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[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A.ANAY, respondents.

YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616,[1] affirmingthe Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509.[2]

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent NenitaA. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean WaterPurifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, whoconveyed her desire to enter into a joint venture with her for the importation and local distribution ofkitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job ofmarketing the product considering her experience and established relationship with West Bend Company,a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist,Tocao as president and general manager, and Anay as head of the marketing department and later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hired and firedemployees, determined commissions and/or salaries of the employees, and assigned them to different

branches. The parties agreed that Belos name should not appear in any documents relating to theirtransactions with West Bend Company. Instead, they agreed to use Anays name in securingdistributorship of cookware from that company. The parties agreed further that Anay would be entitled to:(1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent(6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) twopercent (2%) for her demonstration services. The agreement was not reduced to writing on the strength ofBelos assurances that he was sincere, dependab le and honest when it came to financial commitments.

Anay having secured the distributorship of cookware products from the West Bend Company andorganized the administrative staff and the sales force, the cookware business took off successfully. Theyoperated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaosname, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetarycommitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the

distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to thesouthwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anayaccepted the invitation with the consent of Marjorie Tocao who, as president and general manager ofGeminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13,1987. A portion of the letter reads:

Ms. Nenita D. Anay (sic), who has been patron izing and supporting West Bend Co. for twenty (20) yearsnow, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the VicePresident Sales Marketing and a business partner of our company, will attend in response to theinvitation. (Italics supplied.)[3]

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving thebusiness on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31,

1987, she received a plaque of appreciation from the administrative and sales people through MarjorieTocao[4] for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed amemo[5] entitling her to a thirty-seven percent (37%) commission for her pers onal sales "up Dec 31/87.Belo explained to her that said commission was apart from her ten percent (10%) share in the profits. OnOctober 9, 1987, Anay learned that Marjorie Tocao had signed a letter[6] addressed to the Cubao salesoffice to the effect that she was no longer the vice-president of Geminesse Enterprise. The following day,October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barredher from holding office and conducting demonstrations in both Makati and Cubao offices.[7] Anayattempted to contact Belo. She wrote him twice to demand her overriding commission for the period ofJanuary 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net


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profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter.Still, that letter was not answered.

Anay still received her five percent (5%) overriding commission up to December 1987. The following year,1988, she did not receive the same commission although the company netted a gross sales ofP13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money withdamages[8] against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch140.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following:(1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2)P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayedfor an audit of the finances of Geminesse Enterprise from the inception of its business operation until shewas illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayedthat she be paid the five percent (5%) overriding commission on the remaining 150 West Bendcookware sets before her dismissal.

In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was

neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as Belowas concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been apartnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship ofMarjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for anagreed remuneration, and her complaint referred to either her compensation or dismissal, such complaintshould have been lodged with the Department of Labor and not with the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill -will andresentment because Marjorie Tocao did not allow her to lord it over in the Geminesse Enterprise. Anayhad acted like she owned the enterprise because of her experience and expertise. Hence, petitionerswere the ones who suffered actual damages including unreturned and unaccounted stocks ofGeminesse Enterprise, and serious anxiety, besmirched reputation in the business world, and variousdamages not less than P500,000.00. They also alleged that, to vindicate their names, they had to hire

counsel for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee orpartner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages.[10]

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He,however, admitted that the two had agreed that Anay would receive a three to four percent (3-4%) sharein the gross sales of the cookware. He denied contributing capital to the business or receiving a share inits profits as he merely served as a guarantor of Marjorie Tocao, who was new in the business. Heattended and/or presided over business meetings of the venture in his capacity as a guarantor but henever participated in decision-making. He claimed that he wrote the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao,because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay.However, she admitted that Anay was an expert in the cookware business and hence, they agreed togrant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) ongross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment ofpersonnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits.Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used inher garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds withinterest. Because she treated Anay as her co-equal, Marjorie received the same amounts ofcommissions as her. However, Anay failed to account for stocks valued at P200,000.00.


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On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) shareof plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150)cookware sets available for disposition when plaintiff was wrongfully excluded from the partnership bydefendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the periodcovering January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages,and

5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.

SO ORDERED.

The trial court held that there was indeed an oral partnership agreement between the plaintiff and thedefendants, based on the following: (a) there was an intention to create a partnership; (b) a commonfund was established through contributions consisting of money and industry, and (c) there was a jointinterest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer ofGeminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc., buttressedthe fact that a partnership existed between the parties. The letter of Roger Muencheberg of West BendCompany stating that he awarded the distributorship to Anay and Marjorie Tocao because he wasconvinced that with Marjories financial contribution and Anays experience, the combination of the twowould be invaluable to the partnership, also supported that conclusion. Belos claim that he was merely aguarantor has no basis since there was no written evidence thereof as required by Article 2055 of the

Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise plushis issuance of a memo giving Anay 37% commission on personal sales belied this. On the contrary, itdemonstrated his involvement as a partner in the business.

The trial court further held that the payment of commissions did not preclude the existence of thepartnership inasmuch as such practice is often resorted to in business circles as an impetus to biggersales volume. It did not matter that the agreement was not in writing because Article 1771 of the CivilCode provides that a partnership may be constituted in any form. The fact that Geminesse Enterprisewas registered in Marjorie Tocaos name is not determinative of whether or not the business wasmanaged and operated by a sole proprietor or a partnership. What was registered with the Bureau ofDomestic Trade was merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent

partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well asdamages or share in the profits realized from the appropriation of the partnership business and goodwill.An innocent partner thus possesses pecuniary interest in every existing contract that was incomplete andin the trade name of the co-partnership and assets at the time he was wrongfully expelled.

Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of damages awarded bythe trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages.Their Motion for Reconsideration was denied by the Court of Appeals for lack of merit.[12] PetitionersBelo and Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that


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there was no business partnership between them and herein private respondent Nenita A. Anay who is,therefore, not entitled to the damages awarded to her by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existedbetween them and private respondent Anay because Geminesse Enterprise came into being exactly ayear before the alleged partnership was formed, and that it was very unlikely that petitioner Belo wouldinvest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any memorandumwhatsoever regarding the alleged partnership.[13]

The issue of whether or not a partnership exists is a factual matter which are within the exclusive domainof both the trial and appellate courts. This Court cannot set aside factual findings of such courts absentany showing that there is no evidence to support the conclusion drawn by the court a quo.[14] In thiscase, both the trial court and the Court of Appeals are one in ruling that petitioners and privaterespondent established a business partnership. This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or morepersons bind themselves to contribute money, property or industry to a common fund; and (2) intention onthe part of the partners to divide the profits among themselves.[15] It may be constituted in any form; apublic instrument is necessary only where immovable property or real rights are contributed thereto.[16]This implies that since a contract of partnership is consensual, an oral contract of partnership is as good

as a written one. Where no immovable property or real rights are involved, what matters is that the partieshave complied with the requisites of a partnership. The fact that there appears to be no record in theSecurities and Exchange Commission of a public instrument embodying the partnership agreementpursuant to Article 1772 of the Civil Code[17] did not cause the nullification of the partnership. Thepertinent provision of the Civil Code on the matter states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of thepartners, even in case of failure to comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of distributorship ofcookware. Private respondent contributed such expertise to the partnership and hence, under the law,she was the industrial or managing partner. It was through her reputation with the West Bend Companythat the partnership was able to open the business of distributorship of that companys cookware

products; it was through the same efforts that the business was propelled to financial success. PetitionerTocao herself admitted private respondents indispensable role in putting up the bu siness when, uponbeing asked if private respondent held the positions of marketing manager and vice-president for sales,she testified thus:

A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only methere then her and then two (2) people, so about four (4). Now, after that when she recruited alreadyOscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketingmanagers of which definitely Nita as superior to them would be the Vice President.[18]

By the set-up of the business, third persons were made to believe that a partnership had indeed beenforged between petitioners and private respondents. Thus, the communication dated June 4, 1986 ofMissy Jagler of West Bend Company to Roger Muencheberg of the same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge doesnot have cookware experience. Nita Anay has started to gather former managers, Lina Torda and DoryVista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. Theywill continue to gather other key people and build up the organization. All they need is the finance and theproducts to sell.[19]

On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of theestablished fact that he presided over meetings regarding matters affecting the operation of the business.Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own business firm,


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Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the proceeds of herpersonal sales, could not be interpreted otherwise than that he had a proprietary interest in the business.His claim that he was merely a guarantor is belied by that personal act of proprietorship in the business.Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the CivilCode,[20] he should have presented documentary evidence therefor. While Article 2055 of the Civil Codesimply provides that guaranty must be express, Article 1403, the Statute of Frauds, requires that aspecial promise to answer for the debt, default or miscarriage of another be in writing.[21]

Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She claimed that sheherself financed the business. Her and petitioner Belos roles as both capitalists to the partnership withprivate respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriendand that the partnership was not their only business venture together. They also established a firm thatthey called Wiji, the combination of petitioner Belos first name, William, and her nickname, Jiji.[23] Thespecial relationship between them dovetails with petitioner Belos claim that he was acting in behalf ofpetitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested WestBend Company to allow them to utilize their banking and trading facilities in Singapore in the matter ofimportation and payment of the cookware products.[24] The inevitable conclusion, therefore, was thatpetitioners merged their respective capital and infused the amount into the partnership of distributingcookware with private respondent as the managing partner.

The business venture operated under Geminesse Enterprise did not result in an employer-employeerelationship between petitioners and private respondent. While it is true that the receipt of a percentage ofnet profits constitutes only prima facie evidence that the recipient is a partner in the business,[25] theevidence in the case at bar controverts an employer-employee relationship between the parties. In thefirst place, private respondent had a voice in the management of the affairs of the cookwaredistributorship,[26] including selection of people who would constitute the administrative staff and thesales force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship.She admitted that, like her who owned Geminesse Enterprise,[27] private respondent received onlycommissions and transportation and representation allowances[28] and not a fixed salary.[29] PetitionerTocao testified:

Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Pleasego over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you

please go over this and tell the Honorable Court whether you ever came across this document and knowof your own knowledge the amount ---

A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certainpercentage for promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?

A: Oh yes, sir.

Q: I see. And, by way of amplification this is what you are saying as one representing commission,representation, advertising and promotion?

A: Yes, sir.

Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?

A: Thats her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being thesame P21,410.50 is merely by coincidence?


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A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sensebecause of her expertise in the business she is vital to my business. So, as part of the incentive I offer herthe same thing.

Q: So, in short you are saying that this you have shared together, I mean having gotten from the companyP21,140.50 is your way of indicating that you were treating her as an equal?

A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.

Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount thereyou will acknowledge you have received that?

A: Yes, sir.

Q: Again in concept of commission, representation, promotion, etc.?

A: Yes, sir.

Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that shereceived the same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?

A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

A: Yes, sir. (Italics supplied.)[30]

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shallreceive the same income in the business. In a partnership, each partner must share in the profits andlosses of the venture, except that the industrial partner shall not be liable for the losses.[31] As anindustrial partner, private respondent had the right to demand for a formal accounting of the business andto receive her share in the net profit.[32]

The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole

proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August 19,1987 was merely the name of that enterprise.[33] While it is true that in her undated application forrenewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail ofkitchenwares, cookwares, utensils, skillet,[34] she also admitted that the enterprise was only 60% to70% for the cookware business, while 20% to 30% of its business activity was devoted to the sale ofwater sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used onlyfor practical reasons - it was utilized as the common name for petitioner Tocaos various businessactivities, which included the distributorship of cookware.


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Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremittedstocks of Geminesse Enterprise amounting to P208,250.00.[36] Obviously a ploy to offset the damagesawarded to private respondent, that claim, more than anything else, proves the existence of a partnershipbetween them. In Idos v. Court of Appeals, this Court said:

The best evidence of the existence of the partnership, which was not yet terminated (though in thewinding up stage), were the unsold goods and uncollected receivables, which were presented to the trialcourt. Since the partnership has not been terminated, the petitioner and private complainant remained asco-partners. x x x.[37]

It is not surprising then that, even after private respondent had been unceremoniously booted out of thepartnership in October 1987, she still received her overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap forherself and/or for petitioner Belo financial gains resulting from private respondents efforts to make thebusiness venture a success. Thus, as petitioner Tocao became adept in the business operation, shestarted to assert herself to the extent that she would even shout at private respondent in front of otherpeople.[38] Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent tohold office in both the Makati and Cubao sales offices concretely spoke of her perception that privaterespondent was no longer necessary in the business operation,[39] and resulted in a falling out between

the two. However, a mere falling out or misunderstanding between partners does not convert thepartnership into a sham organization.[40] The partnership exists until dissolved under the law. Since thepartnership created by petitioners and private respondent has no fixed term and is therefore a partnershipat will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus:

x x x. The right to choose with whom a person wishes to associate himself is the very foundation andessence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutualresolve, along with each partners capability to give it, and the absence of cause for dissolution providedby the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of thepartnership at will. He must, however, act in good faith, not that the attendance of bad faith can preventthe dissolution of the partnership but that it can result in a liability for damages.[41]

An unjustified dissolution by a partner can subject him to action for damages because by the mutual

agency that arises in a partnership, the doctrine of delectus personae allows the partners to have thepower, although not necessarily the right to dissolve the partnership.[42]

In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown byher memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, nolonger the vice-president for sales of Geminesse Enterprise.[43] By that memo, petitioner Tocao effectedher own withdrawal from the partnership and considered herself as having ceased to be associated withthe partnership in the carrying on of the business. Nevertheless, the partnership was not terminatedthereby; it continues until the winding up of the business.[44]

The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest inpetitioners claim for stocks that had been entrusted to private respondent in the pursuit of the partnershipbusiness.

The determination of the amount of damages commensurate with the factual findings upon which it isbased is primarily the task of the trial court.[45] The Court of Appeals may modify that amount only whenits factual findings are diametrically opposed to that of the lower court,[46] or the award is palpably orscandalously and unreasonably excessive.[47] However, exemplary damages that are awarded by wayof example or correction for the public good,[48] should be reduced to P50,000.00, the amount correctlyawarded by the Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 wasexcessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be grantedon account of the award of exemplary damages and petitioners evident bad faith in refusing to satisfy


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private respondents plainly valid, just and demandable claims,[49] appear to have been excessivelygranted by the trial court and should therefore be reduced to P25,000.00.

WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitionersand private respondent is ordered dissolved, and the parties are ordered to effect the winding up andliquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is remandedto the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions ofthe Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairsfor the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine privaterespondents ten percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overridingcommission for the one hundred and fifty (150) cookware sets available for disposition since the timeprivate respondent was wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on thetotal production which, for the period covering January 8, 1988 to February 5, 1988, amounted toP32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amountof P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the amount ofP25,000.00.

SO ORDERED.

[G.R. No. L-4935. May 28, 1954.]

J.M. TUASON & CO., INC., represented by its Managing PARTNER, GREGORIO ARANETA, INC.,Plaintiff-Appellee, v. QUIRINO BOLAOS, Defendant-Appellant.

SYLLABUS

1. PARTIES; REAL PARTY IN INTEREST; ATTORNEY MAY BRING ACTION IN THE PLAINTIFFSNAME. Section 2 of the Rules of Court requires that an action be brought in the name of, but notnecessarily by, the real property interest. In fact the practice is for an attorney-at-law to bring the action,that is, to file the complaint, in the name of the plaintiff.

2. ID.; CORPORATION AS PARTY MAY BE REPRESENTED BY ANOTHER PERSON. NATURAL ORJUDICIAL. There is nothing against one corporation being represented by another person, natural orjuridical, in a suit in court, for the true rule is that "although a corporation has no power to enter into apartnership, it may nevertheless enter into a joint venture with another where the nature of that venture isin line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. v. Weston, 80 A.L.R.,

1043, citing 2 Fletcher Cyc. E. 1082.)

3. COMPLAINTS; AMENDMENTS TO CONFIRM TO EVIDENCE NOT NECESSARY TO RENDERJUDGMENT ON FACTS PROVED THOUGH NOT ALLEGED. Where the facts shown entitled plaintiffto relief other than that asked for, no amendment to the complaint is necessary, especially wheredefendant has himself raised the point on which recovery is based, and the appellate court may treat thepleading as amended to confirm to the evidence, although the pleadings were not actually amended.(Citing Maran, Rules of Court, 1952 ed., 389-390.)


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4. LAND REGISTRATION; REOPENING OF DECREE AFTER ONE YEAR, NOT ALLOWED. Adecree of registration can no longer be impugned on the ground of fraud, error or lack of notice todefendant, after one year has elapsed from the issuance and entry of the decree. Neither could thedecree be collaterally attacked by any person claiming title to, or interest in, the land prior to theregistration proceedings, nor could title to that land in derogation of that of plaintiff be acquired by adversepossession or prescription since adverse, notorious and continuous possession under claim of ownershipis ineffective against Torrens title ands the right to secure possession under a decree of registration doesnot prescribe.

5. ACTIONS; IDENTITY OF CAUSE OF ACTION. Where one action is for the recovery of ownershipand the other is for recovery of possession, there is no identity of cause of action.

6. ID.; CLASS SUIT. Where the action seeks relief for each individual plaintiff and not relief for and onbehalf of others, the action is not a class suit.

REYES, J.:

This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recoverpossession of registered land situated in barrio Tatalon, Quezon City.

Plaintiffs complaint was amended three times with respect to the extent and description of the landsought to be recovered. The original complaint described the land as a portion of a lot registered inplaintiffs name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and ascontaining an area of 13 hectares more or less. But the complaint was amended by reducing the area to 6hectares, more or less, after defendant had indicated the plaintiffs surveyors the portion of land claimedand occupied by him. The second amendment became necessary and was allowed following thetestimony of plaintiffs surveyors that a portion of the area was embraced in another certificate of title,which was plaintiffs Transfer Certificate of Title No. 37677. And still later, in the course of trial, afterdefendants surveyor and witness, Quirino Feria, had testified that the area occupied and claimed bydefendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court,amended its complaint to make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and

public and notorious possession (of the land in dispute) under claim of ownership, adverse to the entireworld by defendant and his predecessors in interest" from "time immemorial." The answer further allegesthat registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud orerror and without knowledge (of) or notice either personal or thru publication to defendant and/orpredecessors in interest." The answer therefore prays that the complaint be dismissed with costs andplaintiff required to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right tothe land in question and ordering him to restore possession thereof to plaintiff and to pay the latter amonthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant makes thefollowing assignment of errors:jgc:chanrobles.com.ph

"I. The trial court erred in not dismissing the case on the ground that the case was not brought by the realparty in interest.

"II. The trial court erred in admitting the third amended complaint.

"III. The trial court erred in denying defendants motion to strike.

"IV. The trial court erred in including in its decision land not involved in the litigation.


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"V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos.37686 and 37677.

"VI. The trial court erred in not finding that the defendant is the true and lawful owner of the land.

"VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62monthly from January, 1940, until he vacates the premises.

"VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to thedefendant."cralaw virtua1aw library

As to the first assigned error, there is nothing to the contention that the present action is not brought bythe real party in interest, that is, by J. M. Tuason & Co., Inc. What the Rules of Court require is that anaction be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) Infact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of theplaintiff. That practice appears to have been followed in this case, since the complaint is signed by thelaw firm of Araneta & Araneta, "counsel for plaintiff" and commences with the statement "Comes nowplaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is"represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there isnothing against one corporation being represented by another person, natural or juridical, in a suit in

court. The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on thetheory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule isthat "though a corporation has no power to enter into a partnership, it may nevertheless enter into a jointventure with another where the nature of that venture is in line with the business authorized by itscharter." (Wyoming-Indiana Oil Gas Co. v. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp.,1082.) There is nothing in the record to indicate that the venture in which plaintiff is represented byGregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either ofthem.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by merereference to section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads:chanrob1esvirtual 1aw library

SEC. 4. Amendment to conform to evidence. When issues not raised by the pleadings are tried byexpress or implied consent of the parties, they shall be treated in all respects, as if they had been raisedin the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform tothe evidence and to raise these issues may be made upon motion of any party at my time, even afterjudgment; but failure so to amend does not affect the result of the trial of these issues. If evidence isobjected to at the trial on the ground that it is not within the issues made by the pleadings, the court mayallow the pleadings to be amended and shall be so freely when the presentation of the merits of theaction will be subserved thereby and the objecting party fails to satisfy the court that the admission ofsuch evidence would prejudice him in maintaining his action or defense upon the merits. The court maygrant a continuance to enable the objecting party to meet such evidence."cralaw virtua1aw library

Under this provision amendment is not even necessary for the purpose of rendering judgment on issuesproved though not alleged. Thus, commenting on the provision, Chief Justice Moran says in his Rules of

Court:jgc:chanrobles.com.ph

"Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled thatwhere the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaintis necessary, especially where defendant has himself raised the point on which recovery is based, andthat the appellate court treat the pleadings as amended to conform to the evidence, although thepleadings were not actually amended." (I Moran, Rules of Court, 1952 ed., 389-390.)

Our conclusion therefore is that specification of error II, III, and IV are without merit.


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Let us now pass on the errors V and VI. Admitting, through his attorney, at the early stage of the trial, thatthe land in dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red pencilwith the name Quirino Bolaos," defendant later changed his lawyer and also his theory and tried to provethat the land in dispute was not covered by plaintiffs certificate of title. The evidence, however, is againstdefendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrioTatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfercertificate of title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated in thesame barrio, having an area of 74,789 square meters, more or less, covered by transfer certificate of titleNo. 37677 of the land records of the same province, both lots having been originally registered on July 8,1914 under original certificate of title No. 735. The identity of the lots was established by the testimony ofAntonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereofclaimed by defendant was established by the testimony of his own witness, Quirico Feria. The combinedtestimony of these three witnesses clearly shows that the portion claimed by defendant is made up of apart of lot 4 B- 3-C and major on portion of lot 4-B-4, and is well within the area covered by the twotransfer certificates of title already mentioned. This fact also appears admitted in defendants answer tothe third amended complaint.

As the land in dispute is covered by plaintiffs Torrens certificate of title and was registered in 1914, thedecree of registration can no longer be impugned on the ground of fraud, error or lack of notice todefendant, as more than one year has already elapsed from the issuance and entry of the decree. Neither

could the decree be collaterally attacked by any person claiming title to, or interest in, the land prior to theregistration proceedings. (Sorogon v. Makalintal, 1 45 Off. Gaz., 3819.) Nor could title to that land inderogation of that of plaintiff, the registered owner, be acquired by prescription or adverse possession.(Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of ownership forthe period fixed by law is ineffective against a Torrens title. (Valiente v. Judge of CFI of Tarlac, 2 etc., 45Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree ofregistration does not prescribe. (Francisco v. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision ofthis Court on this point is that rendered in the case of Jose Alcantara Et. Al., v. Marinao Et. Al., 92 Phil.,796. This disposes of the alleged errors V and VI.

As to error VII, it is claimed that there was no evidence to sustain the finding that defendant should besentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises." But itappears from the record that the reasonable compensation for the use and occupation of the premises,

as stipulated at the hearing was P10 a month for each hectare and that the area occupied by defendantwas 13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 amonth. It also appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early as1939 an action of ejectment had already been filed against defendant. And it cannot be supposed thatdefendant has been paying rents, for he has been asserting all along that the premises in question "havealways been since time immemorial in open, continuous, exclusive and public and notorious possessionand under claim of ownership adverse to the entire world by defendant and his predecessors in interest."This assignment of error is thus clearly without merit.

Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.

During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismissalleging that there is pending before the Court of First Instance of Rizal another action between the same

parties and for the same cause and seeking to sustain that allegation with a copy of the complaint filed insaid action. But an examination of that complaint reveals that appellants allegation is not correct, for thepretended identity of parties and cause of action in the two suits does not appear. That other case is onefor recovery of ownership, while the present one is for recovery of possession. And while appellant claimsthat he is also involved in that other action because it is a class suit, the complaint does not show thatsuch is really the case. On the contrary, it appears that the action seeks relief for each individual plaintiffand not relief for and on behalf of others. The motion for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the Appellant.


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Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador and Concepcion, JJ., concur.

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.

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income taxpurposes is the issue in this petition.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of landwere sold by petitioners in 1968 toMarenir Development Corporation, while the three parcels of land weresold 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 inthe sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974by 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, petitionerswere assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporateincome taxes for the years 1968 and 1970.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed oftax amnesties way back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint

venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribedunder Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership wassubject to corporate income tax as distinguished from profits derived from the partnership by them whichis 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 thetax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiencyincome tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA CaseNo. 3045. In due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed thedecision 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 thatimposed on the partners.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering thecircumstances of this case, although there might in fact be a co-ownership between the petitioners, therewas no adequate basis for the conclusion that they thereby formed an unregistered partnership whichmade "hem liable for corporate income tax under the Tax Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of therespondent court:


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A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THERESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED ANUNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THEBURDEN 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 LAIDDOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT APARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE ANDTHEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROMPAYMENT 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 ownpersonal funds they used in buying several real properties. They appointed their brother to manage theirproperties with full power to lease, collect, rent, issue receipts, etc. They had the real properties rented orleased to various tenants for several years and they gained net profits from the rental income. Thus, theCollector of Internal Revenue demanded the payment of income tax on a corporation, among others, fromthem.

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 section24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as tothe 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 insections 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 annuallyupon the total net income received in the preceding taxable year from all sources by every corporationorganized in, or existing under the laws of the Philippines, no matter how created or organized but notincluding duly registered general co-partnerships (companies collectives), a tax upon such income equalto the sum of the following: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stockcompanies, joint accounts (cuentas en participation), associations or insurance companies, but does notinclude 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, orindustry 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 tocontribute money, property or industry to a common fund; and (b) intent to divide the profits among thecontracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitionershave agreed to, and did, contribute money and property to a common fund. Hence, the issue narrowsdown to their intent in acting as they did. Upon consideration of all the facts and circumstances


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surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactionsfor 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 propertyinherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantialportion thereof in order to establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. OnFebruary 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots forP18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another real estate forP108,825.00. 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, particularlythe last three purchases, is strongly indicative of a pattern or common design that was not limited to theconservation and preservation of the aforementioned common fund or even of the property acquired bypetitioners in February, 1943. In other words, one cannot but perceive a character of habituality peculiarto business transactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, ofpetitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948inclusive, 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 signletters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to saidproperties have been handled as if the same belonged to a corporation or business enterprise operatedfor 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 Evangelistsbecame 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 anexplanation 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 saidintent in petitioners herein. Only one or two of the aforementioned circumstances were present in thecases 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 thebasis 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) lotsshowing that the purpose was not limited to the conservation or preservation of the common fund or eventhe properties acquired by them. The character of habituality peculiar to business transactions engaged infor 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 normake any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. Itwas only 1968 when they sold the two (2) parcels of land after which they did not make any additional ornew purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were


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isolated. The character of habituality peculiar to business transactions for the purpose of gain was notpresent.

In Evangelista, the properties were leased out to tenants for several years. The business was under themanagement of one of the partners. Such condition existed for over fifteen (15) years. None of thecircumstances 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 rulefor determining when a transaction should be deemed a partnership or a co-ownership. Said articleparagraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-ownersor 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 personssharing 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 apartnership. Or the sharing of the gross returns does not of itself establish a partnership whether or notthe 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 isnecessary, such as the clear intent to form a partnership, the existence of a juridical personality differentfrom that of the individual partners, and the freedom to transfer or assign any interest in the property byone 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 realestate for profit in the absence of other circumstances showing a contrary intention cannot be considereda partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returnsof that enterprise in proportion to their contribution, but who severally retain the title to their respectivecontribution, are not thereby rendered partners. They have no common stock or capital, and nocommunity of interest as principal proprietors in the business itself which the proceeds derived. (Elementsof 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 anagreement to share the profits and losses on the sale of land create a partnership; the parties are onlytenants 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 astenants in common, and to divide the profits of disposing of it, the brother and the other not being entitledto 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) generallyparticipating in both profits and losses; (c) and such a community of interest, as far as third persons areconcerned as enables each party to make contract, manage the business, and dispose of the wholeproperty.-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 theymay use it for the purpose of making gains; and they may, without becoming partners, agree among


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themselves as to the management, and use of such property and the application of the proceedstherefrom. (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 thereinhave a joint or common right or interest in the property. There must be a clear intent to form apartnership, the existence of a juridical personality different from the individual partners, and the freedomof 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 noadequate basis to support the proposition that they thereby formed an unregistered partnership. The twoisolated transactions whereby they purchased properties and sold the same a few years thereafter did notthereby make them partners. They shared in the gross profits as co- owners and paid their capital gainstaxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannotbe considered to have formed an unregistered partnership which is thereby liable for corporate incometax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have beenformed, since there is no such existing unregistered partnership with a distinct personality nor with assetsthat can be held liable for said deficiency corporate income tax, then petitioners can be held individuallyliable 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 anyfurther tax liability arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of TaxAppeals of March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is herebyrendered relieving petitioners of the corporate income tax liability in this case, without pronouncement asto costs.

SO ORDERED.

G.R. No. L-19342 May 25, 1972

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA,LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR., petitioners,vs.THE COMMISSIONER OF INTERNAL REVENUE, respondent.

BARREDO, J.:p

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled asabove, holding that petitioners have constituted an unregistered partnership and are, therefore, subject tothe payment of the deficiency corporate income taxes assessed against them by respondentCommissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5%surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e)

(2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of thesuit, 1 as well as the resolution of said court denying petitioners' motion for reconsideration of saiddecision.

The facts are stated in the decision of the Tax Court as follows:

Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her fivechildren. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for thesettlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed administrator of theestate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted


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the project of partition, which was approved by the Court on May 16, 1949 (See Exhibit K). Because threeof the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the projectof partition was approved, Lorenzo T. Oa, their father and administrator of the estate, filed a petition inCivil Case No. 9637 of the Court of First Instance of Manila for appointment as guardian of said minors.On November 14, 1949, the Court appointed him guardian of the persons and property of the aforenamedminors (See p. 3, BIR rec.).

The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a totalassessed value of P17,590.00 and an undetermined amount to be collected from the War DamageCommission. Later, they received from said Commission the amount of P50,000.00, more or less. Thisamount was not divided among them but was used in the rehabilitation of properties owned by them incommon (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death ofthe decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00(t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administratorthereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval ofthe Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no attempt was made todivide the properties therein listed. Instead, the properties remained under the management of Lorenzo T.Oa who used said properties in business by leasing or selling them and investing the income derivedtherefrom and the proceeds from the sales thereof in real properties and securities. As a result,petitioners' properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in1956 as can be gleaned from the following year-end balances:

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)

From said investments and properties petitioners derived such incomes as profits from installment salesof subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p.32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account kept by Lorenzo T.Oa where the corresponding shares of the petitioners in the net income for the year are also known.

Every year, petitioners returned for income tax purposes their shares in the net income derived from saidproperties and securities and/or from transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26).However, petitioners did not actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,100). The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out,invested them in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided thatpetitioners formed an unregistered partnership and therefore, subject to the corporate income tax,pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed againstthe petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956,respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protestedagainst the assessment and asked for reconsideration of the ruling of respondent that they have formedan unregistered partnership. Finding no merit in petitioners' request, respondent denied it (See Exhibit 17,

p. 86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961).

The original assessment was as follows:

1955

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.0025% surcharge .............................................. 2,010.50


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Compromise for non-filing .......................... 50.00Total ............................................................... P10,102.50

1956

Net income as per investigation ................ P69,245.23

Income tax due thereon ............................... 13,849.0025% surcharge .............................................. 3,462.25Compromise for non-filing .......................... 50.00Total ............................................................... P17,361.25

(See Exhibit 13, page 50, BIR records)

Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of theSupreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that thequestioned assessment refers solely to the income tax proper for the years 1955 and 1956 and the"Compromise for non-filing," the latter item obviously referring to the compromise in lieu of the criminalliability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17, page86, BIR records). (Pp. 1-3, Annex C to Petition)

Petitioners have assigned the following as alleged errors of the Tax Court:

I.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED ANUNREGISTERED PARTNERSHIP;

II.

THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROMTRANSACTIONS THEREFROM (sic);

III.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FORCORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

IV.

ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTEREDPARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERSWERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THEPROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS RECEIVED USING THEINHERITED PROPERTIES AS COLLATERALS;

V .

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OFTAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERSAS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUINGFROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THEUNREGISTERED PARTNERSHIP.


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In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by theCourt of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by themfrom the deceased Julia Buales and the profits derived from transactions involving the same, or, mustthey be deemed to have formed an unregistered partnership subject to tax under Sections 24 and 84(b)of the National Internal Revenue Code? (2) Assuming they have formed an unregistered partnership,should this not be only in the sense that they invested as a common fund the profits earned by theproperties owned by them in common and the loans granted to them upon the security of the saidproperties, with the result that as far as their respective shares in the inheritance are concerned, the totalincome thereof should be considered as that of co-owners and not of the unregistered partnership? And(3) assuming again that they are taxable as an unregistered partnership, should not the various amountsalready paid by them for the same years 1955 and 1956 as individual income taxes on their respectiveshares of the profits accruing from the properties they owned in common be deducted from the deficiencycorporate taxes, herein involved, assessed against such unregistered partnership by the respondentCommissioner?

Pondering on these questions, the first thing that has struck the Court is that whereas petitioners'predecessor in interest died way back on March 23, 1944 and the project of partition of her estate wasjudicially approved as early as May 16, 1949, and presumably petitioners have been holding theirrespective shares in their inheritance since those dates admittedly under the administration ormanagement of the head of the family, the widower and father Lorenzo T. Oa, the assessment in

question refers to the later years 1955 and 1956. We believe this point to be important because,apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenuedid treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that heconsidered them as having formed an unregistered partnership. At least, there is nothing in the recordindicating that an earlier assessment had already been made. Such being the case, and We see noreason how it could be otherwise, it is easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the purposes of the impugned assessment, cannot beupheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly assessed earlierby the Bureau of Internal Revenue.

The Tax Court found that instead of actually distributing the estate of the deceased among themselvespursuant to the project of partition approved in 1949, "the properties remained under the management ofLorenzo T. Oa who used said properties in business by leasing or selling them and investing the income

derived therefrom and the proceed from the sales thereof in real properties and securities," as a result ofwhich said properties and investments steadily increased yearly from P87,860.00 in "land account" andP17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "landaccount" and P169,262.52 in "building account" in 1956. And all these became possible because,admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oaand instead, they allowed him to continue using said shares as part of the common fund for theirventures, even as they paid the corresponding income taxes on the basis of their respective shares of theprofits of their common business as reported by the said Lorenzo T. Oa.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves toholding the properties inherited by them. Indeed, it is admitted that during the material years hereininvolved, some of the said properties were sold at considerable profit, and that with said profit, petitionersengaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted

that all the profits from these ventures were divided among petitioners proportionately in accordance withtheir respective shares in the inheritance. In these circumstances, it is Our considered view that from themoment petitioners allowed not only the incomes from their respective shares of the inheritance but eventhe inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertakingseveral transactions or in business, with the intention of deriving profit to be shared by themproportionally, such act was tantamonut to actually contributing such incomes to a common fund and, ineffect, they thereby formed an unregistered partnership within the purview of the above-mentionedprovisions of the Tax Code.


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It is but logical that in cases of inheritance, there should be a period when the heirs can be considered asco-owners rather than unregistered co-partners within the contemplation of our corporate tax lawsaforementioned. Before the partition and distribution of the estate of the deceased, all the income thereofdoes belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as co-owners continues until the inheritance isactually and physically distributed among the heirs, for it is easily conceivable that after knowing theirrespective shares in the partition, they might decide to continue holding said shares under the commonmanagement of the administrator or executor or of anyone chosen by them and engage in business onthat basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance tocircumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding theappellants therein to be unregistered co-partners for tax purposes, that their common fund "was notsomething they found already in existence" and that "it was not a property inherited by them pro indiviso,"but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all instanceswhere an inheritance is not actually divided, there can be no unregistered co-partnership. As alreadyindicated, for tax purposes, the co-ownership of inherited properties is automatically converted into anunregistered partnership the moment the said common properties and/or the incomes derived therefromare used as a common fund with intent to produce profits for the heirs in proportion to their respectiveshares in the inheritance as determined in a project partition either duly executed in an extrajudicial

settlement or approved by the court in the corresponding testate or intestate proceeding. The reason forthis is simple. From the moment of such partition, the heirs are entitled already to their respective definiteshares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusivelyhis own without the intervention of the other heirs, and, accordingly he becomes liable individually for alltaxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to hisshare, there can be no doubt that, even if no document or instrument were executed for the purpose, fortax purposes, at least, an unregistered partnership is formed. This is exactly what happened to petitionersin this case.

In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that:"The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharingthem have a joint or common right or interest in any property from which the returns are derived," and, for

that matter, on any other provision of said code on partnerships is unavailing. In Evangelista, supra, thisCourt clearly differentiated the concept of partnerships under the Civil Code from that of unregisteredpartnerships which are considered as "corporations" under Sections 24 and 84(b) of the National InternalRevenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinctand different from "partnerships". When our Internal Revenue Code includes "partnerships" among theentities subject to the tax on "corporations", said Code must allude, therefore, to organizations which arenot necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of saidCode exempts from the aforementioned tax "duly registered general partnerships," which constituteprecisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section84(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 confirmity with the usual requirements of the law on partnerships, in order that onecould be deemed constituted for purposes of the tax on corporation. Again, pursuant to said section84(b),the term "corporation" includes, among others, "joint accounts,(cuentas en participacion)" 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 theexistence of the partnerships therein referred to. In fact, as above stated, "duly registered general co-partnerships" which are possessed of the aforementioned personality have been expresslyexcluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." ....

xxx xxx xxx


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Similarly, the American Law

... provides its own concept of a partnership. Under the term "partnership" it includes not only apartnership as known in common law but, as well, a syndicate, group, pool, joint venture, or otherunincorporated organization which carries on any business, financial operation, or venture, and which isnot, within the meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of FederalIncome Taxation, p. 789; emphasis ours.)

The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporatedorganization, through or by means of which any business, financial operation, or venture is carried on. ... .(8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)

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 assaid Code is concerned, and are subject to the income tax for corporations.

We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R.Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership

pursued by appellants therein.

As regards the second question raised by petitioners about the segregation, for the purposes of thecorporate taxes in question, of their inherited properties from those acquired by them subsequently, Weconsider as justified the following ratiocination of the Tax Court in denying their motion forreconsideration:

In connection with the second ground, it is alleged that, if there was an unregistered partnership, theholding should be limited to the business engaged in apart from the properties inherited by petitioners. Inother words, the taxable income of the partnership should be limited to the income derived from theacquisition and sale of real properties and corporate securities and should not include the income derivedfrom the inherited properties. It is admitted that the inherited properties and the income derived therefromwere used in the business of buying and selling other real properties and corporate securities.

Accordingly, the partnership income must include not only the income derived from the purchase and saleof other properties but also the income of the inherited properties.

Besides, as already observed earlier, the income derived from inherited properties may be considered asindividual income of the respective heirs only so long as the inheritance or estate is not distributed or, atleast, partitioned, but the moment their respective known shares are used as part of the common assetsof the heirs to be used in making profits, it is but proper that the income of such shares should beconsidered as the part of the taxable income of an unregistered partnership. This, We hold, is the clearintent of the law.

Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court inthe aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court.Pertinently, the court ruled this wise:

In support of the third ground, counsel for petitioners alleges:

Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed anunregistered partnership and, therefore, have to be taxed as such, it might be recalled that the petitionersin their individual income tax returns reported their shares of the profits of the unregistered partnership.We think it only fair and equitable that the various amounts paid by the individual petitioners as incometax on their respective shares of the unregistered partnership should be deducted from the deficiencyincome tax found by this Honorable Court against the unregistered partnership. (page 7, Memorandumfor the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)


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In other words, it is the position of petitioners that the taxable income of the partnership must be reducedby the amounts of income tax paid by each petitioner on his share of partnership profits. This is notcorrect; rather, it should be the other way around. The partnership profits distributable to the partners(petitioners herein) should be reduced by the amounts of income tax assessed against the partnership.Consequently, each of the petitioners in his individual capacity overpaid his income tax for the years inquestion, but the income tax due from the partnership has been correctly assessed. Since the individualincome tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to passupon the same.

Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paidas individual income tax cannot be credited as part payment of the taxes herein in question. It is arguedthat to sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the sameincome, and, worse, considering the time that has lapsed since they paid their individual income taxes,they may already be barred by prescription from recovering their overpayments in a separate action. Wedo not agree. As We see it, the case of petitioners as regards the point under discussion is simply that ofa taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in questionwas not deliberate. Of course, such taxpayer has the right to be reimbursed what he has erroneouslypaid, but the law is very clear that the claim and action for such reimbursement are subject to the bar ofprescription. And since the period for the recovery of the excess income taxes in the case of herein

petitioners has already lapsed, it would not seem right to virtually disregard prescription merely upon theground that the reason for the delay is precisely because the taxpayers failed to make the proper returnand payment of the corporate taxes legally due from them. In principle, it is but proper not to allow anyrelaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax obligation to the State.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirmwith costs against petitioners.

[G.R. No. 127347. November 25, 1999]

ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS and FELICIDAD S.VDA. DE ABROGAR, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision[1] of the Court of Appeals, dated November 29,1990, which reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila, datedApril 11, 1995. The trial court dismissed the petition for declaration of nullity of a deed of sale filed byprivate respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.

The facts are as follows:

Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private

respondent and her late husband, Ruben M. Abrogar, were the registered owners of a house

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