the
term "association" is not used in the aforementioned
characteristics of partnerships are lacking in the case
laws.
at bar. This pretense was correctly rejected by the
Court of Tax Appeals.
. . . in any narrow or technical sense. It
includes any organization, created for the
 transaction of designed affairs, or the petitioners herein constitute a partnership, insofar as
attainment of some object, which like a said Code is concerned and are subject to the income
corporation, continues notwithstanding that tax for corporations.
its members or participants change, and the
affairs of which, like corporate affairs, are As regards the residence of tax for corporations,
conducted by a single individual, a section 2 of Commonwealth Act No. 465 provides in
committee, a board, or some other group, part:
acting in a representative capacity. It is
immaterial whether such organization is Entities liable to residence tax.-Every
created by an agreement, a declaration of corporation, no matter how created or
trust, a statute, or otherwise. It includes a organized, whether domestic or resident
voluntary association, a joint-stock foreign, engaged in or doing business in the
corporation or company, a 'business' trusts a Philippines shall pay an annual residence tax
'Massachusetts' trust, a 'common law' trust, of five pesos and an annual additional tax
and 'investment' trust (whether of the fixed which in no case, shall exceed one thousand
or the management type), an pesos, in accordance with the following
interinsuarance exchange operating through schedule: . . .
an attorney in fact, a partnership
association, and any other type of
The term 'corporation' as used in this Act
organization (by whatever name known)
includes joint-stock company, partnership,
which is not, within the meaning of the Code,
joint account (cuentas en participacion),
a trust or an estate, or a partnership. (7A
association or insurance company, no
Mertens Law of Federal Income Taxation, p.
matter how created or organized. (emphasis
788; emphasis supplied.).
supplied.)

Similarly, the American Law.

Considering that the pertinent part of this provision is
analogous to that of section 24 and 84 (b) of our
. . . provides its own concept of a National Internal Revenue Code (commonwealth Act
partnership, under the term 'partnership 'it No. 466), and that the latter was approved on June
includes not only a partnership as known at 15, 1939, the day immediately after the approval of
common law but, as well, a syndicate, group, said Commonwealth Act No. 465 (June 14, 1939), it is
pool, joint venture or other unincorporated apparent that the terms "corporation" and
organizations which carries on any business "partnership" are used in both statutes with
financial operation, or venture, and which is substantially the same meaning. Consequently,
not, within the meaning of the Code, a trust, petitioners are subject, also, to the residence tax for
estate, or a corporation. . . (7A Merten's Law corporations.
of Federal Income taxation, p. 789; emphasis
supplied.)
Lastly, the records show that petitioners have
habitually engaged in leasing the properties above
The term 'partnership' includes a syndicate, mentioned for a period of over twelve years, and that
group, pool, joint venture or other the yearly gross rentals of said properties from June
unincorporated organization, through or by 1945 to 1948 ranged from P9,599 to P17,453. Thus,
means of which any business, financial they are subject to the tax provided in section 193 (q)
operation, or venture is carried on, . . .. ( 8 of our National Internal Revenue Code, for "real
Merten's Law of Federal Income Taxation, p. estate dealers," inasmuch as, pursuant to section 194
562 Note 63; emphasis supplied.) . (s) thereof:

For purposes of the tax on corporations, our National 'Real estate dealer' includes any person
Internal Revenue Code, includes these partnerships engaged in the business of buying, selling,
with the exception only of duly registered general exchanging, leasing, or renting property or
copartnerships within the purview of the term his own account as principal and holding
"corporation." It is, therefore, clear to our mind that himself out as a full or part time dealer in
 real estate or as an owner of rental property Article 1769 of the new Civil Code lays down the rule
or properties rented or offered to rent for an for determining when a transaction should be
aggregate amount of three thousand pesos deemed a partnership or a co-ownership. Said article
or more a year. . . (emphasis supplied.) paragraphs 2 and 3, provides:

Wherefore, the appealed decision of the Court of Tax (2) Co-ownership or co-possession does not
appeals is hereby affirmed with costs against the of itself establish a partnership, whether
petitioners herein. It is so ordered. such co-owners or co-possessors do or do
not share any profits made by the use of the
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., property;
Endencia and Felix, JJ., concur.
(3) The sharing of gross returns does not of
itself establish partnership, whether or not
the person sharing them have a joint or
common right or interest in any property
BAUTISTA ANGELO, J., concurring: from which the returns are derived;

I agree with the opinion that petitioners have actually From the above it appears that the fact that those
contributed money to a common fund with express who agree to form a co-ownership shared or do not
purpose of engaging in real estate business for profit. share any profits made by the use of property held in
The series of transactions which they had undertaken common does not convert their venture into a
attest to this. This appears in the following portion of partnership. Or the sharing of the gross returns does
the decision: not of itself establish a partnership whether or not
the persons sharing therein have a joint or common
right or interest in the property. This only means that,
2. They invested the same, not merely in one
aside from the circumstance of profit, the presence of
transaction, but in a series of transactions.
other elements constituting partnership is necessary,
On February 2, 1943, they bought a lot for
such as the clear intent to form a partnership, the
P100,000. On April 3, 1944, they purchase 21
existence of a judicial personality different from that
lots for P18,000. This was soon followed on
of the individual partners, and the freedom to
April 23, 1944, by the acquisition of another
transfer or assign any interest in the property by one
real state for P108,825. Five (5) days later
with the consent of the others (Padilla, Civil Code of
(April 28, 1944), they got a fourth lot for
the Philippines Annotated, Vol. I, 1953 ed., pp. 635-
P237,234.14. The number of lots (24)
636).
acquired and transactions undertaken, as
well as the brief interregnum between each,
particularly the last three purchases, is It is evident that an isolated transaction whereby two
strongly indicative of a pattern or common or more persons contribute funds to buy certain real
design that was not limited to the estate for profit in the absence of other
conservation and preservation of the circumstances showing a contrary intention cannot
aforementioned common fund or even of be considered a partnership.
the property acquired by the petitioner in
February, 1943, In other words, we cannot Persons who contribute property or funds
but perceive a character for a common enterprise and agree to share
of habitually peculiar the gross returns of that enterprise in
to business transactions engaged in for proportion to their contribution, but who
purposes of gain. severally retain the title to their respective
contribution, are not thereby rendered
I wish however to make to make the following partners. They have no common stock or
observation: capital, and no community of interest as
principal proprietors in the business itself
which the proceeds derived. (Elements of
 the law of Partnership by Floyd R. Mechem, [G.R. No. 134559. December 9, 1999]
2n Ed., section 83, p. 74.)

A joint venture purchase of land, by two,

does not constitute a copartnership in ANTONIA TORRES, assisted by her husband, ANGELO
respect thereto; nor does not agreement to TORRES; and EMETERIA
share the profits and loses on the sale of land BARING, petitioners, vs. COURT OF
create a partnership; the parties are only APPEALS and MANUEL
tenants in common. (Clark vs. Sideway, 142 TORRES, respondents.
U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)
DECISION
Where plaintiff, his brother, and another
PANGANIBAN, J.:
agreed to become owners of a single tract of
reality, holding as tenants in common, and to
divide the profits of disposing of it, the Courts may not extricate parties from the
brother and the other not being entitled to necessary consequences of their acts. That the terms
share in plaintiff's commissions, no of a contract turn out to be financially
partnership existed as between the parties, disadvantageous to them will not relieve them of
whatever relation may have been as to third their obligations therein. The lack of an inventory of
parties. (Magee vs. Magee, 123 N. E. 6763, real property will not ipso facto release the
233 Mass. 341.) contracting partners from their respective
obligations to each other arising from acts executed
in accordance with their agreement.
In order to constitute a partnership inter
sese there must be: (a) An intent to form the
same; (b) generally a participating in both
The Case
profits and losses; (c) and such a community
of interest, as far as third persons are
concerned as enables each party to make
The Petition for Review on Certiorari before us
contract, manage the business, and dispose
assails the March 5, 1998 Decision[1] Second
of the whole property. (Municipal Paving Co.
Division of the Court of Appeals[2] (CA) in CA-GR CV
vs Herring, 150 P. 1067, 50 Ill. 470.)
No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the
The common ownership of property does
ruling of the Regional Trial Court (RTC) of Cebu City in
not itself create a partnership between the
Civil Case No. R-21208, which disposed as follows:
owners, though they may use it for purpose
of making gains; and they may, without
WHEREFORE, for all the foregoing considerations, the
becoming partners, agree among
Court, finding for the defendant and against the
themselves as to the management and use
plaintiffs, orders the dismissal of the plaintiffs
of such property and the application of the
complaint. The counterclaims of the defendant are
proceeds therefrom. (Spurlock vs. Wilson,
likewise ordered dismissed. No pronouncement as to
142 S. W. 363, 160 No. App. 14.)
costs.[3]
This is impliedly recognized in the following portion of
the decision: "Although, taken singly, they might not
The Facts
suffice to establish the intent necessary to constitute
a partnership, the collective effect of these
circumstances (referring to the series of transactions)
Sisters Antonia Torres and Emeteria Baring,
such as to leave no room for doubt on the existence
herein petitioners, entered into a "joint venture
of said intent in petitioners herein."
agreement" with Respondent Manuel Torres for the
development of a parcel of land into a
subdivision. Pursuant to the contract, they executed
 Ruling of the Court of Appeals
a Deed of Sale covering the said parcel of land in favor
of respondent, who then had it registered in his
name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 In affirming the trial court, the Court of Appeals
which, under the Joint Venture Agreement, was to be held that petitioners and respondent had formed a
used for the development of the subdivision.[4] All partnership for the development of the
three of them also agreed to share the proceeds from subdivision. Thus, they must bear the loss suffered by
the sale of the subdivided lots. the partnership in the same proportion as their share
in the profits stipulated in the contract. Disagreeing
The project did not push through, and the land with the trial courts pronouncement that losses as
was subsequently foreclosed by the bank. well as profits in a joint venture should be distributed
According to petitioners, the project failed equally,[7] the CA invoked Article 1797 of the Civil
Code which provides:
because of respondents lack of funds or means and
skills. They add that respondent used the loan not for
the development of the subdivision, but in Article 1797 - The losses and profits shall be
furtherance of his own company, Universal Umbrella distributed in conformity with the agreement. If only
Company. the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be
On the other hand, respondent alleged that he in the same proportion.
used the loan to implement the Agreement. With the
said amount, he was able to effect the survey and the The CA elucidated further:
subdivision of the lots. He secured the Lapu Lapu City
Councils approval of the subdivision project which he
In the absence of stipulation, the share of each
advertised in a local newspaper. He also caused the
partner in the profits and losses shall be in proportion
construction of roads, curbs and gutters. Likewise, he
to what he may have contributed, but the industrial
entered into a contract with an engineering firm for
partner shall not be liable for the losses. As for the
the building of sixty low-cost housing units and
profits, the industrial partner shall receive such share
actually even set up a model house on one of the
as may be just and equitable under the
subdivision lots. He did all of these for a total expense
circumstances. If besides his services he has
of P85,000.
contributed capital, he shall also receive a share in the
Respondent claimed that the subdivision project profits in proportion to his capital.
failed, however, because petitioners and their
relatives had separately caused the annotations of
adverse claims on the title to the land, which The Issue
eventually scared away prospective buyers. Despite
his requests, petitioners refused to cause the clearing
of the claims, thereby forcing him to give up on the Petitioners impute to the Court of Appeals the
project.[5] following error:
Subsequently, petitioners filed a criminal case
x x x [The] Court of Appeals erred in concluding that
for estafa against respondent and his wife, who were
the transaction x x x between the petitioners and
however acquitted. Thereafter, they filed the present
respondent was that of a joint venture/partnership,
civil case which, upon respondent's motion, was later
ignoring outright the provision of Article 1769, and
dismissed by the trial court in an Order dated
other related provisions of the Civil Code of the
September 6, 1982. On appeal, however, the
Philippines.[8]
appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the
The Courts Ruling
CA.
Hence, this Petition.[6]
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
Petitioners deny having formed a partnership
with respondent. They contend that the Joint Venture SECOND: That the SECOND PARTY, had received from
Agreement and the earlier Deed of Sale, both of the FIRST PARTY, the necessary amount of TWENTY
which were the bases of the appellate courts finding THOUSAND (P20,000.00) pesos, Philippine currency,
of a partnership, were void. for their personal obligations and this particular
In the same breath, however, they assert that amount will serve as an advance payment from the
under those very same contracts, respondent is liable FIRST PARTY for the property mentioned to be sub-
for his failure to implement the project. Because the divided and to be deducted from the sales.
agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they THIRD: That the FIRST PARTY, will not collect from the
pray that respondent pay them damages equivalent SECOND PARTY, the interest and the principal amount
to 60 percent of the value of the property.[9] involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the
The pertinent portions of the Joint Venture sub-division project is terminated and ready for sale
Agreement read as follows: to any interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency,
KNOW ALL MEN BY THESE PRESENTS: will be deducted accordingly.

This AGREEMENT, is made and entered into at Cebu FOURTH: That all general expense[s] and all cost[s]
City, Philippines, this 5th day of March, 1969, by and involved in the sub-division project should be paid by
between MR. MANUEL R. TORRES, x x x the FIRST the FIRST PARTY, exclusively and all the expenses will
PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS not be deducted from the sales after the
EMETERIA BARING, x x x the SECOND PARTY: development of the sub-division project.

W I T N E S S E T H: FIFTH: That the sales of the sub-divided lots will be

divided into SIXTY PERCENTUM 60% for the SECOND
That, whereas, the SECOND PARTY, voluntarily PARTY and FORTY PERCENTUM 40% for the FIRST
offered the FIRST PARTY, this property located at PARTY, and additional profits or whatever income
Lapu-Lapu City, Island of Mactan, under Lot No. 1368 deriving from the sales will be divided equally
covering TCT No. T-0184 with a total area of 17,009 according to the x x x percentage [agreed upon] by
square meters, to be sub-divided by the FIRST PARTY; both parties.

Whereas, the FIRST PARTY had given the SECOND SIXTH: That the intended sub-division project of the
PARTY, the sum of: TWENTY THOUSAND (P20,000.00) property involved will start the work and all
Pesos, Philippine Currency, upon the execution of this improvements upon the adjacent lots will be
contract for the property entrusted by the SECOND negotiated in both parties['] favor and all sales shall
PARTY, for sub-division projects and development [be] decided by both parties.
purposes;
SEVENTH: That the SECOND PARTIES, should be given
NOW THEREFORE, for and in consideration of the an option to get back the property mentioned
above covenants and promises herein contained the provided the amount of TWENTY THOUSAND
respective parties hereto do hereby stipulate and (P20,000.00) Pesos, Philippine Currency, borrowed by
agree as follows: the SECOND PARTY, will be paid in full to the FIRST
PARTY, including all necessary improvements spent
ONE: That the SECOND PARTY signed an absolute by the FIRST PARTY, and the FIRST PARTY will be given
Deed of Sale x x x dated March 5, 1969, in the amount a grace period to turnover the property mentioned
of TWENTY FIVE THOUSAND FIVE HUNDRED above.
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE [PESO] &
That this AGREEMENT shall be binding and obligatory ART. 1315. Contracts are perfected by mere consent,
to the parties who executed same freely and and from that moment the parties are bound not only
voluntarily for the uses and purposes therein to the fulfillment of what has been expressly
stated.[10] stipulated but also to all the consequences which,
according to their nature, may be in keeping with
A reading of the terms embodied in the good faith, usage and law.
Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, It is undisputed that petitioners are educated
which provides: and are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was not in
ART. 1767. By the contract of partnership two or consonance with their expectations, they should have
more persons bind themselves to contribute money, objected to it and insisted on the provisions they
property, or industry to a common fund, with the wanted.
intention of dividing the profits among themselves.
Courts are not authorized to extricate parties
from the necessary consequences of their acts, and
Under the above-quoted Agreement, the fact that the contractual stipulations may turn out
petitioners would contribute property to the to be financially disadvantageous will not relieve
partnership in the form of land which was to be parties thereto of their obligations. They cannot now
developed into a subdivision; while respondent disavow the relationship formed from such
would give, in addition to his industry, the amount agreement due to their supposed misunderstanding
needed for general expenses and other of its terms.
costs. Furthermore, the income from the said project
would be divided according to the stipulated
percentage. Clearly, the contract manifested the Alleged Nullity of the Partnership Agreement
intention of the parties to form a partnership.[11]
It should be stressed that the parties
implemented the contract. Thus, petitioners Petitioners argue that the Joint Venture
transferred the title to the land to facilitate its use in Agreement is void under Article 1773 of the Civil
the name of the respondent. On the other hand, Code, which provides:
respondent caused the subject land to be mortgaged,
the proceeds of which were used for the survey and ART. 1773. A contract of partnership is void,
the subdivision of the land. As noted earlier, he whenever immovable property is contributed
developed the roads, the curbs and the gutters of the thereto, if an inventory of said property is not made,
subdivision and entered into a contract to construct signed by the parties, and attached to the public
low-cost housing units on the property. instrument.
Respondents actions clearly belie petitioners
They contend that since the parties did not
contention that he made no contribution to the
make, sign or attach to the public instrument an
partnership. Under Article 1767 of the Civil Code, a
inventory of the real property contributed, the
partner may contribute not only money or property,
partnership is void.
but also industry.
We clarify. First, Article 1773 was intended
primarily to protect third persons. Thus, the eminent
Petitioners Bound by Terms of Contract Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article
1771,[12] the execution of a public instrument would
Under Article 1315 of the Civil Code, contracts be useless if there is no inventory of the property
bind the parties not only to what has been expressly contributed, because without its designation and
stipulated, but also to all necessary consequences description, they cannot be subject to inscription in
thereof, as follows: the Registry of Property, and their contribution
cannot prejudice third persons. This will result in
fraud to those who contract with the partnership in
 Liability of the Parties
the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is
declared void by the law when no such inventory is
made. The case at bar does not involve third parties Claiming that respondent was solely responsible
who may be prejudiced. for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages
Second, petitioners themselves invoke the equivalent to 60 percent of the value of the property,
allegedly void contract as basis for their claim that which was their share in the profits under the Joint
respondent should pay them 60 percent of the value Venture Agreement.
of the property.[13] They cannot in one breath deny
the contract and in another recognize it, depending We are not persuaded. True, the Court of
on what momentarily suits their purpose. Parties Appeals held that petitioners acts were not the cause
cannot adopt inconsistent positions in regard to a of the failure of the project.[16] But it also ruled that
contract and courts will not tolerate, much less neither was respondent responsible therefor.[17] In
approve, such practice. imputing the blame solely to him, petitioners failed to
give any reason why we should disregard the factual
In short, the alleged nullity of the partnership findings of the appellate court relieving him of
will not prevent courts from considering the Joint fault. Verily, factual issues cannot be resolved in a
Venture Agreement an ordinary contract from which petition for review under Rule 45, as in this
the parties rights and obligations to each other may case. Petitioners have not alleged, not to say shown,
be inferred and enforced. that their Petition constitutes one of the exceptions
to this doctrine.[18] Accordingly, we find no reversible
error in the CA's ruling that petitioners are not
Partnership Agreement Not the Result of an Earlier Illegal Contract entitled to damages.
WHEREFORE, the Petition is hereby DENIED and
Petitioners also contend that the Joint Venture the challenged Decision AFFIRMED. Costs against
Agreement is void under Article 1422[14] of the Civil petitioners.
Code, because it is the direct result of an earlier illegal SO ORDERED.
contract, which was for the sale of the land without
valid consideration. Melo, (Chairman), Vitug,
Purisima, and Gonzaga-Reyes, JJ., concur.
This argument is puerile. The Joint Venture
Agreement clearly states that the consideration for
the sale was the expectation of profits from the
subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the
parcel of land sold to respondent. Consideration,
more properly denominated as cause, can take
different forms, such as the prestation or promise of
a thing or service by another.[15]
In this case, the cause of the contract of sale
consisted not in the stated peso value of the land, but
in the expectation of profits from the subdivision
project, for which the land was intended to be
used. As explained by the trial court, the land was in
effect given to the partnership as [petitioners]
participation therein. x x x There was therefore a
consideration for the sale, the [petitioners] acting
in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net
profits.