G.R. No.

78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P.
DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and
COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for
petitioners.
The Solicitor General for respondents
under Section 20(b) and its income was subject to the
taxes prescribed under Section 24, both of the
National Internal Revenue Code 1 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.

Petitioners filed a petition for review with the

GANCAYCO, J.:
The distinction between co-ownership and an
unregistered partnership or joint venture for income
tax purposes is the issue in this petition.
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 dated March 31, 1979 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.
Petitioners protested the said assessment in a letter
of June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.
In a reply of August 22, 1979, 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
respondent Court of Tax Appeals docketed as CTA
Case No. 3045. In due course, the respondent court
by a majority decision of March 30, 1987, 2 affirmed
the decision and action taken by respondent
commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated
in Evangelista 3 an unregistered partnership was in
fact formed by petitioners which like a corporation
was subject to corporate income tax distinct from
that imposed on the partners.
In a separate dissenting opinion, Associate Judge
Constante Roaquin stated that considering the
circumstances of this case, although there might in
fact be a co-ownership between the petitioners,
there was no adequate basis for the conclusion that
they thereby formed an unregistered partnership
which made "hem liable for corporate income tax
under the Tax Code.
Hence, this petition wherein petitioners invoke as
basis thereof the following alleged errors of the
respondent court:
A. IN HOLDING AS PRESUMPTIVELY
CORRECT THE DETERMINATION OF
THE RESPONDENT
COMMISSIONER, TO THE EFFECT
THAT PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME
TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON
THE PETITIONERS.
 B. IN MAKING A FINDING, SOLELY
ON THE BASIS OF ISOLATED SALE
TRANSACTIONS, THAT AN
UNREGISTERED PARTNERSHIP
EXISTED THUS IGNORING THE
REQUIREMENTS LAID DOWN BY
LAW THAT WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT
A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT
CASE IS SIMILAR TO THE
EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED
ALONGSIDE THE EVANGELISTA
CASE.
D. IN RULING THAT THE TAX
AMNESTY DID NOT RELIEVE THE
PETITIONERS FROM PAYMENT OF
OTHER TAXES FOR THE PERIOD
COVERED BY SUCH AMNESTY. (pp.
12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent
court is the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of
money from their father which together with their
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,
issue receipts, etc. They had the real properties
rented or leased to various tenants for several years
and they gained net profits from the rental income.
Thus, the Collector of Internal Revenue demanded
the payment of income tax on a corporation, among
others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether
petitioners are subject to the tax on
corporations provided for in section
24 of Commonwealth Act No. 466,
otherwise known as the National
Internal Revenue Code, as well as to
the residence tax for corporations
and the real estate dealers' fixed
tax. With respect to the tax on
corporations, the issue hinges on
the meaning of the terms
corporation and partnership as
used in sections 24 and 84 of said
Code, the pertinent parts of which
read:
Sec. 24. Rate of the 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
(companies collectives), 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 participation),
associations or insurance
companies, but does not include
duly registered general co-
partnerships (companies
colectivas).
Article 1767 of the Civil Code of the
Philippines provides:
By the contract of partnership two
or more persons bind themselves to
contribute money, property, or
industry to a common fund, with
the intention of dividing the profits
among themselves.
Pursuant to this article, the
essential elements of a partnership
are two, namely: (a) an agreement
to contribute money, property or
industry to a common fund; and (b)
intent to divide the profits among
the contracting parties. The first
element is undoubtedly present in
the case at bar, for, admittedly,
petitioners have agreed to, and did,
contribute money and property to a
common fund. Hence, the issue
narrows down to their intent in
acting as they did. 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, because:
1. Said common fund was not
something they found already in
existence. It was not a property
inherited by them pro indiviso.
They created it purposely. What is
more they jointly borrowed a
substantial portion thereof in order
to establish said common fund.
2. They invested the same, not
merely in one transaction, but in a
series of transactions. On February
2, 1943, they bought a lot for
P100,000.00. On April 3, 1944, they
purchased 21 lots for P18,000.00.
This was soon followed, on April 23,
1944, by the acquisition of another
real estate for P108,825.00. Five (5)
days later (April 28, 1944), they got
a fourth lot for P237,234.14. The
number of lots (24) acquired and
transcations undertaken, as well as
the brief interregnum between
each, particularly the last three
purchases, is strongly indicative of a
pattern or common design that was
not limited to the conservation and
preservation of the aforementioned
common fund or even of the
property acquired by petitioners in
February, 1943. In other words, one
cannot but perceive a character of
habituality peculiar to business
transactions engaged in for
purposes of gain.
3. The aforesaid lots were not
devoted to residential purposes or
to other personal uses, of
petitioners herein. The properties
were leased separately to several
persons, who, from 1945 to 1948
inclusive, paid the total sum of
P70,068.30 by way of rentals.
Seemingly, the lots are still being so
let, for petitioners do not even
suggest that there has been any
change in the utilization thereof.
4. Since August, 1945, the
properties have been under the
management of one person,
namely, Simeon Evangelists, with
full power to lease, to collect rents,
to issue receipts, to bring suits, to
sign letters and contracts, and to
indorse and deposit notes and
checks. Thus, the affairs relative to
said properties have been handled
as if the same belonged to a
corporation or business enterprise
operated for profit.
5. The foregoing conditions have
existed for more than ten (10)
years, or, to be exact, over fifteen
(15) years, since the first property
was acquired, and over twelve (12)
years, since Simeon Evangelists
became the manager.
6. Petitioners have not testified or
introduced any evidence, either on
their purpose in creating the set up
already adverted to, or on the
causes for its continued existence.
They did not even try to offer an
explanation therefor.
Although, taken singly, they might
not suffice to establish the intent
necessary to constitute a
partnership, the collective effect of
these circumstances is such as to
leave no room for doubt on the
existence of said intent in
petitioners herein. Only one or two
of the aforementioned
circumstances were present in the
cases cited by petitioners herein,
 and, hence, those cases are not in
point. 5
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 Evangelists, there was a series of transactions
where petitioners purchased twenty-four (24)
lots showing that the purpose was not limited to the
conservation or preservation of the common fund or
even the properties acquired by them. The character
of habituality peculiar to business transactions
engaged in for the purpose of gain was present.
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.
In Evangelista, the properties were leased out to
tenants for several years. The business was under the
management of one of the partners. Such condition
existed for over fifteen (15) years. None of the
circumstances are present in the case at bar. The co-
ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo
Bautista in Evangelista he said:
I wish however to make the
following observation 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;
From the above it appears that the
fact that those who agree to form a
co- ownership share or do not share
any profits made by the use of the
property held in common does not
convert their venture into a
partnership. Or the sharing of the
gross returns does not of itself
establish a partnership whether or
not the persons sharing therein
have a joint or common right or
interest in the property. This only
means that, aside from the
circumstance of profit, the presence
of other elements constituting
partnership is necessary, such as
the clear intent to form a
partnership, the existence of a
juridical personality different from
that of the individual partners, and
the freedom to transfer or assign
any interest in the property by one
with the consent of the
others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953
ed., pp. 635-636)
It is evident that an isolated
transaction whereby two or more
persons contribute funds to buy
certain real estate for profit in the
absence of other circumstances
showing a contrary intention
cannot be considered a partnership.
Persons who contribute property or
funds for a common enterprise and
agree to share the gross returns of
that enterprise in proportion to
their contribution, but who
severally retain the title to their
respective contribution, are not
thereby rendered partners. They
have no common stock or capital,
and no community of interest as
principal proprietors in the business
itself which the proceeds derived.
(Elements of the Law of Partnership
by Flord D. Mechem 2nd Ed.,
section 83, p. 74.)
A joint purchase of land, by two,
does not constitute a co-
partnership in respect thereto; nor
does an agreement to share the
profits and losses on the sale of
land create a partnership; the
parties are only tenants in
common. (Clark vs. Sideway, 142
U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and
another agreed to become owners
of a single tract of realty, holding as
tenants in common, and to divide
the profits of disposing of it, the
brother and the other not being
entitled to share in plaintiffs
commission, no partnership existed
as between the three parties,
whatever their relation may have
been as to third parties. (Magee vs.
Magee 123 N.E. 673, 233 Mass.
341.)
In order to constitute a partnership
inter sese there must be: (a) An
intent to form the same; (b)
generally participating in both
profits and losses; (c) and such a
community of interest, as far as
third persons are concerned as
enables each party to make
contract, manage the business, and
dispose of the whole property.-
Municipal Paving Co. vs. Herring
150 P. 1067, 50 III 470.)
The common ownership of
property does not itself create a
partnership between the owners,
though they may use it for the
purpose of making gains; and they
may, without becoming partners,
agree among themselves as to the
management, and use of such
property and the application of the
proceeds therefrom. (Spurlock vs.
Wilson, 142 S.W. 363,160 No. App.
14.) 6
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 p. 7 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.
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
petitioners of the corporate income tax liability in this
case, without pronouncement as to costs.
SO ORDERED.
Cruz, Grio-Aquino and Medialdea, JJ., concur.
Narvasa, J., took no part.
Footnotes
1 Annex C of the Petition, citing
Evangelista v. Collector, G.R. No.
9996, Oct. 15,1957,102 Phil. 140.
2 Penned by Presiding Judge
Amante Filler, concurred in by
Associate Judge Alex Z. Reyes,
Associate Judge Roaquin dissented
in a separate opinion.
3 Supra.
4 Supra.
5 Supra, pp. 144-146; italics
supplied.
6 Supra, pp. 150-151; italics
supplied.
7 Article 1816. All partners,
including industrial ones, shall be
liable pro rata with all their
property and after all the
partnership assets have been
exhausted, for the contracts which
may be entered into in the name
and for the account of the
partnership, under its signature and
by a person authorized to act for
the partnership. However, any
partner may enter into a separate
obligation to perform a partnership
contract. (Civil Code of the
Philippines)
See also Articles 1817 and
1818, Supra.
G.R. No. L-9996 October 15, 1957
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA,
and FRANCISCA EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for
petitioner.
Office of the Solicitor General Ambrosio Padilla,
Assistant Solicitor General Esmeraldo Umali and
Solicitor Felicisimo R. Rosete for Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista,
Manuela Evangelista and Francisca Evangelista, for
review of a decision of the Court of Tax Appeals, the
dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the
petitioners are liable for the income tax, real
estate dealer's tax and the residence tax for
the years 1945 to 1949, inclusive, in
accordance with the respondent's
assessment for the same in the total amount
of P6,878.34, which is hereby affirmed and
the petition for review filed by petitioner is
hereby dismissed with costs against
petitioners.
It appears from the stipulation submitted by the
parties:
1. That the petitioners borrowed from their
father the sum of P59,1400.00 which
amount together with their personal monies
was used by them for the purpose of buying
real properties,.
2. That on February 2, 1943, they bought
from Mrs. Josefina Florentino a lot with an
area of 3,713.40 sq. m. including
improvements thereon from the sum of
P100,000.00; this property has an assessed
value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from
Mrs. Josefa Oppus 21 parcels of land with an
aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this
property has an assessed value of
P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased
from the Insular Investments Inc., a lot of
4,353 sq. m. including improvements
thereon for P108,825.00. This property has
an assessed value of P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form
Mrs. Valentina Afable a lot of 8,371 sq. m.
including improvements thereon for
P237,234.34. This property has an assessed
value of P59,140.00 as of 1948;
10. That in 1948, they realized a gross rental
income of P17,453.00 out of the which
amount was deducted the sum of P4,837.65
as expenses, thereby leaving them a net
rental income of P12,615.35.
It further appears that on September 24, 1954
respondent Collector of Internal Revenue demanded
the payment of income tax on corporations, real
estate dealer's fixed tax and corporation residence
tax for the years 1945-1949, computed, according to
assessment made by said officer, as follows:
INCOME TAXES
1945 14.84
1946 1,144.71
1947 10.34
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
present case in the Court of Tax Appeals, with a
prayer that "the decision of the respondent contained
in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the
payment of the taxes in question, with costs against
the respondent.
After appropriate proceedings, the Court of Tax
Appeals the above-mentioned decision for the
respondent, and a petition for reconsideration and
new trial having been subsequently denied, the case
is now before Us for review at the instance of the
petitioners.
The issue in this case whether petitioners are subject
to the tax on corporations provided for in section 24
of Commonwealth Act. No. 466, otherwise known as
the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate
dealers fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning of the
terms "corporation" and "partnership," as used in
section 24 and 84 of said Code, the pertinent parts of
which read:
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. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines
provides:
By the contract of partnership two or more
persons bind themselves to contribute
money, properly, or industry to a common
fund, with the intention of dividing the
profits among themselves.
Pursuant to the article, the essential elements of a
partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common
fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. 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, because:
1. Said common fund was not something
they found already in existence. It was not
property inherited by them pro indiviso.
They created it purposely. What is more
they jointly borrowed a substantial portion
thereof in order to establish said common
fund.
2. They invested the same, not merely not
merely in one transaction, but in a series of
transactions. On February 2, 1943, they
bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00.
This was soon followed on April 23, 1944, by
the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28,
1944), they got a fourth lot for P237,234.14.
The number of lots (24) acquired and
transactions undertaken, as well as the brief
interregnum between each, particularly the
last three purchases, is strongly indicative of
a pattern or common design that was not
limited to the conservation and preservation
of the aforementioned common fund or
even of the property acquired by the
petitioners in February, 1943. In other
words, one cannot but perceive a character
of habitually peculiar to business
transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to
residential purposes, or to other personal
uses, of petitioners herein. The properties
were leased separately to several persons,
 who, from 1945 to 1948 inclusive, paid the
total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for
petitioners do not even suggest that there
has been any change in the utilization
thereof.
4. Since August, 1945, the properties have
been under the management of one person,
namely Simeon Evangelista, with full power
to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts, and
to indorse and deposit notes and checks.
Thus, the affairs relative to said properties
have been handled as if the same belonged
to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for
more than ten (10) years, or, to be exact,
over fifteen (15) years, since the first
property was acquired, and over twelve (12)
years, since Simeon Evangelista became the
manager.
6. Petitioners have not testified or
introduced any evidence, either on their
purpose in creating the set up already
adverted to, or on the causes for its
continued existence. They did not even try to
offer an explanation therefor.
Although, taken singly, they might not suffice to
establish the intent necessary to constitute a
partnership, the collective effect of these
circumstances is such as to leave no room for doubt
on the existence of said intent in petitioners herein.
Only one or two of the aforementioned
circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in
point.
Petitioners insist, however, that they are mere co-
owners, not copartners, for, in consequence of the
acts performed by them, a legal entity, with a
personality independent of that of its members, did
not come into existence, and some of the
characteristics of partnerships are lacking in the case
at bar. This pretense was correctly rejected by the
Court of Tax Appeals.
To begin with, 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." This qualifying expression
clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on
partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations.
Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts,
(cuentas en participation)" and "associations," none
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
a condition essential to the existence of the
partnerships therein referred to. In fact, as above
stated, "duly registered general copartnerships"
which are possessed of the aforementioned
personality have been expressly excluded by law
(sections 24 and 84 [b] from the connotation of the
term "corporation" It may not be amiss to add that
petitioners' allegation to the effect that their liability
in connection with the leasing of the lots above
referred to, under the management of one person
even if true, on which we express no opinion tends
to increase the similarity between the nature of their
venture and that corporations, and is, therefore, an
additional argument in favor of the imposition of said
tax on corporations.
Under the Internal Revenue Laws of the United
States, "corporations" are taxed differently from
"partnerships". By specific provisions of said laws,
such "corporations" include "associations, joint-stock
companies and insurance companies." However, the
term "association" is not used in the aforementioned
laws.
. . . in any narrow or technical sense. It
includes any organization, created for the
 transaction of designed affairs, or the
attainment of some object, which like a
corporation, continues notwithstanding that
its members or participants change, and the
affairs of which, like corporate affairs, are
conducted by a single individual, a
committee, a board, or some other group,
acting in a representative capacity. It is
immaterial whether such organization is
created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a
voluntary association, a joint-stock
corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust,
and 'investment' trust (whether of the fixed
or the management type), an
interinsuarance exchange operating through
an attorney in fact, a partnership
association, and any other type of
organization (by whatever name known)
which is not, within the meaning of the Code,
a trust or an estate, or a partnership. (7A
Mertens Law of Federal Income Taxation, p.
788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a
partnership, under the term 'partnership 'it
includes not only a partnership as known at
common law but, as well, a syndicate, group,
pool, joint venture or other unincorporated
organizations which carries on any business
financial operation, or venture, and which is
not, within the meaning of the Code, a trust,
estate, or a corporation. . . (7A Merten's Law
of Federal Income taxation, p. 789; emphasis
supplied.)
The term 'partnership' includes a syndicate,
group, pool, joint venture or other
unincorporated organization, through or by
means of which any business, financial
operation, or venture is carried on, . . .. ( 8
Merten's Law of Federal Income Taxation, p.
562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National
Internal Revenue Code, includes these partnerships
with the exception only of duly registered general
copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as
said Code is concerned and are subject to the income
tax for corporations.
As regards the residence of tax for corporations,
section 2 of Commonwealth Act No. 465 provides in
part:
Entities liable to residence tax.-Every
corporation, no matter how created or
organized, whether domestic or resident
foreign, engaged in or doing business in the
Philippines shall pay an annual residence tax
of five pesos and an annual additional tax
which in no case, shall exceed one thousand
pesos, in accordance with the following
schedule: . . .
The term 'corporation' as used in this Act
includes joint-stock company, partnership,
joint account (cuentas en participacion),
association or insurance company, no
matter how created or organized. (emphasis
supplied.)
Considering that the pertinent part of this provision is
analogous to that of section 24 and 84 (b) of our
National Internal Revenue Code (commonwealth Act
No. 466), and that the latter was approved on June
15, 1939, the day immediately after the approval of
said Commonwealth Act No. 465 (June 14, 1939), it is
apparent that the terms "corporation" and
"partnership" are used in both statutes with
substantially the same meaning. Consequently,
petitioners are subject, also, to the residence tax for
corporations.
Lastly, the records show that petitioners have
habitually engaged in leasing the properties above
mentioned for a period of over twelve years, and that
the yearly gross rentals of said properties from June
1945 to 1948 ranged from P9,599 to P17,453. Thus,
they are subject to the tax provided in section 193 (q)
of our National Internal Revenue Code, for "real
estate dealers," inasmuch as, pursuant to section 194
(s) thereof:
'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. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax
appeals is hereby affirmed with costs against the
petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L.,
Endencia and Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually
contributed money to a common fund with express
purpose of engaging in real estate business for profit.
The series of transactions which they had undertaken
attest to this. This appears in the following portion of
the decision:
2. They invested the same, not merely in one
transaction, but in a series of transactions.
On February 2, 1943, they bought a lot for
P100,000. On April 3, 1944, they purchase 21
lots for P18,000. This was soon followed on
April 23, 1944, by the acquisition of another
real state for P108,825. Five (5) days later
(April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24)
acquired and transactions undertaken, as
well as the brief interregnum between each,
particularly the last three purchases, is
strongly indicative of a pattern or common
design that was not limited to the
conservation and preservation of the
aforementioned common fund or even of
the property acquired by the petitioner in
February, 1943, In other words, we cannot
but perceive a character
of habitually peculiar
to business transactions engaged in for
purposes of gain.
I wish however to make to make the following
observation:
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
of itself establish a partnership, whether
such co-owners or co-possessors do or do
not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of
itself establish partnership, whether or not
the person sharing them have a joint or
common right or interest in any property
from which the returns are derived;
From the above it appears that the fact that those
who agree to form a co-ownership shared or do not
share any profits made by the use of property held in
common does not convert their venture into a
partnership. Or the sharing of the gross returns does
not of itself establish a partnership whether or not
the persons sharing therein have a joint or common
right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of
other elements constituting partnership is necessary,
such as the clear intent to form a partnership, the
existence of a judicial personality different from that
of the individual partners, and the freedom to
transfer or assign any interest in the property by one
with the consent of the others (Padilla, Civil Code of
the Philippines Annotated, Vol. I, 1953 ed., pp. 635-
636).
It is evident that an isolated transaction whereby two
or more persons contribute funds to buy certain real
estate for profit in the absence of other
circumstances showing a contrary intention cannot
be considered a partnership.
Persons who contribute property or funds
for a common enterprise and agree to share
the gross returns of that enterprise in
proportion to their contribution, but who
severally retain the title to their respective
contribution, are not thereby rendered
partners. They have no common stock or
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
Petitioners deny having formed a partnership
with respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of
which were the bases of the appellate courts finding
of a partnership, were void.
In the same breath, however, they assert that
under those very same contracts, respondent is liable
for his failure to implement the project. Because the
agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they
pray that respondent pay them damages equivalent
to 60 percent of the value of the property.[9]
The pertinent portions of the Joint Venture
Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu
City, Philippines, this 5th day of March, 1969, by and
between MR. MANUEL R. TORRES, x x x the FIRST
PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily
offered the FIRST PARTY, this property located at
Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009
square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND
PARTY, the sum of: TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, upon the execution of this
contract for the property entrusted by the SECOND
PARTY, for sub-division projects and development
purposes;
NOW THEREFORE, for and in consideration of the
above covenants and promises herein contained the
respective parties hereto do hereby stipulate and
agree as follows:
ONE: That the SECOND PARTY signed an absolute
Deed of Sale x x x dated March 5, 1969, in the amount
of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE [PESO] &
FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
SECOND: That the SECOND PARTY, had received from
the FIRST PARTY, the necessary amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency,
for their personal obligations and this particular
amount will serve as an advance payment from the
FIRST PARTY for the property mentioned to be sub-
divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the
SECOND PARTY, the interest and the principal amount
involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the
sub-division project is terminated and ready for sale
to any interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency,
will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s]
involved in the sub-division project should be paid by
the FIRST PARTY, exclusively and all the expenses will
not be deducted from the sales after the
development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be
divided into SIXTY PERCENTUM 60% for the SECOND
PARTY and FORTY PERCENTUM 40% for the FIRST
PARTY, and additional profits or whatever income
deriving from the sales will be divided equally
according to the x x x percentage [agreed upon] by
both parties.
SIXTH: That the intended sub-division project of the
property involved will start the work and all
improvements upon the adjacent lots will be
negotiated in both parties['] favor and all sales shall
[be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given
an option to get back the property mentioned
provided the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, borrowed by
the SECOND PARTY, will be paid in full to the FIRST
PARTY, including all necessary improvements spent
by the FIRST PARTY, and the FIRST PARTY will be given
a grace period to turnover the property mentioned
above.
That this AGREEMENT shall be binding and obligatory
to the parties who executed same freely and
voluntarily for the uses and purposes therein
stated.[10]
A reading of the terms embodied in the
Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code,
which provides:
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 profits among themselves.
Under the above-quoted Agreement,
petitioners would contribute property to the
partnership in the form of land which was to be
developed into a subdivision; while respondent
would give, in addition to his industry, the amount
needed for general expenses and other
costs. Furthermore, the income from the said project
would be divided according to the stipulated
percentage. Clearly, the contract manifested the
intention of the parties to form a partnership.[11]
It should be stressed that the parties
implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in
the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged,
the proceeds of which were used for the survey and
the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct
low-cost housing units on the property.
Respondents actions clearly belie petitioners
contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property,
but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts
bind the parties not only to what has been expressly
stipulated, but also to all necessary consequences
thereof, as follows:
ART. 1315. Contracts are perfected by mere consent,
and from that moment the parties are bound not only
to the fulfillment of what has been expressly
stipulated but also to all the consequences which,
according to their nature, may be in keeping with
good faith, usage and law.
It is undisputed that petitioners are educated
and are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have
objected to it and insisted on the provisions they
wanted.
Courts are not authorized to extricate parties
from the necessary consequences of their acts, and
the fact that the contractual stipulations may turn out
to be financially disadvantageous will not relieve
parties thereto of their obligations. They cannot now
disavow the relationship formed from such
agreement due to their supposed misunderstanding
of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture
Agreement is void under Article 1773 of the Civil
Code, which provides:
ART. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not made,
signed by the parties, and attached to the public
instrument.
They contend that since the parties did not
make, sign or attach to the public instrument an
inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended
primarily to protect third persons. Thus, the eminent
Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article
1771,[12] the execution of a public instrument would
be useless if there is no inventory of the property
contributed, because without its designation and
description, they cannot be subject to inscription in
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.